Prof G Markets: Google’s Antitrust Trial, Birkenstock’s IPO, and Surge Pricing at the Pub

This week on Prof G Markets, Scott makes a case for breaking up Google. He then shares his excitement around Birkenstock going public, and discusses the merits of surge pricing across industries — even at the pub. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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

• 0:01Scott Galloway?

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• 0:49Speaker 01

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• 1:32Scott Galloway?

  This week's number 70. A Florida man crossing the Atlantic Ocean in a buoyant hamster wheel made it 70 miles off the coast of Georgia before the U.S. Coast Guard intercepted him. True story, hamsters were my favorite first pets. They live five days and don't require any food or water.

• 2:01Scott Galloway?

  Welcome to Prop G Markets. Today, we're discussing Google's antitrust case, Birkenstock's IPO, and surge pricing at the pub. Hmm, have not felt that. Here with the news is Prop G Media Analyst, Ed Elson. Ed, what is going on? I'm well. Are you back in London? I'm back in the UK. When did you get back? I got back from Atlanta, where I was with Chick-fil-A, super nice people. And I came back for the IMG offsite at Soho Farmhouse, where a bunch of people in linear TV were still in consensual hallucination that they can grow those assets. God, Jesus Christ. Did you tell them that? Yeah, I said, here's the thing, they can still be great assets, you can still

• 2:44Scott Galloway?

  make a lot of money, but stop treating it like a teenager and pumping it full of botox and lying to your employees and investors that you're going to somehow stop the bleeding. These are, if it's linear, it's in decline. The bright spot, though, and that was one of the things that was so interesting about this gathering, is sports. Linear for sports is a feature, not a bug. For everything else, it's a bug, right? I don't want to have to watch the Brady Bunch at 8:00 PM on a Friday night, and I get distracted, listening to Up, Up and Away in My Beautiful Balloon by the Fifth Dimension with my father, and it's 8:35, and I freak out and start crying for hours because I realize I've missed the Brady Bunch. Anyways, childhood trauma, Ed. But you have, for sports, linear is a feature. My kids don't watch, they'll watch highlights, but they're not going to DVR the Arsenal game and then, you know, watch it later. It's either live or it's memorex, so to speak.

• 3:29Scott Galloway?

  They don't, and they'll endure the ads. But distinct to that, there was guys from Comcast and Disney, and they're all talking about, we still expect growth, and they talked about all their small victories. And it's like, Jesus, are you guys just lying to everybody? Or do you actually believe this shit? What do they say when you tell them that? They all took off in their helicopter, went back to their jets. You know, my guess is, enjoy the helicopter, because pretty soon, someone from TikTok's going to be in a helicopter. But anyways, I don't know how I got here. Take us to the headlines, Ed. Let's start with our weekly review of market vitals.

• 4:07Ed Elson?

  The S and P 500 rose, the dollar was stable and Bitcoin gained slightly. Shifting to the headlines, the Consumer Price Index showed inflation rose 3.7% in August. That's higher than July's reading of 3.2% and that data will inform the Federal Reserve's next interest rate decision this week. ARM went public at $51 per share as we previewed last week, valuing the company at $54.5 billion. Within the first 30 minutes of trading, though, shares popped more than 20% to above $61 per share. Tesla stock rose 10% in its largest single day increase since January. The rally came after a Morgan Stanley analyst wrote that revenue from the company's Dojo

• 4:50Ed Elson?

  supercomputer could add $500 billion in value. That revenue would take Tesla above a $1 trillion valuation. Apple unveiled four new iPhone models and two new watches. The new phones are now compatible with a USB-C charging port instead of the old Lightning port. That's to comply with new EU regulation that requires all smartphones to have USB-C ports by the end of 2024. The market's reaction was lackluster with shares falling 2%. And finally, the United Auto Workers launched a limited strike against Ford, GM and Stellantis. The union is strategically targeting individual factories on a case by case basis rather than

• 5:30Ed Elson?

  staging a full blown walkout, but it plans to expand the strike if negotiations continue to stall. Scott, any thoughts on those headlines?

• 5:39Scott Galloway?

  First off, can you give us just the headline news on what the Dojo supercomputer is?

• 5:44Ed Elson?

  It's a supercomputer that they're using.

• 5:46Scott Galloway?

  Well, thanks for that. We're off to a good start. Go ahead.

• 5:49Ed Elson?

  Shut me down.

• 5:51Scott Galloway?

  Can we get some more blinding insight from you? Go ahead. Sorry, go ahead.

• 5:54Ed Elson?

  Okay, it's a very good, very powerful computer and the point is that it has more processing power, supposedly enough to train all of the AI models that you need for full self-driving. And I think the reason people are excited about it, the potential is that they could leverage that, leverage all of that processing power and service other AI companies and essentially Tesla would become the pick and shovel for anyone who's working on full self-driving.

• 6:20Scott Galloway?

  I just think it's amazing. I guess it's, it will help any computer that, help a computer process anything with a visual field. So you can imagine. All sorts of new AI for, you know, the Ring camera, right? That it could immediately recognize friend or foe, or it could know what level of security to, you know, it sounds like it'd just be amazing for TSA or anything that has a visual field. I guess it offers new levels of decision making, right? But the market's reaction here is just staggering. I mean, added the value of BMW in one day? It's just, it's just crazy. The people have described Tesla as a mediocre car with great software, and they described the rest of the auto industry as great cars with mediocre software.

• 7:04Scott Galloway?

  And it just strikes me that you'd much rather be better at software than being a car maker. It's just, it's just, that absolutely blows my mind. Inflation, my understanding is that most of that bump in inflation was because gas prices increased about 11%. Motor vehicle insurance, car repairs all remain pretty inflated. On a brighter note, rents increased 7.8% in August, a year earlier, but down from a peak of 8.8% earlier this year. And the slowest rate of increase since last fall. Going on TikTok, I don't know if you've had this experience, but whenever I go on TikTok, it's basically a lesson in, according to all of TikTok, housing prices are gonna just, and rents are just gonna keep going up no matter what.

• 7:42Ed Elson?

  Those are the only texts I get from you these days.

• 7:44Scott Galloway?

  Is that about housing prices?

• 7:46Ed Elson?

  Like 10 like links to TikToks talking about housing prices.

• 7:50Scott Galloway?

  I'm just freaked out about your generation that if you look at the price of houses relative to incomes, basically homeownership has become a pipe dream for young people. I saw one stat that just absolutely blew my mind. In 1980, the average age of a home buyer was 29, and now it's 47. And it used to be nobody paid cash, and now like one in three buyers are paying all cash. Basically, homeownership has become the playground of my generation, and Gen Z and millennials have been pretty much sequestered from any hope. Of owning a home, it just absolutely, anyways, freaks me out. But ARMs IPO, I was shocked here. I thought, I didn't think it was going to get the kind of valuation it got. I thought that

• 8:33Scott Galloway?

  that they would try and price it aggressively to try and to talk themselves into believing it was worth what it was in the private markets. But a great pop. We did predict earlier in the year that the IPO market was going to have fresh life. And this is clearly, if they can raise this kind of capital and still have, I guess it was 12 times oversubscribed, that's a very positive forward-looking indicator. UAW auto strike, I think this, I think it will get settled. And there's a difference, if you look at sort of the three big strikes, the Teamsters and UPS got settled because the Teamsters had leverage, UPS is doing well, and there is no UPS if the drivers go on strike. Also, I think this strike gets

• 9:15Scott Galloway?

  settled. Their requests are fairly straightforward. We want more money. The auto industry, including even the domestic automakers, are making money. And they're asking for 46% pay raises over four years. Ford offered 20%. So, you know, let's call it, they end up with probably high 20s, low 30s. This still works. These companies will still be profitable. Ford, GM, they all have decent EV offerings, and they continue to make the most profitable automobiles in the world, other than luxury automobiles, and that is trucks. And also, it's difficult for the CEOs to kind of say no here, because someone pointed out that at these three companies, compensation has gone up on average 40%. So, it's going to be difficult for them to push back and say, no, we're not going to give you more than,

• 9:59Scott Galloway?

  you know, 20, and they've already offered them 20, and that's a decent, that's a decent pay bump. So I think this thing gets solved. Where, in contrast, and this is a lesson in negotiation, you have the riders' strike. One, they had no leverage. If the Teamsters at UPS and if the UAW, at the automobile manufacturers go on strike, consumers feel it immediately at the new car lot, or their packages don't show up. Would you know, would you, Ed Elson, who's a, you know, a consumer of media and who every advertiser in every cable company and every streamer wants, you're a key consumer because you're going into your mating years, which means you'll spend money on stupid, high-margin things. So advertisers love you.

• 10:40Ed Elson?

  Going into my mating years.

• 10:41Scott Galloway?

  Just slowly but surely, in a very awkward way, melting in, easing into the mating years. But would you know, would you know, if you didn't know, that there was a writer's strike? Has that had any impact on your quality or volume of your content consumption?

• 10:55Ed Elson?

  No, absolutely none. My media time is spent on, you know, Instagram or TikTok. And then when I'm watching Netflix, I'm watching, you know, old movies. I'm watching like Glenn, Gary Glenn Ross right now. Like, yeah, I'm not like, I'm not consuming new, new content.

• 11:11Scott Galloway?

  I just feel as if our content queues are the depth of the Mariana Trench. So, and I don't think that many people miss Jimmy Kimmel or Colbert. I don't think they care. And what's interesting about the writer's strike is it's beginning to crack. I don't know if you saw this, but both Drew Barrymore and Bill Maher have said they're returning and they're going to return with, they're basically, you know, busting or crossing the picket line. And I think it's, I think it's the first of many. I think it's the beginning of the end of the strike. And I think the writers' union is just going to come out of this deeply scarred as people realize that they're, the people running media and have their heads up their ass and decided to strike when they had no leverage and make demands that the studios were never going to meet and they just totally underestimated. They just, they just read the chessboard terribly here. Apple.

• 11:55Scott Galloway?

  All I heard was it's, they've got a different charging port and I'll get one because, you know, that's how I roll, Ed. That's how I roll. But I'm least excited about this upgrade as I have been about any iPhone upgrade. It strikes me as really uninspiring here. And it's interesting, Apple's sales of iPhones have either been flat or declined for a while, but they've done an amazing job moving to services. And everyone's saying, oh no, the end of big tech has went down 7%. You know, Jesus Christ, the stock has tripled in the last five years. What'll be more interesting is kind of, I read an interesting stat, 20% or about one-fifth of their revenue comes from China, but four-fifths of their products come from China or manufactured in China. So the sort of non-hot war or the non-shooting

• 12:39Scott Galloway?

  war that is the trade war that's emerging, Apple is right in the center of that. And What would really hurt both Apple and China is if they decided to, you know, put additional restrictions on them manufacturing their, their supply chain there. So that's going to be interesting.

• 12:57Ed Elson?

  We'll be right back after the break with a look at Google's antitrust case.

• 13:09Scott Galloway?

  Support for the show comes from Bilt. Most of us work hard to earn our keep, but usually there's no one around to hand you a cookie when you successfully pay your monthly housing bill. No one except Bilt, that is. Bilt has expanded from their original renter rewards program and they have a lot more going on for members now. For example, members can earn points on mortgage payments, too. Every housing payment gets you points that get you a lot more than baked goods, such as flights with top travel partners, including United and Hyatt, Lyft rides, Amazon.com purchases and much, much more. Here's another benefit of Bilt membership. You also get access to what they call a neighborhood concierge. It can make restaurant reservations, book fitness classes and find new local spots, all while rewarding you at more than 45,000 merchant partners. It's simple.

• 13:51Scott Galloway?

  Being a renter and now owning a home feels a lot better with Bilt. You can download the Bilt app and join the membership for where you live at joinbilt.com/profg. That's J O I N B I L T dot com slash prop G. Use our link so they know we sent you.

• 14:09Scott Galloway?

  Support for the show comes from Upwork. Trying to scale your business? At some point, you're probably going to hit a point where you need some help. Sometimes the best way to break through that is bringing in the right talent at the right time. Upwork can help. Upwork is a one-stop platform where you can find, hire and pay expert freelancers across more than 125 categories. Whether you need specialized skills for a single project or extra support to keep up with demand, it's easy to connect with experienced professionals, review their work and find the right fit. You can move faster without taking on the commitment of full-time hires. And for businesses that need the very best talent, Upwork Business Plus provides access to the top 1% of freelancers on the platform. AI-powered matching connects you with qualified candidates in under six hours, cutting down the time spent searching.

• 14:52Scott Galloway?

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• 15:24Ed Elson?

  We're back with Prof G Markets. Last week marked the beginning of the most significant antitrust trial in 25 years. The monopolist in question is Google. The US et al. the Google case alleges that Google has been engaging in anti-competitive behavior for years. The lawsuit hinges on one practice in particular. Since 2010, Google has paid companies such as Apple to make their search engine the default option on mobile phones and computers. Per the prosecutors, these deals cost Google more than $10 billion every year, and they argue that without these agreements, Google would not have been able to maintain its 90% share of the internet search market. Mia spoke with Josef Weitzman, who is in Washington covering this case for the Substack Big Tech on trial.

• 16:08Ed Elson?

  He says Google's main defense so far is simply that no company has made a competitive enough product.

• 16:14Speaker 03

  That's the core of Google's defense. People use us because we're the best. If we weren't the best, they could easily switch. And I think that they've said, if you want to switch your default search engine, I'll update it a few clicks. The government's response to that is if people really use Google just because it's the best, why are you paying billions of dollars to Apple to be the default search engine?

• 16:40Ed Elson?

  For that full interview, check out our YouTube channel, The Prof G Show. So Scott, you've been calling for stronger antitrust enforcement for years. It was the main message of your book, The Four. Is this the kind of enforcement you had in mind?

• 16:54Scott Galloway?

  America has a proud legacy of antitrust, and let's go through each of the, or all of the stakeholders, kind of one by one. First, there's shareholders. And if you look at the majority of breakups, whether it's self-imposed eBay spinning PayPal, or AT&T being broken up until I think it was either seven or nine Baby Bells, shareholders almost always win in a breakup. Because why? Because the markets and investors love pure plays. And that is, should Google be in the business of autonomous? Should eBay be in the business of payments? Should Amazon be in the business of advertising or cloud? And when you have these conglomerates, what happens is investors are confused by them, have a difficult time sussing out the growth of YouTube versus Google Cloud.

• 17:39Scott Galloway?

  And they find the shittiest business, or the least amazing business, and they assign that multiple to everything. So typically, breakups are accretive for shareholders. Shareholders win to employees of the company. They win because you have more companies vying or competing to rent their labor, more employers. Let's talk about the VC community. It wins because it's got more companies to fund. The corporations outside of those conglomerates or those monopolies win. Why? Because if there were two search engines, which there would be if you broke up, say you split, if you forced, one of the remedies was to force Alphabet to spin YouTube. Within six months, the good folks at YouTube and independent YouTube decide to start text-based search. Within six months of the spin of YouTube, an independent Google says, "We should start our own video-based search."

• 18:24Scott Galloway?

  And overnight, you have two competitors in each category. And what does that mean? It means in order to grab back market share, they each start lowering the prices and the tax that is search and video search on corporate America goes down. In addition, more companies fill in different niches, and the VC community thrives. There's more tax revenue because there's more companies and typically more renovation and more profits. What did we find in Bell Labs? AT&T said, "If you break us up, we're not going to have Bell Labs." They're right. They closed down Bell Labs. And what do you know, within Bell Labs, were these technologies that never saw the light of day because AT&T didn't want to cannibalize their long-distance business, which they had 80 or 90% share. And we got fiber optics, and we got analytics, and we got cellphone technology. So it unlocks innovation, and the ecosystem wins.

• 19:09Scott Galloway?

  Let's talk about the Commonwealth. The Commonwealth wins because, because PNG doesn't have to advertise with them because they're not a monopoly and decides to advertise with the video search platform that's figured out a way not to radicalize young men. So what do we have? Society wins, the Commonwealth wins, the tax base wins, employees win, shareholders win, the venture capital community wins. The only loser in these breakups are unfortunately the people in charge, and that is the founders who have dual-class shareholder structures who want to sit on the iron throne of all seven realms, not just Westeros. And Sergey and Larry, who control Alphabet, would rather control a bigger kingdom, even if it means they're only going to be worth 80 billion each, not 100 or 120. And it's the same with Zuckerberg, but effectively what you have

• 19:54Scott Galloway?

  is the only stakeholder that loses is unfortunately the one in charge. So they massively spend on lobbyists. They, you literally can weaponize them with not that much money. And Google has learned from the sins of the father, Microsoft, they have spread money all over DC, and they also have become much more likeable. The biggest mistake at Microsoft was that Bill Gates is not likeable, or at least it wasn't in 1999. And I think that Susan Wojcicki, Sheryl Sandberg, and Sundar Pichai make tens of millions of dollars because they're outstanding managers, but they've made billions because they're very likeable and are great heat shields for the mendacious fuckery that is their corporate parent. So I think that a breakup here would oxygenate the economy. I think it would be the equivalent of an enormous corporate tax cut. And I think we need to stop looking at it through the

• 20:38Scott Galloway?

  lens of it's some sort of punishment. No, it's not. It's recognition that these companies have done an amazing job. And what happens when a company does an amazing job, it can raise so much cheap capital and gather so much data in this instance that it can pull away and other small companies can't get out of the crib. And also, we don't know what we're missing, Ed. We don't know. We weren't waiting for cell phones with AT&T. We don't know what would have been innovated. We don't know what products would have popped up if they had a chance of getting out of the cradle, which they don't with a dominant Google. In sum, the judge either decides, in my view, to break these guys up, or some sort of consent decree, or we have the wrong laws. But it's gone way too far. These companies have blown by all traditional metrics of power, of monopoly-like margins, relative

• 21:21Scott Galloway?

  to past industries that we've decided to go in and break up. So I'm excited again. I'm back on the antitrust meth. I think there's actually, I've had my heart broken here, Ed. I've had my heart broken. But I think that I'm hoping, I'm really hoping that Lina Khan and Judge Amit Meta finds...

• 21:39Scott Galloway?

  Fines for the DOJ and decides to break up Google. I think this is really important.

• 21:45Ed Elson?

  But so, okay, so let's, let's talk about this breakup concept because, you know, you look at YouTube, it's generating $29 billion in revenue every year. That's compared that to existing media groups like New York Times. It's, it makes $2 billion. Fox makes $14 billion. It actually makes more than PayPal every year, which brings in $27 billion in revenue. So agreed on all those points. The thing is, you look at this case and it's not about breaking up Google. It's about the fact that Google pays Apple $10 billion a year. So, I mean, do you really think that? I mean, the solution to this problem, I, it seems like isn't going to be, okay, let's go in and break up Google

• 22:26Ed Elson?

  and break up big tech. The solution is, okay, let's tell Google, you're not allowed to pay Apple $10 billion a year now. Would that really change much?

• 22:34Scott Galloway?

  Here's the thing about antitrust. It's often not the remedy that changes behavior. It's the scrutiny. And what do we mean by that? If regardless of the remedy is just they have to stop these massive payments to other platforms to be the default search engine, it says, it will say to the marketplace and to other judges that there's precedent here that we think this company is engaging in monopoly abuse. And it clears the way, I believe, for other guilty verdicts and other remedies. And it also, it also sends a message to Google that they've got to stop this predatory monopoly-like behavior. When Microsoft was found guilty of antitrust or monopoly abuse and there was a judgment to break them up, it was eventually overturned. And so the question is, well, okay, then it didn't have any effect.

• 23:18Scott Galloway?

  Actually, it did because they had to sign a consent decree. And part of that consent decree was how they treated new companies and startups, that they weren't as predatory around performing infanticide on startups. And guess what happened? Because of that consent decree, a little search engine got out of the crib named Google. So it's just so kind of cynical and ironic that a company birthed by antitrust, Google.

• 23:44Scott Galloway?

  Is in the midst of this trial right now.

• 23:46Ed Elson?

  Do you believe that that $10 billion payment is monopoly abuse?

• 23:50Scott Galloway?

  If you were the only one who has the capital to make these, make your product the default. And as a result, you get more and more data and pull away such that no other company can compete with you. I think that is monopoly abuse, monopoly power and results in a less healthy ecosystem. And I think we have to look at this, not through the lens of these are bad people and they've done anything wrong or as punishment. But through the lens of this is recognition that you're so successful and have become so powerful that you're this giant oak sucking up all the water and nutrients for the forest around you and nothing else can get out of the ground. And I think that's the case here, and I think that economic history is on my side, that anytime.

• 24:31Scott Galloway?

  You've pushed back on me here and it really pisses me off, Ed, because I don't like your thoughtful questions. When, so let me push back on you and I'm not going to ask anything about the dojo supercomputer. When has antitrust not worked? When have we looked back on a breakup, whether it was steel, aluminum, AT&T? There have been a myriad of breakups. When have we looked back and thought, you know what? We screwed up, we shouldn't have broken up that industry. We are, we are batting a thousand around breakups.

• 24:58Ed Elson?

  You're not going to like this statement, but it's different this time.

• 25:00Scott Galloway?

  Yeah, that's right.

• 25:02Ed Elson?

  And the reason I say that is because, you know, the commodity here is data and data isn't like any of the commodities that you just mentioned. You know, if, if you build up a monopoly on steel, the danger is that you'll start price gouging and raising prices excessively. But if you build up a monopoly on data, yes, you could technically do that. There's a potential for, for raising prices, but Google hasn't done that. But what it actually does, it just means you have a better product. You've got better results, you've got better advertising for the consumer and that's what they've done. And then you look at like Google's, what it's done for the consumer. You know, the average click through rate on a Google ad is 30% higher than on a Bing ad. And that's because they have more data and more reach.

• 25:47Ed Elson?

  It's, you know, Google ads convert 50% better than an organic search result. I have friends who run small businesses and. One of them told me that his business changed overnight because he started running Google Ads. It was just as simple as that. So I think the difference here is that you've got, you know, the scale is what makes Google a good product. And I don't think that the search market is going to change much. I think people are going to say, yeah, I'm going to opt with Google because it's the best product out there.

• 26:14Scott Galloway?

  Let's break that down. So let's assume that it makes sense. So similar to the power plants in Florida, Florida Power and Light says, justifiably, we don't need two coal-fired power plants. We don't need two grids. We need one. And they control 90% plus of power generation. There's a term for that. It's called a utility. And if in fact, you are right, and there's a benefit to that type of scale, we should have government officials in there looking at transparently at how they price their products, what decisions they make to ensure the protection of the Commonwealth, what guardrails they put in place around election misinformation, around trafficking, all that sort of shit. So I just, there has never been a case in my mind where the government has been overzealous and broken

• 26:57Scott Galloway?

  up companies. And we have blown by any kind of reasonable metric around power. And I think there's a lot of economic arguments that Alphabet has become an enormous toll booth where everyone has to spend money on search, but it doesn't provide differentiation for anybody, which doesn't mean it's a tool. It means it's a tax. And a company like Niva that has incredible backers, incredible technology, can't even get out of the crib.

• 27:21Ed Elson?

  Incredible backers yourself.

• 27:23Scott Galloway?

  Because I'm talking my own book.

• 27:24Ed Elson?

  You're the backup. Yeah. I'll just end on this. I mean, agreed what you're saying.

• 27:29Scott Galloway?

  No, you don't, bitch. You're just saying that because I signed the front of your check.

• 27:33Ed Elson?

  But to me, it's not good enough to say they're mean and they're too big. And I think that you look at the cases that they've brought against them, and the fact that the best thing that they've come up with is you pay $10 billion to these companies is evidence to me that, you know, these are sort of weak monopoly abuse claims.

• 27:54Scott Galloway?

  Well, let me ask you this, then. Do you think the ecosystem, all stakeholders,

• 28:00Scott Galloway?

  Government, taxes, startups, shareholders, the Commonwealth, youth that spends a great deal of time on these products. Do you think those stakeholders as a whole would be better off or worse off if Google or Alphabet were broken up?

• 28:15Ed Elson?

  I don't think that's the right question to ask.

• 28:16Scott Galloway?

  Well, I'm asking it, so try to answer it.

• 28:19Ed Elson?

  I just, I think that it's a legal question and you could say the world may be a better place.

• 28:24Scott Galloway?

  Okay, but hold on. Why do we have laws? Laws are made by elected representatives who are charged with preventing a tragedy of the commons. We're saying that the Commonwealth, parents, investors, employees, and the parent, we're saying that pretty much everybody in American society and in the West would be better, better off, make more money, have more money in their retirement account, be less worried about their children. Startups would have a better chance of succeeding. There'd be more return on investment to venture capitalists. There'd be a broader tax base if instead of having three or four of these companies, we had 11 or 12 to compete against each other. Generally speaking, competition results in wonderful things.

• 29:08Scott Galloway?

  And these markets are not competitive. How much do you really think Google has changed from a consumer standpoint over the last 10 years? Do you think there's been a lot of innovation there?

• 29:17Ed Elson?

  No, but I use it every single day obsessively. So I don't have any complaints.

• 29:24Scott Galloway?

  Yeah, and I use electricity every day.

• 29:25Ed Elson?

  Yeah, okay, that's a good point.

• 29:27Scott Galloway?

  And it comes from only one source and it's a monopoly and they're regulated. So which is it? Is it, should it be broken up? It's got 92% share or is it a utility and it's worth it to have a natural monopoly? I don't buy this notion that it's just better. Anyways, to be continued.

• 29:42Ed Elson?

  We'll be right back after the break with a look at Birkenstock's IPO.

• 29:53Scott Galloway?

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• 31:36Ed Elson?

  We're back with Prof G Markets. German shoemaker Birkenstock filed for IPO last week. The company will list on the New York Stock Exchange under the ticker BURK, and it's estimated that the company will garner a valuation of more than $7 billion. Birkenstock is majority owned by private equity firm L. Caterton, which is LVMH's investment arm, and it valued the company back in 2021 at roughly $5 billion. This is the second IPO for L. Caterton's portfolio in just a few months. The firm is also an investor in beauty company Oddity Tech, which went public back in July and which Scott and I covered on our July 24th episode.

• 32:14Ed Elson?

  Scott, here's another consumer IPO. Can we officially say the IPO market is back to life?

• 32:20Scott Galloway?

  I think so. Year on year IPOs are up. Birkenstock's gonna get a pop. I believe it'll be up somewhere between 20 and 40% on the first trade, or maybe even more. It's a global brand. It's got, the product, it just continues to resonate. And this is pulse marketing, but where I live in Soho, there's a Birkenstock store, and on a regular basis on weekends, there's a 10 or 20 minute line.

• 32:43Ed Elson?

  That's crazy.

• 32:44Scott Galloway?

  To get into Birkenstock, I think these guys have done such an outstanding job of keeping their brand and their product relevant. It has an incredible direct to consumer business, which means they don't have to pay monopoly prices from Google. And direct to consumer sales, get this, in the last four years have grown at an average a CAGR of 42%. And that seven years ago, Birkenstock publicly quit Amazon, which I love, which the dog loves, in the US due to counterfeit and unauthorized sales on its site. And why does Amazon continue to have counterfeits and unauthorized sales? Because they can, Ed. Why? Because see above their fucking monopoly. Consumer loyalty? The average US consumer, get this, the average US consumer owns 3.6 pairs of Birkenstocks. It has an NPS of 55 million people just fricking love the product. Their revenues increased 29% year on year to 1.3 billion in 2022. They have 29% operating margins. Those things, what a shocker, don't cost a ton to make. 15% net income margin. And it's a global business. About half of the revenues from the Americas, about a third from Europe, 10% from APAC. Now, granted, they're guilty of some what I would call yoga babble. By the way, I'm credited in the Urn dictionary with the term yoga babble. Ed, I don't know if you know that.

• 33:23Ed Elson?

  I do.

• 33:24Scott Galloway?

  They write, okay, following open quote, "We see ourselves as the oldest startup on earth." We are, I think that's called the Catholic Church. And by the way, you want to talk about monopoly power such that they can get away with doing really horrible things, Ed? See above the Catholic Church. And it says, okay, let me continue. "We are serving a primal need of all human beings. We are a footbed company, selling the experience of walking as intended by nature. The functional nature of and growing usage occasions for Birkenstock products enable the universality of our brand, allowing us to serve every human regardless of geography, gender, age, and income." I don't think that's true, Birkenstock. I don't think anyone can afford your shoes. That shit, that like granola, like hippie thing is kinda, it's kinda expensive.

• 34:10Scott Galloway?

  I wonder what the average price point is on their shoe. Anyways.

• 34:35Scott Galloway?

  I think First Trade, this thing's up dramatically. And I think to your original question, I think the IPO market is beginning to thaw.

• 34:43Ed Elson?

  So, short term, you think it works. But one question that I had is about moats. And that is, you know, for a fashion or an apparel company like this, which specializes in a really unique product, which is this sort of granola crunchy hippie shoe. The only real moat that you have is the brand. And I think about comparable companies that recently IPO'd. And the best one I can think of is Allbirds, which IPO'd back in November 2021. And it's performed terribly. It's down 40% year to date. Since the IPO, it's down 94%. And, you know, the reality is the earnings didn't live up to the hype. So I feel like Birkenstock is in kind of a similar position, right?

• 35:27Ed Elson?

  I mean, it's having this hot moment. The line is around the block. But how do you think about that from an investor perspective? And how should a company like Birkenstock be protecting themselves from that kind of fallout? Should they be maybe diversifying their revenue streams or just, you know, focusing all their attention on enhancing the brand? How would you think about it if you were an operator at Birkenstock?

• 35:50Scott Galloway?

  I think comparing Birkenstock to Allbirds is like comparing Tom Petty to Milli Vanilli. I just, I just don't think there's any comparison. Birkenstock is, has been part of the zeitgeist in American culture and progressive, for lack of a better term, boho, chic or hippie culture for 20 or 30 years. People love the product. It's been around forever. It's iconic. They do a good job with their stores. The company has a nice culture. They eat their own cooking. They, they basically stuck up the middle finger. They were one of the few that took on a monopoly. And I don't want to say one. People have tremendous affection for this brand. I would bet their supply chain is really strong. It's a unique blend of sort of hip hippie.

• 36:33Scott Galloway?

  And that is what I mean is fashion as it's associated with that type of movement or that type of demographic usually isn't the type of fashion that wealthy people aspire to. Right? Like tie dye just doesn't in that vogue very long or bell bottom jeans. This product has, has universal appeal across a bunch of demographics. It's a truly global brand. I would bet that Birkenstock has

• 36:59Scott Galloway?

  Name or brand recognition across 50 to 80% of the West. I own a couple of pairs of Birkenstock. My, everyone in my family wears Birkenstocks. It's just, this is, I have a difficult time, other than maybe Nike, thinking of a footwear company, maybe Adidas, that is this iconic, that owns the category. Actually, Birkenstock, whatever that category is called, is more dominant in its category. Open air sandals, or whatever they want to call it, is more dominant than Nike. So, because Nike has, has several pretty formidable competitors. I think, I'm, I'm taking the over under on this one. This is, this is going to be big. Will you buy shares? I'd love to buy shares. I don't know if I'll be able to get in.

• 37:44Scott Galloway?

  I would, if I could get the CEO or someone at El Catterton to give me allocation in the IPO, I would take this all day long. And not only that, I would hold this stock for three to five years. This is a company, I think this company, when I look at the fact that they're not selling that much in Asia, I think it has all sorts of international growth opportunities. And when I see the line around the block and so, it says to me that there's opportunity to own more stores. So, I am very bullish on Birkenstock. All right. Whoever's underwriting this, Prof G wants in. Call me. By the way, El Catterton, Jesus Christ, as if LVMH didn't need more wins, El Catterton is killing it. First oddity, and now this. My gosh. Good for them.

• 38:33Ed Elson?

  The largest pub chain in Britain is adopting a controversial new business strategy, surge pricing. At 800 of Stonegate Group's 4,000 pubs, a pint of beer will now cost a different amount, depending on when you come in. In the middle of the weekday, the price remains the same, but on weekends and evenings, it's about 20 pence more. This change has angered UK consumers who are already dealing with higher beer prices due to inflation. In 2019, the average pint in the UK cost £3.70. Today, that number is £4.58, a 24% increase. At the same time, the pub industry is struggling. In the past two decades, the number of pubs in the UK has fallen by a quarter,

• 39:14Ed Elson?

  and COVID only made things worse. So Scott, we've gotten used to surge pricing in other industries like air travel, hotels, ride sharing. But do you think surge pricing makes sense for pubs?

• 39:27Scott Galloway?

  Hundred percent. There's surge pricing at Denny's. I go to Denny's before 5pm because, you know, I'm old to get the Grand Slam special for £2.99. Actually, none of that is true. But surge pricing, of course. The time-based pricing, call it surge pricing, I think of it as time-based pricing, right? If I fly on a Saturday versus a Friday or a Sunday, it's an entirely different price on an airline. If I go to the early show of movies, you know, it's, I remember going to the movies in the early afternoon because it was three bucks instead of five bucks. So I think this makes a lot of sense. And the pub industry in the UK is really interesting because there are certain, there's certain real estate that is zoned just for pubs. They take pubs very seriously here. And you can, you can buy

• 40:11Scott Galloway?

  a pub and think, wow, I'll pay, you know, a half a million pounds for this pub because just the real estate's worth more. And it's like, no, it's not because it has to be a pub. I go to, I go to Guy Ritchie's pub. It's called Lore of the Land, and they do an amazing job for brunch. Like, they, they basically slaughter a lamb.

• 40:28Ed Elson?

  Sounds like a pretty fancy pub.

• 40:29Scott Galloway?

  You play darts. By the way, I met the guy that owns the biggest darts league. Who would have thought that thing would work? That works. You know, the, the darts league and the darts championships, they like sell out Madison Square Garden. Anyways.

• 40:39Ed Elson?

  Yeah, they're epic.

• 40:39Scott Galloway?

  Yeah.

• 40:40Ed Elson?

  We should go.

• 40:40Scott Galloway?

  Have you been?

• 40:41Ed Elson?

  No, but I've talked about it with my mates a bunch of times. We'd all love to go.

• 40:44Scott Galloway?

  Really?

• 40:44Ed Elson?

  Oh, yeah.

• 40:45Scott Galloway?

  Well, that guy, well, I had dinner with him last night. He's a handsome guy. He has dark hair. He looks way too young to own a sports league. If he's listening to this, bring us to darts and we'll, we'll live blog it or whatever it is we do to become influencers. But anyways. The pubs in the UK are a big part of pub culture. And I think surge pricing, I think it makes all the sense in the world. It's it's everywhere. And if you don't like it, there's something for everybody here. I don't, I have, I think this makes all the sense in the world.

• 41:12Ed Elson?

  What about the fact that it's just from a consumer perspective, deeply unpopular? So just as an example, AMC tried this. And then in July, they abandoned it because people were just so upset about it. And then Lyft obviously has surge pricing, but they're considering getting rid of it. And the CEO said, quote, riders hate it with a fiery passion. And the point being they're just losing out on potential rides because people are so angry. Do you think it's possible that, you know, the psychological effects of just saying we have surge pricing could be, you know, more damaging to the business versus operating with the less efficient, non dynamic, non time based business model?

• 41:53Scott Galloway?

  Yeah, but the majority of new, the majority of new pricing schematics or new products fail. And then the company, if it doesn't work, then the pubs will move away from it. I'm, I'm going to go out on a limb here and assume that we shouldn't take business cues from Lyft. Other than it sucks to be the distant number two. I remember my dad and me and my sister and his third wife. Was it number three or number four? Linda, were you number three or number four? We don't know. Anyways, we used to go to some bad mall on like a Wednesday night. And it was two bucks instead of five bucks. Price discrimination works really well for a variety of people. So I'm down with it.

• 42:31Ed Elson?

  Yeah, some interesting research, reading this research paper out of UPenn, which investigated surge pricing specifically for the ride sharing industry. And they basically found that when you account for the amount of time saved for the rider, combined with the fact that the surge pricing allows you to set lower price points on average, there's an overall increase in welfare of 3.5% for the rider. You know, in some, it can benefit the consumer. But you know, I was reading that and thinking, okay, that's great. But also ride sharing is a very different industry because it's so supply and demand sensitive, like there's time sensitivity and the supply and demand can vary so dramatically depending on the time.

• 43:12Ed Elson?

  Do you think that you can apply those same principles for, say, flights, ride sharing, hotels where demand can become constrained so drastically at any given time and apply it to something like the pub industry?

• 43:25Scott Galloway?

  I don't, I mean, you'd be, you realize that everything, every company we're talking about, there's variable pricing. I mean, if you book a hotel 30 days in advance, you get a lower price. And if it's the variable pricing and pricing and yield dynamics, God, the airline industry, think about how variable the pricing is there. They manage to fill every plane. And I believe the lowest of the highest price or the lowest of the greatest price, there's like seven or 800% difference. And if I type in, where am I going next? I'm going to the Bay Area. You know, your prices will change based on when you're searching and all kinds of stuff. So, and if it doesn't work, they'll adapt and they'll get rid of it.

• 44:09Scott Galloway?

  And if consumers throw up on it and don't like it, they'll stop it. This is capitalism at work, except if they're a monopoly and they abuse that power, Ed.

• 44:19Ed Elson?

  Before we wrap up, let's listen to a prediction that you made exactly one year ago about TikTok.

• 44:25Speaker 05

  My prediction is that in the next 90 days, we either see a dramatic change in ownership, meaning a very large investor. And when I say a change in ownership, I mean a change in ownership to an American entity, or we see an outright acquisition. I think something that would solve all problems for TikTok would be if Microsoft acquired it. And there's so much money on the line here and the heat is getting ratcheted up so quickly that I think the shareholders at ByteDance are going to say, okay, we're willing to cash in and make someone else the largest shareholder here in exchange for creating some distinction between. The CCP and an unbelievable product because this company is probably worth 500 billion to a trillion dollars right now. If that doesn't happen, if that doesn't happen, in my view, that reflects that the CCP is

• 45:10Speaker 05

  already having influence on this company and not letting them pursue a sale. And I think you're going to see regulation.

• 45:17Scott Galloway?

  Did you bring that clip up because you're mad at me because I'm right about monopoly abuse? Is that what you're trying to do here?

• 45:22Ed Elson?

  This is Claire. Get angry at Claire.

• 45:24Scott Galloway?

  I would argue that I'm kind of half pregnant here or half right. And that is the federal government has banned the use of TikTok from all employees of all federal agencies. That is the beginning of a ban. I mean, that's the federal government is the largest employer in the nation. And so the largest employer in the nation has banned all of its employees from using any of ByteDance's products.

• 45:47Ed Elson?

  All right, let's take a look at the week ahead. We'll see the latest interest rate decision from Fed Chair Jerome Powell. Economists are anticipating that the Fed will pause rate hikes this month, but another hike this year is still on the table. Scott, do you have any predictions for us?

• 46:03Scott Galloway?

  Birkenstock, Birkenstock is not all birds. This thing's going to get a pretty big pop here, Ed. You and I, you're going to take me out for a pub during surge pricing when this thing pops. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavros and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prop G 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.

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