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All right, everybody. Welcome back to the number one podcast in the world, the Fantastic Four, the original.
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>> Oh, the cast is back. >> The cast is back. >> Our brothers in arms.
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>> Brothers in arms. Here we go, boys. We got a big Newsweek. David Saxs is back
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and he's in the great state of Texas. How's it been, Sachs? How's Texas been
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for you so far? >> It's been great. Although, I just got back from DC. I got like three hours
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sleep last night. So, but we had a lot of news this past week. >> Yes. And we'll be talking about PCAST
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and your role in the and da and your role going forward in the Trump administration. Big news that we'll be
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talking about today also relates to you. Oh, Sultan of Science David Freeberg with your background
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from the iconic film for those not watching. Looks like the iconic Thelma and Louise. I wonder if that has
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something to do with the budget of California, which you've been outspoken about recently.
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>> Great rant, which I retweeted. >> Mega rant with I retweeted it, too.
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>> If only if only you could be allowed the time and space to do those kinds of
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rants on this pod. >> Thank you very much. If you kept talking, here he is. He's going again.
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He's going again. >> There it is. Dr. Doom. Dr. Doom, your mayor, your new governor. Are you would
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you consider it freeberg after Ohalo running for governor? There is no after oh halo.
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>> Oh please do it after. >> Oh please do it. >> Wow that'd be so great.
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>> I'm tempted to buy a hollow for like five or six billion. So he just politics
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California politics is dirty man. >> I don't even know what it does. I'll
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just have somebody else deal with the oppo research. But the amount of >> No no no no. We'd get him elected. He
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would do an incredible job. He would save the fourth largest economy in the world. It would be incredible.
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>> It'd be amazing. I would love the >> Here's the oppo resource act. David
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Freeberg went to a rave in 1999 and stayed up until 10:00 a.m. We have witnesses
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>> once he he got tilted at the poker game, stole a bunch of pistachios and lactate
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and ran home. >> He did. >> Let your winners ride. said, >> "We open sourced it to the fans and
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they've just gone crazy with it." >> Anthropic on a generational run and open
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AI crashing out a bit, boys. Let's chop it up here. Just looking at Anthropic
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pretty major heater this year. January, they launched co-work for business users. You know what that does? Cron
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jobs. You can connect to your Gmail, your notion, whatever it is. And then opus 4.6 which consensus wise everybody
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thought this is a major step function Jensen Michael Dell everybody's called
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it out Jensen actually called it back in November an inflection point and the first agentic model and uh opus 4.6
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has basically Dell said hit a threshold that we haven't seen before in terms of
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real productivity in teams. February, they dropped a bunch of claw code plugins that caused the SAS apocalypse.
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Not the SAS apocalypse, the SAS software as a service. >> It was a SAX apocalypse, too.
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>> Yeah, there was a little bit of that back and forth as well. >> No, I mean, as a SAS investor, it was a
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SAS. >> It was a bit of a you you were the tip of the spear there. We'll get into it.
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>> My exit comps were affected, that's all. >> Yes. It seems like you may have divested
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at exactly the right time. All right. $6 billion in annual run rate was added in
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February alone. Brad referenced a couple of weeks ago here on the pod. Earlier this week, they announced computer use.
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A new agentic system for enterprisegrade kind of openclaw functionality. Now you
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can use the clawed app from your phone to control your desktop computer. Really slick feature. Here's the calendar
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release over the past two months for the team at Enthropic. Dario, come on the pond anytime. Uh Sachs, you've had a
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couple of flare-ups uh and obviously the administration uh and the Department of
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War had their kurluffle, but just, you know, looking at it objectively, what's your take on the the
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surging anthropic generational run as I've described it here? >> Well, I've never been a critic of
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Anthropic's products. I've always been an admirer of their products. I think
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last year I gave him credit for MCP. I agree that they seem to be performing very well now. The company made a big
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bet on coding as the kind of big breakout use case. Whether that was done for business reasons or ideological
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reasons, I'm not sure. Anthropic is sort of the most AGI pill of all the frontier
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labs. And I think they made this bet on coding as their way to get to recursive self-improvement. As it turns out, it
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was a very good business move as well because code is the gateway into enterprise and enterprise IT budgets.
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And so they've been able to grow revenue pretty quickly as a result of getting
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into enterprise. Also, coding seems to be the basis for these other product extensions. So like you said, they went
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from cloud code to cloud co-work. The idea being that well if you can generate code you can also generate powerpoints
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or spreadsheets and you do that by generating the code to create that output. So that was the first extension.
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Now they are extending into agents. This computer use product is kind of like an
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open claw knockoff. So it looks like the generational run for Mac Mini is just about over. Look, I think they're firing
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on all cylinders. My issues with them in the past were related to what I have called the regulatory capture strategy.
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They do want a permissioning regime in Washington for chips and models, meaning you have to go to Washington to get
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permission to release new models or to sell GPUs anywhere in the world. I think that's excessively heavy-handed. Their
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motives for doing that may be pure. It may not be regulatory capture. It may be ideologically motivated. Regardless, I
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do think it is a form of regulatory capture because it plays into the hands of the big companies and creates moes
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that new entrance will not be able to overcome. So I have, let's say, philosophical objection to that part of
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it. But again, I'm not a detractor of their products by any means with respect
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to what happened between them and the Pentagon. I'm not involved in that. I've
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stayed out of military procurement in general. I don't get involved in what are called party matters. I just focus
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on policy matters which affect >> the whole space. I saw Emil Michael making this point a couple weeks ago on
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our podcast that if you as a company don't want your products to be used in war, don't sell to the Department of
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War. It's in the name, but if you do, you know, if if you do decide to sell to
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the Department of War, you should expect it to be used for all lawful uses. So, I
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think that was a very pragmatic observation. Again, I just have to underscore this again. I'm not involved
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in that dispute. It's the base of a lawsuit right now and I don't want someone trying to draw lines between
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dots that aren't there. So >> yeah, and in fairness, >> I'm staying out of that one.
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>> Objectively, they've been treated the same as any other large language model.
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Even though they're not fans of the administration, they're not donators to
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the administration. They have specifically been critical of the administration as a company perhaps
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cynically Freeberg as a strategy to get uh you know it's one of the conspiracy
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theories here in Silicon Valley is Daario is taking the position of being anti- this administration anti-president
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Trump in order to get all the PhDs you know there's like three or four thousand
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of these highly sought after PhDs and it's a way to have them you know vote with their presence to come work in
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anthropic your thoughts on that and then just generally their general >> I think he actually believes it and I
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think they've actually created and fostered a culture of that since the beginning and I think that they're
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representing it as a branding exercise at this point but I don't think it's
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made up I think it's directly representation of the people that work there and what they believe
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>> yeah and it's a strategic advantage because probably of those 3,000 PhDs 90%
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of them are left-leaning uh and wouldn't want to work necess necessarily. I mean
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like like most things we see in the world today, in economics today, in markets today, in business today,
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everything seems to be politicized. And you have a left and a right version of everything. You have a left and a right
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version of media. You have a left and a right version of what food to buy. You have a left and a right version of what
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AI tool to use. So, you know, this effectively may just be the natural manifestation in the AI market of what's
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going on elsewhere in society as we all kind of fracture and hustle over to our side.
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Uh, Chimath, before I go to Open AI and their recent moves, any thoughts on Anthropic and Daario's positioning of
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the company? >> Look, I think both are incredible businesses. We're in the part of the
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cycle where we're trying to create drama where I don't think drama exists because they're
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still fundamentally in very different gotomarket motions. Now they may converge and compete over time but I
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think it's important to separate where each of them are good from an enterprise
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lens which is where I see most of the action particularly through 8090 it's all anthropic all the time and I agree
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with Sachs my philosophical issues with the management aside around their ideology and sometimes how they use some
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of the capital for things other than tech and R&D. I have issues with those things. But in terms of the quality of
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that technical team and what they create, it's head and shoulders above anything else. It allows us to build a
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vibrant business. Now, do I have issues with how much it costs? Yes. Do I have issues with how fast we're consuming
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tokens? Also, yes. But I think those will get sorted out. And those are really tactical issues. So the reason
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why I think we're all breathlessly trying to pit open AI versus anthropic is because we want some drama. But the
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reality is these are very different businesses. And Nick found this tweet which I thought was really interesting.
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And because even at the absolute highest level, these things are sort of presented in an apples to oranges way.
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And there's like these very basic issues of revreck that are fundamentally different. And you may say, well, who
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cares about revenue recognition? Well, the people that are trying to write the headlines that say one is overtaking the
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other and this or that sort of miss the fact that they're in completely different businesses, which has guided
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how they even think about growth. And so, if you normalize these two businesses, what you would see is OpenAI
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is still the overwhelming revenue generator in this space. And that over time, Anthropic is catching up. And so
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this is this little diagram that tries to explain this. OpenAI is 3/4 consumer subscriptions
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and a quarter API. Enthropic is almost the exact opposite. OpenAI is used by consumers
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overwhelmingly. Antropic is used either directly or through things like GitHub and cursor.
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OpenAI as a result has a very conservative way of recognizing revenue. Anthropics, they sort of recognize gross
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tonnage as their revenue. And so when you start to hear these things about like, oh, this thing is at 20 billion
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and OpenAI is at N billion, they're two totally different conversations. And I
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think right now it's more about the press cycle of trying to create clicks than it actually is about the underlying
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quality of each business. Both are incredible businesses, as this demonstrates. And by the time it goes
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public, both of these two businesses will have a very clean and I suspect normalized way of telling a story so
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that you can actually compare. But what I would tell people right now is everybody is running with numbers to try
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to create a narrative that I don't think makes sense or applies to either. >> Yeah. And there's been a lot of strategy
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change. Open AI, some people are saying, is crashing out in panic mode. Obviously, they own the consumer with
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chat GPT. they are the verb like you know taking an Uber or googling something people consumers always just
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say hey did you check chat GPT but obviously other large language models are catching up here's
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>> can we say something to that Jason cuz like >> you mentor tons of startups
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>> sax has done it free has done it I do it >> what is the one thing we tell folks
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focus focus focus focus >> 100% >> do one maybe one and a half things, but
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do it incredibly incredibly well and everything else you start to bleed and smear. What was that Brad Garlinghouse
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term? Peanut butter. Peanut butter. Yeah, you smear the peanut butter >> too far out. And so this is a good
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moment, by the way, if either of these two companies are in the smearing phase to recalibrate and reset because
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>> yeah, you just can't do everything. Speaking of smears, I couldn't help but
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notice that Emil Michael was smeared by an article. Was it in Lever or something
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like that accusing him of of having a conflict in the anthropic dispute? >> Did you guys see that?
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>> I didn't. No. >> Yes. I saw the art. There was an article that said that he was an investor in
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perplexity and therefore he's conflicted in his negotiation with Anthropic. That's what the article said pretty
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much. >> Perplexity is LLM agnostic. That's a stupid claim, >> right? Well, it's obviously written by
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people who don't understand anything about AI really. >> Okay. >> Perplexity is a rapper. You're like
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you're saying, it uses multiple AI models. >> And I don't think they sell to the
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Pentagon. They're not a competitor to Anthropic. And moreover, as I understand
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it, Emil's ownership of shares in that company was blessed by the Office of Government Ethics. Nonetheless, I think
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the timing of this is very suspicious. And it reminds me of what happened to me when I started opposing Anthropic and
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all of a sudden there was that hit piece in the New York Times accusing me of having conflicts. And I'll just say that
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Anthropic may pose as this company that's on the side of the angels, but they've hired a number of very seasoned
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brass knuckle political operatives in Washington. And you know, members of the Biden administration, Laura Loomer,
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actually just had a piece today on one of them. I'm not going to rehash that.
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But the bottom line is this is I think frankly a political operation that's willing to get down and dirty and
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they're not always on the side of the angels. I think they can be quite ruthless.
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>> Saxs, remember I told you you get one Biden mention a month in 2026. So you
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just used it up. So I don't want any more Biden Biden Biden. He's retired.
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>> That was not a Biden mention. No, but the truth is these [ __ ] whoever wrote this
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story, the actual best feature or amongst the best features of Perplexity, which is actually got a really great
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co-work competitor called Computer I've been playing with. I'm not a shareholder
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to be clear. There's no book being pumped here. The model council is like the greatest feature.
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>> Yeah. >> That they have. And what is really brilliant about it is you ask it a
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question sachs. It will go to all three different major models and you can pick which ones including open source. Then
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it tells you where they differ and it tries to figure out why they differ. This is like one of the great features
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of the product. I think perplexity is like could be a a really great company as well even without a language model.
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But let's talk a little bit more about OpenAI here and their market share because I think
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you're correct Chimoth, but they are getting off their game. Here's what's
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going on. Quick look at the consumer market and obviously they started with 100%
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market share, right? They created the category in 2023, dropped down to 85% market share 2024,
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75% market share 2025. >> But by how much has the market grown >> precisely? So uh the market is still
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growing. So on terms of number of searches and queries, they're obviously growing tremendously, but they have
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major major competitors and the market share is going down. I had my team over at This Week in AI do a more thoughtful
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analysis of where this is going. And if you take a look at this, um there's three players, and I'd like to get your
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guys' take on this who really haven't shown up yet. Apple, uh Meta, and obviously Windows. All
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three of those underrepresented. If you give them credit for just getting, you know, a half point of market share here
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and starting to intercept, which I think those three players were here, will be here, they're going to be well under 50%
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market share. And I think CHPT is going to have some big challenges there on the
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consumer side. While they're doing this stuff in consumer, uh they uh are cutting back on all their side projects.
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So, uh you probably heard about the Sora video app that's been shut down. This is
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kind of major news because Disney was going to put a billion dollars into opening as part of it and they had done
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a licensing deal and they were going to integrate Sora, this you know short video product into Disney Plus. All of
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that's now been cancelled. >> The billion is not going in. >> The billion's not going in. The
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licensing deal, all of that. And then in addition, there's supposedly at OpenAI a
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newfound focus on chasing Anthropic down the enterprise path. So getting off their game, getting a little
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discombobulated perhaps or maybe getting focused on what matters, which is enterprise apparently in terms of
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revenue. OpenAI also offered private equity investors a guaranteed minimum return of 17.5%
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of as part of a joint venture that would help PE firms deploy AI and ease the high upfront cost of that. So, lots of
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questions here. Chimov, I don't know if you've tracked this PE uh model, but
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obviously a lot of people are doing rollups in services, uh, accounting, legal, uh, Josh Kushner's got a big
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effort here, a bunch of private equity firms trying to essentially, I guess, endrun the transition process and
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arguably what you're doing with the software factory at 8090. So, your thoughts on Open AI and this pivot and
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this private equity I think it makes a lot of sense for Open AI to focus on a few things and do them exceptionally
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well. >> I disagree slightly with your first part, which is I think that people like
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to make new decisions about new experiences and I think that OpenAI has incredible consumer mind share. I just
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see like how my kids use it. They started there and it's very hard to get them to switch. Even when I say, "Hey,
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have you tried Gemini?" They use Gemini. And to your point, the reason is because
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they stumble into it more. >> Yeah. Yeah, >> but if you give them a cold navigation
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experience, they rely on chat GPT and it's the same by the way on the other side in the enterprise. If you
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give us a cold, my default reaction would be to use anthropic. Now, I actually think that
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that's quite healthy because you're going to segregate the market. And I
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think look if you go into the way back machine when we first started talking about this thing this is sort of how we
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all postulated this would work where even if open AI just won the consumer business it is a multi- trillion dollar
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company with enormous scale in value and I think that that's okay. So I think
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that what they probably need to do is say where are we the strongest? Where is there the most obvious traction?
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Can traction in another market like an enterprise bleed into consumer usage? If it's true, then you have to win the
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enterprise. I think winning the enterprise though is a very different game than winning consumer. Very
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different set of features, very different set of expectations. So, I think people either have to decide
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you're going to compete everywhere or pick one thing and just nail it. And if
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I was open AI and you had to pick one thing, you would pick consumer because they're the juggernaut and they're the
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clear leader and they have an enormous brand. Freeberg, let me pull you into this because my base case here is that
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all consumer queries are going to be free. Apple's going to make them free. They're already free for Google. I think
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Meta is going to make them free and actually have a decent product soon. And Microsoft, same thing. Chat GBT has
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decided to push off advertising. They were going to put advertising in it. You remember they got mocked by Anthropic
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with their Super Bowl ads. So, what do you think is going to happen on the consumer side? Consumers generally don't
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pay for services. That's usually five to 20% of the market is paid services and
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everything else is free and ad supported. But it looks like Apple and and Google are going to just let it rip.
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So that could take the revenue oxygen away from Chat GPT. So what is your thought here on who wins consumer?
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>> I don't think that it's going to be free. I think there's 290 million
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subscribers for Spotify. They're paying what are they paying 20 bucks a month or
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something? >> Probably less than average because it's global number, but yeah,
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>> Netflix has 325 million paid subscribers. and AI that can book your travel, answer
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questions for you, track your calendar, do your email, etc., etc., etc., etc., is likely going to be the most valuable,
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call it meta service that consumers have ever seen. >> And I think it's very likely that we're
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going to end up seeing many more consumers subscribe to a consumer AI service than we've seen even with cable
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television. I mean, think about your cell phone. Everyone's paying 50, 60 bucks a month for a cell phone. Why not
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pay 80 bucks a month? More bucks. you pay 100 bucks and by the way in the pandemic remember what we saw the two
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things that people refused to cancel >> was not your mortgage payment or any car
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payment you were willing to go into aars and into default the two things that people would would always keep was the
00:22:13
cell phone number one and then electricity number two chat GPT will be there >> so I think that's going to be the case
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with these consumerized JL I think that they're all going to be like ultra valuable and they're going to layer in
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services on top of them like for example do you want to watch video embedded in your consumer app. Do you want your
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consumer AI app, you know, do your finances for you? And it could be that the consumer AI apps
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much like the iPhone was for the app economy. There could almost be whether it's through kind of connectors or
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embedded tools, an incredible ecosystem that where traditionally advertisers actually pay to be embedded and show up
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inside of the AI app and the consumer can either pay for it or the advertiser can pay for it. So I think there's going
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to be um a very different economic model and still very early days. Sachs the numbers
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right now would uh be more in my estimation about 50 million people subscribe to chat GPT. They got a
00:23:09
billion users or they're they're trended to a billion. I think they probably hit
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it in the next month or two. Certainly they had 900 million two or three months ago. So it's about 5%. Where where do
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you think this winds up? Do you think it becomes, you know, 300, 400, 500 million
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consumers are willing to pay 20 bucks a month for this or do you think it's more
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free and the data and the ad supportedness of it? Go the meta and the Google route.
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>> I think it's possible that you could get a few hundred million subscribers for
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the premium tier. Look, I think most consumers will take the free service in exchange for advertising, right? Some
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adup supported model, which by the way, I think could be quite successful. when chat GBT started displacing Google for
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search, a lot of people were predicting the death of of Google's model because
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who'd want to look at 10 blue links. I think that's true, but I think you can
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do something much more compelling in AI chat compared to just a list of links. So, in any event, I think adup supported
00:24:06
models might make a comeback here in addition to premium models. All that being said though, you know, as an
00:24:13
investor, I always liked B2B businesses better than B TOC because it is hard to monetize consumers. Their willingness to
00:24:21
pay is not that high and they tend to have high churn rates. Whereas businesses tend to be very sticky and
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you can upsell them and you can get more than 100% net dollar retention year-over-year. So, if you can make an
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enterprise business work, it's always been a model I've I've liked. But you
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know that being said obviously some of the most valuable companies in the world are consumer companies. Meta, Google,
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Apple, these are all consumer first companies. And look I think ultimately both models can work.
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>> Obviously both can work. Question is which one? I guess it really comes down
00:24:55
to how motivated do we think Google and Facebook will be to build that bridge from their ad networks to their AI
00:25:03
offerings. Obviously Facebook is kind of MIA in all of this but Google is not and
00:25:09
I think that will be the determinant here is >> well Google is going to compete very
00:25:13
vigorously for the consumer because it is existential to them I mean it's very
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clear that search and AI chat are kind of merging into one space that means that ad links will kind of merge into
00:25:26
being in chat advertising so they have to adapt with that and compete for the consumer I also think that Google is in
00:25:33
an outstanding position to do the whole claw thing because they already have access to your calendar, your documents,
00:25:39
your email. >> So, the agent doesn't really have to earn your trust because you already
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trust Google with all of your stuff, >> right? >> So, I'm kind of waiting for the Google
00:25:48
version of Open Claw because I don't really want to share all my documents with some new service.
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>> They're the only one that has so much free cash flow that they can almost view
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it as two separate companies, which it effectively is. you know, GCP over here runs the enterprise play and then Google
00:26:05
consumer over here runs the consumer chatbot play and they can keep them segregated. That's so much harder for a
00:26:13
startup to do because on top of just keeping everybody organized, you have the financing problem of constantly
00:26:19
having to raise more money because you don't yet have a profit engine that spits out cash. They're probably the
00:26:25
only one. And you can see it in the valuations actually which I'm going to get to in a second but people believe
00:26:29
the durability of Google more than they believe the durability of anything else.
00:26:33
>> And uh Sax I think you weren't on the pod last week or maybe two or three
00:26:37
weeks ago but Google has announced Google workspace studio to do AI automation and it's uh
00:26:45
yeah it's online and people are playing with it already. So they have joined the
00:26:50
open claw party. By the way, Jay Kcal, you asked a different question earlier as well, which is around the PE story.
00:26:57
And I think the PE story is a window into the rest of the broader market. The real open question is what are these
00:27:03
companies worth? There's like a very threshold question. It's sort of like a
00:27:08
very important fork in the road right at the outset, which is do you believe that
00:27:11
we're on a path to super intelligence where everything is incredible, where there's infinite abundance, where you
00:27:18
can magically describe things and beautiful things appear? complex things appear, groundbreaking things appear, or
00:27:25
do you believe that it's good next generational software? And the answer to that question is really important
00:27:31
because we're financing things like it's the former >> and uh GC has a big move in this. Hamont
00:27:36
was on the program in January when we did the interview show and he's got GC
00:27:41
buying up and rolling up accounting firms, etc., healthc care firms, hospitals, etc. This
00:27:48
seems to be part of the future of venture capital is taking AI sacks and actually buying out or I should say big
00:27:56
VC kind of starting to look like private equity buying out hospitals accounting firms business processing firms in India
00:28:04
putting them all together and then running them with AI. So any any final thoughts on that Sax as a business
00:28:10
strategy? Well, I think it's interesting. They're kind of betting on the idea that they can own the change
00:28:18
management around AI. And this is the thing is everyone just kind of assumes that you throw AI over a wall and a
00:28:25
business just automatically knows how to use it and drive efficiency from it. >> And what we're seeing is it's pretty
00:28:31
difficult. Chimath, you've seen that. There's McKenzie studies showing that
00:28:34
like 95% of enterprise pilots aren't successful. There's tremendous value,
00:28:38
latent value in AI, but it's hard to know exactly how to deploy it at this point in time. So, I guess what these
00:28:45
private equity firms are saying is that we know how to drive value from this and
00:28:49
if we own the business and then own the change management, then we'll be able
00:28:53
to, you know, create value that way. >> Their business model makes solving this
00:28:57
problem existential. And this is sort of along the lines of this essay that I wrote. Let me just
00:29:03
give you the thought exercise and you guys react. Today we live in a world where the whole market is trying to
00:29:09
debate what is the PE ratio that you'd be willing to pay. So Facebook is incredibly durable. I'm willing to pay
00:29:17
30 times. Nvidia is really durable. I'm willing to pay 40 times. Tesla is incredibly asymmetric to the upside. I'm
00:29:24
willing to pay 200 times. And then Caterpillar or John Deere, I'm willing to pay 15 times. I'm just using these as
00:29:31
an example. And what it's effectively signaling to you is how durable all of
00:29:37
these cash flows are. And all we do in the public markets when we make an investment is we're just guessing when
00:29:43
do the cash flows run out and we try to say, well, here's how much it's worth
00:29:47
and here's how much I'd be willing to pay for today. But if you go back to this example and
00:29:52
you say, well, what if there's this super intelligence on the horizon? I think it's fair to ask the question,
00:29:58
what is anything worth? And what is anything worth in year 10 or year 15 or year 20? Because if you have
00:30:05
infinite abundance and you have all this creativity, won't all companies be disrupted? And
00:30:11
won't we be in this constant churn of everything getting disrupted all the time? And if you were faced with that
00:30:19
problem in the public markets, how would you react? And I think the canary in the coal mine
00:30:25
are the SAS talks. Yes, we jokingly call it the SAS apocalypse, but I think it's
00:30:30
much more important. I think it's a big societal question. How do you view capital markets? How do you view the
00:30:36
health of a company in a world where we've been told there's a super intelligence on the horizon that makes
00:30:42
everything much more fragile than it was before? And the market reaction is to put all these companies on a spectrum
00:30:48
and they started here in software and they're rerating everything down and they're changing the way that things
00:30:57
are being framed from price to equity to a multiple of the cash that you have on
00:31:02
hand. And I think that has huge implications mostly to Silicon Valley and largely to employees because we all
00:31:10
sell the dream. we start a company and we're like okay small salary big equity
00:31:15
upside but that's implicitly saying in 15 or 20 years this thing is going to be
00:31:18
worth some gigantic number but if instead every business gets disrupted every 5 or 6 years all you're going to
00:31:25
end up with is just the cash and so what should employees do the rational reaction from employees will say you
00:31:30
know what I don't want your equity give me more money >> and if all of a sudden you do that the
00:31:36
valuation multiples and the complexity changes again so I had my team put this chart together. Okay, what is this? Took
00:31:42
a handful of SAS companies and took the mag six and I just said, okay, if you take the
00:31:50
market cap and you divide it by the annual free cash flow, what that tells you is how many years does it take to
00:31:55
get back? If you bought a share of stock, how many years does it take from the free cash flow to come back so that
00:32:00
you've earned back the cost of one share? Snowflake in 2023, it would have taken
00:32:07
you almost a hundred years. And where is it now? It's been cut in half. Service Now, it's last year.
00:32:14
Workday. You see it. And I think what this speaks to is the beginning of this rerationalization in
00:32:22
the public markets of saying if super intelligence is coming, we have to be very careful about what we're willing to
00:32:29
pay for these things. But if you look on the right hand side and the Mag 7, what's so interesting is Apple,
00:32:36
Microsoft, Meta, and Alphabet, the market is completely ripped the other way. And what they're saying is, we
00:32:42
believe that these cash flows are essentially monopolistically durable forever. That's the only reason why you would
00:32:50
walk them up like this. except Nvidia, which is the most unbelievably accreative, well-run company, highest
00:32:58
margins, you know, making $200 billion, and they're treating it like they're
00:33:03
treating Service Now and Snowflake. I just think it's so interesting what's
00:33:07
happening. I can't explain this, but here, this data sort of shows this reset
00:33:11
that we're going through, a very complicated reset in the capital. >> Free, what's your take on this reset as
00:33:17
Chimath describes it? You'd think this is just a flight to the quality of the
00:33:23
free cash flow of the Mac 6 and just how much cash they print and then maybe the
00:33:28
other ones are smaller footprints and they're just more disruptable. We had this discussion many years that Google
00:33:34
and Apple, Microsoft, they would all be disrupted at some point, Facebook, and that just simply hasn't happened.
00:33:40
They've gotten much more nimble at copying products or incorporating, you know, features and products into their
00:33:45
core offering. So, your thoughts? It's probably generally correct that there
00:33:51
will be a decline, but there's also the selective opportunity. Did you guys see
00:33:55
the LP slides that went on the internet from Toma Brava's LP conference? >> Yeah, those are great.
00:34:00
>> Nick, maybe you could find that. They kind of highlight that within the broad
00:34:04
marketscape, there are companies that are not just going to sit idly by and let AI kind of delete their business
00:34:12
value, but they're integrating AI themselves and they've got highquality
00:34:16
people to do so and they're reinventing their product themselves. So, they've
00:34:19
already got a beach head, they've already got customer access, they've already got enterprise users. And in
00:34:24
fact, if they can integrate AI into their products and into their tools, there's almost this like selective
00:34:29
dispersion that happens in the market. And so the winners are going to win I think truly in every market not just in
00:34:36
software but across every market including in industrial supply chains on who is going to implement and utilize AI
00:34:43
tools and agents uh to do work and it's going to expand the work uh productivity
00:34:48
of that organization not just create new features which is what we focus on when
00:34:52
we talk about software companies but really imagine a complex business being able to do 10 times the output it can do
00:34:58
today with the same capital equipment and the same labor force. What do you pay for in a world of super intelligence
00:35:05
versus in a world of nons super intelligence in terms of the durability of a business?
00:35:10
>> Yeah, it's hard to say, man. I mean, we don't know, right? And that's why all
00:35:13
the discount rates are going through the roof and that's why the valuations are
00:35:17
collapsing because we just don't know what multiple or what discount rate you
00:35:20
apply or what terminal growth rate or which which effectively implies. >> What do you do in your PA? Like do you
00:35:26
say I don't think Disneyland is going anywhere? You know, I think there's some
00:35:29
stuff that you could say is the counter AI portfolio. And the counter AI portfolio, I think, is like physical
00:35:34
experiences. >> Halo. They call it halo. High asset low obsolescence. >> Okay, that's a great Yeah, I'm not a big
00:35:41
investor trader like you guys, but that makes a lot of sense. I mean, I think that's like intuitively to me that seems
00:35:46
to be an area where people are going to be spending a lot of time and they're
00:35:50
going to they're going to have durability in those businesses. I I think businesses like Nack Gas
00:35:55
Production, you know, I just bought LNG that Shener company >> I bought Shener given um all the
00:36:03
craziness in the Middle East and you know I visited there with Doug Bergam so it was the first time I'd ever been
00:36:07
exposed to this business and I checked out a great business. It's a great business really well business.
00:36:10
>> So I think that's got durability obviously unless it gets blown up by
00:36:13
some enemy. Uh that that would be a problem. So the Adams thesis that TK >> shared Adams real life mining is a great
00:36:22
one. Obviously I think the space industry is going to be a lot bigger than we recognize. I actually think
00:36:27
there's probably a 15 to 30 trillion dollar a year economic opportunity on the moon. That kind of a business like
00:36:34
you're going to see with SpaceX's IPO is going to have an insane multiple. So I
00:36:39
think to your point Jimat, there's a lot of stuff getting steamrolled here with
00:36:42
crazy high discount rates where you just don't know. And there's a bunch of stuff
00:36:45
where the pathway over the next 15 to 30 years is maybe independent or unlocked because of AI. And then there's a bunch
00:36:51
of stuff that's just unaffected that and that that starts to get a higher multiple because that's where capital
00:36:56
starts to flow. >> Sax there are probably three things that we would agree are great modes for
00:37:01
businesses brands network effects and the management team. Those come into play here as well. Yeah.
00:37:07
>> I don't know if I would consider management team to be a moat. I mean,
00:37:10
it's like Warren Buffett says that you want businesses that are so strong that
00:37:13
they could be run by a bunch of monkeys because one day they probably will be. >> Well, I was thinking more like obviously
00:37:20
Elon and Tesla is going to just relentlessly innovate. >> It's a great point by the way and it's
00:37:25
true especially in the age of agentic AI. >> Yeah. I mean look I think though that
00:37:30
just upleveling a bit I think you are right that the key question is moes because I do think that there are still
00:37:36
strong moes in a lot of different kinds of businesses and a lot of them are very
00:37:39
subtle like you said some are network effects some of them are the the difficulty of producing physical world
00:37:46
products things like that so there's a lot of different types of modes out there and that is the key question as we
00:37:52
enter a world of let's call it digital abundance >> yeah the the network effect of Apple's
00:37:59
ecosystem and they have hardware, right? And they've been just on that path of
00:38:03
making their own silicon that's incredibly defensive and they have brand, right? So that that is pretty
00:38:08
strong for Apple. And then you take Tesla, the same thing. You got Elon relentlessly innovating and it's hard
00:38:14
hardware stuff. >> And then if you look at Meta and Google, these are incredible brands with great
00:38:19
management teams. >> My assumption and constantly innovating. >> If I had to bet, I'm gonna bet that
00:38:23
brands go to zero. >> Really? >> Yeah. Because I think that when you can
00:38:28
make things that are as good or better and you can make them in a cheaper, faster, better way, people want that
00:38:36
abundance more than they want an affiliation to a brand. >> Example. >> So the perfect example is actually what
00:38:42
Tesla did to BMW. You know what Tesla did to Mercedes, what Tesla did to Porsche, what BYD and
00:38:49
Gily have done to the car manufacturing cycle in China. This is a fundamentally cheaper, faster, better product. Yes,
00:38:59
it's got a great brand, but nobody's going to pay a premium for these products. The reason why Y has outsold
00:39:05
everything else is because the Model Y is priced better and it's superior on
00:39:09
every operational dimension of comparison. That's also true for the cars in China. So, I think it's the
00:39:16
opposite. I think that brands and the pricing power of brands other than maybe premium luxury goods but even that's
00:39:24
eroding like look at the stock like I don't know Nick show the stock chart of
00:39:28
LVMH or Ferrari this is not a commentary on the quality of the actual product but what this shows an
00:39:36
erosion of pricing power all of these things are being eroded away >> yeah this would be the value prop most
00:39:43
people in brands would just say value propositioning So JetBlue is a value brand, a Tesla Model Y, perfect example
00:39:50
of a value brand. And if you look at Apple's recent cohort, what did they focus on? The Apple MacBook
00:39:56
Neo, which is a value laptop, 600 bucks, 700 bucks. So they're even going down
00:40:01
market to try to capture that value. And to your point, maybe the right word is abundance. Like the brands that bring
00:40:07
abundance, that bring more to the table than their competitors, and they are able to bring more at the same unit cost
00:40:15
or less. capture share. That's probably true. >> You know what's interesting about that,
00:40:20
Shama, as we open up the aperture of this, if you the one of the thesis we talked about here a couple years ago, I
00:40:26
say, "Hey, what happens with AI disruption, job disruption, etc. costs coming down on cars with Model Y getting
00:40:35
cheaper, Cyber Cab coming in, BYD, obviously if you go to any foreign country, BYDs are everywhere and they
00:40:40
cost 15 grand. Then you look at Apple making the Neo, that's a $600 laptop. Everything getting cheaper seems to be
00:40:48
happening. >> I just think it's very hard to know which of these companies going to be
00:40:51
disrupted. A year ago on this pod, we were saying that Google was going to be toast or some of us were saying it
00:40:56
because it looked like, >> okay, fine. But, you know, it looked to us like Chad GBT was taking a massive
00:41:02
share from Google search and the Adwords model was becoming obsolete. Now, because of the success of Gemini and the
00:41:11
potential for personal digital assistants, personal agents, I think we're probably pretty bullish on that
00:41:17
company. And look at their stock chart. It's reflects that. I mean, I think it's
00:41:20
doubled in the last year. Now, you take something like Apple on the other hand, and I'm not saying this is going to
00:41:25
happen, but I'll just throw out a counterfactual, which is what if your personal digital assistant or a personal
00:41:31
agent gets so good that you don't need to check your phone, you just tell it
00:41:35
what to do, and you don't need the wall of apps anymore. I mean, the way that
00:41:39
you call an Uber won't be to punch a few buttons. You'll just tell it what to do.
00:41:44
So, you could imagine the phone operating system getting disrupted if the agents are good enough. you're on to
00:41:50
something huge because what you're saying is I can confirm this to you 89 we sell enterprise software I'll tell
00:41:56
you three conversations with huge enterprises asked exactly what you just said and we jokingly called it
00:42:02
strangulation as a service which is they all say the same thing what you just said okay look get all this complicated
00:42:08
UI out of the way get all of these products out of the way find a way to create a shim where I can just write
00:42:14
what I need tell it what I need it to do it deals with all this complexity in the
00:42:18
background I never want to see these things ever again. And that's what people want to your point. They want
00:42:24
they want to be able to like say, "Okay, pay this with my Venmo or use my MX in
00:42:28
this situation or get me that flight in some way and have all these wonderfully smart agents do all the work behind the
00:42:35
scenes." >> And that's actually tracks with exactly what I've seen with Open Claw,
00:42:39
Perplexity Computer, Clawed Co-work. instead of going to your notion, instead of going into your Gmail, instead of
00:42:45
pulling up your calendar, you ask it, "Hey, what's on my schedule this week?"
00:42:48
It brings it to you. So, you could you could have a dumb, you know, flat terminal, you know, chat interface on
00:42:56
the $100 device and it would do just as good. Just to make the counterargument against myself, I mean, yeah, even
00:43:02
though I think that you'll just increasingly tell your agent what to do instead of be clicking around or, you
00:43:08
know, touching the screen, you still need a a dashboard or a user interface to like check on it and just see
00:43:15
readouts of information. You still need to be able to visualize it. Where is the
00:43:18
Uber that I've asked to be sent to me? How far away is it? Still want to see it
00:43:22
on a map. So, I could imagine that even if let's say, you know, Siri++ becomes
00:43:27
the dominant way of interacting with your iPhone, you'll still want that Apple user interface. Hard to say. I
00:43:34
mean, I see a lot of people out there tweeting that Apple is brilliant for kind of missing the whole AI wave and
00:43:40
not spending a lot of money on data centers or capex. And then there's other people who say,
00:43:46
well, wait a second, they're they're missing critical capabilities. Then there's a question of will they be
00:43:51
able to make deals for you know an AI powered Siri? I don't know. I think this
00:43:56
is very hard to know at this point in time. >> All right. And we will be discussing all
00:44:00
these hard topics at liquidity May 31st through June 3rd. Chimath some big announcements here from you. You
00:44:09
have taken control. This is what happens in the game of thrones known as the allin
00:44:15
>> corporation LLC. the partnership. If we partnership, >> the chaotic partnership,
00:44:22
>> no mids there, it literally is chaos. >> Wait, wait, wait. Why are we doing this
00:44:27
in California? I don't even think I can I can go back to the state at this point
00:44:30
in time. >> You can come for 48 hours make an appearance. >> Zero days in state at this point in
00:44:37
time. >> I love it. I love it. You can do 48 hours. It's okay. Well, Gavin Newsome
00:44:40
might meet you at the airport. You could get up at the airport. >> The By the way, the airport is about 10
00:44:45
minutes from the venue. You could fly in and fly out same day and you don't have
00:44:48
an overnight. >> No overnight. >> Is that how it's counted? >> That's how it's counted as an overnight
00:44:52
in California. >> Head on pillow. Yeah. You can come in on Monday, >> then fly, fly out to incline, sleep at,
00:44:59
you know, at our friend's house and then fly back in on Tuesday and then fly back
00:45:02
out. You'll be fine. >> Or you could fly to Vegas, do a blackjack run overnight blackjack run,
00:45:07
and then you come back in the morning. We just freshen up. Just >> get your fresh shirt,
00:45:11
>> nice and rested. >> Let me announce the next two speakers. >> Oh my god, I'm so excited. But just for
00:45:16
background, Chimath comes into this thing. Liquidity was this little conference I did. It's now part of Allin
00:45:21
and I start setting up all the speakers. And then Chimath goes, "Not good enough.
00:45:24
I'm not showing up unless I pick all speakers." And you know what Freeberg
00:45:27
and I did? Well, finally this melon farmer is going to actually do some work. Great.
00:45:32
>> What did you call me? What did you call >> melon farmer? It's a when um they play a
00:45:36
Quinton Tarantino movie on like TV. Instead of saying Mother Effer, Samuel Jackson says Melon Farmer.
00:45:46
>> Oh, I see. So this Melon Farmer took unilateral control of the 10 speakers.
00:45:52
10 speaker slots. Very coveted. >> Okay. So we've announced Dan Loe. >> We've announced Sarah Frier.
00:45:58
>> Incredible. >> And I'm very very very honored and excited to announce that Bill Aman
00:46:04
and Andre Carpathy will also be speaking at liquidity. >> Four heavy hitters, six to go.
00:46:11
>> Two more goats on the roster of goats. >> So goatated. >> And we have a handful of other
00:46:17
>> Yeah, there might be some surprise guests and unannounced guests show up.
00:46:20
>> Can't can't say DVD. >> TB. >> More announced soon, but we're making
00:46:24
>> Let's get Daario to show up. Daio, come to the show. Come hang out with the
00:46:28
All-In Boys. >> I'm really excited. I You know what Andre is gonna do? What Andre agreed to
00:46:32
do is he's going to do like uh five or 10 minutes of slides on like the future
00:46:36
of the world with AI and then we'll do a fireside. >> Love it. That's going to be tremendous.
00:46:40
And you know, he's uh he's been on a heater himself with his recursive uh
00:46:45
GitHub. >> Oh, dude. Auto research is incredible. And Bill Aman has a ton of points of
00:46:50
view on all of this stuff. So, we'll get a lot of his thoughts. I want to give a
00:46:53
shout out to Freebrook because when we did the interview with Jensen, he's like, "Guys," I was like, I like had a
00:46:59
glass of wine on a Sunday. I like coded a replacement to my HR system. I asked all my team to do and I was like, "Oh my
00:47:06
god, this is incredible." So I asked our folks, I'm like, "Hey, I don't like the
00:47:10
website. This is 8090." And the next day they're like, "Yeah, we vibe coded a new
00:47:14
one. We'll have it up." And then I'm like, "Well, do you like the CTAs and
00:47:18
how it's doing?" They're like, "No, no, no. We put it into auto research and we
00:47:21
doubled the click-through rate. And I was like, to Freeberg's point, this was this would
00:47:27
have been many man months, tens of people, and instead all these recipes, by the
00:47:34
way, in these playbooks, you know, like the person that runs growth at OpenAI publishes his recipes.
00:47:40
>> Yeah. You've been clawed. That's it. You've been oneshotted.
00:47:43
>> It's really incredible. This is why like I I mean, you commented on my post
00:47:47
yesterday. I wake up every day and my head spins. I'm like, what is what is going on in the world?
00:47:51
>> It's crazy. Like, every day feels like a new era right now. >> Yeah.
00:47:56
>> And >> it's it's disoriented >> because because I I think what's really
00:48:00
interesting is you pull what would have normally been something that's call it a
00:48:04
period of time out, like a year out or two years out, and you can pull it in and say, I can get that done in 3 days,
00:48:09
and I don't need to hire people. All the sequencing and staging that would normally go into accomplishing something
00:48:15
has been reduced, and then the time rushes in. So all your ideas rush into you and they're all like immediately
00:48:21
accessible and that's why it's like so every day it's like oh my god like
00:48:25
that is I I have I bought the domain name annotated.com like 15 years ago for four grand and I wanted to create a
00:48:33
service like a bookmark service where you like highlight a paragraph from the New York Times and then you write your
00:48:38
comments on it saves it and you basically have this service and I was talking to some developer about making
00:48:43
it and I literally vibecoded it and the Chrome extension this past week and I was like, "Okay, I've been sitting on
00:48:49
this domain and project for like 15 years and I did it in a weekend." >> Isn't it crazy?
00:48:56
>> Weird. It's like very weird. >> This makes it feel like a simulation to
00:49:00
me that everything can just manifest itself. It's the Star Trek version of the world. Like remember the replicator
00:49:06
sacks where you just say Earl Grey tea at this temperature? That's happening in
00:49:10
business now. You're like CRM system, buildan annotated.com, build this new website for 8090. Boop. and it's a
00:49:17
replicator just gives it to you. It's very strange. >> I've only felt this
00:49:23
feeling twice. Once I was on the outside looking in. I was a derivatives trader in Toronto. I was looking at the first
00:49:32
dot wave and I was like, I got to be a part of this. How do I get to be a part of
00:49:38
this? And I got a job in at Win Amp and kind of the rest was history. Win him the original iTunes.
00:49:46
>> But I missed the wave financially. It didn't do anything for me. But I was in
00:49:50
the right place. You got to the beach with a surfboard. That's all that matters.
00:49:55
>> Then the second wave I crushed and the move to mobile and social. But this wave
00:49:59
feels like a hundred times bigger than that. >> It's a tsunami by comparison. I I I had
00:50:04
three of these. >> It's probably what it's like to be at Nazareth in Portugal. You guys ever see
00:50:09
those clips of like that crazy place where like there's like 100 foot waves,
00:50:12
>> 100 foot waves or whatever and you're just towed in and you're like, "Okay,
00:50:16
let's just >> Here we go. This could end one of two ways. >> Let it go. Glory
00:50:20
>> or goodbye." >> No, I It was like literally when I first saw a PC,
00:50:25
when I first got on the internet, and then saw Mosaic. Like those two moments in the early 90s and then seeing the
00:50:31
iPhone. I think that like those three moment >> was very special. >> All right, rough week for Zach. Two
00:50:37
verdicts went against Meta in two days. They were first found liable for allowing child predators to access
00:50:45
minors on Facebook and Instagram. New Mexico jury ordered Meta to pay 375 million in damages. The AG's office
00:50:52
there ran an undercover investigation. They created fake child profiles. Facebook, Instagram, these accounts were
00:50:56
contacted by predators. People showed up, yada yada yada. A whistleblower and former Meta engineer testified that his
00:51:04
own 14-year-old daughter received sexual solicitations on Instagram. Then on Wednesday, an LA jury found Meta and
00:51:10
YouTube negligent for designing addictive platforms that harmed a young user's mental health. Basically, the
00:51:17
plaintiff in this case, Saxs, said they started using YouTube at age six and Instagram at age nine. and she testified
00:51:24
that features like notifications, algorithms made the app so addictive that it caused depression and anxiety
00:51:31
through that compulsive use. You have some thoughts on this and we we had um Jonathan hate, right? Didn't we
00:51:38
do an interview together? Wasn't that one of the first joint interviews? Free
00:51:41
>> you and I did. You and I did. Yeah. >> Incredible. >> Uh these things are obvious. He he had a
00:51:47
very important point which is to try and keep kids off >> cell phones and social media until
00:51:52
they're 16. and he was kind of cheerleading this this verdict. But, you know, I'll take a little bit of a
00:51:58
contrarian to the popular kind of sentiment on this and I'll just talk broadly about this idea of tort
00:52:03
litigation. Tort litigation, you know, costs our economy $900 billion a year in the United States. 900 billion a year.
00:52:11
That's how much is spent on the litigation costs, the settlements, the judgments. It's 3% of GDP and it's
00:52:16
growing roughly 10% per year. And these civil penalties decided by juries like they're, you know, going against big
00:52:23
companies like Meta and YouTube, but it's also food companies, restaurants, everything. Anytime there's a window to
00:52:29
sue someone and and extract uh value from them, tort firms are all over them. You know, it's called the tort tax now
00:52:37
in America. It's not just losses paid by the companies because fundamentally when
00:52:41
a big company pays out these tort taxes, they're going to invest less. There's
00:52:45
less R&D, less product development. Costs stay high. there's new fewer new
00:52:49
product launches and there's all these crazy restrictions on stuff. So, you know, look, I I agree. Social media
00:52:55
causes immense harm, particularly causes harm for kids. Kids should not be on social media until they're 16.
00:53:02
Absolutely agree. Maybe adults shouldn't either be on, you know, as adults. But
00:53:06
fundamentally, I think there's an important question that we often ignore, which is who is fundamentally
00:53:11
responsible for that harm? You know, should the sugar beat and sugarcane farmers be responsible for diabetes in
00:53:17
America? Should the soda companies be responsible? The retailers selling the soda, the FDA for not stopping it all?
00:53:23
And fundamentally, I think we have to ask the question, what role does individual choice play and individual
00:53:29
responsibility play in this equation? If everything is a liability, if anything any I I think we have to take personal
00:53:36
responsibility. I think the parents that are absent taking care of their children
00:53:40
are responsible for harm to their kids. You shouldn't let your kid play with a
00:53:44
gun. You shouldn't let your kid go to some sketchy neighborhood after hours by
00:53:48
themselves. You shouldn't let your kid play video games 100 hours a week. You
00:53:53
shouldn't let your kids eat nothing but soda and potato chips. You have responsibility as a parent. And I think
00:53:58
parents should keep kids off screens and keep kids off social media. Once the harms are known of excess use or the
00:54:04
harms are known of exposure to this sort of thing, I think there's responsibility
00:54:08
that sits with the parents. >> What about things like tobacco or processed food or
00:54:12
>> Yeah, this is the key. Look, I mean the same the same is true of alcohol. I mean dude, like alcohol is
00:54:17
terrible for you. There's nothing good about alcohol. But I think I should have
00:54:21
a choice on whether or not I want to consume alcohol. Whether or not I consume tobacco, whether or not I
00:54:26
consume processed goods and the recognition that it's bad for you should be publicized by the government should
00:54:30
be publicized by the government. >> Right. So if I had to summarize what you
00:54:33
would say is product liability law makes no sense. There should be human liability and human responsibility
00:54:40
expectations in a society. >> We never talk about responsibility. We always talk about where the government
00:54:45
failed us and where these companies us and we never talk about what did we individually do wrong. How did I
00:54:51
individually choose to eat a hundred [ __ ] sodas a week? How did I individually choose to get my kids
00:54:55
addicted to social media? Where the was I as a parent? Like we don't talk about
00:54:59
our responsibility. And by the way, this fundamentally addresses this point about
00:55:04
human agency which I think is more critical in this era than ever because AI is going to flood us with everything
00:55:10
all the time non-stop. What we choose to do in a world where we're already getting everything and how we choose to
00:55:16
not take everything that's being offered to us, I think is a critical part of
00:55:19
what's going to distinguish human success from human failure. And it's going to become more apparent in the
00:55:24
future. And not everything is about liability and not everything is about the government failing us. It's about
00:55:28
people making choices. And we don't talk about it. >> On the counter, I I I agree. Personal
00:55:34
choice super important. What you're probably leaving out here, uh, which you're definitely leaving out here, is
00:55:41
when these companies know they're doing something damaging and they do it anyway. That was the key to the RJR
00:55:49
whiskey. What about what about a a whiskey company selling whiskey to an alcoholic?
00:55:55
>> So, what about a potato chip company selling potato chips to an obese person?
00:56:00
>> I'll put those two aside because I don't think we've seen major cases about that.
00:56:03
But I will say the auto industry knew for a long time about seat belts. You remember that? And they didn't deploy
00:56:10
them. RJR Nabiscoco, they knew that these were addictive and they designed the cigarettes to become more addictive
00:56:18
and they didn't tell people about the health risks. Asbestos, same thing. Lead
00:56:24
paint, same thing. This has happened over and over again where corporations subvert the release of information to
00:56:31
make additional profits. So the question here with Facebook is did they know how
00:56:36
addicted these were? Did they know kids were being assaulted sexually and and they could have done something about it
00:56:42
or didn't they? And so agree that there's >> that's absolutely true. The kids being
00:56:47
assaulted absolutely true. Not not releasing information about the level of addiction if they had it. That's
00:56:53
certainly bad. Should the product be legal? Number one. And if the product is legal, who's responsible for using it?
00:56:59
>> You know, and and where do we draw the line? And if we don't want people to
00:57:02
make choice, then we shouldn't put it out there. >> But if you as a corporation know it's
00:57:06
dangerous and then you lean into that, >> if you know, as is the case with
00:57:11
Facebook, that this is super addicting, super damaging to young girls, and then you lean into making it more addictive
00:57:17
and you don't put safeguards in place and you can prove that like RJR, like as
00:57:23
like on whiskey. What's the What safeguards does a whiskey company put? What safe What safeg guards does a
00:57:29
casino put? >> Hold on. you asked the question age is one second after age which is what we're
00:57:36
really talking about with kids and Jonathan hate would agree that they shouldn't be using this until the 16 so
00:57:41
I think that's a perfect analogy uh age gating and then labeling and then if
00:57:46
they know of something that's really damaging releasing that. So there was a
00:57:50
whole thing about alcohol in pregnancy and they covered up in the alcohol industry or didn't disclose exactly how
00:57:56
damaging it was to drink alcohol on a on a fetus on a developing fetus and then remember all those signs went up in bars
00:58:03
in the 70s and 80s that was directly because of that. So labeling information and agegating would be the logical
00:58:10
things to do for social media and that's what's happened the best. So that that's
00:58:13
the answer to your question. I don't know about age gating, but I think informing parents about the risks is
00:58:17
fine. Like that should be a responsibility, but you know that the tort lawyers are one of the largest
00:58:22
donors in political elections in the United States. They donate largely to Democrats in local elections and
00:58:27
Republicans in national elections and then they are the largest donor class to elections of judges. And it's it's a
00:58:34
business and I think we don't talk enough about the business of court law um the business of litigation in this
00:58:40
country and we often ignore this question about choice and I don't want to live in a world JL where the
00:58:45
government and companies are telling me what to do and what not to do to live my
00:58:48
life etc. >> Exactly. Jump in here personal freedom and personal um responsibility versus
00:58:57
hey corporations maybe knowingly >> parental responsibility Jal responsibility in there as well. Yeah.
00:59:02
What do you think's next? >> Well, look, there's no question that the
00:59:05
trial lawyers want to turn Meta into RJR and Nabiscoco and the cigarette companies and try to fit their fact
00:59:11
pattern around that. I just think that the activity is fundamentally different than smoking. I mean, smoking is
00:59:16
manifestally harmful to you regardless of what your age is. And the only reason we allow it is because of assumption of
00:59:23
risk. It's a free country. I think in the case of social networking, it's much
00:59:27
more unclear what the harms are and what the benefits are. And I think it's much
00:59:32
more subjective and it's much more of a personal choice for adults and also for
00:59:37
parents. Freeberg, I mean, one area where I disagree with you a little bit is you said the harms of this are
00:59:41
immense and well known and understood. If that's the case, then let's just ban
00:59:46
it for under 13 or under 16 or whatever it is. But I don't think that's the
00:59:51
case. And because it's unclear, I think it's up to parents to decide what's
00:59:56
appropriate for their families. And at the end of the day, I think the right way to deal with this is parental
01:00:00
empowerment. You give parents the controls to set screen time limits or to decide what apps their kids install.
01:00:08
Now, the debate has now moved over to AI apps. And there's a lot of parents groups that want to ban kids or
01:00:15
teenagers from be able to use AI chat apps because there was a couple of cases of self harm. Now, my reaction to that
01:00:23
is, look, I've got a 10-year-old and if he starts using Chat GBT to get answers
01:00:29
to questions, I would consider that to be a good thing. I mean, I'll keep an
01:00:32
eye on the usage, but I want him to be an AI native. I want him to be able to do research, you know, I want him to be
01:00:39
able to know how to use these tools. I want him to get the right skills to be successful in the 21st century. In
01:00:45
China, they're incorporating AI into K through2 education. Are we going to ban
01:00:48
it for our kids and teenagers? I think that'd be a terrible mistake. So, I think when it comes to AI and AI chat
01:00:55
apps, it has to be up to the parents because there's too much manifest good that can come out of kids learning how
01:01:02
to use these apps. Maybe social networking is in a different category. But I got to say, I do think that the
01:01:08
harms have been exaggerated because the trial lawyers have an incentive. And just to give you some facts about that
01:01:13
LA case, so just so you understand, in this LA case, they were sued by a 20-year-old woman who claimed that she
01:01:23
became depressed because of using social media, and she apparently suffered body image issues
01:01:31
because of social media, and she was able to win this judgment for millions of dollars. Look, I think there's big
01:01:37
causation problems with that case. In in the case of that pliff, the evidence showed that she came from an abusive
01:01:43
home. Her father had abandoned her. Her own mother had body shamed her. So, it was very unclear where her body image
01:01:49
issues were coming from. I think it's possible that social media contributes
01:01:53
to them. Or it could just be that social media was a scapegoat. I also got to say
01:01:57
that I do think it's it's a dangerous precedent. I mean, are we going to allow
01:02:02
plaintiffs, lawyers to sue Spotify because you created a playlist of sad music >> and that music contributed to your
01:02:11
emotional distress? I mean, that's kind of what we're saying. You got to
01:02:14
remember these are free services that people have a choice whether to use them or not. And if social media is making
01:02:20
you feel bad, if listening to the wrong playlist is making you feel bad, then stop doing it. But what's going on here,
01:02:26
I think, is the trial lawyers are trying to create the next big tobacco and their
01:02:31
goal is to try and sue these companies into oblivion. And I don't think that's
01:02:36
the right answer either. >> The consensus, Chimoth, is kids who use this two or three hours a day. this has
01:02:42
been across many um survey uh many research studies is that it's massively correlated with depression and anxiety
01:02:53
um and eating disorders specifically in young girls like if you get to two or three hours a day of this. So that
01:03:00
correlation's I think pretty well established. you pretty famously said, "Hey," and you worked at Facebook, so
01:03:06
you saw this coming, but I think at Stanford 27 2018 time frame, you actually had some comments on this. We
01:03:13
could either play the clip or you could just describe it, I guess. >> I said what was obvious to me then. I
01:03:17
lost a lot of friends at Facebook when I said it, unfortunately. But essentially
01:03:21
what I said was, I don't let my kids use it, and I don't think that this is a
01:03:25
constructive part of a developing child's diet. I do think that Sax is right that I view
01:03:32
AI chat differently. There are different guard rails that are required so that if
01:03:37
you go down some sort of you know dark corner but that's possible to understand and
01:03:44
the product is architected in a way to create culde-sacs. So if that if you're
01:03:49
thinking about self harm or you're thinking about these other things, social media is very different. It's an
01:03:53
incredibly fast twitch algorithm and that's the optimization and until the incentive for that optimization changes,
01:04:01
these outcomes will continue to compound. I think the interesting thing is that the LA lawsuit was an individual
01:04:08
lawsuit. The young woman I think was awarded three or $6 million. >> Yeah. The other one though that they
01:04:16
lost this week was in New Mexico and that was for $375 million and that was more around I think child
01:04:23
exploitation. >> Yeah. >> The thing that I'll note is that these
01:04:27
trial lawyers which I'm not a fan of either have been trying as Sax said and
01:04:31
as Freebrook said to make these folks a target because there's so much money on
01:04:34
the line and they've been batted back pretty successfully. But this was the first time where they were able to
01:04:42
navigate the section 230 protections that Facebook and Google have typically used to protect themselves because
01:04:49
Google was a part of the LA lawsuit and they were able to go down the pathway of product liability language.
01:04:57
Now to Freeberg's point, I think he's generally right. I think it's my
01:05:02
responsibility as a parent to take care of myself and my children. But to the extent we don't change these
01:05:09
product liability laws that are on the books, I think the door has been opened and a map has been drawn, which is this
01:05:17
is how you navigate around section 230 and you can get a decisive lawsuit in your favor against these large companies
01:05:27
with enormous cash flows. And so I expect that this will be a death by a thousand cuts kind of scenario where
01:05:37
folks are just going to rally around this. I don't think it's right, but I do
01:05:41
think that that's the rational reaction to what just happened. I mean, look, $6
01:05:45
million to an individual 20-year-old girl or $375 million. These are huge numbers. And the reality is that I think
01:05:53
we've opened the floodgates. I do think there should be a better response and I
01:05:57
do think that parents should take a lot more responsibility. But I do hope that these products allow us a kill switch
01:06:05
for when our kids are under the ages of 16. Frankly, I would love a kill switch under the age of 18. And there has to be
01:06:12
simpler ways to age validate. You know, we used to work around this thing called
01:06:15
Kappa compliance. Kappa's [ __ ] It's a nothing burger. Like a six-year-old
01:06:20
can vibe code their way around Kappa. So it doesn't do anything then. So age
01:06:25
verification is completely broken. It's harder to get age verified for a porn
01:06:29
site than it is to get unageverified for Facebook. >> Say more Chamoth. How did you get around
01:06:33
it? >> Yeah. How do you know that? How do you know that? >> That's just for uploading. You were
01:06:38
uploading at the time. This is not your only proof of proof of a >> we actually deal with this in our new AI
01:06:47
framework that the administration released last week because the number one issue is around online child safety
01:06:55
which I think again is mostly about social networking but it touches on AI and so it's kind of gotten lumped
01:07:01
together and I think we're I mean I'm referring now to the White House has
01:07:05
said it's willing to support some form of age assurance technology and parental
01:07:11
controls. So, look, I think there needs to be a conversation around how true it is that social networking is just a
01:07:17
fountain of ills for young people. If that's true, then why wouldn't you just
01:07:22
disallow it, right? But if if it's unclear, and I think it's more on the
01:07:26
side of unclear, that's just me. >> Uh then it's up to the parents and what
01:07:30
you want to do is again have the age assurance technology and the parental controls and let the parents decide. I
01:07:35
don't think that social media is net badly speaking, but I will tell you that if my
01:07:44
child uses it for two or three hours a day for multiple days in a row, they become [ __ ]
01:07:49
>> Yes, they act weird. >> And so I don't know what to tell you except I would love a kill switch until
01:07:55
these kids turn 18 on all these products. >> This has to do with dopamine, by the
01:08:00
way. these. What I do instead is I use Apple's Family Sharing, but it's hard.
01:08:05
And I'll tell you how why it's hard. Our schools give our kids Chromebooks and
01:08:11
say, "Use these Chromebooks because that's the way you're going to access
01:08:15
your LMS, your information, your content, your homework." And you know what's an integral part of that?
01:08:20
YouTube. And then now it becomes a back door. So even when we take the devices, I take my devices, we lock them down.
01:08:27
You can't bring them to your room. the whole thing. But if they need to do homework and I
01:08:32
catch them in a little break, I'm like, "What are you doing on YouTube?" They're
01:08:36
looking at shorts, >> of course. >> That's what they do. >> Yes.
01:08:40
>> And so it is a whack-a-mole problem for parents. >> I think uh I'll I'll just give myself
01:08:46
the final word here on behalf of the group. It's obviously addicting. It's obviously the industry has not
01:08:52
policed itself, nor would they police themselves because they want to get people addicted now. Also, they're
01:08:57
addicted when they're adults. The rest of the world has realized this. Australia now has 16 enforced. Malaysia
01:09:04
16. Other countries are right behind them. Spain, Germany, UK. And what should happen here in the United States
01:09:10
is this should be done with the handset manufacturers. If Android and Apple showed leadership with Facebook and
01:09:20
said, "We're going to by default when you buy a phone, you're going to have to
01:09:24
age verify, you know, kids under a certain age," which you kind of do already when you create a family plan
01:09:29
like it did. We could solve this problem. And then parents would opt in to giving their kids access to this. No
01:09:36
good comes out of kids under 16 using social media. And Jonathan Hay in our interview said you should be putting
01:09:44
phone lockers in and our school is doing that. Other schools are doing it. It is
01:09:48
the greatest thing ever. Kids complain and then they love it. >> I I don't think it's that great. I'll
01:09:52
tell you why. Our school does the phone condoms. I don't know what they're
01:09:55
called, but like you put them in the >> the bags and you whatever. The real problem is that there's
01:10:01
enormous social pressure when you're in high school to use these products. I'll
01:10:04
give you a specific example. Our rule is you cannot get Instagram or Tik Tok until you're 16. I would love it to be
01:10:12
18, but we all agreed 16 and we're able to maintain that rule. But then high
01:10:17
school comes around and I have two kids in high school now. Oh, we need Snapchat. No, you don't. No, yes we do.
01:10:23
No, you don't. Okay, great. We'll have no friends. Thanks a lot. We'll just sit
01:10:26
here in our room dark and there and you know, there's an enormous amount of social pressure. So, when you talk to
01:10:31
the other parents, it's like, hey guys, can we all agree that we don't need
01:10:34
Snapchat? You just can't get uniform agreement across all parents because everybody views this problem
01:10:39
differently. And so I had to change the rule. Now when you get to high school, you're allowed Snapchat but not
01:10:45
Instagram. And you know when you're 16, you get Instagram. And that's the best
01:10:49
we could do and Tik Tok and all that stuff. But >> yeah, >> it's an impossible task for a parent.
01:10:54
>> I find it indispensable to be able to do iMessage with my kids. And also I like
01:10:59
the location awareness. You can track location. You compare iMessage those features to Snap. Is it really that
01:11:07
different? I don't think it's that different. >> Well, you really you gonna ban Snap.
01:11:13
>> No, I can't. My point is I had to give them Snap. But you're right. I was like,
01:11:16
"Why can't you use iMessage?" They're like, "Dad, don't be a loser."
01:11:19
>> Yeah. >> No, I signed for a Snap account just so I could message them where they are,
01:11:24
where they're messaging. I prefer if they were just on iMessage, but anyway,
01:11:27
that's the reality. So, you're talking about banning all these things, but
01:11:31
again, I think you're on a slippery slope. >> And I gota I got >> No, I'm saying me as a parent banning.
01:11:37
No, I'm saying me as a parent. >> Yeah, you're setting guidelines >> in my house. This is the rules. When you
01:11:41
become a freshman, I'll give you Snap and when you're 16, I'll give you
01:11:45
Instagram and Tik Tok. Otherwise, shut the [ __ ] up. Put your head down. >> By the way, I also have a tip for
01:11:50
parents. You know this issue with like kids in headphones where they want to be listening to stuff all the time and you
01:11:56
have kids walking around like zombies with headphones. I replaced their headphones with over the these brand
01:12:03
called shocks or something. It goes over your ear but your ears open so you can listen to an audio book or music and
01:12:09
still be able to talk. And so since we did that it's like much less drama around the overthe-ear headphone issue.
01:12:18
>> Well again it sounds like you're exercising parental supervision. Does it
01:12:22
really make sense that later when your kid turns 20, they could sue these companies for
01:12:31
>> Well, to your point for emotional distress. That doesn't make sense.
01:12:35
>> You're right. Because to your point, that girl said she was using it from the
01:12:38
age of like six and 10. >> Yeah, one product six and the That's crazy.
01:12:43
>> Crazy. >> I agree with you, Sax. That's crazy. Where were the parents? All right, we
01:12:48
got time for I think one more topic. Be amazing. President Donald Trump, the 47th
01:12:56
president of the United States, announced his council of adviserss on science and technology. It's called
01:13:01
Pcast Saxs. You have now, am I correct in saying moved from the zar of crypto and
01:13:12
AI to now the leader of PCAS? Is that the correct way to frame this? Well, the president has appointed me to be a
01:13:18
member of his council of adviserss on science technology and to co-chair it along with Michael Katzios who's the
01:13:24
director of OSTP. I'm still a AI adviser, but I do it on behalf of PCAST now.
01:13:31
>> So, you remember last year I was an SGE. We got up to 130 days. I use that time
01:13:36
up and the president appointed me to this new role allows me to continue being a technology adviser in fact on a
01:13:41
wider range of issues. So before it was AI and crypto. Now it's whatever PCAST
01:13:47
wants to study or talk about or make recommendations. I think in addition to AI, other areas that are interesting are
01:13:54
nuclear power, quantum computing, advanced semiconductors, all these different areas. And I think we've got
01:14:00
some biotech. Thank you, Freeberg. And we have some incredible people who are now on PCAST to kind of run with this.
01:14:07
>> Yeah, I'm looking at it. Mark Andre, Sergey, Michael Dell, Larry Ellison, David Freedberg, Jensen,
01:14:16
uh, Lisa Sue, Mark Zuckerberg, and some other folks there that, uh, maybe not as, uh, recognizable by the audience.
01:14:26
How were they selected? Saxs, the only criticism I've seen of this is lots of
01:14:30
business leaders, great, lots of technology, great, but maybe a little light on the scientists.
01:14:37
>> Well, I don't know. We have people who've won a Nobel Prize for physics on
01:14:41
there. We're talking about people who are experts in like I mentioned quantum
01:14:45
computing, fusion, nuclear, >> biotech, pretty much everything across the board. I would say that one
01:14:52
difference between this PCAST and previous ones is you have more doers, more builders, people who've actually
01:14:58
created products or companies. We think that's a good thing. Why would it be a
01:15:03
bad thing? I mean, is it a bad thing that Mark Andre invented the first internet
01:15:08
browser or Jensen invented the GPU? If you're going to make recommendations about advanced semiconductors, don't you
01:15:14
want to have someone who actually invented some of the key products in the space?
01:15:17
>> The big question of course, Sax, is as we've seen here with Science Corner is
01:15:22
how do you plan on staying awake for these meetings if it's going to be like
01:15:25
all science is usually when you take your your bio brain? >> Well, it's it's science and technology.
01:15:31
Got it. So you'll be >> So I'm going to focus on the tech stuff. >> Got it.
01:15:34
>> And then we got Freeberg to focus on the science stuff. >> Got it. So Freeberg, this is incredible.
01:15:38
You've joined President Trump's administration. Now >> I will say I'm honored to be invited and
01:15:46
appointed by the president and I appreciate Saxs and Michael Katzio. You look back at PCAST, it's kind of rooted
01:15:52
in FDR when he formed this council of advisers on science when nuclear physics and quantum mechanics was starting to
01:16:00
kind of reinvent what was possible in the world. We're sort of at a similar era today because arguably AI is
01:16:06
reinventing what is possible in the world. And I think there's this kind of acute moment that we find ourselves in
01:16:11
in this extraordinary race against China. I'll give you a statistic. 10 years ago, China published 50% of the
01:16:17
number of scientific research papers in peer-reviewed journals as the United States. Last year, they published 50%
01:16:23
more than the United States. This is across all disciplines and domains, including physics, material science,
01:16:29
chemistry, biochemistry, broadlife sciences. There's this moment that we're
01:16:33
in right now where both the world is being reinvented by AI, but there's this
01:16:37
extraordinary race with China, not just in fundamental research and discovery, but in the industrialization of new
01:16:43
discoveries and new technologies. You could feel it in DC this week. I was at the Hill and Valley Forum, but literally
01:16:50
everyone in Silicon Valley, everyone in DC is is like absolutely honed and focused in on what is going on in China.
01:16:58
It used to be in biotechnology for example that China was kind of a copycat and a me too or they were really good
01:17:05
for example in manufacturing but it is now the case that in many subdomains China is becoming the scientific leader
01:17:12
in biotechnology and in life sciences and that is a scary thought because ultimately China could end up engulfing
01:17:19
the entire pharmaceutical industry and basically becoming the leader in things like medicine but most importantly
01:17:25
foundational things like AI. So I just want to defend and speak for a moment about the choice about putting what I
01:17:31
would say are like industrial science and technology leaders on this commission because this is a moment
01:17:36
where there's an industrial race, not just a discovery race underway. That's
01:17:40
why this moment is so critical. Anyway, I'm very appreciative to to have an opportunity to serve and thankful to
01:17:46
David for his leadership. In related news, Chim uh will be joining the president's advisory council on bomb
01:17:54
pots and wagering will be joining that. And when I saw this sax, I saw PC and I was like, "Oh, is it podcasting? I'm
01:18:01
in." Finally, I've been invited to the President's Council on Podcasting. So,
01:18:05
big big news coming. I don't want to tip anybody's cards. >> We'll let you know when that happens.
01:18:09
>> Yeah, absolutely. when the when the president's council on podcasting
01:18:13
emerges, me and Lex Friedman will make our way to Washington. >> I want I want to thank the president as
01:18:20
well and it's a great honor to be named to co-chair this. It is like Freeberg
01:18:25
was saying, this is a fairly august body that's goes back a long time. I think
01:18:29
the modern incarnation was created in 1990 by George Herbert Walker Bush. So, this has been around for over 30 years.
01:18:35
in its current formulation. I think we have a slightly different take on it, which is we're going to have these these
01:18:41
builders and doers on there. Like Freeberg said, we got some catching up to do on our industrial policy. We have
01:18:48
named 15 people. There's still nine more slots. We can have up to 24. So, I think
01:18:53
it's possible that at some point there'll be a second round. And if we're
01:18:56
missing some expertise, they can be filled in. Obviously, that's up to the president. He can decide later who else
01:19:01
might join this. >> All right, everybody. That's another amazing episode. The number one podcast
01:19:06
in the world, the Allin podcast. Bye-bye. Love you, boys. Byebye. >> Let your winners ride.
01:19:15
>> Rainman David. >> We open sourced it to the fans and they've just gone crazy with it. Love
01:19:23
you. >> Besties are gone. >> That is my dog taking your driveways. >> Oh man, myasher will meet.
01:19:43
>> We should all just get a room and just have one big huge orgy cuz they're all
01:19:46
just useless. It's like this like sexual tension that they just need to release
01:19:49
somehow. feet. Wet your feet. >> That's going to be good. We need to get
01:19:57
merch. I'm going all in.