Acquired - Special—2016 Review and 2017 Predictions

0:00All right, listeners. Now 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?

0:30So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you.

0:49drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lugora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

1:09And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries. And crazily they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers. And that is the real test.

2:01Plenty 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 ideas to fix Twitter. Jack Dorsey says Twitter is quote thinking a lot about an edit tweet button. Oh God.

2:31Like the things that are innovation in Twitter now. Yeah, sad. Welcome to episode 29 of acquired. The podcast where we talk about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenpill. And we are your hosts.

3:04This is a very different episode for us than usual. We decided to do a year in review. And probably more importantly than that, talk about what lies ahead in 2017. So, Dave and I were thinking, you know, we've talked a lot about...

3:22a lot of tech themes in a very sort of rambling and unstructured way over the course of the show. And we went back and actually pulled out what were the tech themes that we identified from each episode. And we kind of basically have a little tally going of which ones were we thought were the most important and we're going to kind of talk about those and then get into the themes that we think are going to be...

3:49pretty dominant in 2017, or at least make some freewheeling predictions. Yeah, no, you get what you pay for here. So no guarantee will be right. But yeah, a couple notes. So Ben and I are recording this on December 30th right at the tail end of 2016. It will barring some editing heroics. It will probably be up for you guys already into 2017.

4:16But as we came to the end of the year, we thought, especially this being our first full year of doing acquired. We wanted to look back and run some data on our own content and see what the biggest themes of our show been. So Ben and I were chatting just before we started. We recorded 23 regular episodes. I guess that includes specials, but 23 full episodes in 2016. This is our 24th.

4:46and it was really fun to go through and and pull out the themes a lot of a lot of repeats yeah so with that should we should we announce the acquired 2016 theme of the year we should and frequent listeners the show I'm I'm sure can can guess what this one's gonna be or at least who the originator of the Yeah, so discussed in six different episodes is aggregation theory by Ben Thompson Ostrotechery. This of course talks about building superior user experiences as the winning strategy in an infinitely accessible zero-cost distribution world aka the internet. And this was discussed on a complete Snapchat, Jet, Android, Skype, and Marvel.

5:32And so I think for us, it's such a, it says a lot about the power of the theory that once you see it, you can't unsee it. And once you realize that, oh, this is a, this is a very dominant factor in making these companies successful. You know, every company we analyze, we're like, oh, I see what they're doing here. Yep. I mean, obviously a big app tip, as we always do on this show to Ben Thompson.

6:00all of his work, but I think it's interesting how much we've talked about it, and also reading Ben's work throughout the year. He first published the post on aggregation theory last year in 2015. But how much he keeps coming up in his work, too, and how he keeps refining this concept and adding on to it. But the core of it, I think, you know, that insight that in this world where distribution costs are the cost of distribution is zero and in digital marketplaces your accessible market is the entire world that it is really the superior customer experiences that are going to beat everything else because you can have sort of perfect competition amongst the whole world and so the best will rise to the top and it's totally informed

6:57you know, my work and I'm sure Ben years to, you know, in the companies that we work with when I'm meeting with startups trying to decide which to invest in and which, you know, I think might be successful and won't be. It's a very hugely influential, not just on this show, but in my everyday work, too. Yeah, absolutely. Moving on to things that were discussed four times throughout the year. And I think listeners, what we're going to do here for the structure of the show is move through these fairly quickly to kind of just establish a baseline of where we've come from and then really spend the book on 2017 themes. And also we have sort of an extended carve out section to kind of talk about the best things that we've bought or read or listened to or paid attention to this year. So that said, going back to the 2016 themes.

7:50the ever-so-dominant network effects in Virgin America episode, PayPal, LinkedIn, and Adobe. And, you know, this one, like for me was such a dominant theme that I gave this talk at a product conference called Industry. It's right. Earlier this year. And I had like two ideas for talks going, and I was working on both of them.

8:14David and I were recording I forget which episode it was but it suddenly dawned on me that like oh my god my this talk has to be about network effects and I think It was actually pretty interesting because it was a conference for like product managers and people that have some amount of product management in their role and It was really interesting to take sort of a venture lens To a product audience and talk about building building network effects and virality and dependencies on the rest of your user base into the core product and rather than thinking about it as kind of an afterthought. Yeah. Ben, is your talk on YouTube? It's not yet. They're going to start releasing the talks I think pretty soon here, but we'll definitely let the acquired audience know when they can check that out. Yeah. I got the privilege of seeing Ben's slides.

9:10hearing a first draft of the talk and it was great, so we'll be sure to share that with you guys. And you know, this one I think was one of the things I learned doing this show this year and thought about is how rare, like true strong form network effects are and talking about it on these episodes. We spent a lot of time on LinkedIn and when we graded that episode, talking about how You know, that is one of the very few really, really strong form network effects out there. And it's striking to me that all the companies we covered, you know, some have varying degrees of them, but only a few, you know, Facebook, Snapchat, LinkedIn have the strong form effects. Yeah, it's really interesting thinking about the strength of the...

10:04sort of like relationship between the nodes of the network and how that can be super variable. Like you can have a product that has network effects that are that are just not core to the product itself and that ends up not scaling and becoming as powerful of a sort of force of your business as the incredibly strong ones. So a couple examples I'm thinking of are I use my fitness pal when I'm tracking what I eat and There's sort of two components to it. There's utility to actually provide me the ability to track how much of each macro nutrient I'm eating, how many calories have I eaten today? What should I be getting more of the actual catalog of food that has all the nutrition data associated with that? Then I can make friends on that. That's kind of important. It's interesting for encouragement or accountability or anything like that.

11:02An app like that is so much more utility than it is network. And then you have apps that are sort of a crossover like you look at Instagram at first. And there is incredibly utility to the fact that you could put filters on photos and sure you could share it out to the small network that was Instagram. But ultimately there was a powerful utility there regardless of network. Now that was an amazing product that actually did grow into incredibly powerful network effects.

11:30Yeah, and then you get into things on the other side of the spectrum that have no utility and are pure network effects like the telephone I mean, if you have a communication network, the only purpose of it is to talk to other people on the networks or on the network. And when you think about how entrenched that technology became and how long the telephone has been the de facto means of communication, it's pretty clear that like the more core your network effect is to the product itself, the more power and I guess staying power that that technology has. Yeah, and it's interesting too.

12:05Maybe a better distinction between, because as I was just going through the list again, network effects have played a large role in many of these companies we've talked about. But there's the strong form, single platform network effects that Facebook has, that LinkedIn has, that Snapchat has. And then there's the two-sided network effect that Multiplacens have, of which we spent a lot of time on this show between Amazon.

12:31Well, the Skype is also a strong form, single platform network effect, but YouTube, where you have supply and demand getting matched. And that can also be a strong network effect, but it's so much harder to get going because you have to bring both of these sides together.

12:51uh, whereas the single platform strong form effect where it's literally been you being on Facebook makes Facebook more valuable to me, whereas you buying stuff from Amazon only indirectly makes Amazon more valuable to me. Right. Oh, great. There's so, so few companies that can achieve the scale in that single platform and then once you do just the, the defensibility is pretty much unbreakable. Yeah, it's funny. I, uh, I saw I was reading a thing, it was reflections of Obama and his presidency. And he was talking about, actually, I think this quote was from one of his aides, but talking about how important the telephone was to the Obama administration and how amazing it was that that's the way that he speaks to other world leaders.

13:41and how that's pretty much unchanged over the last I don't know how many decades but we have all this new technology and you know he was notoriously a blackberry addict but you know the phone is ubiquitous it's you know the especially for land lines pretty high quality secure it's you know it's one of those that's the that's the classic case right of like to world leaders. The value of the telephone is solely in the fact that other world leaders are available via the telephone. Yeah. Yeah, exactly. All right. Let's move on. Our next theme that we also discussed four times this year was what I like to call start small, but is focusing at the outset on solving a specific problem for a specific customer base, not trying to be everything to everyone as

14:36at the startup phase. You could also think about this as targeting niche markets and then growing from there. We talked about this on the Virgin America episode with Alaska, obviously targeting the Seattle market and Virgin targeting the California market. We talked about it on Snapchat with Snapchat really tailoring the product after some wandering in the woods for a while.

15:02to high schoolers in Orange County, and with Trulia, and also with Amazon. Amazon was just books until long after the IPO. And several of those companies, Amazon obviously have been potentially snapped at too, have gone on to become huge companies that do lots of things and have many different products and target diverse user bases, but they all started with that core, solving a very specific problem for a very specific audience. Yeah. And relating this to network effects, like we just mentioned, what's not in this list, but easily could be his Facebook. And you think about the issue of the cold start problem. Like if they launch Facebook to the world, it would have been no fun. Cause let's even say there's 10 people in every city on it.

15:55I mean, you're not going to know anyone, maybe one person. And by launching University by University and focusing on just Harvard first, you take advantage of those pre-existing networks to make sure that there's density among your customer base. Yeah. When you can do the program, things that don't scale to get those nodes on the small niche network and then grow up in there. And actually, I think in our, well, let's jump to the third.

16:23theme that we discussed four times this year. And I think that three of these kind of form a trinity that, you know, if you are working with startups, starting with startup or working in technology generally, you know, you could do far worse than to keep these three things in mind. And the third one is growth culture. And what we mean by that is the discipline of growth within startups and technology. And it really started with PayPal. And that was the first episode where we discussed it.

16:52using real data from the marketplace and from usage of your product to iterate what you're doing and to iterate your product towards the signal of how people are using that data. So we talked about that on PayPal, Snapchat, Next, and the Amazon IPO. But I think the interplay of these three things, one, keeping the power of network effects. But the problem with that is that They're very hard to achieve because you need a lot of scale. And then companies that have achieved them have huge defensibility. So how do you attack that? You start small with a very specific niche that's underserved and by whatever solutions are in the marketplace today, target them. And then you use the discipline of growth to be honest with yourself about what's working, what are people using, and you take it one step at a time.

17:47And I'll tell you, in looking at growth culture and thinking about the way PayPal did it, when they released a product that wasn't really resonating and then they found where are people using this product and it turned out, oh wow, an incredible amount of transactions are actually happening over because of eBay sales, yeah. Or you look at the initial product was for palm pilots, right? Right, right.

18:12And you look at Twitch, and they realize it's a general purpose thing, but wow, people are really using this thing around gaming, so let's focus on that. We've totally discovered that with PSL and Moderna Labs companies, where it's so important to get in market with something and just be a player in that space to have something to talk to partners and customers to and ways to get actual data back from the way that people are using your thing.

18:38And it's just funny how companies either narrow or move to an adjacent market. And it's so important to get in the space, have a product and market, be able to learn. And then you'll find what the real opportunity is from there. Because it's always, there's varying degrees of how similar it is to your original idea that ends up working. But it's never exactly that. And you need customer data to know. We didn't plan it this way.

19:07You know as we've been talking about these themes I almost see it as like this this kind of trinity of The themes that we talked about four times throughout the year being how you you know sort of the playbook of when you're actually Building and running a startup what you work on and then the meta theme is aggregation theory on top of that because the output of if you do these three things is you'll create a superior customer experience That really is the goal of you know, starting small focusing solving a specific problem better than anyone else for a specific customer and then growing from there and and then network effects layering on top of that of making the product even better and providing defensibility add those together you get aggregation theory you could do a lot worse than using these as your checklist when starting or pitching or refining an idea you know as like

20:00Am I going to be able to create a successful company or at least convince other people that my company could be successful? This sure feels like a decent place to start. Yeah, unfortunately, nobody has yet invented a magic button to translate theory into practice in the technology world. But that's what makes it fun. Yep. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta.

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22:12All right, moving on to things we've discussed three times. The flywheel is a big one with Lucasfilm, Marvel, and the Amazon IPO episode. I think I look at a flywheel as a very specific type of network effect where any increase in one piece of your business adds momentum and grows an additional part of your business. Amazon and Disney, of course, being classic examples of this. Disney with movies that feed into theme parks, that feed into TV shows, that feed into merchandise, and then Amazon with the ability to create a better experience through lower cost, building more customer trust, driving more traffic, and then their ability to continue and grow and scale from there. Amazon is definitely a two-sided network effect, or I guess now.

23:07with AWS. All of the different businesses that Amazon has multi-sided. But for them, the flywheel is about adding to one side of the network effect and then not pushing the other side. Disney and the companies they've acquired in their flywheel. I don't know how much it's about a network effect, but it's...

23:33It almost makes me think more of like economies of scale and sort of old world businesses But I I guess you could argue to the extent that To the extent that people come that the consumers come to see Content that the more consumers they have coming to see Disney content the more they can channel those consumers into other Disney content And then so you could you could think about it as kind of a content consumer network effect. Yeah, but it's not as strong I don't think. Yeah. Yeah. That's a good point. And it's funny in thinking about the best way to define flywheels or potentially if you're in an existing business to see flywheel opportunities in the business. I think a good way to define it might be what does your existing asset of, you know,

24:30business line customer capability is all those things allow you to do that is an unfair advantage that people starting from a cold start wouldn't be able to do. So there's sort of criteria one and then criteria two is does the existence of that new thing that you do feedback and grow your your original business?

24:54Disney, you know, somebody trying to create a caricature, you know, like a toy business doesn't have Disney's IP, so they'd fall in their face. And so Criteria 1 is like, boy, you can really bootstrap a merchandise business. And then Criteria 2 is, of course, more people are gonna go want to see, want to go see the movies and visit the parks if they have the toys. Yeah, and this makes me think about Airbnb and what they're doing now with launching experiences.

25:20and blending both the lodging and experiences into trips. You know, lots of people have tried to solve the kind of, you know, destination services in travel for a long time, but Airbnb has a complete unfair advantage in that they have travelers who are coming and using their site to book lodging and are especially travelers who are oftentimes looking for experiences at the destination that they're going to.

25:49And so they can feed that into the experiences product and then as that product materials and potentially some day people will be coming to Airbnb specifically for specifically for experiences, then they can funnel those people into booking lodging. So we could see you could paint what they're trying to do now in a flywheel light. Yeah, good point. All right. Next one that we also discussed three times this year was as this idea that as a particular technology generation mature. So we saw this with the PC generation, with the mobile generation, and potentially with future technology generations to come. Maybe we'll talk about this in 2017, 2017 themes. But the basis of competition moves up the stack throughout the generation and it kind of starts at the hardware level.

26:46and then moves up to the operating system level and then to the application layer level and then eventually like we're seeing now in mobile and on the web into the service layer level which is cross, cross application. So we talked about this in the accompli episode and the Android episode where I think you can see it most clearly. And in the push pop prep press episode which became Facebook instant articles. Yeah, I really like this one and we talked about It was not exactly the same, but in that episode about rightly in Google Docs, we were talking about as productivity moved toward the cloud from desktop software, there's a low-end disruption thing that happened where Google decided that they were going to create not as good tools for the professional, but

27:41you know, very good for people that wanted to do sort of lightweight editing in their browser. And then that began a total arms race of wow, there actually, there is a services and cloud based productivity market here. And you don't necessarily discover those things without somebody building an inferior product further up the stack first. Yep, which is a great transition to our last three point theme or three times theme for 2016, which was business model based disruption, which we talked about on the right lane Google Docs episode and on the ways episode and on the Android episode. But you know, anytime if you're an incumbent in an area and somebody pops up, they can offer the same product as you and make money by via a different business model, you should be very, very worried. Yes. And this is classic Clayton Christians in here.

28:36It very much falls in the same sort of fear as the Jeff Bezos quote, your margin is my opportunity. And in this method, it's more like your business model is my opportunity. Because if you're able to leverage something like how rightly was able, I'm sorry, how ways was able to crowdsource all the data. Suddenly it's like, hey, I've got this huge asset that costs you money for free. And now I get to decide what to do with that.

29:04And we'll see this all either way. Amazon is one of the best in the world at this. And actually, this is part of one of my carveouts coming up. Not Amazon Video, my carveout is not Amazon Video, but you see it happening there. I mean, Netflix is a great, great company and valued very highly right now. But Amazon Video has improved so much throughout 2016, and it's free with time.

29:32you have to pay eight bucks a month or whatever it is for Netflix now. It's a different business model. It is. It is. All right, well, we've got some things that are discussed twice and once throughout the course of the year, but we're going to put those in these show notes. So if you're curious about other tech themes that were prevalent in 2016, at least through our lens, those will be in the show notes. And we're going to move on to talk about some themes that we think are going to be key in 2017. So, David, do you want to, do you want to start us off with one of your? Yeah, I will. And I'm laughing and I'm sure a long time listening to the show will be laughing as well. But the first one I wanted to talk about is I think aggregation theory is going to continue to be critically important. And one of if not the

30:31clearest lens through which to view opportunities and challenges and disruption that's happening not only in tech going into 2017 but I think in the world broadly too in society I mean Ben Thompson has had some great posts really great posts in the back half of the year here talking about how you can apply that lens the aggregation theory lens to looking at politics and obviously the US election presidential election in 2016 but the media as well and to me personally I actually see it becoming more important in 2017 and thinking about sort of beyond just the traditional IT sector of tech, consumer technology and enterprise software technology. But what does it look like when the dynamics of aggregation theory and the both opportunities and implications of internet dynamics get trained on all industries? We're seeing it with driving right now, which

31:54if I'm not getting my facts wrong, which is entirely possible, that I could be. I believe driving jobs are either the number one or certainly top five, yeah, category of jobs in the US. And it's like two or three million jobs are directly related to the logistics industry. So it kind of trucking. Yeah, tracking.

32:19And then you add, I don't know how many Uber drivers there are. If you add up Uber and Lyft and Taxi drivers, that's another huge amount of people. And all of a sudden you're going to have a superior customer experience through self-driving technology that's going to come on board in the next few years. I think everybody in some form or fashion is going to have to come to grips with the implications of what this needs. Yeah, it's pretty interesting. Well, this segway is nicely into one of mine and I think I was going to talk about three things that I think will happen in 2017 and then three things that I think will begin to happen but are really 2018, 2019 and 2020 themes. But this totally gets into

33:15One of mine which is autonomous vehicles start to make people more serious about universal basic income and I was having this discussion with a friend recently where Let's start with this hypothetical world that is we can basically produce in a very sci-fi way Our basic means of living for free We create technology that is efficient enough that let's say that we can have farms that have all autonomous equipment that are powered by solar arrays of renewable free energy and can deliver all these ingredients to people basically free of charge. So we have clean water, clean food entirely for free and maybe it's even possible that transportation is there too.

34:05Then there's things like shelter, other basic things that you need to live that aren't free. But we're going to start trending toward this world where we could provide those things for everyone. But the thing that will happen much sooner than that is that we'll be able to provide these things with very little jobs.

34:27And so, if you look at the industrial revolution, the argument that everyone always makes as well, technology eliminates jobs, but it also creates new jobs. And I think in this era of autonomous vehicles, autonomous machines, and leveraging machine learning, the difference is that you don't create as many jobs as you eliminate.

34:53And that might be okay in the extreme long run where we do have societal structure in place that, you know, we take care of everyone that doesn't have a job because like nobody needs to work. Like, let's imagine a world where everybody gets to live without working.

35:09And then we need some you know some ways to distribute that that well-founded people but what we we also need something for people to do when they're not working. Yeah, boy, that's like that's an app. That's what we are. That's what we're talking about right of of you know figuring out what to do with your time in an era where we don't work but I think there's a immediate pressing problem which is Companies will get extremely wealthy by having really fat profit margins on being able to achieve great value for tons and tons of people through aggregation theory. And those people will be completely served, but it will be the same price that we've been paying for things except that lots of people don't have jobs. And there's going to be this kind of scary valley where we eliminate the jobs long before we have a sort of like support and redistribution system.

36:03Yeah, there's um Well a couple thoughts. I mean, I think one of the I think what we're talking about is a a Consequence of aggregation theory where you know if you believe it That we are entering a world across all industries now where a superior customer experience Becomes a winner take all business. You know that means there is a winner and lots of losers and you know, as opposed to where you have equilibrium in other industries now, such as the auto industry where there are, you know, 10, 20 or the airline industry, 10, 20 firms that are all employing lots of people, and maybe they are not as profitable as firms as a winner-take-all business. But they are at least providing jobs. So this is definitely, you know,

36:59As far as I know, nobody has solved what this means, how to deal with this on a societal level. But what you were saying after that reminds me of there was a great, I believe this was in wired. I'm going to find this article, I'll link to it in the show notes. When right before the election, Obama gave a few interviews where he talked a lot about tech and sort of you know, mused on what he saw as the biggest challenges, you know, for the world and for America going forward now, and called on the tech industry to respond to them. And the first one was inequality. And this piece, they had six well-known figures from the tech industry sort of respond to each of these things, the challenges that Obama called out. And I believe, yes, it was Tim O'Reilly, the founder of O'Reilly Media.

37:58answered the inequality topic and he said exactly what you're talking about Ben which is that Silicon Valley often forgets that it takes consumer surplus and people with jobs who have disposable income to then spend money on Silicon Valley products and technology. So you're always kind of eating your own tail in the economy and to the extent that We put more people out of jobs as an industry than there's going to be far less consumption of our own products as an industry. Yeah. It's got a funny thinking about it's not as much funny as sort of haunting. Yeah. It's ironic but not in a happy way. Yeah. So I guess like

38:54You know, technology is this interesting sword that has to be responsibly wielded. Like, we've talked about this in the past that the purpose of technology is to make things easier so that it requires less effort from people. And when you run that to its extreme, it's that you need less people to do the jobs that create the value for people, for the consumers of those things.

39:23And I mean, this is one of the themes that we talked about in the Facebook drop year that we have that technology is a lever. You know, it doesn't mean technology is like a not like it's Excalibur, right? It's not like it's a you know a sword for good like it magnifies What is going on? Whether that's you know good or evil or or indifferent. It just magnifies the consequences. Yeah, so in having this ability to create incredible automation and incredible value without human input. I don't think we've necessarily figured out what a societal structure is in a world where technology is so powerful. And I think a lot of the things that we take for granted in a society that is a democratic republic and has a capitalist economy functioned pretty well.

40:21in a world where aggregation theory and automation is not so powerful, but I think we could be forced to do some serious rethinking in the coming decade as these new harsh realities come to light and think about like boy if we just pure capitalism may not actually work anymore.

40:46or I think I'm venturing into dangerous territory there. Well, we're going to have to call my wife Jenny under the show as a guest expert for this. She's a PhD in the humanities and things a lot about this. But I think channeling her, she would say, we have been in a late capitalist world for a long time. I mean, at least since the end of World War II.

41:12And this is kind of the hallmark of late capitalism, which is that you have rapidly increasing wealth inequality. And then the theory is that it ends in a communist or socialist revolution. We'll see, not predicting that that will necessarily happen. But that's the direction, if you look at Europe, political economies that have been moving towards over the last 20 years or so but it's also a world where innovation isn't encouraged as much as it is in a purely capitalist society yeah maybe I think then you start diving into what are human motives besides economic ones right right like you know if you look at like the reason

42:06Daniel Pink has done a bunch of research on this, like what makes people happy in their jobs? It's not really money. It's autonomy, mastery, and purpose above once you hit a certain dollar amount of sustaining yourself. And if you think about that on one hand and you look at sort of like the things that motivate people in general, you know, money, power, love, there's a lot of like very core human things that we often like wrap up with how much money someone makes and people often define themselves by by their job and their value in the world is so tied to that and I think we might start seeing and maybe not in 2017 and maybe not for a while. Once we get to a kind of a post-scarcity society is a place where we start defining ourselves and doing things by different measurements.

42:58And actually, I'm glad you brought that up because I'm catching myself sort of falling into a trap that I think a lot of people and a lot of economists have for a long time been reading a bunch of economists lately and realizing that classical and traditional macroeconomics is kind of like voodoo and not effective voodoo. It's really deeply flawed and some of the One of the assumptions that is really flawed in it is that every individual is a irrational actor. B has perfect information and C is motivated by money and wealth. And that's been all of those three of those things have been proven to be just not true. Are you reading caught up in right now? I've not yet started reading the undoing project, but it's on my list.

43:57But no, I've been reading Tyler Collins blog, the marginal revolution and a lot of the links and work that he works at, he links to and posts there. And he's sort of one of the poster children for the new breed of economists that reject a lot of these classical assumptions. That's cool. Oh, let's check that out. Yeah.

44:25Well, so we move on to one that I wanted to bring up on a sort of looking more on the bright side note of all of this that we talked about on the on the Facebook IPO episode is I'm hopeful that 2017 sees at least starts to see the beginning of the end of this stay private longer.

44:50and startups, private technology companies delaying their IPOs indefinitely. It sure looks like we're gonna see a snapping IPO in the first half, maybe even the first quarter of 2017. And I'm really excited and hopeful to see what that does for the market. Lots of questions to be answered both about the company and what valuation They end up getting both at pricing and how the stock trades afterwards, but I hope that, you know, I'm encouraged by their courage, I get a quote-unquote word of 2017, 2016 in doing this. Yeah, thank you, Phil Schiller. So I hope we see more companies that are building long-term, sustainable businesses.

45:48get the courage to go public yeah and it's it's not clear to me if it's like like courage like they're taking some big risk necessarily that being private wouldn't make them risk or that like they're doing it out of some sense of like it's probably like just overwhelmingly the right thing for them to do so they're doing it but regardless of of motivation It sure seems like it's better for everyone to have companies IPO and you know add up before the five-year mark and after you know somewhere between like three and six years rather than waiting up to ten because it just yeah we talked about this on the Facebook episode but like it lets the American public get in on the growth and wealth that is created from late-stage American innovation and I think it also you know I think this is something that

46:39don't get me wrong Wall Street has its own set of issues and the short-term focus on short-term earnings results can be a bad thing for companies of all types but I think going public enforces a level of accountability and being forced to see the real picture reflection of your business that I think in the long-term will be good for companies you know we like we talked about on the Facebook you know episode it was I really think it not being there at the time but doing all the research and talking through the story I think Facebook going public forced the company to recognize how big a problem they had in mobile and to move at warp speed to fix it yeah that's a great point all right listeners

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49:07So 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. I've got another couple that go together. Yeah. So the first one is the commoditization of basic machine learning. I think, you know, there's that I am, let me just create a disclaimer that says I am not a machine learning practitioner or a data scientist.

49:37nor do I have formal education on the topic I am a curious person in tech and so I've been doing as much reading as I possibly can and talking to some people that are a lot smarter than I am in these things and trying to understand what does the landscape look like and what's become really apparent is that a lot of these things are 50 to 70 year old technologies or I guess really like math papers that only now are coming to fruition and actually being applied because number one we have the hardware to do so and not only with just CPUs and GPUs but with actual like Google creating tensor processing units that are

50:20more effective at doing the sort of math quickly and efficiently that you need to do for machine learning. Let's do have access to elastically scalable clouds. Exactly. You don't have to build tons of data centers. You can use S3 to store all your data. Yeah. Variety of factors contributing to this, there are tens or hundreds of defined machine learning methodologies.

50:49And I think something that is pretty interesting is there's less than five that are actually used right now by a lot of people and have actually had a lot of research on them, a lot of time and practice. And it's interesting that relative to a decade ago when there was still this green, lots of green space of This is an emerging field. It's been researched for a while, but not commercialized. We don't know which things work best. Now there's like a fairly understood scope and scale and understand of what they can be used for for the, you know, few basic types, or a few most used types. And what we've seen is the platformization of those. So if you have...

51:37machine learning tasks to do with your company that are not wildly different than something somebody else is doing, or don't require any new research or actual mathematicians to be hammering on a methodology that's not well understood yet. These are often available from Google, from Amazon, from Microsoft as cloud services that are built on TensorFlow or at Google, or any of the other platforms at these other companies. What you see is companies that might be 30, 40 people don't really need to build out a data science and machine learning practice in the company. They just need to find a way to create really clean data and then feed it into these off-the-shelf systems that the big companies have created. That makes me really excited as an investor because it's going to enable

52:35so many more companies in so many more industries to take advantage of these tools and and I think it's going to you know I think this will be one of the enabling factors that further pushes aggregation theory out into the world you know beyond the traditional borders of the quote unquote tech industry that we talked about earlier. Yeah, and that brings up the second point that I have is the reason that these larger companies are incentivized to make these things available is that the value, once you hit a certain kind of scale and understanding and saturation of these things, the value isn't the algorithm themselves, the value is all about the data. And so these companies with large sets of data, Google, Facebook, Microsoft, Amazon, et cetera, can solve problems that startups just can't. And there's a total flywheel effect of once they have like

53:30just incredible critical masses of data and have the machine learning algorithms and practices built in house to really be competent at turning that data into new products and new services, they're just able to be the best at things that startups have no chance at. So there's a category of machine learning problems that like you're saying, David, are very exciting as an investor to new startups because they can use these off the shelves to shelf tools. But there's a whole other category of things that the big tech companies with lots of data can do that no one else can. Yeah, I think, well, I'm going to agree with you with a caveat on this one and more to come on my front in 2017 on this idea.

54:19My view at least right now on this question is, I think the key to the data is its data about your customers and your domain and people who could be your customers and the interaction between those customers and what your product is. So, yes, I agree that if you have multiple companies doing the same thing, the company that has the most data and the most robust and rich data is going to be able to create the most superior customer experience and win via an engagement theory, which we've talked about ad nauseam. But to the extent you're doing something slightly different, I don't think it pivots very well. That gives me some hope for opportunities for startups. Yeah, maybe. I think there's this category of things I see you.

55:14I think there's definitely a category of things around personalization, where all those points are like spot on, right? Anything that requires lots of information about you to bootstrap from, for example, like showing you the photos of your best memories of the last five years when you were in motion, you know, or some queries like that. But like Google has the most photos of cats.

55:40So anything that relies on a very accurate cat recognizer, you're not going to beat Google at that. And so I think about these companies have the largest data sets of a lot of things. And so I think you're right that outside of the domain of things that these companies capture, you can imagine flow meters on plumbing. None of those big tech companies have the data on flow meters on plumbing. But anything that's like, photo-related or conversation-related or data sets that people create in interactions with themselves in the world is really locked up there. I think there's probably interesting opportunities to try and go find data sets elsewhere and figure out what value can be created from those that those companies don't have. I think that's right, but I guess the perspective I come at it from is

56:37If you think about all the activities in our economy and in our lives, there is an infinite spectrum of products and services that can be built that are very different. And I guess the excitement I come at it from is that you think about Google and the things you are saying, understanding cats, and I do think machine vision is going to be perhaps the biggest category of machine learning.

57:06value creation in the coming years. But like, you know, what about a company that I work with that were investors in a Moderna is a company called booster fuels and they deliver gas to your car. And you wouldn't think that that would be driven by machine learning, but it actually turns out that, you know, the route that trucks take to deliver gas is hugely important and the more efficient you get at that.

57:33The better your business your product will be and the better your business will be You know Google can't do that So I just think there's or at least they don't have an unfair advantage in doing that. They don't have an unfair advantage in doing that. Yeah And even Uber doesn't have an unfair advantage in doing that So I think there's a big C out there to fish in cool. Yeah, I see you there. All right last one that I had more More fun one for me at least to end on is I think 2017 is I'm going back to the niche sort of I think we didn't talk about in the preamble but is what the native experiences quote unquote look like in new mediums and I think 2017 could be a really interesting year for VR and the whole VRAR industry and I think

58:29We'll get a lot more signal this year on whether VR and AR is going to be a mainstream industry anytime soon or a Large niche industry or none of the above and I'm hopeful that by this time next year we'll have a lot more Information on that front and to the extent that it either becomes mainstream or a large niche industry I'm really excited to see what native quote-unquote experiences look like in the VR world. Yeah. Yeah, me too. Because it's funny. It's like, remember the first Steve Jobs demo of the iPhone when he pulls up the New York Times and he, there's no such thing as a global optimized site yet. And he double taps to zoom in on all the articles and you look at like a desktop rendered version of the Times. Yeah. It's like, what's the equivalent there? Like, what's the, what are the native VR experiences that are?

59:26right now like we're so excited to like oh my god we're playing a similar video game but a VR yeah well and a lot of the games you're seeing in VR right now are those you know oh man this game that we've always known in love would be so cool if we could do it in VR right my craft or whatever like but what are the and I think this is just where the creativity of entrepreneurs is going to come out it'll be things that you and I haven't imagined yet and having done a lot of VR experiences myself. I would imagine a lot of our listeners either haven't done many or haven't done any yet. It's very much a bleeding edge niche technology right now, but you can see so much potential in the immersiveness of the experience. It's like the anti-mobile in a lot of ways.

1:00:20Right now, it's largely tethered experience that you certainly can't move around much outside of a very controlled environment. The best VR experiences right now, we still have lots of problems with them. But as opposed to on a mobile phone where you're getting 16,000 notifications every minute and jumping between contacts all the time, you really do start to forget that you're in a simulation and just get totally immersed in what you do.

1:00:49Well, David, I would argue I'm frequently, completely immersed in my phone and not paying attention to what's around me. It's all a question of what context you're thinking about. Well, hey, I've got one more and it's more of a question. Yeah, do it. I'm curious what you think. Because for how political we could get on this show, we stay pretty far away from it even though we sort of discuss societal issues.

1:01:12And I was trying to think through, you know, we've been in this era of rising abundance of both information and physical products over the last several decades. And I was trying to figure out, like, is it possible that we start moving to an era of scarcity of physical products where in years past, you know, it's, it's, uh, It's been incredibly inexpensive to manufacture overseas and you know, that's the reason why we can get an iPhone for $600 when it's this incredible magical device and With the combination of a rising middle class in China, you know additional countries where a lot of this very inexpensive manufacturing is getting done Becoming more of a developed a developed nation and then also it's hard to predict what's gonna happen, but all indications lead toward it

1:02:05we may have a little bit more restrictions and tariffs on trade to encourage things to be built in America under the Trump administration. I'm curious, even if that doesn't come to fruition, do you think that we start to shift back toward an era where goods are more expensive and we have less physical goods? Yeah, I don't know. I hadn't quite thought about that.

1:02:31It's really hard to imagine that just from a consumer perspective Which does make me wonder if it happened what would the political reaction be I mean let's let's say Can let's assume that if more barriers to trade get enacted that a consequence of that is that the price of physical goods Goes up significantly and less people are able to afford them like How would people vote in reaction to that? I don't know. I don't know. If you can't buy your big screen anymore, yeah, I don't know. At the same time, we also live in this moment where one of the books I read this year was one of the top-selling books in 2016 was that the life-changing magic of tidying up the Japanese art of decluttering all about

1:03:29Removing physical things that there's there's too much Many people have too many physical things in their life and you need to remove them so if prices go up will it solve that? I don't know and I can't tell if there's a cultural I'm trying to decide if I live too much in a bubble But it sure seems like there's a trend toward owning less things just just to You know try and be more minimalist and especially with the the shift toward More people being in urban environments and having smaller spaces that We may just start to see this from a cultural desire perspective, too. Yeah, I mean, no question. I think one thing that seems very clear to me that you mentioned is urbanization, regardless of what happens with globalization and trade, I think urbanization is going to continue to be a very, very powerful force throughout the rest of this decade and likely into the next.

1:04:27For a whole variety of reasons, so many people in this country and around the world are migrating to cities and the migration to cities that I think is happening is going to force a lot of this change. The big mansions in the suburbs aren't what a lot of people aspire to anymore. It's a great point.

1:04:54Let alone the fancy cars that you drive to get back and forth. Yeah, no kidding. With that, do you want to move on to Carbouts? Yeah, so for Carbouts for this episode, since it's the end of the year, we thought that we would each do a Carbout across a whole bunch of basically all the categories that we talked about throughout the year. So we have books, articles, Podcasts music TV and movies and apps Should we start with Should we start with books? Yeah, let's do it. I've got one that I'm rereading now and I I don't think I've done it as a carve out before But it's one of these books that I probably should read every year and You know, I'm just just reading for the second time now, but it's called on writing well. It is a

1:05:46Kind of a spiritual supplement to the E.B. Whites or elements of style. And it's a really great, very enjoyable to read book that harps on the importance of writing in plain English using one word when you can instead of two or three or ten. Eliminating colloquial phrases that are not adding anything to the piece.

1:06:15and really decluttering your writing and having clarity of thought. And one of the things I want to get better at in 2017 is just being a better writer and writing with more clarity and purpose and being more pithy. And it's just a phenomenal, phenomenal guide to doing exactly that. I've had that recommended to me several times over the years. I've never read it. And I got to get that and read it.

1:06:44very few things that we can invest in that will do more for our communication than learning to be a better writer. Something I definitely, definitely need to keep working on. Okay, for my book for the Carveld, I actually broke it into two. I did nonfiction and fiction. So for nonfiction, The Creative Habit by Twila Thark, which was a book that actually got a long time ago and had been meaning to read, had started, never finished, and I finally picked it back up again and finished it this year. Really great. Twila is a American choreographer and dancer and just has, it's a really creative work itself, but a lot of great advice for how to think creatively and

1:07:37structure your life if you are someone from an entrepreneur to an executive to an actual artist who needs to think creatively in your work. And then my fiction for the years actually a whole multiple series of books but I finally read the entire Isaac Asimov canon. Not all of the books that he wrote but the Robot series, the Empire series and the Foundation series which are all separate series but Later in his life, he wrote other books to fill in the gaps and tie them all together. Really fun. And also a great, a great read as we head into this world as we've been talking about on this episode of artificial intelligence and robotics potentially coming along with that. A lot of, a lot of his work has been an inspiration to actual innovators and inventors throughout the years. So highly, highly recommended all of the series that he's written.

1:08:35Awesome. And actually, that kind of leads into my article. Yeah, it's a religion for the non-religious, which is a way, but why column. Yeah, so good. Yeah, really great. Like talks about level one thinking, which is more like instinctual level two thinking, which is more empathetic. Level three thinking, which is like thinking about the whole universe as we know it and being just floored by our place in it and then level 4 thinking which is we don't even know what we don't know and it's kind of an interesting way to tie everything together from why am I acting so silly right now all the way to what are the bounds of the known universe yeah such a great blog

1:09:19my article is a piece in New York Times that came out a few weeks ago about the alleged activities by Russian hackers in hacking the DNC and the RNC and then their use of that information to try and influence the outcome of the US elections. This is a really great long reporting piece.

1:09:47and they sort of deliberately make the analogy in the beginning of the piece between Watergate and the hacking of the DNC, the physical hacking of the DNC headquarters for information during Watergate to the digital hacking now. But why I thought it was super cool is they make the argument in the piece that if Russia did in fact do this, that this is actually moving beyond espionage into a...

1:10:16Trying to influence outcomes of elections in another country is a war to like act and it made me think a lot regardless of what you think about this particular situation about Disruption and evolving technology as regards to war too, you know if this is This might be the way that at least one of the ways that war is conducted now as opposed to you know tanks and planes and bombs super interesting to think about Disruption of at that level too, and also relevant to what we were talking about earlier in this show. Wow, yeah. Totally ties it together. Speaking of being all over the place, my podcast recommendation is the episode of the Ezra Client Show with Patrick Collison, the co-founder and CEO of Stripe, and fascinating at a lot of levels. It truly is all over the place in a lot of the

1:11:10the best ways that you would hope, super intellectual on technology, politics, philosophy, and highly recommend checking it out. That is so funny because the Ezra Klein show was my podcast as well. Fortunately, I had two episodes to recommend. One was that show with Patrick Collison, which is a great, great episode. The other one I think is the one that Ezra did immediately following that episode.

1:11:37either immediately or two episodes later with Tanaeasy Coates, completely different type of person in different world. Coates is an author and a journalist, but also very, very great episode and worth listening to. I agree. Music!

1:11:54Music, so we've been riding this really high brow in electoral train so I'm going to bring it back down and declare 2016 the year of Justin Bieber. His last album of mega hits technically came out November of 2016, but boy did they have staying power and stayed snappy and hot and released fresh singles all year. So I unapologetically go Justin Bieber. That's great. I'm also unapologetically going to go back to, I think I mentioned this in episode or two ago, Jenny and I went to Stevie Nix concert this year and it was so good. I've been a huge Fleetwood Mac fan for a long, long time and but in 2016 I have discovered Stevie Nix's solo career too even beyond, you know, edge of 17 and the famous hits. She really is an amazing artist.

1:12:49and both her own solo albums and her collaborations, especially with Tom Petty and the heartbreakers. Also, Prince, I didn't know until I went to her show that Prince played the guitar on her hit Stand Back. They had a really close relationship. That's my music for 2016. Awesome.

1:13:11So my TV or movie is Westworld, the HBO show. I mentioned it as my carve out a few episodes ago, but that was the piece of entertainment of 2016 for me. It was so thought-provoking, worth watching twice, worth listening to podcasts about, worth talking to your friends about, and reading the subreddit and diving in. It is JJ Abrams and Jonathan Nolan at their absolute best, so. I'm gonna bring it down even further here.

1:13:40Haven't haven't gotten into any of the heady grade television that's being produced these days But my video content of the year was rogue one so good if you haven't seen it yet I know it's gotten somewhat mixed reviews, but I thought it was just fantastic Ben and I saw it together on opening tonight on opening night. It was a blast. I've seen it once more since then and I would totally go see it again the forces with me and I am with the forest David Moving on to app. My app of the year is when I just started using which is Reach Now, the car sharing program by BMW. It behaves very similar to car to go if you've used that but you get a car that's not a smart car. So you can take four or five passengers, it's enjoyable to drive, you can go on highways, cost about the same amount and it's a really great renting and drop off experience.

1:14:36Interesting. I tried to reach now when they first launched in Seattle earlier in the year, and I stopped using it because I remember the prices being way more expensive than Cardigo. Have they gotten better? I think they're the same. Right now, they're waving sign-up fees, which is like 39 bucks. I think that they'll probably start at some point. But it's 40 cents a mile, and I think that's pretty comparable. I remember when I stopped using Cardigo like three or four years ago, it was 33 cents a mile, and I think it's gone up since then.

1:15:06Hmm, interesting. Yeah, creating concept for the same price as a smart car. You could drive a BMW. Yeah, yeah. I take the BMW. And I think, sorry, not a mile per minute. And I think it's actually kind of part of their plan for eventually building a self-driving fleet. I think they're kind of data collecting vehicles. Getting the data for machine learning. Yeah. My app also plays into a bunch of themes we've talked about on this show throughout the year.

1:15:35And a company is Amazon Music. I discovered this in 2016 and as perhaps evidenced by my music carve out in Stevie Nicks, I'm not. I don't spend a lot of time staying up on new music and the Amazon Prime music is free with prime and is pretty great, especially for free. Talking about business model disruption. The Amazon, if you are not already a Spotify or Pandora or other paid music or Apple Music subscriber and it's not something that's like so important to you to have an absolute full catalog. Free with Amazon Prime, the music app is pretty great.

1:16:21Yeah, I'd be curious. Listeners, if you are a music lover and have tried out Amazon, Amazon MP3, I would love to get your review. If you want to reach out to us in the Slack, go to acquired.fm. You can see the Slack where the conversation's happening. And yeah, I'd love to hear about it from music lovers. Yeah. I also have a request too for anyone out there on going back to books. I love reading sci-fi and But I'm super curious. I haven't read a lot of current science fiction, and I would love to hear, read, and learn about what people are imagining about the future today, and especially women science fiction authors, which I have read embarrassingly little. So if you have any good recommendations for current sci-fi, especially by women authors, hit me up in the slack. Awesome. Alright listeners, now is a great time to talk about one of our

1:17:19favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly.

1:17:42The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you shipped next. This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

1:18:04So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. Well listeners, we hope you had a great 2016 and ring in the 2017 with, you know, however you choose to ring it in.

1:18:24It's probably a week or so in right now, but we hope you have a great year. If you have been listening to the show for a long time or even if you're brand new and enjoyed the episode, we would love a review on iTunes and to share it with your friends and colleagues or anyone that you think would be interested on Twitter or just email or word of mouth. So thank you so much for being a listener and have a great year. Happy 2017, we'll talk to you soon.

1:18:51Is it you? Is it you? Is it you? Who got the truth now?