EP 41: FTX Part 2 and the Twitter Breakdown: Aztec’s Jon Wu joins to talk FTX then Former Twitter Director Ryan Sarver & Fintwit Poster Compound248 Break Down Elon’s Takeover, Paid Verification, Advertisers Fleeing and the FTC

In episode 41 we get a visit from Aztec’s Jon Wu to talk briefly about FTX and then former Twitter Director Ryan Sarver joins along with Fintwit Personality Compound248 to try to explain everything that’s happened with the Twitter take private. From Elon firing half the staff, desperately trying to rehire them, advertisers bailing, and paid verification leading to fake companies and celebrities. As well as explaining why this has gotten so bad so quickly, why Twitter is unique, and what could have been done differently. (0:00) Intro (1:54) Welcome Rashad (4:12) “Verified” Twitter Accounts (7:36) FTX (10:08) Rashad’s new podcast (12:43) Welcome back Jon Wu (14:32) SBF, FTX, and Alameda (21:33) What was the fraud? (24:56) Malicious intent or the tipping point? (30:49) What was the sentiment of SBF by people in the ecosystem? (34:10) What’s upcoming to pay attention to? (36:23) CZ (38:10) Welcome Ryan Sarver and Compound248 (43:04) Recapping what’s happened since Elon bought Twitter (45:30) Blue checks (51:48) Why Twitter is a difficult business (1:00:30) Brand-based advertising to subscription (1:16:33) Who will pay for verification? (1:26:51) Why has Twitter been advertising-based? (1:32:12) How much was pseudonymity a feature? (1:34:49) What changes would you focus on? (1:41:22) Twitter’s FTC order (1:45:40) Elon shifting blame Subscribe to No Agenda with @corporashid: https://open.spotify.com/show/2KHruq3qC0IKm5U9wOIjKZ?si=13bab75351d74c70 https://youtube.com/playlist?list=PLBgv57GHyNgjhl3CBB3XtXp2JylaVKdNs Mixed and edited: Justin Hrabovsky Produced: Andrew Nadeau and Rashad Assir Executive Producer: Josh Machiz Music: Griff Lawson 🎙 Listen to the show Apple Podcasts: https://podcasts.apple.com/us/podcast/three-cartoon-avatars/id1606770839 Spotify: https://open.spotify.com/show/5WqBqDb4br3LlyVrdqOYYb?si=3076e6c1b5c94d63&nd=1 Google Podcasts: https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5zaW1wbGVjYXN0LmNvbS9zb0hJZkhWbg Follow on Socials 📸 Instagram - https://instagram.com/cartoonavatars 🐦 Twitter - https://twitter.com/cartoonavatars 🎬 Clips on TikTok - https://www.tiktok.com/@cartoonavatars About the Show A Saturday morning podcast hosted by Logan Bartlett (Partner and Managing Director at Redpoint Ventures) covering the tech news with his friends and other people with industry expertise. Executive Producer: Rashad Assir Producer: Leah Clapper Mixing and editing: Justin Hrabovsky Check out Unsupervised Learning, Redpoint's AI Podcast: https://www.youtube.com/@UCUl-s_Vp-Kkk_XVyDylNwLA 🎥 Subscribe on YouTube: https://www.youtube.com/channel/UCugS0jD5IAdoqzjaNYzns7w?sub_confirmation=1 Follow on Socials 📸 Instagram - https://www.instagram.com/theloganbartlettshow 📱 X - https://twitter.com/loganbartshow 🎬 Clips on TikTok - https://www.tiktok.com/@theloganbartlettshow About the Show Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode of The Logan Bartlett Show, we sit down with the people behind today’s most important startups and extract the tactics, lessons, and frameworks they’ve learned the hard way. Conversations span hiring to GTM, product, growth, fundraising and everything in between - collectively forming the ultimate playbook to make you a better CEO, investor or board member. Tap follow and enable notifications to stay ahead of the game.

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

• 0:05Logan Bartlett?

  Welcome to the 41st episode of Cartoon Avatars. I'm your host, Logan Bartlett, and on today's episode, you're going to hear first Rashad and I catching up on the week's events, as well as our favorite Twitter impersonations that we saw as the verification system went wild. Then you're going to hear a conversation I had with Aztecs John Woo. John has come on for the crypto debates in the past, and John is someone that I really trust in this ecosystem to talk a little bit more about what's transpired with FTX. We obviously did a bonus episode in the middle of the week, kind of outlining some of the things, but John is very much a native to the ecosystem, and so wanted to get his take

• 0:47Logan Bartlett?

  on the sentiment of things that are that are going on. And so he was gracious enough to call in for that for about 20 minutes. And then on the back half of the episode, you're going to hear a conversation that I had with Ryan Sarver, who was actually a partner at Redpoint and a longtime Twitter employee, as well as repeat guest Compound 248. Compound runs a hedge fund and has been a longtime holder of Twitter, as well as he bought into the merger arbitrage opportunity as well when Elon made the original offer, and it was trading below 5420. And so we have a conversation about what's going on from a product and business standpoint with Twitter, all the things related to verification

• 1:32Logan Bartlett?

  and subscription and advertisers leaving and layoffs and why Twitter is just a hard business to run in general. So we go into all of that, trying to make sense of what's been a wild week for Twitter, as well as FTX. So just everyone will enjoy this episode, very much current events. What you're going to hear next is a conversation with Rashad and myself. Rashad, how are we doing? I appreciate you getting up early on the West Coast to do this, and without a voice, no less.

• 2:02Speaker 01

  Yeah, I'm okay. I don't know what's happened, but I've kind of like my voice is shot. We were up doing karaoke last night, so that could have something to do with it, but.

• 2:15Speaker 01

  Overall, I'm okay.

• 2:16Logan Bartlett?

  You didn't give the detail of you were singing karaoke. I think that might be, I don't know. I don't want to say causation, but.

• 2:24Speaker 01

  Yeah, well, so we get to the karaoke. It was like a team bonding thing that we had organized as a, as a group, like the founder experience team. And I think everyone had thought it was private room karaoke, but it wasn't. It was the kind where you sign up with the DJ and then have to perform in front of everyone. So that was definitely an interesting twist. But in normal circumstances, what, what's your go to karaoke song?

• 2:49Logan Bartlett?

  I can do Michael Jackson stuff pretty well. I also, I mean, R I P, but Kanye West. If I really want to impress, I can, I can do a fair number of his songs and like keep up with the raps and all that, which usually is impressive to shoot for a room. But was the room, what number of Red Point employees were there versus like others, locals that you were hanging with?

• 3:12Speaker 01

  So to give you context, we had like put our name up for Satish, actually, one of the investors on the early stage team to go up, obviously. And his song of choice was One Dance, but.

• 3:25Logan Bartlett?

  As of this week, Satish has agreed to come on the pod at some point. He was very reticent to do it, but I think I've got him, I've got him committed to doing it.

• 3:33Speaker 01

  Yeah, he's not much in the, in the public eye, at least well, since I've joined.

• 3:37Logan Bartlett?

  Now.

• 3:38Speaker 01

  He's, he's one of the more interesting people.

• 3:40Logan Bartlett?

  He hates it. I guilted him for a long time about it. So.

• 3:43Speaker 01

  But anyway, so I go up to the DJ to ask like, hey, we put in our song five minutes ago, you know, what's our status in line? And he said 42. And I was like, well, 42, like we're on number 38 and there's like a ticket system. And he was like, no, you're 42nd in line, which is like, you know, an hour and a half in normal time. So there were a lot of people there.

• 4:08Logan Bartlett?

  Well.

• 4:08Speaker 01

  Yeah, we, we made it. Satish did end up singing One Dance.

• 4:11Logan Bartlett?

  Oh, wow. That's impressive. So the episode people are going to hear on the backend here, I, so I took a red eye on what is that Wednesday night to Thursday night to go from one board meeting to the other. And then I got up at five this morning to record this podcast because I was dealing with different time zones across Twitter or across people that I wanted to talk to about Twitter and.

• 4:36Logan Bartlett?

  And one of the things we talked about for a while is like Twitter's subscription check thing, right? And we talked about like how it doesn't make sense and all the, you know, we had some laughs at all the jokes of people impersonating others that that I thought was amazing. And and just an hour ago, so I got up at, we recorded at like 6 o'clock AM Eastern Time, and I got up to do that. And then the motherfuckers at Twitter just announced they're suspending the verification pay process now because of all the impersonations. And so the, when people hear that, that bit of, it's gonna, it still holds because we talked about how it doesn't totally make sense in the hilarity around people impersonating other

• 5:21Logan Bartlett?

  people. So it still does kind of, it holds up. But yeah, I guess you can't even waking up on a Friday morning, trying to release something Friday afternoon, even that is too potentially late with the speed that news is moving these days between FTX and and this as well.

• 5:41Speaker 01

  Did you guys get into specifics of your favorite impersonations?

• 5:46Logan Bartlett?

  No, not really. I mean, the the two that stood out to me were like the Pope one and the OJ Simpson one. I think there were also some Rudy Giuliani ones that I saw that were pretty good. But did you, did you have any that like stood out as particularly funny?

• 6:02Speaker 01

  Yeah, those were great. I mean, there were like also like less funny and kind of concerning ones about, I guess, this big pharma company announcing that insulin is now free.

• 6:13Logan Bartlett?

  Yeah, the Eli Lilly one, that that starts to be a little more impactful to business when when big brands are being impersonated for drugs. Yes.

• 6:23Speaker 01

  The the George Bush, Tony Blair exchange about Iraqis. There's some somehow Jesus Christ got verified and got at Jesus. So that was one LeBron. And so some sports stuff was LeBron and Aroldis Chapman both like announcing whether they're going to stay or trade or or something like that. And then Nintendo tweeted a picture of Mario like flicking off the camera, which are giving the finger.

• 6:53Logan Bartlett?

  I gotta admit, the ingenuity of people to consistently be dickheads, for lack of a better term, when given the opportunity on the internet, it's really, it's really one of the better parts of mankind. When, when giving an ability to troll and make jokes, people on the internet will take it to its, to its best extreme and then ultimately its worst extreme, as the case may be with like the Eli Lilly stuff. But yeah.

• 7:22Speaker 01

  I was just gonna say on Twitter more so, it seems to be the case than any other platform, like troll central.

• 7:28Logan Bartlett?

  Oh, yeah. Yeah. Twitter, Twitter is a specific platform for, for that. But by the way, so I mean, the other thing in the news this week was FTX. I feel like FTX and SBF and Elon were just like, it was a mile a minute of stuff going on. And obviously recorded an episode, kind of an emergency episode this week, talking about that. But it came out yesterday that the CEO of Alameda Research, which was his hedge fund, that was unduly linked to FTX in some of the lending and a bunch of stuff that,

• 8:11Logan Bartlett?

  you know, we can talk through the specifics, but the CEO of, of Alameda was dating SBF. And apparently the way they made it sound was like, there was a group of 10 people living in the Bahamas, all in their late twenties or thirties, and like all of them were kind of dating each other as this was going on. It's wild that like a week after, I mean, all this stuff, it feels like it's been a lifetime. And we're like living in 3X speed, but even a week ago, there was barely like a murmur of some of the issues. There were some reports out there, but like barely any of this was even on the surface of like understanding. And as we just peel back the layer more and more.

• 8:53Logan Bartlett?

  It just gets weirder and weirder. It feels like this is like a made for, if this were a made for TV movie or something, or like an HBO, you know, fictionalized representation of something, we'd be like, oh, this is way too extreme. This, this could never happen, right? It's just like, truth, it really is stranger than fiction here.

• 9:14Speaker 01

  Yeah, especially the SPF Love Island house situation. I mean, all of this together, between what feels like what were personal relationships and also business relationships. It's, it definitely feels like whatever the Hollywood version that they create, they don't really have to exaggerate much. They can kind of just report it as it was.

• 9:36Logan Bartlett?

  Yeah, it's sort of like the, what is it? The, uh, Ubaro or whatever, which is like the snake eating itself. It's like, all of these things were kind of interconnected. The people were all like dating each other. It came out, SDF was like an investor in Sequoia who Sequoia was, and Sequoia was an investor in SPF and, you know, Alameda was linked to FTX and all the counterparty risk that's going to come out. The whole thing just feels like one intertangled mess, not to, not to mention the, the whole relationship side of things. But speaking of

• 10:16Logan Bartlett?

  dating, I guess as a segue, you, I, I enjoyed your podcast last week on dating. People actually, we didn't link it in the show notes, which we need to do this week, to your own No Agenda podcast, but I enjoyed you going deep into, I mean, you talking about your, your hinge strategy with a dating consultant was, was not the content that I expected to get out of this podcast.

• 10:42Speaker 01

  Why do you think, I mean, this was all part of the plan, Logan. It was convinced Logan to You know, endorse my show and then.

• 10:50Logan Bartlett?

  I did not know what direction some of these initial episodes were going to go, but that was a super entertaining, interesting thing, sort of going through hinge strategy and all of that. So I'd encourage people to give that, give that a listen as well as we kind of plug your own No Agenda podcast. And who, so you had the chef on week one, or like the hospitality specialist week one, week two was the dating, social media influencer thing. What is, what is this week for people?

• 11:23Speaker 01

  So this week I sat down with Nate Meeker. He's an up and coming comedian. Actually, since we recorded, he's now like opening for Tim Dillon on the road. He's like doing the traditional comedy grind, left his corporate job and is really big on TikTok and Instagram. And he kind of blew up because of his impressions. It's funny, he kind of looks like Michael Sarah, but he also does like an amazing Michael Sarah impression. And then he also does a bunch of other people. So you should check out his page and also obviously listen to the episode. He is one of the best impressionists that I've come, that I've come across.

• 12:01Logan Bartlett?

  He makes a lot of finance jokes and like impersonating investment bankers. He also happens to look exactly like I would think, you know, if you made me draw an investor, like a police sketch artist came over to me and said, hey, can you draw an investment banker or like someone in finance? I think Nate Meeker would be who I would like describe. But he, my TikTok feed inevitably gets populated with him quite a bit because he's often making fun of like bankers in New York on dates, talking to women and you know, whatever, all that stuff. So yeah, he's, he is super entertaining.

• 12:35Speaker 01

  Yeah, he was great. It was, it was worth it for me to look like a complete idiot trying to do impressions with him. So.

• 12:43Logan Bartlett?

  Welcome back to the program, everyone's favorite. How do you describe that hat, John? Is that, is that, it's not a cowboy hat technically, is it?

• 12:51Speaker 02

  I haven't thought about it. I hesitate to say fedora because of the implication.

• 12:56Logan Bartlett?

  Yeah, no, I don't think it's a fedora. It's much more stylish than a fedora, but you, you are everyone's favorite, I think.

• 13:04Logan Bartlett?

  Crypto guest. I would need to go back and probably run a poll to come up with that, but we received rave reviews. Certainly the most polarizing would go to Sam Lessin, but I think, I think people's genuine enjoyment of urine Zach's was probably the highest, most positive feedback that I got at least. So, thank you for, thank you for coming back.

• 13:27Speaker 02

  Of course, man. Thanks for having me.

• 13:28Logan Bartlett?

  And you are, you're joining us from Mexico. It looks lovely. Where, where in Mexico are you? This is a wedding you're at?

• 13:38Speaker 02

  Evil down here. Yeah, down in Oaxaca for a wedding.

• 13:40Logan Bartlett?

  Nice. Well, good. Well, I don't want to take too much of the time, but we were going back and forth a little bit on this week's events and it's been a wild, I guess, kind of seven days, but really, starting on Tuesday. And I did a, I did an episode, kind of an emergency episode on, I think I released it, gosh, time's lagging for me, but I recorded it Wednesday night and I think released it Thursday. So, kind of talking about the events that had transpired at that, at that point, a few more have come out since then. And so I don't think we need to go back and rehash every detail of what's come out. But as someone

• 14:23Logan Bartlett?

  that is, I try to be neutral, although my bias probably comes a little towards the cynical side, to say the least, of the crypto ecosystem. I thought it would be helpful to have someone from the inside come on and at least share your reaction to what, what's happened over the last couple of days with, with SBF and FTX and Alameda and all that stuff. So, I don't know, any specific thoughts? Happy to take this in whatever direction makes sense.

• 14:50Speaker 02

  Yeah, for sure. I think the headline for me is that this is just another thing that's going to get pinned on decentralized systems, but was really the failure of an underregulated shadow bank.

• 15:02Speaker 02

  You know, FTX, oh, there's two components I think that need to be zoomed in on with FTX and Alameda. One is just the fraud component, right? It's just violating their own terms of services and every conceivable law governing taking customer deposits and rehypothecating those.

• 15:19Logan Bartlett?

  When I was recording on Wednesday, it was unclear to what extent this was a liquidity issue versus a solvency issue, right? And to what extent there were co-mingled funds? And to some extent, the media had warped my brain so much that like, oh, this SPF got, you know, he's an effective altruist and he just wants to give back and he's so pragmatic about everything.

• 15:44Speaker 02

  Yep.

• 15:44Logan Bartlett?

  So I kind of assumed good intent at that point. And I kind of thought, hey, this is a liquidity issue. And so, and the distinction being that the liquidity issue means, hey, you just don't have the assets to, at that time, to fund your liabilities, right? There might be leverage out there.

• 16:06Speaker 02

  Right.

• 16:06Logan Bartlett?

  But theoretically, you have, over some period of time, if I said to you, hey, can you go get this money over the next whatever period of time? You should be able to figure out how to get that money back because you haven't, you haven't had these like fundamental issues with risk management and some of the co-mingling and customer deposits and all that. I think it's become pretty clear that this is a solvency issue and there's a lot of co-mingling users' funds, Alameda to FTX, to FTX US. Can you just talk a little bit about, like, as you say, all of these different things that violate, you know, standard bank operating?

• 16:50Logan Bartlett?

  Can you just zoom in a little bit on like what seems to have transpired?

• 16:54Speaker 02

  Yeah, so again, I think it's worth breaking it out into two components. There's the fraud component and then there is the losing $10 billion component. So let's stick on, you know, how do you steal $10 billion of user funds? And it really starts with this meme that I've tweeted about, which is low float, high FDB. And that's like a lot of, you know, kind of like wonky finance terminology. But that, what that really means is there's a really large supply of shares in this token that will ever be issued. So let's say, call that like 100 shares, but a very small number are currently circulating. The vast majority being held by insiders. So let's say like- 10 shares are circulating in the, in the open market and 90 are held by insiders.

• 17:35Speaker 02

  So what happens is those 10 shares, um, and we can talk about how you manipulate the price of like a low float stock or like a low float token. Those are being traded in the open market and then you as an entity who hold 90 shares illiquid, right? They're, they're, they're not really in the open market yet. They have yet to be released for trading. You take the open market price, let's say the shares are trading for 20 bucks. And you say, well, I've got 90 shares and the 10 that are in the market are trading for 20 bucks each at a, a market cap of 20 times 10, 200. And so I've got 20 times 90, I've got 1800, right? I've got $1800 of value here. And so then you go to your accountants and you say, hey, look at my books, you know, I've got these 90 shares that I hold. You know, they're not circulating, but they're, uh, on my balance sheets and, uh, I could go to the market to sell them today.

• 18:19Speaker 02

  And if I went to the market today to try to sell them, I think I'd get 20 bucks. Because you know, these 10, look at the 10 shares be trading right now. They're trading at 20 bucks. Now the, this is where this like liquidity solvency thing gets, uh, confusing, right? Because when Sam says like, it's a liquidity issue, not a solvency issue. Like that's just the sound of a snake hissing in my mind. Because if you actually tried to dump those shares into the open market, there just isn't enough liquidity to absorb all the shares that you're putting out. Um, and so this is a trick that he played with FTT, um, which was FTX's exchange token to boost the overall value of FTT. Um, it had a very small number of circulating shares relative to the many billions that Alameda and FTX held in private.

• 19:02Speaker 02

  Um, and so this is somewhat theoretical. It's been supported by some on-chain evidence. I'm sure all of this is going to come out eventually, but one way you could play a little accounting trick and still pretend like Alameda was arm's length from FTX was, okay, let's say Alameda, uh, participated in the FTT ICO. In other words, they bought a bunch of these FTT shares at a super, super low price.

• 19:24Logan Bartlett?

  And just to, just because you're man, because you're, you're, so, so FTT is the token under FTX. And there, the ICO was when they were initially launching these tokens. So they're saying, hey, we're going to make a token. Here it is. This is FTX issuing this, right?

• 19:41Speaker 02

  Correct. And now, keep in mind, this has nothing to do with FTX equity, right? FTX was also raising equity to the tune of, you know, their last raise, they were looking for a $32 billion equity valuation. Um, this is just a token. It's they, they just created a token out of thin air and they said, um, it has a certain value and the value is twofold. Number one, it has some utility to FTX traders. So if you own this FTT in your FTX account, which is a very strong incentive to hold it, um, then you get discounts on trading and you get, you know, basis points back for every trade that you make.

• 20:13Speaker 02

  That incentive for holders to hold on to FTT, for those traders to realize those benefits by holding in their account, that also reduces the circulating liquidity. And the fewer the shares that are being traded, the more price impact you can have in keeping the share price up. And so that's something that FTX was clearly doing in the, in the latter days of this collapse, where, you know, the CEO of Alameda, Caroline Ellison, was telegraphing a $22 price. Now, a lot of the speculation is around, okay, was there a $22 liquidation price for FTT? In other words, was Alameda the counterparty, um, to creditors who were going to liquidate their positions if FTT dropped below $22? That seems like what has, what happened.

• 20:55Speaker 02

  Um, and, and the trick ultimately that was being played was there's a very small amount of FTT being circulated relative to the total amount in the world. And, uh, FTX and, and Alameda together were able to support the price of the FTT and then turn around to their accountants, um, and say, hey, look, we've actually have a boatload of supply of this token. And it's valued at X dollars, you know, let's say $26 in the public markets. And so just multiply that by how many shares we've got. And this is how much we should be able to collateralize against lending. And that's, that, that was, uh, that seems to be supported right now. There, there's still a lot of information coming out. Um, but that, that I think is the linchpin of this FTX-Alameda relationship.

• 21:33Logan Bartlett?

  And so do you think, when you said the two components, that's not, it's not technically fraud in that case, right? Like that, that is ultimately, it's, it's, uh, adverse risk management for sure, but that's not.

• 21:49Logan Bartlett?

  Fraud. And so what do you think was actually the fraud in all of this?

• 21:54Speaker 02

  So there's actually two components in here as well. So let's talk about the poor risk management component, right? Which is like, okay, you go tell your auditors that you've got all of this capital, you've got all of these tokens that if you dump in the open market today, they would have realizable value of $26 per token. In reality, they don't have anything like that type of realizable value, but it could be the accountants weren't sophisticated or somebody, somebody looking doing the risk controls was like, sure, sure, checks out, it's trading at 26 today and you've got, you know, 200 million shares and so 26 times 200, okay, that's approximately how much you've got in balance sheet.

• 22:29Logan Bartlett?

  And there might only be five independent people that that are verifying that it's worth 26, but sure, like someone made that mistake.

• 22:37Speaker 02

  Totally. Now that's the risk management component and that's kind of pulling the wool over your accountants and auditors. And I think it'll be up to courts to determine like whether there was any liability there. But there's another component, which is explicitly telling your customers, you're not going to lend out their funds. And so let's just be clear, there's two, there's two entities at play, right? FTX and Alameda. And the right way to think about this is they were just acting as one entity. And they were trying to tell their investors and tell the general public that like, okay, this is an arms length relationship. One is an exchange, one is a market maker, the market maker happens to market make on this exchange and many others, but otherwise there's no existing relationship between them. There's a Chinese wall in the Bahamas where, you know, one office is over here, one office is over here, they're not allowed to trade, you know, any data, pass any information.

• 23:21Logan Bartlett?

  The CEOs happen to live together and date and, but whatever, but they're separate entities.

• 23:26Speaker 02

  Totally. I won't get into the, you know, literal or metaphorical kind of like ethical orgy that's going on now in kind of like interrogating their personal lives because I don't, I think it's juicy, but not relevant to the facts at play, which is the fact at the end of the day was they were acting like one entity. And FTX explicitly told their customers that we won't do anything with your funds. Like you deposit funds with us and they're backed one to one with reserves. So if you give us an ETH, that ETH stays there and our liability to you, which is, you know, one ETH liability on your deposit is backed by one ETH in reserves. In reality, they did this whole accounting trick where Alameda had FTT. They, you know, sent the collateral to FTX and FTX sent back quote unquote real customer deposits,

• 24:12Speaker 02

  either in the form of USD or other assets. That is the prevailing hypothesis. And so that's where the fraud comes in, right? The fraud comes in where you tell someone one thing, you tell your customers like, hey, we're not going to lend out your funds. We're not going to, you know, go gamble your funds away with our sister hedge fund, but then you go do it. And, and that's the part that I think is really beyond the pale to me and is just, um, it's totally unacceptable. It's, it's, it's beyond belief, honestly, that somebody with, uh, who had had a brand around effective altruism, who seemed to be the golden child, both of crypto and Silicon Valley, who is a giant political donor, um, who had, who cozied up the regulators would go and truly, I mean, literally rob his own customers of $10 billion.

• 24:56Logan Bartlett?

  You know, I assume most people don't set out to start a Ponzi scheme or something that, that isn't sustainable over the long term. Like I, I, I at least hope that there are incremental decisions you make over time that leads you down this path, right? And maybe some people say, hey, I'm going to start a Ponzi scheme and this is going to be great. But my, my hope, uh, one of the fundamental beliefs I, I hope to have about the world is that people find themselves in these positions through incremental bad decisions that continue to compound on themselves in a negative way. I guess a question of, do you, do you agree that, um, that this probably some event,

• 25:41Logan Bartlett?

  maybe it was, uh, the Celsius tipping point in, uh, whatever that was, June and BlockFi going under and all these things that happened, set this down a course, uh, that we ended up here? Or do you think SBF started with some malicious intent that he was gonna, you know, just in time for the midterm elections in 2022, uh, would be when all this would, would come to a head?

• 26:06Speaker 02

  I mean, it's really, the number is really hard to believe, right? You know, 11 billion or $10 billion, uh, that, that's an egregious sum of money to lose. So let's be clear, I'm getting purely into speculation now.

• 26:21Logan Bartlett?

  Yes, we are well outside the realm of fact, but informed speculation based on, you know, whatever, the limited amount we know, as well as just for the interest and entertainment of our podcast listeners.

• 26:33Speaker 02

  I mean, there was clearly amount of hidden leverage and crypto, like the rest of the world, is experiencing a gigantic deleveraging cycle right now, right? And so if you think about what happened with 3AC, which is like an MF Global type brokerage, where they were kind of rehypothecating these loan agreements, they're like, yeah, I've got money here and I've got money here, but they're kind of like saying that to two different counterparties, many of which aren't doing their diligence, right? Some of which were public companies. And you've got Celsius and Voyager and BlockFi on the other side being counterparties to some of these loans. It's not beyond belief that Alameda suffered significant losses, either by being a direct counterparty to one of these insolvent institutions. I mean, they were heavily involved in bailing out Voyager and BlockFi, or suffered heavily

• 27:18Speaker 02

  losses themselves in terms of token markdown. Imagine lending out dollars, right? Lending out the dollars to your hedge fund, and then the hedge fund loses the funds denominated in crypto. And then so you've got liabilities marked in dollars, but you've got assets that are crypto, it's down 90%. I mean, you know, crypto is not the only speculative asset that's down 90 plus percent, but you could imagine if you just didn't bet very well, that you could lose a ton of user funds. Now, I think the crazy part to me is, it seems wild to have such poor risk management and to be so speculative as to lose $10 billion all in one go. And so the crazy part is that, I think, and this is just speculative, that he kept doubling down, that there was some, you know, degenerate human DNA in him that said, okay, I lost

• 28:02Speaker 02

  the first billion, I'm in the hole, this is really tough, how am I going to plug it back up, right? And it could have been that he lost the funds with an Alameda, and then he decided to move the funds from FTX. It could have been that he was funding Alameda with customer funds the entire time, but it's clear that he did not cross the Rubicon once, but many times, continuously over many months. And so whether or not he started with wanting to defraud investors, it's clear that he had the decision to stop at any point. He had the ability to stop at any point and say, okay, we've lost a lot of user funds, let's shut down the prop shop, let's make our investors whole, let's keep FTX all right, let's not touch the golden goose, let's not touch, you know, innocent people's money. And he clearly decided to do that. When, it's not clear.

• 28:45Logan Bartlett?

  Yeah, and that's the interesting part of all theoretically, right? An exchange should not have like an exchange should just be a market maker and act in the middle of all these transactions, right? And so the the cardinal sin of all of this that would have led down the path was saving Alameda whenever that happened and co-mingling all of these things together to to keep that going, keep that alive. And who knows? I assume Alameda was generating a ton of profit for him, right? And a bunch of money was hitting the bottom line and he was able to give out the political campaigns and all that.

• 29:26Logan Bartlett?

  And so it's possible that this all could have happened and Alameda just would have fall fell would have tipped over and it wouldn't have actually had this spread to FTX if he had chosen. And certainly, the the user deposits wouldn't have been hit at all, right?

• 29:46Speaker 02

  Yeah, that's certainly possible. I mean, the other possibility, I don't think a sufficiently large number of people are discussing is that he just took people's money. That $10 billion left the exchange and went into spending, right? It just went into yachts and it went into properties and it went into. And I think it's because we we keep holding on to this like savior complex for SPF. Like, even if he was a fraudster, he was trying to be the best trader. And it's like, I don't know. I'm I I I start to question that narrative. We're only about a week out. It's hard to believe, actually, we're only like four days out from this event actually going down. But it's not actually hyper clear to me that he did. He was an exceptional trader. He was an exceptional risk manager, that he wasn't, you know, trying to defraud people from the beginning.

• 30:28Speaker 02

  And and I think it's it's situations like this that make you question your judgment of individuals. You know, SPF seemed like a stand up guy, but then when you replay the tape, it's like an M. Night Shyamalan movie. It's like, OK, when did he actually make a donation to a charitable cause? Right? When when did he actually act like an effective altruist? When did he actually look at the losses that his firms were taking and say, hmm, maybe I should put a stop to this now?

• 30:49Logan Bartlett?

  Going into this, from the outside in, I would have held him up to be the golden child of crypto, seemed to have, you know, this business that was running at such a, it's such a profitable scale, so valuable, giving to all these different causes. Ultimately didn't care about long-term for himself, at least the media narrative of him would have been portrayed. Did you have a similar sentiment? What was the sentiment of people actually within the ecosystem? Because now you hear, oh, you know, something always smelled off from a handful of people are like dancing on the grave on this. But I never heard any murmurs of that, at least from my cursory overview, before this started to break.

• 31:34Speaker 02

  Yeah, I don't think so. And I think that's the challenging thing with some of these, you know, opaque operations, where you don't really know what the, you know, behind the scenes lending agreements are between these entities and what promises that he's making. I think one thing he did have a reputation for, Alameda had a reputation for, was just quote unquote dumping on retail. So playing this kind of like low float, high FDB game where, you know, you have a very small number of circulating tokens. You can do some market manipulation tactics with your market making activities to pump the size of the, the price of the token, rather. And then you've got a whole bunch of insider shares, right? And so the rising price action gets retail to be like, oh, my God, this thing is obviously going to the moon. Everyone buys in, it pumps the FDB, and then you've got a whole bunch of shares in the background that are unreleased to the public.

• 32:17Speaker 02

  And the crazy thing about this is these token smart contracts typically are very transparent. You can see, okay, these are the number of shares in circulation, and these are the number of shares that will be in circulation. So it's not as if people didn't understand this high FDB game, right? It's as if, you know, let's say Facebook was like, okay, if Facebook had like a $500 billion market cap, but actually like the fully diluted market cap was 5 trillion. And like Zuck himself held like $4.5 trillion of shares. Any normal investor would look at that and be like, okay, this is crazy, right? Like, I'm not going to be the bag holder versus Zuck dumping his shares on me. And yet, and yet, I would say that in the early days of some of these tokens that Sam was behind. Retailers snatched up the tokens because of this price action. The price action was so

• 33:01Speaker 02

  great. And there was actually a meme that went FDB is itself a meme, like fully diluted value doesn't matter. The only thing that matters is the circulating market cap. And so there was this like, I think, collective delusion that like, number one, Sam is the golden child. He would never do us wrong. He's such a, you know, he's such a good guy. He's backing all these projects in the ecosystem. So one of the things he did have a reputation for was kind of like dumping shares on the open market, which you might expect.

• 33:30Logan Bartlett?

  Yeah, it's, it's, it's just a crazy story. And I realize we're in the middle of developing, like, all the news still sort of breaking. But what's your, what will you be paying attention to in the coming days and weeks other than, I mean, the story has mostly, I think, played itself out in certain ways with regard to FTX. They filed for bankruptcy. Sam stepped down. The implications of it, I assume, we're just in the very, very, very early innings of figuring this stuff out. So what are you going to be paying attention to in the coming days and weeks with regard to the implications from this?

• 34:11Speaker 02

  Yeah, I think this is consensus, the worst week in crypto history, if not, if not one of the worst. I think the primary things I'm paying attention to is regulation. Sam was one of the people calling for a regulation of decentralized finance, which is kind of insane because the collapse of FTX is very much about the collapse of a centralized entity who was conducting most of their affairs off chain. You know, these kind of like shady loan agreements between them and Alameda. It's not even clear what Alameda's trades were. Stealing customer funds, which is just outright fraud. It's very clear that they needed to be regulated in some way, right? They needed to provide further transparency in their operations. And Sam, on his way out, has been really

• 34:52Speaker 02

  ragging on DeFi. And he's been asking for more DeFi regulation. But if you look at the actual decentralized systems, they're really robust and they're working as expected because I think this is one of the kind of like drumbeats of the industry. But like, you know, trust the code. You don't have to trust humans. You can trust the code. So one thing we'll be looking at, I'll be looking at is how are US regulators going to respond to this? Because optically, you can just look at this and be like, FTX a fraud, crypto is a fraud. FTX is a fraud because Sam Bankman-Fried is a fraud. You know, like that is, I don't think, an indication whatsoever on the robustness of decentralized systems. In fact, it's the opposite. It's really a story about the fragility of centralized systems. So that's one thing I'm going to look at. The second thing you have to look

• 35:37Speaker 02

  at is, you know, the contagion that's going to spread throughout the ecosystem. There's already a lot of bud, fear, uncertainty, and doubt over some of the companies that FTX and Alameda backed from a venture perspective that never fully made a ton of sense to me because, you know, once you write the check as a venture investor, the money's in the bank. It's not like they can pull it all back out. But a lot of companies custody their funds with FTX and FTX entities. And so imagine waking up and realizing one day that your bank account doesn't have $10 million and it has $0 in it. Well, you're going to have to lay off your employees. You're not going to be able to make the investments that you want to make. Your growth is going to slow down. So I think it'll take a long time for us to see how much hidden but not real capital was actually in the system because of FTX's collapse.

• 36:23Logan Bartlett?

  Fascinating. It's fascinating that CZ was the one to kind of kick this whole thing off presumably, or the CoinDesk article, I guess, last parting shot. Do you think this was purposeful from CZ's side that he kind of knew what he was doing and realized that the jig was up from an FTX standpoint? Or what do you think his play was in all of this?

• 36:48Speaker 02

  Impossible to know. But I would say that one of the shocking things that I saw from Sam, other than the fact that he keeps tweeting, I don't know why he keeps digging himself into a deeper, you know, legal hole. Someone needs to take his phone away. Really? They really do. One of his parting shots to CZ without naming him was, you know, "To a, you know, on and off sparring partner of mine, you know, nice job, like you want." And that indicates to me that there was some, you know, wink, wink chess game being played here between these two extremely powerful billionaires and actors in the crypto space. And so I would say that, let's take Sam's word, you know, at base value. It seems like even Sam admits like CZ had the better of him. That indicates to me that like...

• 37:31Speaker 02

  Maybe it was intentional, right? Like, maybe this was a game that was being played and CZ had the upper hand.

• 37:35Logan Bartlett?

  Yeah, hard to believe, hard to take Sam's word at face value with anything at this exact second, but it does, it does seem like CZ was in a position to make all of this happen. And so, yeah, interesting to see it play out. Well, John, I appreciate you hopping on, enjoyed the wedding in Mexico. And yeah, next time, hopefully, hopefully for your sake and in the crypto community's sake, we don't need to do any emergency episodes for a while here. But thanks for coming on on short notice.

• 38:07Speaker 02

  I hope so too. Thanks, Logan. Great talking.

• 38:10Logan Bartlett?

  Gentlemen, thank you for coming on. Compound, thanks for doing this early. I guess timestamps are important in all of this, given it seems to be a minute by minute machinations that are going on over at Twitter. So we're recording this early Eastern time on Friday morning. So just a timestamp, if anything happens in the next, whatever, a couple of hours, that would be, that would be after our recording. So thank you, guys, both for doing this. Maybe for people that don't know, we can go in order on my screen. Compound, can you just give your quick background again? I know, I know, once before we've, we've done this. And then also, your interest in, in Twitter specifically would be helpful.

• 38:56Speaker 03

  Yeah, no problem. Thanks for having me back. And don't worry about the 6:30 start time. I've normally done a couple of hours of exercise by now.

• 39:06Logan Bartlett?

  Yeah, exactly.

• 39:07Speaker 03

  No, yeah, absolutely. Never. I actually realize I suffer from commitment and consistency bias because you asked me to do this at night at first, and I said yes. And now I've gotten fully baked into a 6:00 AM wake up call. So my background on all of this is, you know, I was an owner and user of Twitter going back pre Elon. And you can, you know, probably find some of my. Now I would say poorly thought out thesis on the investment online. And I say poorly thought out because you know, I had the view that this was a business that could compound value, grow users, grow ARPU and expand margins over a multi-year basis. And that still may be true,

• 39:52Speaker 03

  but the stock would be down 70% in a vacuum with all the other social media and high-flying internet stocks. However, got the gift of Elon showing up, which let me sell my whole position into that announcement into the signed deal. And then after the merger arbitrage spread blew way out, ended up coming back into it. And so got a second and frankly, almost the third bite at the apple during that process. And so it was really close to the legal side of the situation. When Elon terminated, was trying to get out and Twitter's case was, you know, about as rock

• 40:36Speaker 03

  solid as they come. And so ended up riding that all the way into the October close. So it was quite the adventure. And, and that brings us to this, you know, crazy, crazy moment.

• 40:49Logan Bartlett?

  I, I didn't buy in during the merger arbitrage point, just because of some compliance considerations and all of that stuff. But I will tell you, you, your conviction helped make some of my friends money. So I, I think they should thank you for that. You were very steadfast in the, the fact that this was going to close, but

• 41:10Speaker 04

  The only people making money on social this time.

• 41:13Logan Bartlett?

  That's right. Yeah.

• 41:14Speaker 04

  Who's the clown car now, Mark?

• 41:17Logan Bartlett?

  Yeah, yeah. Jokes on, jokes on Zuckerberg, meta clown car. Ryan, thank you for, for doing this from Europe. So, so I know some people will know your background, but maybe, maybe give us your, your Twitter story as well as what you're up to today.

• 41:34Speaker 04

  Yeah. So way back, probably 2006 or so, I met Evan, the audio team, when they're doing podcast directory, just, you know, probably 10 years too early. And got to know them then and kind of saw them pivot into and go build out the first versions of Twitter and got, you know, really excited about it as a user. And at the time was harassing them to come use a product that I was pushing in kind of a BD role around location. And eventually they got tired of me harassing them and said, why don't you just come work here? And so I, I joined in 2009, kind of around 30 employees. Came into lead that at the time was just the API and then quickly turned into kind of what we consider the platform. So all the developer products, partnerships, you know, BD was under there for a while.

• 42:16Speaker 04

  Embedded tweets, tweet buttons, the fire hose, kind of all the external API and partnership piece of it. And it was an amazing experience. So started 2009 around, you know, 30 ish people and left in 2013. Right before the IPO and I think they're approaching around 3,000 people. So an amazing time and a ride there and you know, have a lot of love and a lot of appreciation for that. For everything I learned there, the people I worked with, seeing Twitter turn from this little, you know, text and SMS interface into the behemoth it became. And now I've seen the rest of the journey on the sidelines. I sold everything shortly after the IPO and and have sat on the sidelines watching ever since.

• 42:53Logan Bartlett?

  Yeah, well, well, well timed there. I guess we, so we have two of the only people probably that were very successful. Investors through that period of time in, in Twitter here, but uh, cool. So, so maybe we'll, we'll start off, uh, compound. Can you give us a little bit? Up to, I think everyone realizes Elon closed the acquisition now. I think it's two weeks to the day, basically that we're recording this. Can you give us like what has happened uh, since that actually occurred? Maybe some of the big broad stroke machinations and then we can, we can dive into some of the implications of what's actually going on with the business.

• 43:33Speaker 03

  Sure. And Ryan, did you say there were 3,000 people there when you left?

• 43:38Speaker 04

  I think it was approaching 3,000, maybe been like 2,500 or so, but the round number in my head is always kind of like 30 to 3,000.

• 43:45Speaker 03

  I think it's approaching 3,000 again. So Twitter was, you know, he, Elon closed it two Thursdays ago. At the time, you know, Twitter had 8,000 employees and um, it's in one of the wildest circumstances you can imagine, extremely meta, no pun intended, you know.

• 44:06Speaker 03

  Twitter's first few days and actually first two weeks have taken place in public on Twitter. And so we saw the pain of over 3,000 people getting laid off in the first three or four days following the acquisition. And that all occurred right after

• 44:28Speaker 03

  the entire C-suite was let go. And I think on day one, the initial rumors were not only was the C-suite let go, Elon was letting them go for cause and therefore wasn't was going to try to avoid paying severance to them. And I would say, we don't know whether that's true, but I think that little snippet is indicative of all the stories and tales that are going around, which is he is being viewed, and I think it's an important part of what's happening to Twitter. He's being viewed with really the worst possible light. And I think he's brought a lot of that onto himself. So it's obviously been very chaotic with half the firm leaving in a one week period.

• 45:12Speaker 03

  And then trying to figure out in week two, who's doing what? So in week two, we started to discover, you know, who's the head of trust and safety? Who's the head of partner interactions? And they also began trying to iterate on product very quickly. And so Elon has had this entire meme of $8. And what is he talking about? He's saying, if you, we are switching from a model where being on Twitter with a blue check means two things. It means you're a real human or a real company and you're special in some category.

• 45:54Speaker 03

  To a blue check now just means you're probably a human being.

• 46:01Speaker 03

  And so he has intentionally depp-

• 46:03Speaker 04

  But not even, but not even forcing real identity, right?

• 46:05Speaker 03

  Correct. That's why I say probably-

• 46:06Speaker 04

  You've paid the money and you're verified-

• 46:08Speaker 03

  We know which human being you are. We're just saying you have a credit card.

• 46:15Logan Bartlett?

  And which, by the way, has led to hilarious OJ confessing to having actually done the murders to the Pope, talking about wilding out in the Vatican and it's been, from a comedy standpoint, this whole, that has been amazing. And I am, I am consistently impressed by the creativity and ingenuity that exists on the internet with people to make things funny there. But I just-

• 46:39Speaker 03

  I'd be shocked if you're not one of those.

• 46:41Logan Bartlett?

  Yeah, yeah. Let's just say the OJ thing, you know, links back to a Bartlett account now.

• 46:47Speaker 03

  But I was gonna say, I do think one really relevant point in that is that there's also people imitating advertisers. And that, that is an actual business problem. Like, it's pretty funny if someone imitates, you know, the Pope or OJ, depending on your perspective. It might be funny if someone's imitating Eli Lilly saying, hey, good news, we're giving away insulin for free now. But it's not funny to Eli Lilly, right? And so if they're an advertiser on your platform, like, that's a real problem and we can get into that. But, but that is also-

• 47:21Logan Bartlett?

  I think, I mean, one of the, there's a whole bunch there that is, that I would love to dive into. But, but the big picture thing, I think in this verification process and what they seem to be trying to do also, and this is kind of implicit in what you're saying, is, is shift the business from ad-centric brand advertising to a subscription monetization model, bringing revenue and all of that. And so Ryan, I guess, maybe, maybe for history, do you, do you have the history of the verification process? And also like what, any attempts along the way to actually, I know this Twitter blue thing

• 48:01Logan Bartlett?

  that's led to this new verification process as well, that have been kind of conflated together. Do you, do you have sort of the history on the business model and some of the pivots and iterations that have landed Twitter being, I don't know, compound, you probably have the numbers closer to whatever it is on a revenue scale that's mostly through brand advertising?

• 48:22Speaker 03

  Five billion, you know, we're pretty sure it's not there, but I'll pause.

• 48:29Speaker 04

  Yeah, I mean, I think the the history of verification, at least from the product standpoint, was always one of, you know, pseudonymity was really important on Twitter. Being able to be an anonymous or pseudonymous account is an important piece of of the platform and different from the real identity that that Facebook was building. And so it was important to be able to have that. But then there were, you know, certain accounts that people really wanted to know, what I'm going to search for the Pope? Is this the Pope that I'm looking for or just a Pope? Or should say, you know, someone at Logan trying to be the Pope? And so there was really important internally for us to be able to start to differentiate out celebrities, brands, kind of identifiable accounts. The problem was it was just never, ever scalable. And from day one, I remember being a total shit show in terms of all the different ways people would reach out to get verification and the process.

• 49:14Speaker 04

  And is this a verifiable account? What's the threshold for verification? And obviously, they got more sophisticated over the years and they built out teams for it, but, you know, it was like on again and they turned it off again for a while. And then it was open to people outside, then it was closed off to people. I think it was something they struggled with for a really long time and how to figure out what is verifiable, what's the value of it? And then how do we scale that as a system that seems fair to people? I remember getting a call on my cellphone one day from Chris Brown's mom, no idea how she got my cellphone, asking to get Chris Brown verified. And that's like the weirdness that was going on, you know, back in kind of the 2010s was just people clamoring for the the the identity and the status that came with it. And I think that just created a, you know, a big storm internally that they are still trying to dig out of.

• 49:58Logan Bartlett?

  Yeah, and it's it's there's the interesting element of that that was kind of implied in all of this was it was always kind of a conflation of status and authenticity, right? And there was the period of time that it opened and like all the VCs got verified because they were quick to approve it. And then a bunch of neo Nazis got verified and then it got shut down again, right? And and so then it was a very difficult process to get approved because they didn't want neo Nazis being verified. And so then the bar of status went back up again, right? So it's always had this little bit of muddled conceptual element of like, how much does

• 50:42Logan Bartlett?

  this just mean you exist in the world versus you're a notable person that exists in the world, right?

• 50:49Speaker 04

  Yeah, I think it gets a little bit to the core of what is at the root of all of this. Like, you know, I respect Elon a ton. He's one of the most amazing builders and inventors of our time. He's built some of the most incredible companies, but each of those companies are like, science and engineering focused companies. And this is not, this is explicitly not that problem. This is a like, policy, culture, language, there is no specific right answer. And that's why Twitter struggled for so long. What is free speech? Is this hate speech? Is this allowable? Is this not? Is this verifiable? Is this not? And you feel those machinations for a really long time, but it's a lot of thoughtful people on the back end debating this stuff and going back and forth. And you're going to get a bunch of it wrong, and it's going to change over time. But it's not a black and white, no matter what.

• 51:33Speaker 04

  And my, my biggest fear with Elon coming in is, I think he kind of thought of this like, well, I mean, look, I landed rockets on the ocean, man. Everyone told me I couldn't do that. This can't be that hard. And I think it's literally 10, you know, 10 to 100 times harder to figure this stuff out, especially for someone who's very engineering and binarily focused.

• 51:48Logan Bartlett?

  Just to put a finer point on that, like, why, we had Dick Costolo on, and we kind of talked about this for a little while. But in your opinion, like, some people would say, hey, Twitter is a failed company, just even though it's created a ton of equity value, and it's had a disproportionate amount of impact on the world. The value at which Elon took it public or private was roughly equivalent to the value it was taken public when you sold in 2014, or whatever it was, right? And so, from a equity value standpoint, it failed. And then I think other people would say, hey, from a social responsibility standpoint,

• 52:30Logan Bartlett?

  and just hate speech, and blah, blah, all that other stuff, it kind of failed. Do you, and I'm sure you've given this a lot of thought, but like, what uniquely makes Twitter a difficult business, that's different than LinkedIn, that's different than Snapchat, that's different than Facebook? Like, what are some of the difficult elements of this that exist and are unique here?

• 52:52Speaker 04

  Yeah, I think about this all the time, and talk about all the time. So I think it's such a fascinating thing. I don't think if it has failed, I think it has, it never reached the opportunity that everyone knows in the world it could have held. I don't think it was a failure, to think it, you know, still created a ton of value, it's a super interesting, you know, kind of piece of culture. But I think there's a few pieces to it. On a product side, you know, compared to Facebook, because that's always the best analogy. You brought in your address book, you knew who your aunts and uncles and cousins and best friends were. You link up that address book and instantly you get a timeline of the people you care about and content you care about that's highly engageable. Eventually you can add in brands, but on day one, kind of cold start, you've got a great timeline. Twitter, all of us who've spent a bunch of time on over the years, we've found like this one author

• 53:32Speaker 04

  here and this one meme account here and this one basketball player and hockey player and VC. And we've built this timeline that once you build it, the alchemy of it, you can't find it anywhere else. But you ask my mom from, you know, Michigan to come on and get started on Twitter and like, they just stare at the screen and, you know, Twitter knew this. There was a number inside that we had that, you know, the most engaged users were a 20, what do they call 28 asymmetrical follows. You follow them one directionally and then 10 bidirectional follows. You have a core set of people who you know well and then a few you're really interested in. And once you got someone to that state, they would be engaged forever. But trying to get them to that state is really hard. Do you offer them up Kim Kardashian? Do you offer up the NBA? Do you offer them up cooking, knitting? Like, people don't think of interests in the same

• 54:17Speaker 04

  way that they do just friends and family. And so I think they always really struggle to get people into this like engaged state. And that's even just the consumption side. Forget about people thinking about tweeting. That's a whole nother world. So there was that, that piece of it that was really hard. People would come in and try it and be like, I know there's cool stuff here. I don't know how to find it. And then they bounce. And then the hard part is even once you get all of that in, you've got this great content, the platform, Trump is on the platform, he's creating content that people care about. It's hard to turn that into enterprise value because once the tweet is posted, that goes on to CNN and Fox News and it's in the New York Times in print and it's on billboards and you can't capture those as eyeballs for revenue. And so it didn't draw people in and force them to become engaged users in the same way that if it was a closed network, it theoretically may have kept them on the platform just to see

• 55:00Speaker 04

  that unique content. And so I think that had that kind of dual problem of hard to get people to find the right product fit and stay engaged in it. And then even when you do, a lot of the value kind of leaks out into the world. And I think that is also this other piece of it that because you see it everywhere, you think it's a much bigger company and user base than it is. But it is touching billions of people around the world. They're just not able to monetize all of that. And so it's, you know, it's this hard thing. It's a tougher business, but an amazing utility in the, in the universe.

• 55:27Speaker 03

  Yeah, it's hard not to see what TikTok has done and think that there's some lesson in that cold start problem for the non-engaged user, right? I mean, that is the magic of TikTok as you go on and they don't ask you to make any choices, right? You just start engaging with content and they figure out your quote timeline for you. And Twitter has never done a good job of that. And that's obvious and everyone inside.

• 55:54Speaker 04

  I'm shocked that when TikTok came out, there wasn't an instantaneous test of that or a big launch. Because obviously people internally were testing and thinking about it, but the fact that that didn't get pushed out and tried in a more concerted way is still mind blowing because I, I do think they unlocked it. I do think it's a little bit harder with text than it is with engaging videos, but still better than a straight up cold start problem like that.

• 56:16Speaker 03

  And I, I always.

• 56:17Logan Bartlett?

  The irony of all of this was they were getting so much better, like, you know, in January, before all this stuff happened, they were actually getting so much better with the interest graph of all of it. And you kind of wonder if, if Twitter, if AI and algorithms and ML and all that were today, what it was when Twitter was getting going, right? Like how much easier it would have been to build an interest graph in the same way that TikTok had.

• 56:46Speaker 04

  But even back, back in 2010 or 11, like we had an interest graph internally. I like, one of the products I wanted to export was, you know, you log into New York Times and we'd give you the list of their interests as a user and you could match them to the entities in their system and show them articles. We had that in 2011 or 12. So it's not that the technology wasn't there and it's amazing that some of these products are even just launching today, given 10 some years ago, they were capable.

• 57:12Speaker 03

  Yeah, it's interesting. I,

• 57:14Logan Bartlett?

  The correlation of the content being interest-related versus the account being interest-related was always the tension that I kind of felt as a user of like Logan's tweets, right? Could, if you gave me, I actually have two Twitter accounts, one for college football and one for everything else in my world. And the reason that that was the case was because there was never any ability, it always felt like I was force-feeding people college football that didn't want it, right? And there was never any ability for me to exist as a, at least it didn't feel that way, that I could exist as a person with two interests and that have those things kind of algorithmically determined. And so I wonder how much like,

• 57:59Logan Bartlett?

  I don't know, you can answer this question. At an account level, you could say, hey, New York Times is media.

• 58:04Speaker 04

  Account was actually hard for that exact reason. Yeah, they'd be able to say media, celebrity, that was an easy classification, but they had reasonably good tweet-level content classification even back then. I remember there was tests internally, we'd create timelines around now. At the time, there were only a fewer, there were a fewer number of topics you could do them around that had enough kind of density of content that you could pick out. So they probably weren't as good at picking the little ones out. But, you know, that was there 10, 11 years ago and they just finally started launching interests as a, as a product like, you know, what, two or three years ago? So even if you came onto the platform and you wanted to follow the NBA as a concept, you couldn't do it for a really, really long time. You'd have to follow like the @NBA account, which is boring as can be. And then you have to follow and find all the different players and it was, it was a mess. So I think they've gotten there, but it's taken a long time.

• 58:48Speaker 04

  And I think that's been other people's frustrations. It feels like it's been a Titanic of a product to innovate and push out new features.

• 58:55Logan Bartlett?

  Fun fact, your two accounts count as two separate MDAU from a technical standpoint. And so the more accounts you open, the more you're going to be driving that stat. Well, and that's not even counting my, my, my OJ Simpson account too. So now, now conceptually though, this kind of teases out an interesting thing of where we are like from a, there's this cold start problem that exists, right? And, and that is, has always been an issue of how do we get to that activation level that someone's hooked? Because when you get someone hooked on Twitter, as I think the three of us can attest, there's no replacement

• 59:37Logan Bartlett?

  for it, right? And Ryan, you used the term alchemy that, that exists, but like there, it's, it's so unique in that way, but there is a very high bar and an amount of effort that a lot of people, I don't know the number, but I think it's something approaching a billion or maybe compound, you know, the exact number of people that have tried Twitter and basically quit, right? And so-

• 1:00:00Speaker 04

  It's over. It was, it was over a billion back when I was there. So I can't even imagine, you know, there's not that many more users of connected internet at this point.

• 1:00:07Logan Bartlett?

  Yeah, we're running out of people in the world. But, but implicit in kind of how we're operating, Elon's operating now with it, is the focus is, hey, let's not iterate on making it easier for people to, that, that, that aren't on the platform to come on and get value. Let's not focus on that. Let's instead squeeze more dollars from the, the power users that are addicted to the product, right? Which in some ways makes sense as a business, like you want to monetize your, your customers that are most captive. The,

• 1:00:47Logan Bartlett?

  the problem here is, it is a network effect business that the people that you're trying to monetize are also the ones that make the platform work in some way, right? Because they're the ones that are posting. So maybe Compound, can you, can you talk a little bit about the business element of, okay, so there was 5 billion roughly in revenue from brand advertising and now there's been a big falloff of people seemingly leaving the platform. I think some people are accusing brand advertisers of kowtowing to the woke, which I'm not exactly sure that's true. But can you talk a little bit about the business implications of shifting from brand-based advertising to subscription?

• 1:01:32Speaker 03

  Yeah, and I will. And I'll also just agree. I think he's made a strategic mistake about, you know, trying to monetize the regular usage of it for $8 as opposed to, you know, I have a mental picture of you want to keep the top of the funnel truly as wide open as possible and then generate your, your revenue down toward the very bottom. And we can talk about that. But from a, from a big picture standpoint, the business was a $5 billion run rate business from a revenue standpoint of which several hundred million, but less than 10% was actually a very high margin, is a very high margin SaaS data platform. So if

• 1:02:16Speaker 03

  you're Bloomberg, you pay Twitter to truly plug into their pipe and ingest all the data that's flowing through Twitter, obviously protecting, you know, privacy.

• 1:02:28Speaker 04

  We used to call it the fire hose.

• 1:02:30Speaker 03

  It's called that. Actually, it's called the fire hose. They're drinking from the fire hose. And, and that is a pure SaaS product. And you can imagine, you know, very high margin because the SG&A that goes along with it is really low, right? The cost structure you need to have to go with that is really low and you own all the data. So it's just, it's probably a 90% gross margin, you know, and it's an incredibly profitable business. And I'm making that point just because I want to come back to it in a minute. The other 4.6 billion or whatever is primarily brand advertising. And we're drawing a distinction of brand advertising is more like what you see on TV,

• 1:03:10Speaker 03

  right? An ad kind of floats in front of you. Hopefully it's relevant, you know, it's not something that turns you off. But it's, it's very rarely historically on Twitter, more bottom of the funnel call to action advertising, although they've been pushing toward that. Whereas if you're on Facebook or Instagram, they're trying to convert you with most ads and generate a sale. That's not true at Twitter. And so the brands that advertise on Twitter care a lot about the environment that they're sitting in. And so that, that's really a lot of what this debate has been about. And so what we've learned is before the deal closed, you had Twitter that had $5 billion of revenue.

• 1:03:56Speaker 03

  Three billion of that was gross margin, so 60%. And then they had three billion, they had a little over three billion of cash costs that they were, that they were incurring at the time of the last information we had. And so it was kind of just under a break even company. Now Elon borrowed $13 billion, which comes with interest expense. So now there's a billion of interest expense. So if nothing else changed, they'd go from losing a little bit of money to losing a little over a billion dollars of money. And so you can understand he's got to either drive revenue or take cost out. But in the first week, Elon tweeted out, we're losing $4 million a day.

• 1:04:38Speaker 03

  And if you do the math there, that's actually a billion and a half dollars a year of burn. So he's picked up somehow another 500 million dollars.

• 1:04:48Speaker 04

  Which he's responsible for.

• 1:04:50Speaker 03

  Yeah. Well, you know, what we do know is that brand, that the digital advertising market has turned down a lot, right? So you can see that in Snap, you can see that even at Meta to an extent. There's, there's both like recessionary economic reasons for it. There's technical reasons for it from an Apple iOS privacy standpoint. But, and there's almost certainly an Elon negative impact, both from during the trial when he was constantly dragging Twitter and saying, oh, it's a giant fraud, you know, all these sorts of claims. And now in the current state where there's brands that have announced, we've put things on pause until we see what Twitter is like under Elon.

• 1:05:33Speaker 03

  Anyway, if you assume it's losing another 500 million dollars, the, the math on that, because it has 60% gross margins, is that they've lost eight or 900 million of revenue, which is a high teens percentage of what he thought he was taking over. So it's more like it's a $4 billion business with a billion of interest. And so he's got this really hard choice right now because you gotta pay the interest, right? So that means he's either got to drive revenue up and/or take cost out. And he's terminated half the company. Those costs don't start saving till January because you have to provide, you know, several

• 1:06:15Speaker 03

  months of notice and/or like employment or severance, that is. And so. You know, it's hard to drive revenue.

• 1:06:24Speaker 04

  Compound, do you know the math on what that equates to? I haven't tried to do.

• 1:06:27Speaker 03

  We know that they had three billion of cash SG and A, most of which is going to be personnel, but obviously some of which is like operating expense and software licenses. I mean, excuse me, rental expense and software licenses and whatnot. So I think if you kind of assume two thirds of that was employees, then he probably took a billion dollars of cost.

• 1:06:47Speaker 04

  Billion off.

• 1:06:48Speaker 03

  And frankly, they also, all of the most expensive employees effectively are gone. So it might be a little over a billion. It wouldn't surprise me if he skewed towards, you know, high cost employees. But that's not going to solve the whole problem. So, so that's, that's what he's facing right now. And you can understand why he's going to take shots on goal as far as like, uh, we're going to experiment with new monetization models. Now, like if it was me, I would have truly gone after the power, power users, right? Like not the average person who likes to be on Twitter, but the person who's built their whole professional life on Twitter. Right? Those are the people who can't afford to go away.

• 1:07:31Speaker 03

  And like they, you know, you, you can figure out ways you could have done that. Like what if you like LinkedIn, right? They charge you a meter DMing price and it's very expensive. You know, could you have figured out who your high value power users are by saying, hey, we're going to meter DMing? Or one thing I would consider is the price of the fire hose. There are multi-billion dollar public companies that are built on top of Twitter's fire hose. Right? You can go look at them sprout sprinkler. Like if I'm Elon, I'm looking at those market caps and I'm thinking to myself like, that's my value.

• 1:08:12Speaker 04

  We used to, we used to talk about delaying it and you pay for the speed of delivery. It's like, you want the cheap one tweets come in a day later. You want the expensive one, it's coming in live.

• 1:08:21Speaker 03

  That, yeah.

• 1:08:21Speaker 04

  The cost of the value of the immediacy.

• 1:08:24Speaker 03

  Yeah, right. But no, I, that's a good point. I mean, that's kind of what he's getting at. If you think of part of the, um, eight dollars, which we keep talking about for this new Twitter blue service. Everyone is talking about the verification side, which really isn't verification. It's just, we think you're a human. But one of the features he alleges that's going to come with it is that it gives your replies more prominence and your tweets more prominence. And so they're going to algorithmically favor people who pay the $8, and which I would say is kind of getting at the same idea, whether it's like delaying the tweets, or frankly, we'll just prioritize payers. And I think that, you know, I can kind of actually, that to me is more interesting than the verification

• 1:09:09Speaker 03

  side, building out a suite of Twitter Blue tools, right? Because other things that come with the $8 are you're allowed to edit your tweets now for 30 minutes after you tweet. You know, you get more bookmarks and folders to save tweets in and organize your world. And there's a whole bunch of other features. I would be focused on like, how do I drive more value into that package? That is less about like how you look on Twitter, more about like, I can give you a better Twitter user experience, right? Like, you're just going to have, you can have different fonts, whatever it is.

• 1:09:43Logan Bartlett?

  I think one of the interesting things here is, everyone always made the joke that like, or people have made the joke now that Elon's the first Twitter user to be the CEO of the company. And it's like, kind of funny quip. But it's interesting, he's coming at this, at least from my perspective, so much as a user and how he thinks about where value exists and what should be attained by or controlled by Twitter itself, rather than coming at it from where are the big dollars that can be squeezed out? And I don't know, I mean, I'm sure, Compound, you probably have the numbers on like, how

• 1:10:27Logan Bartlett?

  many active users there currently are. But the willingness to pay $8 of the millions of people that would be willing to do that. Versus the 100,000 people, to your point, that would be willing to pay, you know, $5,000 or $10,000 or whatever it is on the power user side, right? And, and so it's interesting that how many of these things from a business model standpoint are rooted in his own user experience and where it feels like value should be coming from, rather than like where, who has a lot of money? And I'll tell you, there just isn't that much money that, that is going to come from $8 a user.

• 1:11:11Logan Bartlett?

  And so I'm sure this is a staging thing. And one of the big benefits, I think, of everything that's going on is they are trying. The one problem here in terms of trying and product innovation and all of that is in a network effect business, these things compound, right? And, and the good news is it's very-

• 1:11:33Speaker 04

  Both, both in a positive way and can also be in a negative way.

• 1:11:37Logan Bartlett?

  And in a negative way, right? And so as these things start spiraling, the concerns manifest themselves and start to become true in a way that isn't true of an enterprise software company when you have annual contracts.

• 1:11:52Speaker 03

  I mean, I make a couple of quick points. So one, I totally agree. He's coming from his user experience and he has an N of one user experience. I mean, there's nothing like his user experience. The average person on Twitter doesn't- Elon experiences, for instance, his, his obsession with spam and bots. I get it. You go on his replies and there's spam and bots everywhere, right? Because his tweets are so engaged with by the world. That's a really attractive place for like spammers.

• 1:12:24Speaker 04

  It's the lightning rod for everything.

• 1:12:25Speaker 03

  Exactly. You go on one of my tweets or your tweets and every now and then you see like one and it kind of gets, turns into a hidden reply pretty quick. Like it's dealt with fairly effectively. It's just not a problem for the rest of us.

• 1:12:38Speaker 04

  Totally agree.

• 1:12:38Speaker 03

  So he's addressing a problem that is like an annoyance for him, right? It's got, but it's not like an annoyance for the average user. And I think that is a, to your point, like- So he's in trying to address that, he's introducing friction into this business, into the user experience that just doesn't need to be there. And quite the opposite to Ryan's point, like you don't want to put friction into a network effect business. The whole thing is how do you remove it so that people find this to be a like really pleasing, easy experience? And I think he's taking on a problem that's just not a big one. Now, all that said, to your question about users, you know, when he signed the deal,

• 1:13:21Speaker 03

  they had somewhere around 220 million MDAUs monetizable daily active users, which is different than the way other platforms calculate it. So monetizable daily active user is a real human being or firm that, and they have to make estimations around, are you spam or not? But they've removed all spam and bots from that, who's using it on that day, on a, who's logged in on a platform that they can advertise through. And there's a lot of platforms that you use Twitter on that don't actually allow advertising, including TweetDeck, which Twitter owns and is a power user platform, right? Like, it should be a SaaS product they charge $1,000 a year for.

• 1:14:05Speaker 03

  And, you know, so, so they've already scoped down, when you see 230 million MDAUs, there's actually hundreds and hundreds of million more, just MAUs, monthly active users, right? Who may or may not be monetizable. So my supposition is actually a much bigger platform than people give it credit for, because they report a pretty strict number. Now, since Elon got involved, the number of users has actually grown at a pretty dramatic pace, and you can associate it directly with him. In the month of February, April, when he signed the deal, they saw a huge spike in MDAUs, and they saw them, including in the US, which has been stagnant for years, right?

• 1:14:50Speaker 03

  And now, again, Beginning in October, you know, Elon and Jason Calacanis, former guest on Cartoon Avatars.

• 1:14:57Logan Bartlett?

  Yeah. Friend of the pod, I guess.

• 1:14:59Speaker 03

  Yeah, disclosed some of the new MDAU stats and it is up and to the right for the last six weeks. Right? And that, that isn't, either you can be cynical and say like, they've taken dirty numbers and dirtied them up even more. Or usage is spiking on the platform and they are claiming usage is spiking. So if you've got these two levers as, as it relates to like pricing per user and total number of users. Actually, one of those sides of the equation is going well. Right? And so if I'm them, I'm doing everything I can to protect and nourish that. But I, I'm not them. I really don't think they're doing a great job of protecting and nourishing that.

• 1:15:41Speaker 03

  But, but the platform's on fire right now from the standpoint of.

• 1:15:45Speaker 04

  You know, for what it's worth, in all these social platforms, anytime Facebook would do a big interface change or Twitter make a big change. There's this like short-term hysteria over like, ah, you know what, this is all changing. I'm going to leave this platform. And then you look at the numbers afterwards and very few people, even the ones that say they're going to leave a lot of times, don't leave. And then you just hear from this noisy group that a lot of times never actually leaves a platform. And if they do, it's in small numbers. So I think you, you see some of the hysteria, people are, you know, threatening to leave. But I, I think the people that are actually jumping off are going to be a smaller number than people think. And I think a lot of people are going to be interested in the experiment and want to come on. Now they might be disappointed by where it goes, but I think we're going to at least see a short-term increase in bump in growth of it.

• 1:16:24Logan Bartlett?

  Do we have any idea? So, so 225 MDAUs, right?

• 1:16:29Speaker 03

  Which is now closer to 250, according to them.

• 1:16:33Logan Bartlett?

  Do you have any estimate? I mean, if we were to swag out what that, how many of those people would be potentially willing to pay for some type of prosumer verification, advanced functionality, tweet deck, whatever this Twitter blue thing they're experimenting with is? Do we have any way of estimating? I can't decide. They're clearly acting like this is. Very material, right? Like the way everyone's tweeting about it, everyone's pushing it like his, you know, seemingly the C-suite who, who, as you alluded to, seems to be Calacanis and Saks are,

• 1:17:14Logan Bartlett?

  are tweeting about it as well. And so presumably they see a material revenue opportunity there. And, and if you said it's, hey, it's 10%, right? That would pay for it. There actually is a decent amount of revenue to be made back, right? On this subscription revenue, I think 10% probably gets you roughly to like a $2 billion revenue number, I think. So do you have any way of thinking about like what actually is possible there?

• 1:17:43Speaker 03

  We know.

• 1:17:44Speaker 04

  So at least the baseline to work from, I just looked it up because I thought this number was right. And it seems to be right, at least by the internet. It was about 450,000 existing verified accounts, which is probably not a terrible proxy for at least the base of accounts that are, you know, businesses, power users that will want to at least keep that thing and potentially use the features on top of it. Can you 2X or 3X that to, you know, single, small, single-digit millions?

• 1:18:07Logan Bartlett?

  So, so that, and that translates to $43 million roughly at, at the existing number. 2Xing, who would be willing to pay would be 86, right? 3Xing would be 120 or whatever. So we're still talking about, I mean, that, that would be great found revenue for them, I'm sure. But we're still talking about small numbers in the grand scheme of things, right?

• 1:18:29Speaker 03

  I mean, I, I think it's important, a couple of things to add to that mix. So one, Twitter Blue itself actually launched just over a year ago without the verification element and sort of like prioritizing your tweets, but it allowed you to have a few little tools and whatnot. And they never publicly had disclosed how many people took it and it was $5 a month.

• 1:18:53Speaker 03

  And we just learned that part of the reason they probably didn't publicly disclose it, there were only 100,000 subs. Okay, so you know, that's a really, really low number. So I'll add that to the mix. I will say you also cannot look past the App Store tax on this, right? So there's not, we talk about $8, but it's really $5 of net revenue or call it four, uh, $6 of net revenue, somewhere in that range. And so for every, you know, 1 million subs, 12 million, I mean, 12 months, you know, $6, that's 72 million of contribution margin

• 1:19:33Speaker 03

  that you're dealing with at the $8 level in the US. Most of Twitter's users are not in the US and they're talking about adjusting the Twitter Blue subscription on like a PPP, purchasing power parity basis, meaning like if you live in a much poorer country, the price needs to be much lower.

• 1:19:52Speaker 04

  To answer it.

• 1:19:53Speaker 03

  Yeah. So we're talking about this as if everyone's going to pay US freight. First, they haven't even, they haven't even rolled Twitter Blue out in every country in the world. But like, what is the US like addressable market? They have maybe 35 million US users, MDAUs. So it's, it's a higher number of actual users. I mean, maybe it's a million. I, I don't know. That seems like a pretty big win if you got it in the first year. 3% penetration rate of people paying you $100 a year. Um, you know, that's, that's 100, you know, that's, uh, what did I just say? I guess like 60 million bucks of contribution margin. I think it makes sense. Like go get it. It's high revenue. I mean, high.

• 1:20:33Speaker 04

  It might be low hanging fruit and some quick revenue to pick up, but it's not going to solve the billion dollar hole that he just created.

• 1:20:39Speaker 03

  That's right.

• 1:20:40Logan Bartlett?

  That sort of comes back to the, when you, you get, it's almost like being elected into political office. You get a change, uh, you get a mandate to make change, right? And you get your pulpit and, uh, to the, to the user spiking, like there clearly is this, uh, you could say palace intrigue or schadenfreude that, uh, that is going on right now on the platform. And, and so my question in all of this is there's a lot of energy and coverage. And I mean, my mother asked me about this recently about like,

• 1:21:15Logan Bartlett?

  Oh, you're verified. Like, did you pay for that? And I was like, no, I didn't. I'm not one of the, you know, I, I'm like, no, no, not that. I, I, I had it before, uh, you know, whatever. But so i- it's interesting that, um, that there is this moment in time that they captured the zeitgeist. The, the energy dedicated to this just feels like mice nuts in the grand scheme of things, uh, of how it's going to move the business. Ryan, is that, is that your opinion on, on like what the potential of this is? Whatever, if it's a million users, somewhere between, it sounds like at the high end, maybe we assume 10% and that gets you to 25 million of the M Dow number. At the low end, we assume, you know, the existing 100,000.

• 1:21:59Logan Bartlett?

  Like, can this actually move the needle for the business?

• 1:22:02Speaker 04

  I mean, just doing compounds math on it, you know, by default, you have a billion dollar hole that he added. And then you have some pluses and minuses and probably a larger hole than that that you have to dig out of from the beginning. This is helpful and it's probably low hanging fruit in your first two weeks, but it sure feels like a lot of swirl to try and get this going. And they talked about making it a pay only and it's paywalled. And you're like, that's just an awful idea for a network effects business. So, I don't know. I think directionally, they're thinking about some of the right stuff, but like all things in my, my whole theme for this is like directionally correct, but like the execution is just awful. You know, so I think they're directionally thinking about some of the right things, but God, the way it's being handled is just awful to watch and hard to watch. So I think it makes a small dent, but it's a huge hole to dig out of. I think they're going to have to come up with much, much bigger ideas.

• 1:22:45Speaker 04

  And that, that hole, you know, gets bigger by the day as they have to keep making more of the payments. And, uh, the product, you know, we'll, we'll see where it gets to. But I haven't heard an amazing vision for the product, a very clear vision for the product in a way that makes you like, oh, wow, they're thinking about this in a way that is super unique, crazy value add, uh, and you could see a version of that if they pull it off. It's a widely available and valuable product. I just haven't seen any of that. When you read through the text messages, you hear him, you know, you watch him tweet about it. You know, it's an open protocol. Well, now it's a WeChat app. It's a, you know, what ideas do you have? And so it, it isn't inspiring to say the least, I guess.

• 1:23:21Logan Bartlett?

  Yeah. And he, he hosted a Twitter space, um, the other day that had, you know, huge, huge viewership, but in it, he laid out that sort of vision of this being an everything app, including payments. And he, he wants people to be able to keep money, quote, on deposit at Twitter, which you can kind of understand because it enables.

• 1:23:44Speaker 03

  In-app transactions that avoid potentially some of the App Store costs, but that is such a grand vision and so far afield from like what they have to deal with right now. Although I will note, I heard FTX might be for sale if he wants to.

• 1:24:03Speaker 04

  Except no one wants to touch it when they actually dig in.

• 1:24:07Speaker 04

  The thing is, so we looked at doing payments, we even hired a guy out of Ticketmaster who was a total stud to come in and run payments. I think in probably 2012 or 13. And as the team started to dig into it, just realized there wasn't a lot of there there. There's a lot of linking and a lot of kind of high level purchasing, but the actual transactional stuff was just not happening anywhere near Twitter. And so it was really hard to go capture that value. Now, can they bring it in and create a product that creates more transactional value within it? Possibly, but I don't think there's a ton of like low hanging payments fruit sitting there they're going to.

• 1:24:39Speaker 03

  I mean, I'm a not, I'm a total novice, but you would think payments is quote an easy problem to solve. It's obviously not because you can only subscribe to Twitter Blue on your phone right now because they have payments. Frankly, iOS is delivering them value, like the App Store is delivering value. You can't do it on your PC where there would be no App Store charge. Like they haven't figured that out yet, you know? It's been up for over a year and you still can't buy Twitter Blue on PC. And so like payments is a tough, that is a tough business.

• 1:25:13Speaker 04

  We got to make sure you're creating value if you're going to capture that value. And I'm not sure in the payments world yet that there's a plausible case for where Twitter's creating transactional value for these things. Yeah, I think that's, you know, again, 10 some years ago, they were struggling to kind of find where it's the thing you can grab on to. And I'm not sure a lot's changed, you know, the 10 years since.

• 1:25:31Speaker 03

  To put one more bullet on the subscription opportunity, or maybe one more nail in the coffin. I think Reuters had an article out in the weeks leading up to the closing that laid out sort of like the power user versus overall user stats. And they were defining power users as people who come on the platform, something like four times a week, occasionally tweet and, you know, like and engage with stuff, which as the three of us know, like there is a whole nother level of power user above that. But even at that lower threshold. I can't remember the actual data point, but it's something like 10% of people even hit

• 1:26:12Speaker 03

  that threshold. So to me, it's like that person is not going to pay for Twitter blue. So you're already dealing with a pool that's maybe 25 or 50 million people. If you, if you say MDAU is really double because most people only come on every other day, right? So it's really like 500 million. It's just not that big and addressable opportunity for them. That said, I, this is going to be the first thing that they do, but it's definitely not going to be the last thing, right? They're going to be experimenting all over the place and we are going to see what building looks like in public in a real way. In a chaotic way.

• 1:26:51Logan Bartlett?

  Can we talk for a second about the, the brand advertising element of this? And compound, you kind of alluded to this earlier, but there wasn't this same bottom of the funnel, call to action, conversion, click through type of advertising that was happening in a meaningful way on the platform in the same way that, you know, Instagram had or Facebook has or whatever. And to some extent, um, the, uh, the issue with that, particularly in this economic environment is not having that means that you, uh, can't ascribe ROI in the same meaningful way to some of these transactions that are occurring. Right? And so if you're a, if you're a marketer and you're thinking about, hey, should I go spend

• 1:27:33Logan Bartlett?

  dollars over here? I'm J. Crew and should I go spend it on, on Twitter where, uh, I, I can't really ascribe what the exact ROI is in the same meaningful way, or I can go do it on Instagram and I know that I'm going to get people to click through and actually buy and I can ascribe what that ROI is. Certainly in a recessionary market, you're going to start looking more, uh, in a more meaningful way on which one is actually delivering hard ROI. And so brand advertising inherently has this, this issue of squishiness and softness associated with it. And that ends up, uh, being hurt in, in, in, uh, recessionary environments,

• 1:28:15Logan Bartlett?

  right? But the other component, and we, we talked about this a little bit earlier is advertisers don't want to be associated with, uh, With content that isn't consistent with their brand values. And so as these things are, this is back to the bot issue to some extent and the spam and all of this stuff that I think Elon sees far more than us. There's this concern of hate speech that exists on the platform. And I've seen some stats on certain racist words being up pretty significantly since Elon took over the platform. And you know, some of the moderation that exists as well. And so I guess, Ryan, my question to you on this is, why has Twitter inherently been a more

• 1:29:00Logan Bartlett?

  brand advertising oriented platform in its, in its existence versus this call to action? More algorithmic, whatever, conversion related platform. And is that an opportunity for them to try to be a little bit more down funnel? Or is there something inherent to the platform that only lends itself to brand advertising?

• 1:29:25Speaker 04

  You know, and again, my, my data on this is probably 10 years out of date. And so a lot has probably happened and developed in the time since I've been there. But I remember at the time, it was as much as you wanted to be really close to the funnel and you find out about the product you really love. And you'd click on there and you go purchase it right away. It was more of a discovery platform than it was kind of a final intent. And so we were much more top of the funnel than I think anyone wanted to be. And it's where you kind of start learning about something and you might go browse and research it and you come back and you learn about something new. But it wasn't as much as like, you know, Instagram with a tile of a photo and a thing that is clickable and you want to purchase it. That's about as close to the bottom as you can get. Twitter, you know, at the time was much more in the discovery top of funnel phase. And so I think it just lent itself much better to brand advertising.

• 1:30:07Logan Bartlett?

  You're, you're looking at someone who twice in the last two months has bought something bottom of funnel from Twitter. So I

• 1:30:14Speaker 03

  Wow.

• 1:30:15Logan Bartlett?

  Yeah, exactly. Ask me anything, but

• 1:30:17Speaker 03

  Yeah.

• 1:30:19Logan Bartlett?

  A real, a real one in the wild. What was it, by the way?

• 1:30:23Speaker 03

  Was it something like doll from Russia or something or what?

• 1:30:26Logan Bartlett?

  I'm, I'm sure like they actually like open a bottle of champagne every time, you know, that happens at Twitter. But I mean, if you look at it in the before times of nine months ago.

• 1:30:38Speaker 03

  The the bottom of the funnel at that time that did that did exist in a real way was app downloads. Right? So like if you're scrolling, they would try to get you to download a game or try to get you to download HBO Max or something like that. And that's a really clear attribution opportunity. You click it, you buy it, and it doubles as a brand advertisement.

• 1:31:01Speaker 03

  But if you look at Meta, Facebook's revenue, I'm going to be off, but this is pretty directionally correct. I think 80 to 90% of it is from small businesses. And that almost definitionally means those are people trying to convert a sale. Right? And and they have great tools for Logan's T-shirt shop to go on Instagram and be able to like, set up that advertisement to convert. Twitter was the inverted. They have like 10.

• 1:31:30Speaker 04

  We forget Twitter has so little data on their users, right? I mean, you think about comparing it to Facebook, Instagram and how much, you know, attribute, how many attributes they have to work against? Location, interests, graph, and all these things. Twitter by design was always meant to be a much lighter weight thing. And so they don't even know where most of the users are to be able to target them. They don't know gender. They don't know age. So I think it just it they struggle to attach to that kind of small business audience wants like very specific. You're in my neighborhood. You're 35 to 50 year old male. Boom. Here's the here's the ad for Vori, you know, shorts.

• 1:32:03Speaker 03

  That was a very niche reference.

• 1:32:06Speaker 03

  One, one that's.

• 1:32:08Speaker 04

  For this audience.

• 1:32:09Speaker 03

  Yeah. Ryan, is that, I mean, was, were there efforts to capture that in the early days of getting like, how much of pseudonymity? And allowing Compound to to not reveal himself was a a feature of what the platform was evangelized to be versus kind of a bug in the early days. And not having that information was something that, you know, obviously it would be very valuable today to have all of it.

• 1:32:39Speaker 04

  Yeah, I mean, I think it was a very core tenet. And, you know, when Dick and Bain took over, obviously Bain, you know, I think he's one of the best kind of, you know, media execs out there, sales execs. Obviously, they would love to have more data, but it was at such conflict with the kind of a core tenant of the of the company to be this kind of lightweight pseudonymity thing. Even if you wanted to attach it on, it would never be about pushing it on users and making them feel like we had to have that data. You also had a hard enough time kind of onboarding people that if you added a ton more steps to try and capture a lot more attributes, the funnel gets even harder and worse. And so I think those two things were a tension with trying to get more data. But harder was definitely philosophical and there was no advertising business to start with and sign up with your SMS and get going.

• 1:33:19Speaker 04

  And then even as they built out a sizable ad business, pushing to try and get more of that information, then it became kind of a philosophical point around engagement and onboarding.

• 1:33:28Speaker 03

  I mean, I would be shocked, though, if they can't deduce a lot of that from the way you engage, right? So like, once you, for instance, engage with an NFL team and an NBA team, I would bet, this is just me being sexist, I would bet, you can start to say, okay, it's more likely than not that's a male, right?

• 1:33:46Speaker 04

  Yeah, for sure. You can build heuristics out of that. I mean, it's possible, but it's not as rich nor as dense as you're going to get out of something like Facebook.

• 1:33:52Speaker 03

  Doesn't allow you to price it. It doesn't allow you to price it the same way, but it doesn't prevent you from, you know, pricing low and getting it on the platform so that you can begin to get feedback on like what works, what signal really is valuable. But but I agree that like it's it's not as well set up for that as Instagram. But but to me, it's pretty obvious, like they should be able to do some of it. And today, it's it's a very low, low percentage of the revenue opportunity or the revenue.

• 1:34:23Logan Bartlett?

  I mean, the business itself today is is fantastic for podcasters, I would say, is really that. I think if they're serving any market well right now over the last two weeks, it's the it's the man behind microphone market, which which they're doing a great job.

• 1:34:39Speaker 04

  Return to audio.

• 1:34:40Speaker 03

  Yeah, it's a content generation.

• 1:34:43Logan Bartlett?

  Comes full circle.

• 1:34:44Speaker 04

  Life is a circle.

• 1:34:45Logan Bartlett?

  The original origins of Twitter, back to being a podcasting company. But as we sort of look, I mean, I realize that we're two weeks into this or six months into this. As you guys kind of look at the opportunity that exists for Twitter and where energy could or should be spent. And Ryan, I realize you're dated and, you know, in terms of like your actual operations on this side, but and I don't want to presuppose that where we're seeing the gnashing that's going on is only where they're spending energy and effort.

• 1:35:26Logan Bartlett?

  It definitely, I mean, we're getting some flavor of that from some of the leaks that are actually coming from within the company as well as some of the all hands and stuff that it might be an Occam's razor situation where what we're seeing is where they're spending the most time. But if you guys were, if you were invited to be on Elon's, Elon's kind of circle of advisors, which actually, by the way, I think one of the requisite things is either having or being on a podcast to do that. So you might be a little closer to, to being invited now than you were.

• 1:36:00Speaker 04

  That's why I'm here. Just trying to get back in.

• 1:36:02Logan Bartlett?

  Yeah. Where would you guys spend time from a, from a, you know, monetization and effort standpoint, if you were him and really trying to make change? I guess, Ryan, I'll go to you first.

• 1:36:14Speaker 04

  It's a good question. I guess so much of mine is rooted in kind of what the, what I'd say that the business was nine months ago before all the debt got laid on to it. And so I haven't thought through a ton on the economics and kind of business side of it. But I go back to those root things of like, why did Twitter kind of have these like stutters and starts and never kind of capture the full opportunity? And to me, it goes back to like onboarding and showing value for users, making it simpler to use for people, get rid of the kind of abuse and stuff that like, you know, while we only see a few spam bots, I do know a ton of friends in our world that are outside of our profession that see awful abuse and it's there all the time. And so it is, it's not just the Elons. There's pockets of it depending on, you know, if you're. BTQ or you know, wherever you are that is getting, you know, some intense speed.

• 1:36:58Speaker 04

  So you got to go figure a bunch of that out. You got to get the core products working again. And you got to give people a reason to get back in the platform. I think once you get that flywheel going again, there's tons of revenue to be captured from the business. But they've got to get momentum going again and being able to ship products that matter to a wider audience. And I'm a little worried that they're in a reductive version of this instead of an expanding version of this. And I think if you start getting reductive in a network effects business, it's going to be a downward spiral.

• 1:37:24Speaker 03

  Yeah, I mean, I totally agree. You have only a few levers, right? You have costs. He's pulling the cost lever already. And maybe there's more to do there, but that's not going to really fundamentally solve your problems. You have usage and that's heading the right way. But to keep it, you have to provide an environment that is one where people feel safe, right? Like the idea that, you know, um, there's groups of people who are in like constant sense of harassment, right? Like, that's a problem and you, you just, that has to be solved. And just saying we're the free speech wing of the free speech party, so to speak, is not going to solve it, right?

• 1:38:06Speaker 03

  You do, you have tons of people who they need to have a reasonable experience. So that takes investment too. So, but he's driving usage so far. So to me, the other lever is pricing and pricing is from delivering value to advertisers. And then he has a SaaS product that people don't talk about, but is an incredible product sitting under there. And probably drives over a hundred percent of what profitability there was at Twitter. And so

• 1:38:36Speaker 04

  And it's probably still under, under um, utilizer. The opportunity of the value they're creating versus the value they're capturing, I think is way out of whack.

• 1:38:43Speaker 03

  Yes. So that's where I was going, which is I, I think pulling price on that product, which those are a long-term contracts. So that's going to like phase in over time, but that's very doable. There's lots of businesses, you'd be surprised, that are built on top of Twitter. Um, and then, you know, I think you've got to figure out, I, I, advertising is going to be this business. Like I, as much as they'd like this to be a subscription revenue balance against advertising. I think subscription revenue is going to be icing, but advertising is the cake. And like they've got to get um,

• 1:39:21Speaker 03

  They've got to get that entire machine working again. Historically, Twitter is much more of a hand to hand combat like sales process where they have internal sales teams going out to big brands, you know, Fortune 2000 companies and trying to get them to come advertise on platform. Great, you've still got to do that again. That takes cost. That's a lower margin product, but they also have to really build out the self-serve side. And they were working on that, like these were priorities to the company beforehand. And so I would be shocked if they don't remain priorities for Elon. He's already talking about, you know, pushing out products like usage features and saying, look how fast we're developing them.

• 1:40:04Speaker 03

  And there were things that were already in the works, like long form tweets for people who pay for Twitter Blue. Well, that's a product they've been working on for over a year. So they've also been working on this down funnel advertising and self-serve advertising for two years. Like he's gonna take credit for it. Great, it's his company, but I'd be shocked if they don't push that really, really hard because it's found money to them at this point.

• 1:40:30Speaker 04

  I do think there's, there is an opportunity for him to break the logjam there. I mean, as a company with 7,000 employees before, 8,000 employees before, now even down to 3,000 plus, it's a lot of people to be able to go get great product out there. And it's just been such a slow moving business. And I think they've got to get urgency and momentum back in the business, be able to ship products that matter to people faster. And I would just watch it internally, I mean, there were so many smart people there, tons of really smart people, building great products. And they would just get like stuck in process and never launch. And then they try it again two or three years later, same thing built beautifully and then stuck in process. So I think, you know, one of the benefits of someone like him is he is, you know, he is a hammer coming in, breaking a lot of glass and there will be some chaos and it'll turn to a bunch of churn.

• 1:41:14Speaker 04

  But I do think he'll come out the other side, hopefully with a little more product momentum and some urgency. And we'll just have to see if he can keep the team and the company and the urgency together.

• 1:41:23Speaker 03

  I will flag like one thing about moving fast and breaking things in a Twitter context is they are still operating under an FTC order, FTC Federal Trade Commission order that basically, you know, 10 years ago, Twitter got in a bunch of trouble for not protecting user privacy appropriately. And so in theory, they are supposed to audit every new product from a privacy standpoint.

• 1:41:51Speaker 03

  And they have to manage user privacy and information in a highly secure way. And they just lost this week, like their whole data privacy, CISO, like all those and they're pushing out products pretty clearly, like on the fly, without necessarily running them through a traditional process. That's great. You're moving fast on the one hand, but you could end up with like a higher debt load than you realize you had because you pick up a billion dollars of fines along the way. So they have to be a little bit careful and realize like this isn't the startup. You want to bring startup energy to it, but you have a big existing business and big existing businesses operate a little more slowly for quite a number of reasons.

• 1:42:35Speaker 04

  I just think culturally the stakes are high on this thing, whether it's elections or abuse or whatever, like getting this wrong. These are, these are real lives and real governments that are, that are at play. And so I hope it's being appropriately, you know, thought through, but I'm just watching the chaos. The thought of it, I, I don't feel like it's getting the thought that it probably deserves, given the stakes that are, that are at hand.

• 1:42:57Logan Bartlett?

  Yeah. The, uh, the FTC thing's interesting. I, I've seen that, uh, individuals are being asked to sign self attestations, uh, attestations around like verifying that they're, you know, all the right processes are covered. And, and if they, if they're uncomfortable, they can report that they're being asked to do something that makes them uncomfortable or that isn't in line with the FTC thing, but it definitely, um, I mean, this is always one of those debates of how much is Twitter a public utility? Right. Versus that should be regulated like a, uh, a cable company or something in a different way. And, uh, I, you know, I, it, it goes back to the Donald Trump being kicked off the platform.

• 1:43:41Logan Bartlett?

  It goes back to a bunch of the implications of the business here. But, um, yeah, it's, it's a good call out compound because it's not, I mean, this isn't a, uh, there, there's real regulation and restrictions that exist. Not to mention just the business implications of it, uh, or the social implications of it, of having, uh, Eli Lilly saying vaccines are, are free or, uh, insulin is now free, um, that have big implications.

• 1:44:08Speaker 04

  I also would not be shocked, and not that I know anything specific, but if there aren't more whistleblower stories coming out of this, people leaving with, you know, some information that they are unhappy about, or they're mad with Elon taking over. And I think there's going to be a lot more reports coming out. They will be interested to see how they handle it.

• 1:44:23Speaker 03

  I will say it's pretty funny to me that they're out there promoting the MDAU stat and all the usage growth like after just, just a month ago claiming it was a fraud. The number is a total fraud and I can't help but laugh. It's like, you know, when, when he first signed the deal, Jack Dorsey was like, you know, Elon is going to carry the light of the world for this. He's like the perfect buyer. And then immediately Elon turns around and says, oh, actually the whole thing's a giant fraud. And I, I mean, I just can't get over the fact that at no point did Jack stand up and say, hey, you know what, like F you, it's not a fraud.

• 1:45:06Speaker 03

  Like in my opinion, the fact that Twitter is struggling right now with a lot of this has to do with the lawsuit that went on. It really, um, it really like poisoned the wa, the well a bit. And I, I can't help but look at Jack and say like, you, you uniquely had the chance to stand up early in the process and say like, Elon, you're wrong. Like, like this is ridiculous. And he, he let it fester and, and now his beloved, so to speak, this company is really suffering as a result.

• 1:45:40Speaker 04

  So he, he sat there complaining about the board. I don't know if you guys read all the tweets, but you know, his text messages, he said, the board is unworkable and I had to leave, blah, blah. He was the CEO for every one of those boards, like additions, you know, minus a few. And so it's, you know, the bed that he made and he's laying in it. It's just unbelievable that he then turns around, points at it and, you know, blames everything on that.

• 1:46:00Speaker 03

  He apologized this past week, not for not saying it's not a fraud, for over hiring, for over hiring. It's my fault.

• 1:46:08Speaker 04

  Jack was like, not for creating a board that I found to be unworkable.

• 1:46:12Speaker 03

  Yeah.

• 1:46:12Logan Bartlett?

  Jack's going to be shocked when he finds out who was running Twitter for the last six years. It's really going to be amazing.

• 1:46:18Speaker 03

  One more thing, like if you go back and you read all those text messages and whatnot, we don't have to get into all of it, but one little set of it, which can't, I, I mean, it just jumps out at me today is there is a text message from Will McCaskill, who's the founder of the effective altruism movement into, I can't remember it's Elon or one of Elon's people. And it's about Sam Bankman Fried. Okay, it's about SBF, right? And Elon has no idea who this guy is. He's like, oh, he's, oh, he's worth whatever, $30 billion. And he says, SBF tells me he's in for one to three billion. He'd be willing to do three to eight billion. And if you want him to do eight to 15, he might have to finance it.

• 1:47:02Speaker 03

  I was just like, ah, could you imagine? Could you imagine if he had invested? It would be so brilliant. I mean, that guy was swinging around money.

• 1:47:10Speaker 04

  At least he would have diversified.

• 1:47:12Speaker 03

  Yeah. His best asset right now is Robinhood stock.

• 1:47:15Logan Bartlett?

  The, uh, the best, most relatable part of the, all those Elon exchanges was, uh, when, when he was asked if he wanted to meet with SBF. Uh, I think he said, as long as I don't have to have a laborious blockchain debate, which I actually, I, I very much relate with Elon on that one. Of all the things that I feel really kindred spirit to, especially on this podcast, not having to have a laborious blockchain debate with, uh, with SBF. I, I, I feel you, Elon. Uh, well, good guys. Well, thanks for doing this. Thanks for, uh, coming on and, and knocking through all this stuff.

• 1:47:52Logan Bartlett?

  It's, uh, I don't doubt we're, uh, this is a, uh, I don't even know what inning of a, uh, baseball game we're in, in, in this one.

• 1:48:02Speaker 03

  Coming out of the batter's box.

• 1:48:04Logan Bartlett?

  Yeah, exactly. We're stepping up here. But, uh, Compound, thanks for waking up early and doing this early, early on a Friday morning. Ryan, thanks for, uh, doing this from, from Europe. Uh, I guess, what is it? It's European Halloween or it's, it's, uh, Amsterdam Halloween or something.

• 1:48:20Speaker 04

  It's Amsterdam Halloween today. So, uh, yeah, we're about to, to go out shortly after this.

• 1:48:25Logan Bartlett?

  Well, good. Well, thank you guys both for doing this, uh, and I'm sure we will revisit at some point soon.

• 1:48:31Speaker 03

  Sounds great.

• 1:48:31Speaker 04

  Sounds good. Thanks, guys.

• 1:48:37Logan Bartlett?

  So that'll do it for the 41st episode of Cartoon Avatars. Thank you to Rashad Assir, to Justin, to Andrew for helping produce all this stuff, as well as John Wu for calling in from Mexico, in addition to both Compound 248 and Ryan Sarver for making an early morning Eastern time work to talk through Twitter. Look forward to everyone hearing next week. We have a guest that is very topical with things that are going on in the news. And so it's one that I've been excited for and trust you'll enjoy that one, too. Hope everyone has a nice weekend.