Acquired - Jet

0:0090 plus percent I don't think we rode together 90 plus percent of that ride Welcome to episode 19 of acquired the podcast where we talk about technology acquisitions. I'm Ben Gilbert. I'm David Rosenthal and we are your hosts Today's episode is the big news in the last few weeks, walmartacquiringjet.com. I think this set a new record in terms of episode requests that I got been. Yeah, if you combine email, Slack, in-person, Twitter, I think I personally saw north of 10. We got to give the people what they want. That's true. Before we dive into it, I want to do a community spotlight.

0:57We have a listener, his name is Chris Laurent, and he has an app called NowDo, invoicing like it's the future. So NowDo is to do super fast invoicing for teams. It's actually a Slack app powered by Stripe. And if you're interested in doing some invoicing for your team, you should go check them out. They're at NowDo.ai, which I love those AI TLDs. Absolutely.

1:24So listeners out there, let us know, get at us at acquiredfm at gmail.com, on the website, on Twitter, if you would like to be on the next community showcase, and we'd love to tell everyone what you're up to. Yep, or on Slack. And if you're not in the Slack community, go to our website to join. Lots of good discussion from lots of people, that just been to me. acquired.fm. A breath of fresh air from David and I. All right, listeners.

1:51Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

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3:50Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. So on to this week's topic, David, you want to do the acquisition history and facts as always. So Jet.com blockbuster acquisition this month by Walmart over $3 billion for a company that was two years old, but it only been public for a year. But the story actually starts and not gone public, but it had been launched publicly for a year. But the story starts way before then, actually back in 2005 when Mark Laurie, who is one of the co-founders and CEO of Jet,

4:49Founded another company called quidzy which you may or may not have heard of but you may know It's main operating business which was diapers dot com killer domain killer domain name and And the Quincy story actually starts even earlier than that when Mark started his first company, which got sold to tops, the trading card company, and he moved out here to Seattle to run this new division of tops. And when he was here in Seattle, he was thinking about going into e-commerce and starting diapers.com.

5:24and his daughter went to a private school here in Seattle that Jeff Bezos' children just happened to go to as well. And so they met it like a school picnic one day and chatted about e-commerce and little did they know the intersections that would be to come. Wow, so this is 2001, before he started Quidsey, Jeff was obviously what, six, seven years in full forest with Amazon. Yep, sometime between 2001 and 2005, this happened. Wow, okay.

5:54Okay. So, you know, e-commerce was a thing. Amazon was, you know, they were not a startup anymore. This was a very real company. It's not like they were both ideating that maybe e-commerce will be a thing together. No, Amazon was a thing. Yeah. Public company. And, and Laurie was thinking about, thinking about jumping into the fray. Which he did.

6:16in 2005 when he started diapers.com and there is a great history of diapers.com would make a good episode for us someday but it's already been covered very well in the everything store which is the fantastic book about Amazon and the punchline is that after a protracted negotiation during which Amazon tried to basically clone and then compete with an undercut on prices for everything diapers.com and all of their other soap.com and many other properties. Amazon ended up acquiring the company in 2010 for $545 million. Do you know what that didn't work? It seems like Amazon would have the resources to continue to

7:04you know, deep discount went on price and that eventually put him out of business. They would, but there is an important other player in this story, which we will see comes back again the second time that Walmart was also interested in acquiring diapers.com. Oh wow, so it came to the board. And it made a bit for the company. I see. I see. So Amazon strategy maybe was working very defensive, prevent literally in the everything store.

7:31the Brad Stone writes about that Bezos gave direction to his corp dev team, like do not under any circumstances allow Walmart to buy this company. Wow. Yeah, super interesting. Super interesting. So Amazon buys diapers.

7:51Laurie and the many employees of Quidsey go and work for Amazon. The Quidsey was established in New Jersey, actually in Hoboken, so Mark moved. And as was Jet, right? Jet space as was Jet Jersey.

8:09Amazon, much like they did with Zappos, left diapers alone. It's still an independently operating company fully owned by Amazon. Laurie continues to run it for a couple of years and two years later in 2013, he leaves. And he starts thinking about what he's going to do next. Was that on good terms? Do you know how he left? Yeah, well, it's interesting, especially now that the jet acquisition has happened.

8:38you know, the, as chronicled in the Everything Store and elsewhere, you know, the negotiations and the tactics that Amazon used and acquiring diapers were aggressive. And Lori was not a fan of Amazon, and especially after having worked there. And so when he leaves in 2013, which is pretty quickly, you know, we don't know what the terms of his retention package were, but I got to imagine it was longer than sort of two wish years that he stayed there. Yeah. Um, he's kind of got a chip on his shoulder and he wants to gun for Amazon and Bezos, kind of, with inventions. Yeah, and I think he rips on when he was starting Jet or talking about the reasons behind starting Jet. He rips on Amazon's culture a little bit, and he's talking about among the many ways that he wants to compete with Amazon on Jet being, well, I'll leave you to tell the business strategy, but he wants to create a place that's not such a cutthroat culture. Absolutely. I've got the quote right here. He gives a quote in the New York Times after he leaves Amazon and is he starting Jet.

9:44He says, I saw that it didn't at Amazon. I saw that it didn't matter how you treated people. You just paid them enough so you didn't care if you burned them out and then you got new people and burned them out. It was an environment of very short-term thinking. Wow, which is, you know, we talk about Amazon all the time on the show and we praise them for their incredible long-term thinking. Yeah, I don't think Amazon is an environment of short-term thinking.

10:10We'll get to that. So so he starts jet in the summer of 2014 and the vision the idea that he has is that Amazon obviously is very very good at what it does but Amazon's core customer is not your average American. It's the upper class it's wealthy individuals upper middle class people who actually care they care about price but they also care a lot about convenience and selection amazon's holy trinity which we will come back to and he thinks there's an opportunity to compete directly with amazon and to compete on price to be the low price discount retailer on the internet and the model that he has for that is Costco

11:00Another great Seattle company. Another great Seattle company. The intersections are just amazing here. And so another quote that he says is as he's starting the company in this interview, he says there's this huge middle class of people that are going to be spending more and more dollars online. And for them, it's going to be all about price and that they'll be willing to trade off convenience and selection versus price. So he has this big vision. He's going to win the core middle class of America.

11:30away from Amazon. And he's not going about this small. He goes big. So he raises a seed round from NEA, Excel, Bane, and WTI, as he's starting the company. So this is July 2014, one year away from launch, just starting the company raises $80 million right off the bat. Wow. Yeah. I mean, anybody who's going out and raising a seed now and knowing what what valuation you're getting, like there are A small handful of people in the world that could do a seed like that and it's still enough trust to say yeah, you know my my seed venture You can have what 20 to 25% of it or something for 80 million dollars That's it and he's not done. He doesn't stop there February of 2015. We're still months away from launch They haven't sold a single thing the website isn't live anything he raises another hundred and forty million dollars

12:25So, before they even launched the company, launched the product, he's raised $220 million. Wow. And I remember hearing about this when it was going on, and everyone that had been burned in the late 90s, talking about, oh my God, the bubble's back. This company doesn't even have a great plan to make revenue. They haven't launched a product yet. Kets.com all over again.

12:51Needless to say there was a lot of hype when they finally launched on July 21st 2015 so just over a year ago a year ago as we sit here today and When they launched they spent a ton of that money on advertising customer acquisition I remember I was in I was in New York City last fall shortly after they launched and like jet head bought out like felt like half of the subways on New York City, in New York City, and they're, you know, billboards all over the place, all over the country. They did not go, they did not play small ball here. Yeah, and they actually, I think they had a pretty successful organic invite campaign, too, where they, they gave people, like, six months of free membership. Things called the Jet Insider Program. Yeah, I have it here. And refers were given up

13:46to yeah, that's it six months of free site membership and they got almost 400,000 people, 350,000 people that signed up for the early membership program. So I mean, that's pretty incredible to be able to build a base of 350,000 users.

14:00pre-launch. Yeah, absolutely. And they did it by, as you mentioned, giving away for membership for six months. So we mentioned a minute ago that the model for how Lori and Jet were going to compete with Amazon was they were going to use the Costco model. And so the idea was that Jet was a membership site. And it cost $50 a year to be a member. Half of prime. Half of prime. Yep, half of prime. And that the company, Lori, was super explicit about this, that much like Costco. If you actually look at Costco's financial statements and you take the amount of money that they make from membership fees and you look at their net income, it's basically the same thing. They make no money on everything they sell in the store. The only money they make is from the membership fees. That was what Jet was going to do. Again, this isn't us talking. This is straight from Lori here. Quote says, the bottom line is, we're basically not making a dime.

14:59on any of the transactions, we're passing it all back to the consumer. So they weren't going to charge membership fees for six months if you were part of a jet insider. You didn't have to pay for six months, but then they were going to charge $50 a year, which really is only a $25 value. I mean, we're actually, for those of us who are no longer priced sensitive because to the membership fee like that, because we're used to paying $100 of prime a year, like giving me $25 toward that, sure, that's interesting, but it doesn't seem like a huge reward and it doesn't seem like a huge barrier to keep me away from signing up either. The convenience afforded by fast shipping and I guess they weren't quite doing as fast shipping, but free shipping, it seems, of course, worth a prime membership. And so then it comes down to like, okay, so what was jet actually?

15:51doing and the whole idea again was that price was most important and so they had a goal that everything that you would buy on jet would be 10 to 15% cheaper than you could get anywhere else online and by that they made Amazon. So they actually built a lot of tech around this and the whole idea was to incentivize customers to buy more than one thing at a time so like the Default behavior that Laurie saw with Amazon and that, you know, I'd definitely fall into this category. I don't know if you do, you do Ben too, is that once you're a prime member, you're like, oh, I need this. I'm going to order it like right now, one off. Like, I'm not going to wait and order a bunch of stuff. Whenever I need something, I just order it and it comes. Right. And they've slipped away from that a little bit with things like prime pantry or add on items where I know long ago. Subscribe and save, which they got from diapers.com. Oh, interesting. Yeah. With those, um,

16:47With those kind of mechanics, I'm a little bit less confident in Amazon. Actually, then I was call it three years ago before those things when I would just be like, oh, I'll just prime it. I'm sure it will get here and I'm sure I'll be able to get it free and right now. And you know, when you, when that's the promise for so long and then you, you have a couple of these things where it's like, you need to buy something else to get the free shipping. It does actually sting you a little bit. It does. It does. And so what jet did.

17:14a couple things. You had to hit minimum order amounts to get free shipping, but also as you added more items to your cart, and in particular items, and they would incentivize, surface these items and incentivize you to do it, that were log physically located in the same fulfillment center. So it cost less to assemble this package and you could send it all in one box, they would then drop the price on your items in your total order as you were Basically doing these behaviors that they were incentivizing And the idea was and another thing that they did and still do is I believe is if you use a debit card instead of a credit card you'll get a one and a half percent Yeah, they give you have the interchange back if you this is super interesting if you wave your right to return anything then they'll give you an extra discount on

18:07If you wave your rate to return certain items, they'll give you a discount on those items. That's so interesting. I mean, all these things are wildly ambitious, very interesting.

18:17they're intuitive. And require a lot of technology actually. Right. Right. A lot of technology and a ton of financial modeling. I mean, you have to imagine that they're figuring out what return rates are, what it's worth to them. If they're going to make the trade-off between customer, maybe getting dissatisfied with something they have in blaming the jet brand versus how much it costs them to facilitate the return and actually accept the thing back. All this is very ambitious and interesting. Maybe too short of a time frame since it's only been a year, but Yeah. Well, did it work? Interesting. So let's remember all of this, you know, the stated goal is all the savings that we're going to get operationally from this. We're going to pass back to the consumer. And we're going to, our starting prices are going to be so low anyway that we're basically not making any gross margin anyway. And the whole idea was the membership fee would make up for that. Well, a couple of months go by. We get to October 2015.

19:14and the other shoe drops and for whatever reason I got to imagine the internal data was showing that it was a flop three months after they launched. Yeah, three months after they launched. Jet announces that they're dropping the membership fee. So it's now completely free, open to anyone to shop on jet and the prices are still going to be really low. So they basically said our only profit engine.

19:40We're killing. I'm reminded of the quote that people often, they don't really any more, but they used to talk about Amazon. The equity analysts would say that when they were down on Amazon that it was a charity being run for the benefit of the American consumer, yet literally became a charity being run for the benefit of the American consumer. Wow.

20:03And you know, so Lori's, you know, statement on this was that they decided that on some items, the data showed them that they actually didn't need to discount 10 to 15%, they would only discount 4 to 5%, and that's how they would make money. But remember again, they're discounting 4 to 5% relative to Amazon, which already has like...

20:26Incredibly low prices and drives massive and can get those prices through massive scale and negotiating power with suppliers and their incredible supply chain and everything so with all those advantages Amazon still maintains this razor thin razor thin profit margin, so the fact that the idea that you could take Amazon's profit gross margin on items Knock it down by another 45% do all the fulfillment yourself and still make money Perhaps suspect here But nonetheless, the very next month in November of 2015, they managed to raise another $350 million round that Fidelity leads. This time, it was publicized at a $1.4 billion post money valuation. Okay, so David, you are a venture capitalist. You get Mark Laurie approaching you for this round.

21:19And the end of you know I got to imagine like if not slide one but somewhere in the pitch deck is the slide that says Oh, yeah, our profit model we just killed that right right so what what could possibly be the thing where you're like, you know, we painted it as a pretty negative story so far Well, why would you do it? Here's why you do it so they announced the round in November 2015 another 350 million dollars in December 2015 in Q4 holidays, the big moment for retail. At the end of December, they announced that they now have two million active customers and that they did 33 million in revenue in December alone. This is for a company that only launched six months ago. So this is incredible, incredible growth. So it's growth even though even at this point in history,

22:12you would have been still suspect on the unit economics of the business. It still seems like a good investment opportunity. Go, go, go, Ben. I mean, I'm sure this was the still wasn't. He's still the story that to compete with somebody like Amazon.

22:30in e-commerce and in retail. You need to acquire customers and you need to make a huge splash and you need to just make this massive investment in that customer acquisition plus the infrastructure. And to do that, you're going to have to lose money for a long time. And Amazon itself lost money for a long time as we all know. Yeah. And I wonder too, like, is it is Mark Laurie going into making that pitch without any hedges and saying, you know, this is a hundred year company. We're going to be enduring. We're going to serve the middle class. Or is there something in there where you're like, ooh, this could be a quick turnaround, like something like this Walmart thing could happen. Well, that's what I was going to say, you know, whether this was a slide in the pitch deck, literally or metaphorically, we'll never know. But I got to imagine going through all of these investors' minds are, hey, this is a get to scale play. And

23:26If jet can get to scale, maybe there's some chance that they can build a sustainable standalone business here, but there are a lot of people in this world who are very threatened by Amazon, and who would love to have an opportunity to bring into their fold an at-scale e-commerce business, of which there are basically one in the US right now, which is Amazon. Right, right.

23:55So we'll get to that in a second. So that was December 2015, May 2016, so a couple months ago, Jet announces again that now they did 90 million in revenue in May of 2016. So they've tripled revenue.

24:12monthly revenue from the December holidays and December, of course, is the biggest revenue month for any retail. So they're year over year would have been way up. Way, way, well, it was, it was infinite because they weren't even launched in May of 2015. Right, but presuming that they could compare it to a quarter. Right, the growth is, the growth is incredible. No doubt about that. But what was interesting is shortly after that announcement, last month, so July 2016, Laurie does another interview with Fortune. Clearly PR was one of their customer acquisition strategies. Laurie is very good at that and has always been. But it's interesting this quote that he says in this interview last month, he says, well, this being American retail e-commerce has never been a winner take all market, which

25:06You know, he wasn't exactly saying it was before, but he was kind of like, hey, Amazon, I'm coming for you. I'm going to beat you before that. He says, this has never been a winner take all market. There will be a really large number two, three and four, and we can be one of those. So he's basically said, I give up. I can't be number one. All right, listeners. Now is a great time to tell you about a long time friend of the show, Vanta. AI has scrambled the whole security picture.

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27:12So this is a good time. I mean, a lot of times we pause and wait for tech trends to later. For new listeners, we've got our sections coming up, our acquisition category, what would have happened otherwise, what tech theme does this illustrate for you, then we grade the acquisition. And rather than saving this for what tech themes, you know, David, is he wrong about the future, that the economics that the internet creates, can turn retail into a winner-take-all market? Well, I think if you go back to our favorite analyst on this show, Ben Thompson, and the idea of aggregation theory, this kind of is the underpinning sort of ideology of the internet and internet business models is that you can take all of these industries that before the internet were buying necessity fragmented and could have multiple winners because you needed

28:12physical store space in every market in town and that led to some companies would do better in some locations than others and others, all of a sudden. There's only one storefront and it's a website and that can lead to just this huge ability to aggregate, you know, if you can create the best customer experience and we'll get back to this a lot. I want to talk about the idea of the customer experience of Amazon versus the customer experience of Jet, that the best customer experience is going to win and be a winner take all. Yeah, and I'm trying to look up a stat here.

28:49e-commerce has a percentage of US retail revenue in 2012 I'm sure it's only a few percentage points more now, but in 2012 it was like 5% Like there is so much of retail that is transacted physically that has yet to move to online and you and I are talking about this the other day about I'm doing the dumb thing where I try and time the market and wait for a little dip in Amazon so I can buy it and then realize that short term little gain and then hold on to it for the long point, the long while. And you're making the obvious point that Ben, there's so much retail that still has to move to online. There's 10X or 100X more growth left in this company if they continue to conquer the way that they are.

29:38I do wonder as all this, you know, the 90% of retail that's left physically as it moves to online, is that Mark Laurie comment, is history gonna disprove that, right? Maybe it will be a winner-take-all market because if you vertically integrate and have all of the distribution centers and the best customer experience. And the best customer experience. Yeah, and you have all that under one roof like Amazon or maybe what Jet could be.

30:07Maybe retail is a winner take all in the future. Well, I think we should talk a lot more about that. We'll just wrap up real quick. Acquisition, acquisition, history in fact, because we're at the end here. So August 8th, last week as we're recording this, bombshell announcement, Walmart acquires jet for $3.3 billion.

30:32three billion in cash and 300 million in stock retention incentives for employees. So a couple of quick things on this. One, Mark Laurie is going to continue to run jet. It will be a standalone property taking the Amazon model here like Zappos and like diapers. But he's also going to run Walmart.com. And they have a pretty significant lock up on him. So a huge portion, it's been reported that a undisclosed but huge portion of his financial outcome from this deal, both in the stock incentives that were the 300 million. And I think also a big part of what he would earn from the cash upfront is going to be subject to him staying at Walmart for five years. Wow. Which is.

31:30quite long compared to traditional lockups in tech acquisitions. Right. Right. And he owned a tremendous amount of this company still, something like a quarter or a third, even after all this money. Even after all that money raised. Yeah. Don't know exactly because we don't know the valuations on the early rounds, but he definitely owned a lot. And super interesting. And so much of the Press, both the press and the actual statements from Walmart about this deal are clearly a lot is about. Yeah, the fact that they're putting in the acquisition announcement that he's going to run Walmart.com. Obviously, you don't pay $3.3 billion for a person, but they really want to market glory. Well, we'll get into that next in acquisition category. But to come back to this idea of, you know,

32:25Is there going to be a really large number two three four in in US retail e commerce? Man, it is really hard for me to imagine that. Yeah, I think right now I was trying to do some research research the other day and who is the number two to Amazon right now? Like is is there a meaningful second large e commerce site? And what it comes down to is that there are category by category. I started a friend who who used to work at Amazon and he was saying that that in electronics there's obviously your best buys of the world that dominate online in that category. Still generally way behind Amazon, but there is no massive horizontal platform like Amazon is that gives you a strong number two. Yeah, and I think, well, let's continue this discussion and tech themes, but let's do category first. So it's the tough one. Where are you going to put it, Ben? Yeah, so.

33:24My I sort of have like a little flow chart here. I don't believe that Microsoft. That's a good Freudian slip. I don't believe that Walmart will independently operate jet.com forever. I think that they take the learnings from that and roll it into their business. They could do something really insane and bet the farm on jet that they actually keep jet alive and pour all the Walmart.com resources into that. But I don't think they'll do it. I think what ends up happening is they run jet as a standalone thing for a few more years. They take the learnings from it. Maybe even they take the entire model and rebrand jet.com as Walmart.com and keep that entire model as the way to do Walmart e-commerce. But if they had

34:11permanently kept it alive. I would have said business line, but since I have low confidence in that, it's a people and a technology acquisition. I think it's actually more the people that know how to build the technology. I think they've probably built a tremendous amount of interesting technology now, but it's really the fact that Walmart, other than Walmart Labs, who built the mobile app, but that's much less sophisticated, doesn't have in their DNA a strong technology background. And I think with buying such a large group of people who are running such a fast growing business, it's like can we overcome this tipping point of making this actually a place for technologists to go like Amazon is rather than we usually see in these scenarios of buying a smaller company and those people just a trick at some point. It's like

35:00is jet a big enough buy that we actually can tip the scales and say, you know what, you are a sophisticated developer and architect that can. Or product person or whatever. Yeah. That is interested in building the future of this stuff. This is the most interesting place to be. Yep. No question there's that part of it. You know, as I was thinking about this, I was going through the, you know, our standard rubric of categories that kind of went down the list. I'm like, hmm, okay, well, people.

35:26There's definitely a big aspect of that in Lori and the other people at Jet. Technology also, exactly as you were saying, a big aspect of that to this deal. Product, I don't think there's really a lot of product here because I mean, Jet was a retail platform, not a product itself, so maybe not that one as much. Business line, yep, they're adding the Jet.com business line. And then asset too, the category we added last time with ways.

35:54Very much, so in the press release that Walmart puts out here, they know that they make sure that I think the second bullet that they call out about the rationale is that Jet has a growing customer base of urban and millennial customers. Boy, that doesn't sound like Walmart's base. Yeah, who does not shop at Walmart, urban and millennial customers? So there's definitely an asset by here in the customer base.

36:22I think you're right, though. At the core, like the two biggest reasons are the people and the technology. But it kind of could fit into multiple buckets here. Yeah. Yeah, I agree. It's funny, as you say, that the millennial generation and the urban dwellers are more of the jet base, and that's so obviously not Walmart. I saw a couple comparisons on a couple of their podcasts I listened to and then Instra Techery to Walmart being this generation's seers and kind of fading into irrelevant sea because the factors that made them big are Not aligned with the current generation and you know, you see this this incredible trend toward urbanization and in a very meta way Amazon setting the the trend for what is a modern urban campus look like rather than being out in the suburbs and industrial parks and

37:17Jet just caters to that demographic and plays on that trend so much better than Walmart's existing business. So do we think that this means that we're gonna see bio domes in Hoboken? Nailed it. It's exactly what I mean. For those of you not in Seattle, Amazon is building these like super crazy. Is it biosphere? Biosphere, yeah. Yeah, yeah, obviously bio domes then. Yeah, sure.

37:44But the, yeah, it's like an indoor or like an indoor central park type thing for Amazon employees and people and I think it's going to be open to the public. Oh, really? And right in downtown Seattle. Yeah, that's awesome. Yeah, right in here in the middle of Amazon's campus. We yeah, I'm trying to like take off my obviously were huge fans of Amazon here. So like, I'm for I'm really trying to take off my Amazon's going to take over the world hat when when looking at this thing because I think More and more, even over the past year with Amazon's tremendous growth and just having a lot more faith in their long-term plan. I just start evaluating things as are they really going to compete with Amazon? And I think that's a pretty fair assessment, but in this generation's Microsoft, like in the 90s, you know, any...

38:37Company that was trying to raise venture capital like the first question would be like well, what are you gonna do when Microsoft starts competing with you? And then Google that was like a great allegory so Mobile and did Microsoft or at least an old Microsoft way like what will be the thing that pushes Amazon into a relevancy? Yeah, great question. I mean, and I think this is like Obviously, you know Self-admittedly we're both huge Amazon fanboys here, but like I don't think it's jet, you know, I think it's something and I think there's also a good chance that it wasn't the Mac yeah I think there's a good chance that whatever that is comes from Amazon itself. They're making big investments into drones with primary. That could be hugely disruptive because that changes the economics of delivery and fulfillment. It could be voice that they're doing with Alexa because that changes the customer experience of how you order. It could be 3D printing with products that you're buying.

39:45don't get made at a factory anymore, they get made, maybe they get made at your house, but maybe they get made locally. And then, you know, just last mile delivered to you, Amazon's investing in that too. Like it's hard to see, you know, what the but maybe virtual reality, like, I don't know. Yeah, it's interesting. The other lens to look at that through is maybe we're just mixing tech three themes all through here this episode. But it's one of the things that that has talked about with why Apple nailed mobile is because Apple like skipped a generation and lost the previous war. So it's like who's sitting out this one and will be like way behind and gasping their last breath to come up with something truly innovative that unseats Amazon. I've been thinking about this too. There's a great article that we'll link to in the show notes.

40:42series of articles that have come out this week on Apple interviews with the senior team. They're doing a ton of PR. They must be trying to hide something. They're getting ready for the September 9th thing. But there's a really good one with Tim Cook, and he kind of talks about this a little bit, and I love this because in tech like it's so easy for us to like always be thinking like what's the next thing like you know what's the you know and and he talks about this like the interview asked him you know iPhone growth is slowing you know it actually was down last quarter like what's next after mobile like it's a car is it you know AR um and Tim makes this great point he's like mobile is the greatest market the technology has ever seen and we are still so early in it like

41:30Every person on the planet is gonna have a smartphone and half of them do already but the people that never had computers exactly like you can't even compare like yeah, okay, let's look at the auto industry like it's way smaller than the phone industry and His point is that like he says mobile still has so many amazing years of growth ahead of it like it's you know to use an Amazon phrase. It's day one, you know still 10 years in to the smartphone And I think Amazon is kind of the same thing, like that's their phrase, it's day one. Like, you know, e-commerce is day one, you know, there's still so much ahead of it. Yeah. It's five percent of US retail. Like, there's so much ahead of it. Yeah. I was going to refute the Tim Cook thing because like two and a half billion people or three billion people or something have smartphones. So there's like two to three X more growth left in it. Well, his point was that his point wasn't so much that it was like,

42:29Think about all of the corners of your life that your smartphone is going to be a critical part of in the future that it isn't today. Uber, great example. Who would have thought the smartphone would have been your taxi a couple of years ago? Now it is. But is the smartphone your doctor today? No.

42:48Will it be in five or ten years? Maybe. You know, is the smartphone, you know, whatever was the smartphone, how you bought stuff on Amazon five years ago? No. Is it how you buy stuff on Amazon now? Yes. Yeah. Interesting. Yeah, and you make a great point on the retail thing. Like it really, it's cheesy, but like it really is day one. Like people overwhelmingly still don't buy their stuff online.

43:14So yeah, I mean, I think of course there are things that Waves that will come along they could disrupt Amazon But it's also like they the Bezos has architected that company so well that like They're out at the front of every wave I can I can see at least all right listeners Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part. Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks are real.

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44:29because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. Service now already runs more than 100.

44:47billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. All right, let's get into what would have happened otherwise. Yeah. Well, I can tell you one thing that would not have happened, yet would not have sold Amazon under any circumstances. I mean, I can't, I can't imagine Lori, you know, working for Jeff again. Yeah. And okay, so that's not a possibility.

45:46So the Walmart thing falls through. Let's say Walmart's just not willing to pay the price tag. Is it like to target or one of the other sort of bigger? Yeah, or Google retailers. Why a technology company? Like why Google or? Well, Google's been experimenting in many ways over the last couple of years with trying to compete with Amazon in different ways. There was Google shopping express, which has never really been successful. Never taken up, but they sunk a ton of money into that.

46:17And a whole bunch of initiatives, I don't think any of which have really worked, but that they're working on. And so you can imagine that, I mean, because I don't know if they still are, but for a long time, Amazon was the number one advertiser on Google. They spent more money on AdWords than anyone else in the world. Man, I totally believe that because it's amazing when you search for a product now, how your organic search result and your paid search result are both for that product on Amazon.

46:46And neither Google nor Amazon are happy about that. Amazon is aggressively trying to do everything they can to reduce that dependency. Amazon's paying the Google tax. Yeah, exactly. And Google is like, oh man, that's a huge opportunity. And that's the biggest part of our business. How can we just do that directly? Yeah. Oh man, this is really interesting fact. So I've been using smile.amazon.com for a long time.

47:15They basically take the affiliate fee that you would be giving to whoever referred to you, like clicking through from the wire cutter or something, and donate that to the charity of your choice. And I was like, that's so interesting. I was wondered, like, what's the motive for Amazon to do that? And they basically...

47:34are trying to give you a strong enough incentive to book market so that you hit Amazon as direct traffic instead of going through Google and paying that customer acquisition. Even though they'll then pay that affiliate fee on everything you buy, they won't be paying the abward tax to Google. Yeah. It's like, we'd rather donate this money than give it to Google. Yeah. Seriously. Interesting. Okay. So I mean, I think somebody else buys this company. Yeah. They were not going to be able to continue to raise the amount of money that they would need. No.

48:05Which is is so interesting that it I mean Amazon did and Amazon did it in the public markets and Amazon did it before like when there was no Amazon to compete with yeah, right? They built that business over a very long period of time right and they did it financed by the public markets Yeah, neither of which yet had the luxury of doing they had to do it super fast and they had to do it from private market investors. Yeah, and They definitely get picked up because investors have put a ton of money into this thing. It's not it's not going to zero. Like that this company is going to get picked up at some point for some kind of favorable outcome. Yeah. I mean, you got to imagine that that was a huge part of the investment thesis for all the VCs and and the mutual funds that invested in in jet. Yeah. And you start to wonder to like a few months ago.

49:00Do you start getting, if you're Mark Laurie, do you start getting investor pressure to be looking around? Yeah. Like it's clear you're burning tons of capital. Like growth is there. You're getting building a customer base, but like, you've explicitly told the market you have no profit engine. Right. And then you've explicitly told the market that you no longer think you can beat Amazon. Right. Something's got to happen. Yeah. Yeah. Well, another thing that was going through my head is, okay, so, Like why is this? We had Taylor Barrett on last week and he was talking about the acquisition that he thinks the acquisitions that he thinks go the best are the ones were the founder of that company the acquire the company to be acquired is Excited to get their hands on the assets and resources of the larger company to make their their original vision fulfilled and successful and

49:57What are Walmart's assets that Mark Laurie would be happy to get his hands on to make that dream come to fruition? Yeah, why is that a good place to land for jet? Well, I think I think it's a couple things won a lot of money. Yeah, like Walmart has way more money than jet would ever be able to raise So yeah, that's an interesting thing that like if if it really is true that they're gonna let jet continue to be its own thing and they I mean it's a tall order to hold Walmart to their word of continuing to pour money into this thing. We don't know what promises were made, but this thing needs a ton of capital to grow. Walmart's effectively the best private investor, or maybe the best, since they didn't have access to the public markets and definitely couldn't have IPO'd, it's like, hey, this is actually a great place to, if they're committed to it, fulfill our mission and just pour a ton of money into growing. And I think that's number two, which was

50:55Doug McMillan, the CEO of Walmart. Well, at least if you listen to the interviews after the acquisition and the press release, clearly has a man crash on Mark Laurie. Doug has said, Mark's basically going to have carte blanche to do what he needs to do to make this a successful business and all the resources he needs. And then I think three, the other The third asset that I find Mark I'm excited about is the customer base of Walmart. The vision of Jet originally was like serve the middle class Americans that are price conscious and that's Walmart's customer base. Yeah, that's true. And then before we move on, there was one other thing I was thinking is it's really difficult to compete with Amazon now merely because of how razor thin their margins are.

51:50And Amazon, you know, famously, your margin is my opportunity. It was a Jeff Bezos quote from a long time ago when they were starting Amazon. And he was saying that about Walmart, you know, that they were making a few, what, three, four, five percent of profit margin on each sale. And Amazon makes, in the neighborhood of one or less. And they...

52:18Amazon was growing up in this world where there was opportunity to compete on price there. And Jett had a really hard time obviously competing with Amazon price since there just wasn't much margin left. Do you know of any historical precedent where there was already a race to the bottom? One company became dominant because they were incredibly cheap, unraiser than margins.

52:41How are they upended? Presumably, you have to compete with them on some other access or some new technology comes around and upend them. I don't know. It's hard to imagine. I think about Microsoft's or traditionally, the whole your margin is my opportunity, quote, applies to high margin businesses. Microsoft's problem was they made so much money on windows that they couldn't Transition to a world are transitioned fast enough in the last generation to a world where the operating system is commoditized by the browser But if you already are Operating in a world where you know you're a commodity. It's super hard to get disrupted Yeah, and that goes right into my tech theme. This is such a classic innovators dilemma. Yeah, I mean for 20 years now Walmart has watched and their their

53:37Biggest fear or materialize where Amazon just grows and becomes as mega behemoth and starts stealing their business But they can't seem to compete because what that would involve is is cannibalizing their incredible business and building a super low margin business and You know that might be a long-term strategy and might be the necessary long-term strategy to say alive but They're a publicly traded company. How do you tell your shareholders the next 10 years are going to be pretty rough going because we're undercutting ourselves and building this thing that makes way less money for a long time. Yeah, super hard. Again, in a minute, we're going to grade this, but it's hard for Walmart out there right now. On the one hand, they spend a lot of money for something that I think at least Ben and I feel like

54:32is still going to lose to Amazon. Walmart's still going to lose and yet still going to lose. But they spent $3 billion, $3.3. That's not a lot of money to Walmart. It's a better shot than they'd have on their own. Right. I was thinking about that in the lens of how do I want to evaluate this. It definitely puts them in a more favorable position than they were.

54:59but unfortunately I think we have to evaluate on the lens of is this actually worth that much money? Where that falls flat and I think what my real position is is you kind of have to do an expected value calculation and figure out like what do you think the chances that this thing actually succeeds are? The jet will return in profit dollars more than 3.3 billion. Yeah and like taking a 20 year time horizon I mean this is like a potentially trillion dollar um, category. Yeah. So, I mean, there is a non-zero chance that jet can, can, you know, can either beat Amazon or become a meaningful number to, like, we could be wrong. Right. Right. Right. Let's, let's say this becomes a trillion dollar business. I mean, if there's a 1% chance, um, that it succeeds. Expect value is still 10 billion, right? Like that it, it actually kind of, it's great. Three X. Yeah. Exactly. Exactly. You know, um,

55:58This is the art of being an investor versus the science. What are these probabilities? Yeah, and you know, assigning 1% and assigning a trillion are super arbitrary. Right. The magical nature of the whole thing is it's binary. Like either it's really going to work and it's going to be company saving, which we're both saying is the very unlikely. Or it could happen. Yeah. Or it's definitely not going to work.

56:27We know for a fact, or let's like say that it was the far more likely outcome if they didn't acquire jet is that Wal-Mart just was going to totally lose. Like it could not have competed with Amazon. Well, back to the people thing, right? Like, man, $3.3 billion is an expensive acqua hire. But like, who's going to, who would Wal-Mart be able to recruit? To go be a senior leader at Wal-Mart, who would see them through, you know, guide them through this like, you know, last stand that actually really knew how to do e-commerce and knew it from the best and knew it from the inside of Amazon like nobody. Yeah, and if you're recruited to be that exact you this uphill battle of recruiting all the people that you know are talented to come work at Wal-Mart with you, this way you get to bring like a world-class team. Yeah, yeah. Even if you're rearranging the deck chairs in the Titanic. We're I feel like we're bleeding into conclusion which we'll get to real quick but

57:22two tech themes I wanted to mention quickly. One, we've touched on a bunch, but I just think this is such a, like, in terms of handicapping, Jets' chances for success. I so totally believe in aggregation theory and Ben Thompson's aggregation theory and the idea that on the internet, the best customer experience wins. And this is where I think...

57:44The logic of jet was flawed, which is that, oh, there's a segment of customers that care about price more than anything else, and they don't care about the other two parts of the Holy Trinity of, you know, the Amazon Holy Trinity of retail, which is price-convenient selection. On the internet, I think that's wrong. I think everybody cares about all those. And Amazon can offer all three to everybody, to lower class people, to middle class people, to upper class people. And like, who wants to think that they don't deserve great convenience and great selection, like nobody, you know? So I think, again, I could be wrong, you know, but I think the logic behind Jet was flawed in that all three are important to everybody. So that's one, two, I also think like this also, we've been really hard on Jet on this episode, but

58:39It also is a little bit of the faster horse thing to me too like we were talking about like what's gonna actually disrupt Amazon? I don't think it's jet you know like it's jet is a faster horse like what's what'll disrupt Amazon is like drones you know or 3d printing or virtual reality right and it's so interesting to look at Walmart acquiring jet it's like okay cool Jet can be competitive on price much like Walmart was already always competitive on price and their business model was to make a little margin Amazon has this different business model where they've created this incredible flywheel where they make a small margin on third-party sellers for using the platform oh yeah, and then they also charge those third-party sellers that use fulfillment by Amazon

59:24for leasing space in their warehouses. And running their websites on AWS. Right, right. They've created this totally different business model that's not making a couple pennies on every transaction. It's like having a percentage of every piece of the backend and the logistics leading up to that transaction. Yep. And I think they're playing a different game. Yep. Whereas Jeff fundamentally was playing the retail business model. Yeah.

59:52Okay conclusion D like it's it's not an F because Walmart had to do something Yeah, I'm gonna go see for the reason that I was saying a minute ago, which is like They had to do something and this I think was the best that they could do like again They weren't gonna hire like what search firm in the world is gonna take on that job of like, you know Hey, the JD says build Amazon within Walmart You know, like nobody who's actually capable of that is gonna take that job. Yeah. Yeah. So you think this is just as good as YouTube. Okay, okay. See my ass. We're all over the place. Okay, that's what we got for Jet. Hopefully you enjoyed it. This was a lot of fun doing. Got a couple sections. Couple sections to wrap up quickly here. Follow ups. Ben, did you watch? Did you see?

1:00:55the new star wars trailer during the Olympics. Lucasfilm follow up alert. My god. So my spoiler alert and let's give about five seconds of me talking to spoiler for the trailer. Not for there are there are there are there are dedicated people who don't want to watch the trailers. My favorite tweeted the whole thing. So obviously there's this incredible moment at the end where you get about a half second where you see Darth Vader and it's like. It's amazing. Right.

1:01:24And I don't know how much we want to get into this on the show, but, you know, Twitter's become this place that is not necessarily the greatest place to hang out all the time for all people. And I'm going to look up the actual tweet. Here it is. It's from Craig Hockenberry, the developer of Twitterific. Everyone's worked up about seeing Darth Vader for half a second. Seeing a strong female protagonist for the other 215 is more important.

1:01:54Love that it was awesome is like I like drop. I know I found myself like I saw that right after I saw the trailer and I'm thinking oh Like I and the rest of America in the world are all worked up about Darth and There's this incredible shift going on in like the world where The most anticipated movie of this year has amazing strong female lead. Yeah. As did the previous Star Wars movie. Yeah. What Disney just continues to be a stellar steward of Lucasfilm and Star Wars and like, man, two Star Wars films in two years.

1:02:37And then we're gonna get three and three years. Awesome. And we're like so amped up about this trailer. With strong female protagonists. Right. And we've never met any of these characters. Like these are entire except for that little quick clip of Darth Vader. Yeah. This is these are people that exist in a universe that were invested in but we are an invested in a single one of these these characters. So yeah.

1:02:59tremendous job to Disney as usual. Okay, a new section that we're adding. This will be very quick. But we got several requests for this is hot takes. Yeah, thanks. Thanks for throwing this out in the slack as an idea. Yeah. There have been a ton of M&A transactions happening recently. It's like they're coming hot and heavy. We should do an episode just based on like what is going on in the market. Yeah, we could We could do some fun stuff. So four that we have today for the idea here is we're gonna do 30 seconds or less quick takes on these deals number one Verizon acquiring Yahoo Yeah, like I feel like we just did that episode so we don't have to do that I saw these great more great tweets about like that that

1:03:50Verizon that Yahoo is gonna be like the fabric that holds all of Verizon's AOL assets together. It's like, I have no idea what that means. That's like random startup generator. You have a history in bin. Oh, God. Oh, yeah. We won't get into that here. Okay. Number two, lift turns down acquisition offer from GM. Reportedly.

1:04:21Better have been really low. To me, I don't know if there's a strong place for a second player here. I think that ride sharing lends itself to a winner-take-all dynamic because density is so important. Customer experience. Yeah. If I wait two minutes for an Uber versus ten minutes for a lift, I'm opening up Uber every time. Yeah.

1:04:45Yeah, I remain bullish. I try to start a company a few years ago called Red Ride that was a ride sharing aggregator and I remind I remain bullish on aggregating all the other options, but I don't think there is a way that you can Be almost exactly like Uber but slightly worse without like a different value. That's never been a winning value prop. I'm gonna be exactly like X but I'm gonna be slightly worse. Yeah, yeah, okay Close to home, Microsoft acquired local Seattle startup Beam. Yeah, I'm super curious to see what they're going to do with it. I mean, I we don't know how big the deal was. Beam was an incredibly fast-growing Twitch-like service that enabled interactivity and a lot of features that weren't available. You could actually.

1:05:33Play games or you could you could influence influence things that were happening in the game while somebody else was playing Yeah, great job to to that company to for for building something that caught on so fast Techstars and and all their other super young incredibly talented founders Big big congrats to everybody there. Yeah, to me I think they're it's they're gonna meld into whatever is part of the the broader gaming strategy right now. Yep, but I don't think that they're gonna like bet on being being this distribution vehicle to compete with Twitch. Well, it's literally not Twitch, I mean, Twitch is a, Twitch is a juggernaut, so, but we'll be great as part of Microsoft. Okay, final one, monster.com. Getting acquired by Roundstad. Oh, how the mighty have fallen. Yeah. It's so funny thinking about like early days of LinkedIn when that was getting started.

1:06:26that that monster was the thing with the Super Bowl commercials, right? Monster was the place that before I was thinking about I think the deal size was people over four hundred million dollars. Yeah. Yeah. Yeah. So it's what a 50th less than a 50th the size of the LinkedIn deal. Yeah. And you know, the trend there, like let's call what it is, network effects are so powerful. A flat site like monster is just never going to compete with a a site that has all the right network effects and incentives that LinkedIn does. Network effects, they are a thing. We should just rename the podcast network effects. Yeah. Aggregation theory, network effects, flywheel. Perfect. Boom. We don't have to do any more episodes. Okay, carve out what you got been. Alright, so another podcast for me, it is another

1:07:21A previous carve out that I had was a talk at Google by Michael Mobisson. Oh, so good. Yeah, incredible. And he has this great book, Untangling Skill and Luck the Success Equation. He has a podcast episode where he is on the Masters in Business Podcast. There's a Bloomberg News publication and really, really good. He talks about a lot of the same things, but applies it more to fund management, about luck versus skill. He talks about a lot of the things that we all know, but get caught up in the glitz and glamour of what company is hyper growth right now and he kind of like brings it home and makes you realize

1:08:02investing is more about identifying misprice assets and places where you have an information mismatch, and then using that information to your advantage. And everyone is very, very focused on, you know, will Amazon go up? So I'm going to put money in Amazon, but how there's all these other strategies around using using information to your advantage to Yeah, identify and bet on mispriced assets. Oh man, you set my heart a flutter. I thought you were going to say that Michael was starting a podcast of his own and that would have been like the most amazing thing I've heard all month. Sadly, sadly, no, but Michael, if you're listening, you got to get on here. But just to add on to that really quickly, he also did release about

1:08:5220, 30 page piece this month or last two with sort of 10 top, top, you know, eternal truths of investing. And it's so good. He is, he is just a treasure. Are we both following Bill Gurley on Twitter? I think we are. I think that's both of our source. Yeah, I think that's both of our source. I have a, I have a non-Bill Gurley car about though. All right. Mine is actually Strava.

1:09:21which is an app for iPhone and Android designed for working out, for bicycling, for running, for swimming, and it is so fun. I bet a lot of our listeners are already on it, but...

1:09:40Ben and I went for a long at times ill-fated but really fun bike ride this weekend and we both used Strava to track our ride and it's just like the app is so well done back to customer experience like it's the little things like we didn't have to tell Strava that we were biking together but at the end of it because it knew that we were it was tracking us our rides and that it was you know 90% plus together it joined our rides together and then to all of our friends who are following us on the app like it was Ben and David rode together and and your friends give you kudos and just like the all of the little that they the segments there are the leader boards leader boards it's so well done and it makes working out and exercising in outdoors which I love to do anyway just that much more fun and it makes you feel like you're part of a community which is super cool too and they're

1:10:34their marketing and brand is just like, so on point. If you like to bike or run, just go watch all their videos that they've produced. It'll make you like literally go out the door and start running. Yeah, yeah, it's awesome. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

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1:11:49to get started. Alright, that's it. If you aren't subscribed and you'd like to hear more, you can subscribe now from your favorite podcast client. And if you feel so inclined, we'd love a review on iTunes or a tweet or a post on Facebook. So thank you so much and have a great day everyone. We'll see you next time.