Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: The Bloomberg Business Week Podcast with Carol Messer and Tim
Speaker 1: Stenebeck from Bloomberg Radio.
Speaker 3: We begin with our cover story at the latest issue
Speaker 3: at Bloomberg Business Week. It's a finance section takeover centered
Speaker 3: around the outlook for the global commercial property market, and
Speaker 3: as we're about to learn, it's not pretty. Let's welcome
Speaker 3: in our Bloomberg News real estate reporting team of Patrick
Speaker 3: Clark and Natalie Wong, along with the editor of the magazine,
Speaker 3: Joel Weber and you know, Joe, as you point out
Speaker 3: and you guys point out in this section that the
Speaker 3: sector really has not come back from the pandemic. It's
Speaker 3: still dealing with that.
Speaker 4: Yeah.
Speaker 5: Look, we've been talking about commercial real estate for most
Speaker 5: of the pandemic because that was a return, you know,
Speaker 5: the return to office started to become a thing, except
Speaker 5: that never really took off. And what we realized here
Speaker 5: and what we tried to bring together in this cover
Speaker 5: package is that the commercial real estate outlook is looking
Speaker 5: really scary and there's a lot of debt that looks
Speaker 5: like a wall, and the strategy that the industry is
Speaker 5: used to basically finance buildings may not work anymore in
Speaker 5: the current environment, and so that sets up a really
Speaker 5: precarious situation, and we wanted to put all of our
Speaker 5: wits to that and turn it into a global effort
Speaker 5: as much.
Speaker 4: As we could.
Speaker 3: So pat common in on this in terms of how
Speaker 3: you guys were thinking about it.
Speaker 6: Yeah, I think most people would say that high interest
Speaker 6: rates are okay for real estate. We've had high interest
Speaker 6: rates in the past. But the transition from exceedingly low
Speaker 6: interest rates as low as can be to higher interest
Speaker 6: rates where we were where we are now happened so
Speaker 6: fast that something has to break. And right now we've
Speaker 6: been sort of that. We're in this period where we're
Speaker 6: trying to put that off as long as possible.
Speaker 3: And it's like, darn you, Fed, but it just happened
Speaker 3: so fast.
Speaker 6: Listen, it's not even you know, I mean, the FED
Speaker 6: had to intervene in March twenty twenty when it looked
Speaker 6: like the COVID was going to really kind of completely
Speaker 6: blow up the economy, the global financial system, everything. But
Speaker 6: you know, we're still dealing with the reverberations from that.
Speaker 3: Natalie come on in as well, because I do think,
Speaker 3: you know, the financial crisis, right, a different type of
Speaker 3: real estate crisis. We know that was largely residential. But
Speaker 3: I do feel like everyone thought, maybe we've learned some lessons,
Speaker 3: but maybe those same lessons aren't going to apply in
Speaker 3: this environment, right.
Speaker 7: I mean, I think when we're looking at the property
Speaker 7: market and the US alone, at least, most of the
Speaker 7: distress that we're seeing is concentrated in offices where you're
Speaker 7: seeing sort of a double whammy of existential questions about
Speaker 7: how much space people actually need and the fallout from
Speaker 7: the pandemic, and also how those assets are being impacted
Speaker 7: by the rapid rise and rates. This Pat was saying
Speaker 7: a lot of these owners, even the biggest ones from
Speaker 7: Brookfield to Blackstone to Pimco, they were just walking away
Speaker 7: from these properties and cutting their.
Speaker 5: Losses worth mentioning in my ongoing campaign for RTO propaganda
Speaker 5: that I walked by Pat clarka a number of weeks.
Speaker 4: Ago and I was like, what are you thinking about?
Speaker 5: And you know, there was a phrase that he shared
Speaker 5: with me that, honestly, it was one that washed over me,
Speaker 5: and I had to remind him. I was like, what
Speaker 5: was that again? What was that again? And then finally
Speaker 5: I was like, we should actually write that, Pat, what
Speaker 5: was it?
Speaker 6: Well, extend and pretend, which is you know, this is
Speaker 6: an old cliche in the real estate world at least,
Speaker 6: and it has worked before. I mean, I think, I
Speaker 6: think if you really go back, you would learn that
Speaker 6: when you can extend and pretend, when banks have to
Speaker 6: take properties back when losses are realized, it is bad
Speaker 6: and it's messy. And you know, that's what happened in
Speaker 6: the early nineties. It was a mess the global financial crisis.
Speaker 6: The industry said, you know, let's see if we can
Speaker 6: just kind of push this off as long as possible.
Speaker 6: And not to say there was no mess, but the
Speaker 6: strategy of extending pretending was largely successful. The question is
Speaker 6: does it work again in this period where you have
Speaker 6: this interest rate shift has been so abrupt.
Speaker 3: Yeah, there's a point, right right. If you're an owner
Speaker 3: of property, you're like, wait, this is just too expensive.
Speaker 3: It's better for me to just walk away.
Speaker 4: Okay.
Speaker 5: Just in case you're not familiar with the phrase extend
Speaker 5: and pretend, what's the extend part?
Speaker 4: And what's the pretend part.
Speaker 6: Yeah, well, you know, you extend loan term. So a
Speaker 6: commercial real estate loan doesn't work like your thirty year mortgage.
Speaker 6: Right you at the end of your five or ten
Speaker 6: year term, there's a balloon payment. So when you're when
Speaker 6: you run out of term and you run out of extensions,
Speaker 6: you own a one hundred million dollar building, you've got to,
Speaker 6: you know, potentially give one hundred million dollars or some
Speaker 6: large sum back to the lender. And if you don't
Speaker 6: have it right now, the lender could say, you know,
Speaker 6: it would be better for all of us if we
Speaker 6: wrote you an extra year of term on this and
Speaker 6: we deal with this down the line. And again, that
Speaker 6: was in March twenty twenty. In that early period of COVID,
Speaker 6: there was a lot of that and it was effective,
Speaker 6: effective in part because you know, Congress pumped enormous amount
Speaker 6: of money into the US economy, fed lowered interest rates,
Speaker 6: transactions picked up again and kicking the can down the road,
Speaker 6: or you know, the other cliches are delay and.
Speaker 8: Prey, delay, delay, and pray.
Speaker 3: I have to say, I get it. Kind of a
Speaker 3: lesson when it comes to real estate loans about this
Speaker 3: whole idea. Right, you have a loan, do the balloon payment,
Speaker 3: and then you just get more time. Like right, That's
Speaker 3: how it normally works in the industry, or has for
Speaker 3: a long time. But this is different.
Speaker 7: This is different. I mean that's Pat was saying, Like,
Speaker 7: a lot of the extend and pretend during the pandemic
Speaker 7: happened because people didn't know where values stood and people
Speaker 7: didn't know how the return to work would shake out.
Speaker 7: It's been more than three years, it's clear that vacancy
Speaker 7: rates are still at record heights and getting worse in
Speaker 7: many of the major cities. And not only that, but
Speaker 7: you have the issue with the banking crisis, the regional
Speaker 7: banks that are offloading, you know, billions of commercial real
Speaker 7: estate loans, and some of that is starting to shake out,
Speaker 7: and investors and lenders and regulators are seeing that it's
Speaker 7: not going to balance out anytime soon. So you know
Speaker 7: it's time to start writing off the loans.
Speaker 5: Okay, So, Pat, if this is the end of extend
Speaker 5: and pretend, what does that actually begin to look like?
Speaker 6: Well, if it doesn't work, if lenders can and lenders
Speaker 6: and borrowers can't push things out, it can get bad.
Speaker 6: You know the again, we've got these balloon payments that
Speaker 6: come due, and you've got this situation where lenders are
Speaker 6: you know, at minimum under scrutiny over there commercial real
Speaker 6: estate exposure, you know, arguably under pressure to reduce commercial
Speaker 6: real estate exposure from both you know, regulators, ratings companies,
Speaker 6: and you know, even shareholders. I'm talking about banks primarily
Speaker 6: who provide the bulk of commercial real estate finance, but
Speaker 6: again life insurers or securitization market. There's both a huge
Speaker 6: need for a new debt in commercial real estate to
Speaker 6: refinance these old loans that are coming due, and there
Speaker 6: is a you know, a sort of retreat of liquidity.
Speaker 4: There are debt providers out there. They generally are going to.
Speaker 6: Want a premium to give you a loan right now
Speaker 6: because they can get it. But it's also a little
Speaker 6: more niche. This sort of the bulk of credit provided
Speaker 6: by regional banking system is not necessarily going to be
Speaker 6: there right now, and you can start spinning out scenarios
Speaker 6: where banks are being pushed to cut exposure. They're selling loans,
Speaker 6: they're having to take discounts to sell loans because interest
Speaker 6: rates are higher right now. So why would you buy
Speaker 6: an old book of loans that's generating three percent interests
Speaker 6: when you can originate a new loan at double that.
Speaker 5: Natalie, you wrote remarks for the magazine a couple months ago.
Speaker 5: It was the first time that we actually saw a default,
Speaker 5: and we sort of were like, wait a second, something
Speaker 5: else is coming, And so here we are talking about
Speaker 5: it a couple months later.
Speaker 4: But when you.
Speaker 5: Look ahead, how big of a wall of debt are
Speaker 5: we talking about here, and what does that actually mean
Speaker 5: for everyone?
Speaker 7: It's massive. I mean in the US alone, there's one
Speaker 7: point four trillion dollars worth of debt that's maturing this
Speaker 7: year and the next, and a lot of investors around
Speaker 7: the world, a lot of the banks and a lot
Speaker 7: of the private equity firms that we wrote about for
Speaker 7: the previous story are going to be facing these big maturities,
Speaker 7: and some of them are just walking away from it.
Speaker 3: I think this is also a big part of it
Speaker 3: of how we're going to be using real estate going forward,
Speaker 3: whether it's offices, right, there's some offices you can kind
Speaker 3: of remake and repurpose, but that's not always the case.
Speaker 3: I mean, there's we're rethinking, right, how we use our space.
Speaker 7: You're rethinking it. But the problem is it takes time,
Speaker 7: and it also takes a lot of money, which these
Speaker 7: companies don't have right now. And for some like we
Speaker 7: were writing about the Seagram building, which is still doing well.
Speaker 7: It's an iconic building, but they've already put in twenty
Speaker 7: five million dollars and they're still losing a major private
Speaker 7: equity tenant to a much newer development. Like some of
Speaker 7: these buildings, no matter how much money you pour into it,
Speaker 7: the bones, you just can't make it like a developer
Speaker 7: can't ground up, and it's cheaper to do a ground up.
Speaker 5: And that's I think the big thing is this idea
Speaker 5: that some of this stuff can get converted from commercial
Speaker 5: to residential.
Speaker 4: Right that's just not going to happen.
Speaker 5: And so it leaves you a question of like, okay,
Speaker 5: if we've got all these empty office buildings, like what
Speaker 5: are we going to do with them? And then you think, okay,
Speaker 5: well maybe it's New York and this is I think,
Speaker 5: you know, Pat wrote the kind of the opening essay
Speaker 5: for the package, and Natalie and John Gidtlson took a
Speaker 5: much more map global view of what this actually looked
Speaker 5: like around the world. Whenever from New York to San Francisco,
Speaker 5: even looked abroad places like Hong Kong. If we have
Speaker 5: a lot of empty office space, there is no good
Speaker 5: solution with what to do with and it becomes kind
Speaker 5: of a frightening proposition when you think about the global
Speaker 5: implications of this, right, Natalie, Right, you.
Speaker 7: Basically have the zombie buildings that are the owners handing
Speaker 7: the keys over to the lender, and the lender typically
Speaker 7: puts it in the hands of receivers in these buildings
Speaker 7: essentially limp along for years with the lender trying to
Speaker 7: figure out what to do with it. And we're seeing
Speaker 7: that it's already going to potentially have impacts on tax
Speaker 7: revenues at different cities in San Francisco in New York.
Speaker 7: These professors at NYU and Columbia did a study which
Speaker 7: said that remote work. Due to remote work, office values
Speaker 7: will be wiped out forty four percent from pre pandemic values,
Speaker 7: and that's going to take a big hit of the
Speaker 7: city revenue because offices take up twenty percent of the
Speaker 7: property tax revenues of New York.
Speaker 3: I have to say that's one of the out of
Speaker 3: the section I love where you guys broke it down
Speaker 3: into cities. I was kind of blown away by some
Speaker 3: of the statistics and the impact in terms of data,
Speaker 3: you know, values going down or just vacancies. It was
Speaker 3: pretty remarkable. I highly recommend everybody check out the complete section.
Speaker 3: It is the finance section, the cover story all about
Speaker 3: the struggling commercial real estate sector. Thanks to Bloomberg News
Speaker 3: real estate reporters Patrick Clark and Natalie Wong, along with
Speaker 3: the editor of the magazine, Joel Weber.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 1: Alexa Play Bloomberg E love them thirty.
Speaker 9: Day same.
Speaker 3: Right now, it's not tomorrow.
Speaker 4: What are incredible organizations?
Speaker 3: But do you love the Daryl Hall with Daryl I
Speaker 3: mean with the long hair. Yeah, yeah, me too. But
Speaker 3: then he got a cut.
Speaker 4: It was a little bit of a mullet.
Speaker 3: I like that, Yeah, I can. Yeah, I don't like mullets.
Speaker 3: All right, So, Matt, we talked yesterday about a story
Speaker 3: that concerns have been highlighted when it comes to the
Speaker 3: private credit world, pressures of higher interest rates, what it
Speaker 3: means for those borers floating rates.
Speaker 10: As you said, Oh my goshte to say that you
Speaker 10: and I are both pretty well obsessed with private credit.
Speaker 3: And I am I am anywhere where I feel like
Speaker 3: I don't have a total handle on it, and everybody's like,
Speaker 3: don't worry, it's gonna be okay. So let's get into
Speaker 3: the private world, which includes, of course private equity with
Speaker 3: us as Kate Ambrose, CEO of the Global Private Capital Association,
Speaker 3: it's a nonprofit, nonprofit, independent membership organization representing private capital
Speaker 3: investors who manage some two trillion in assets globally. We're
Speaker 3: talking about a KKR, We're talking about Bill and Melinda Gates, Colsters,
Speaker 3: We're talking about the former Silicon Valley Bank, academic institutions,
Speaker 3: and more so looking forward to our conversation she's here
Speaker 3: in our Bloomberg interaction.
Speaker 4: Is this essentially a lobbying group?
Speaker 10: Or when I see non profit together with private equity,
Speaker 10: like alarm bells go off? Why does private equity need
Speaker 10: the nonprofit?
Speaker 4: Right?
Speaker 9: Love that question, love it. We are a very unique organization.
Speaker 9: The organization was founded as the Emerging Markets Private Equity
Speaker 9: Association by the IFC of the World Bank over twenty
Speaker 9: years ago.
Speaker 3: Oh my god.
Speaker 9: It was founded by the first LPs in funds in
Speaker 9: emerging markets and grew to some prominence at the period
Speaker 9: of time that there was this idea that emerging markets
Speaker 9: was going to be an asset class in and of itself,
Speaker 9: that was going to be faster demograph younger demographics, faster growth,
Speaker 9: that would be a rising time that would lift all boats,
Speaker 9: and grew to some significant size. I joined in twenty
Speaker 9: nineteen as CEO and really to reposition the organization for
Speaker 9: the future, to reflect what's going on in the world today.
Speaker 9: The terminology emerging markets is forty years out of date.
Speaker 9: You know, it's forty years old. It's just completely outdated.
Speaker 9: China's the world's second largest economy, so many of the
Speaker 9: opportunities is so much capital flows from these places in
Speaker 9: the world. So we are now the Global Private Capital Association.
Speaker 9: The regions that we cover our Asia, Latin America, Africa,
Speaker 9: Central and Eastern Europe, and the Middle East. But our
Speaker 9: board includes for example Bill Ford of General Atlantic, one
Speaker 9: of the world's largest private equity farms. As you mentioned KKR.
Speaker 9: Others are members. We have for example, Tamasek, the Singapore
Speaker 9: Sovereign from their Chief Investment Office, are fascinative.
Speaker 10: So essentially it was the organization was started to kind
Speaker 10: of shepherd growth through private equity in these markets exactly.
Speaker 3: And the reposition nonprofit is that wrong?
Speaker 4: We are.
Speaker 9: So we are the same structure as a national Venture
Speaker 9: capital Association in the US or a private equity council,
Speaker 9: which indeeder lobby groups. The beauty and this is why
Speaker 9: we use the word independent, is that because we cover
Speaker 9: all of these markets, we're not there to lobby on
Speaker 9: behalf of lower tax rates for or preferential regulatory treatment
Speaker 9: for our members. We're really there to evangelize capital and
Speaker 9: educate on the opportunities across global markets. And the last
Speaker 9: thing I'll say is we are not a US slobby group.
Speaker 9: We are truly a global organization. Again, our board includes
Speaker 9: the leading fund managers from India, Africa, Latin America, both
Speaker 9: global firms and local.
Speaker 3: So where does your funding come from?
Speaker 9: Membership dues? So over three hundred member firms pay dues
Speaker 9: to be members of the organization. We have a very
Speaker 9: dynamic research platform. I can throw some data off the
Speaker 9: top of my head in terms of fundraising and trends
Speaker 9: and things like private exit.
Speaker 10: So but what what I'm getting is that the World
Speaker 10: Bank said we need to shepherd growth through this mechanism
Speaker 10: private equity, and a good way to do that just
Speaker 10: put together an organization to support it.
Speaker 4: I guess what.
Speaker 9: So the IFC is the International Finance Corporation, and they
Speaker 9: were limited partners in funds, so they actually put money
Speaker 9: into funds.
Speaker 11: See.
Speaker 9: And there's a whole universe of development finance institutions, including
Speaker 9: the US DFC, which is what the US uses to
Speaker 9: compete with China. Frankly, around the world putting money into funds.
Speaker 9: So it really it's more commercial than sort of what
Speaker 9: we're describing. But we are a nonprofit organization.
Speaker 3: ESDFC, the Development Finance Corporation. Okay, So if you had
Speaker 3: to say your top priority in your organization, number one,
Speaker 3: just one?
Speaker 6: What is it?
Speaker 3: Wow?
Speaker 4: That's tough.
Speaker 9: There's kind of twins, so I may cheat. One is
Speaker 9: to just re educate the world on the opportunities and
Speaker 9: the realities and the risks of investing in these markets.
Speaker 9: And the second would be to influence capital towards greater
Speaker 9: long term, inclusive growth and environmental private capital.
Speaker 3: Yes, private capital. I am obsessed, Matt. We're both obsessed.
Speaker 3: And I feel like I keep saying this last couple
Speaker 3: of times I've been at Milk and we've done broadcasts.
Speaker 3: Doesn't seem like anybody cares about the public markets. It's
Speaker 3: all about the private market's private credit, private equas well.
Speaker 10: Those people are you're hanging around the wrong people public Well, yes, yes.
Speaker 3: But there's also right but so but I mean, tell
Speaker 3: us about from your perspective, because I think there's some
Speaker 3: nervousness in terms of the private capital world, especially as
Speaker 3: we see rates going out that you know, there doesn't
Speaker 3: feel like there was as much transparency and that that
Speaker 3: could be problematic interesting transparancy.
Speaker 9: But well, okay, great, I mean absolutely, the scale of
Speaker 9: capital is remarkable, and this is sort of private capital,
Speaker 9: private capital exactly. For example, last year alone one point
Speaker 9: three trillion. You know, it's one point two one point
Speaker 9: three but critically that's just what's raised by fund managers.
Speaker 9: You've got to throw in there all the Canadian pension plans.
Speaker 9: By the way, CPB is also on our board of
Speaker 9: Directors as his future front from Australia. It's trillions and
Speaker 9: trillions of dollars of liquidity. It's just so that the
Speaker 9: scale of money that is a bila. You've got all
Speaker 9: the Chinese billionaires, you've got family offices. You know, there's so.
Speaker 4: Much everybody wants in right now. Because the thing is.
Speaker 10: There's also nervous, so much talk of the opportunity in
Speaker 10: private credit, it's become uh, kind of the darling of
Speaker 10: investors really from retail up now.
Speaker 9: Right Well, I was speaking across all private credit, private
Speaker 9: capital strategy, using private equity, venture capital, infrastructure, real assets.
Speaker 9: So there's a lot in there.
Speaker 3: What's really hot right now.
Speaker 9: So the two Well, you're mentioning private credit, which absolutely
Speaker 9: is a huge driver. So if I had to say
Speaker 9: a strategy that's going really quickly, I'd say private credit.
Speaker 9: And there was fourteen billion dollars in private credit fundraising
Speaker 9: last year. KKR had a big Asia private credit fund,
Speaker 9: Apollo had a big private credit fund, big manager in
Speaker 9: India is raising one point six billion for their private
Speaker 9: credit fund just focused on India. Then the other I
Speaker 9: would highlight two other big drivers particularly in our markets,
Speaker 9: climate and everything anything sustainability focused huge driver. Seriously absolutely
Speaker 9: different from the ESG. Absolutely absolutely huge driver. And I
Speaker 9: would make this critical distinction ESG. It's kind of like
Speaker 9: the working with terminology, like emerging markets. It can mean anything, right,
Speaker 9: what is the ESG? What is impact? I mean, the
Speaker 9: definitions really are there. There's a lot of situation.
Speaker 4: Kind of going through a record, make up yourself based on.
Speaker 9: Particularly It's funny when you say you know transparency. I
Speaker 9: believe that there's actually a greater opportunity for transparency and
Speaker 9: private capital strategies because you can see what's in portfolios.
Speaker 9: You can see you can look at the portfolio.
Speaker 3: Company level, not every portfolio.
Speaker 9: Well, in the I guess I would say in the
Speaker 9: markets that we represent.
Speaker 3: Going in, but if you're a pension fund, you can
Speaker 3: look at it, right, Yeah.
Speaker 9: I mean I'm speaking specifically to the markets that we're in,
Speaker 9: and in the markets that we're in, you know governance,
Speaker 9: governance and transparency and you know going in and cleaning
Speaker 9: up that type of stuff from the outset. And there's
Speaker 9: so much leverage, so I don't know, when you're thinking
Speaker 9: from a risk perspective, you're thinking about the amount of
Speaker 9: leverage that's been put on If.
Speaker 3: KK or Apollo has a fund, I don't necessarily know
Speaker 3: everything that's in it.
Speaker 9: You know, here's another driver, ide would point right though, Yeah,
Speaker 9: I honestly can't answer that.
Speaker 10: No, No, I think care but they quit it out
Speaker 10: in there. And Carol and I both have been grappling
Speaker 10: with trying to value the entire size of the private
Speaker 10: credit market, for example, and that data is difficult for US.
Speaker 9: Privent credit is going to be a much less transparent
Speaker 9: than private equity. Correct, yes, because in private equity you're
Speaker 9: talking about typically investments and so. But private credit is
Speaker 9: absolutely less private equity.
Speaker 3: If you're not if you're getting into private firms, I
Speaker 3: guess there's announcements. There has to be, like to.
Speaker 9: Say, the deal portfolio is on the website. And I
Speaker 9: would make another point, which is one of the things
Speaker 9: that I find really exciting about what I do in
Speaker 9: the opportunity. The way the industry is changing, just in
Speaker 9: the space of the last five years, the level of
Speaker 9: accountability and the shift in thinking in private capital globally
Speaker 9: is remarkable. You look at you know, the examples of
Speaker 9: founders being pushed out because of even a hint of impropriety.
Speaker 9: There is so much more focus on long term reputation
Speaker 9: because let's face it, you know one bad step reputationally
Speaker 9: is you know, it has a major impact.
Speaker 4: And look at Crispin O'Day exactly.
Speaker 3: And then but I do wonder about private equity concentration
Speaker 3: and fields and we've talked about it with healthcare or
Speaker 3: you know, in vet service. I mean there's a lot
Speaker 3: of concentration.
Speaker 9: Well, I got to say, just go about tows not
Speaker 9: in the markets that I focus on. So this is
Speaker 9: our platform, which is basically that there is such a
Speaker 9: scale of capital availability invested. The leverage ratios there's virtually
Speaker 9: no leverage in the markets we represent. Each is a
Speaker 9: huge Again, you know, there's very little leverage, and you're
Speaker 9: investing in rather than sort of trading portfolio company important
Speaker 9: to a manager or manager, you're investing in things from
Speaker 9: the bottom.
Speaker 3: Come back soon. Kate Ambrose, CEO at the Global Private
Speaker 3: Capital Association, Here in studio, Right here on Bloomberg.
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Speaker 11: You love them dirty.
Speaker 3: Two companies easily too, the biggest when it comes to
Speaker 3: selling us stuff. We're talking about Amazon and Walmart. Both
Speaker 3: have been Bloomberg business. We cover stories for different reasons
Speaker 3: and the subject of many, many more stories inside the
Speaker 3: magazine and also on the Bloomberg and at Bloomberg dot
Speaker 3: com every single day. Matt, there's so many stories about
Speaker 3: Amazon and Walmart on a regular basis.
Speaker 11: Yeah.
Speaker 10: Absolutely, I mean, why wouldn't there be Walmart has what
Speaker 10: five hundred thousand employees or something, and you know that
Speaker 10: Paul Sweeney wants to be a Walmart reader when he's
Speaker 10: done with this career.
Speaker 3: I had no idea. Oh my god, I look.
Speaker 4: For the Amazon.
Speaker 10: You know, we were just talking about FedEx and UPS
Speaker 10: and I almost wonder if Amazon has a real competitor
Speaker 10: in their own delivery network, right like other possible companies
Speaker 10: could use Amazon shipping instead of FedEx or UPS because
Speaker 10: they're that ubiquitous.
Speaker 3: Absolutely had to pair back a little bit because we
Speaker 3: got a little obsessed with Amazon. Anyway, let's get to it,
Speaker 3: because the two are also the subject of a new book,
Speaker 3: Winner sells All Amazon Walmart and the Battle for our Wallets.
Speaker 3: The author, Jason Delray, is with us. He's a business
Speaker 3: journalist for fifteen years, covering e commerce for the last decade.
Speaker 3: He's here in our interactive broker's studio. Nice to have
Speaker 3: you here. Welcome, welcome, Thanks so much. Tell us a
Speaker 3: little bit about why you wrote this book and why
Speaker 3: you wrote it now, or how long you've been working
Speaker 3: on it.
Speaker 12: So I've been working on about three years and long
Speaker 12: thought that while there have been some great books about Amazon,
Speaker 12: Bradstone's chief among.
Speaker 3: Them, rights on your book.
Speaker 11: That he did blurb a bit for me.
Speaker 3: Can I just say what he wrote? A revelatory account
Speaker 3: of the bloody rivalry between two ruthless retail juggernauts that
Speaker 3: are not accustomed to losing anyway.
Speaker 4: Go ahead.
Speaker 12: Brad's been coming to me over the years and so
Speaker 12: written great books about Amazon. There's been some interesting books
Speaker 12: about Walmart, although not many in the last fifteen years.
Speaker 12: I thought to look at each and in a vacuum
Speaker 12: sometimes misses how much each there is influenced strategies, and
Speaker 12: there really hasn't been a deep dive into the innovator's
Speaker 12: the dilemma that Walmart specifically has faced over the last
Speaker 12: twenty years. And for those reasons and a few others
Speaker 12: which we may get into, I thought, you know, looking
Speaker 12: at inflection points and their rivalry over time and where
Speaker 12: and how they've influenced each other would be interesting for
Speaker 12: retail and e commerce folks who work in the industry,
Speaker 12: but also just smart people who care about what.
Speaker 11: Motivates these two companies.
Speaker 4: Well, just the competition.
Speaker 10: I mean, you know, households see that themselves in real time.
Speaker 10: Everybody I think has an Amazon app, right, and more
Speaker 10: and more people are getting a Walmart app. Is we've
Speaker 10: come to know it more online than just a gigantic
Speaker 10: big box store. Is Walmart starting to take away serious,
Speaker 10: significant market share from Amazon online? Not yet, but I
Speaker 10: think they finally, for a couple of different reasons, connected
Speaker 10: the dots between their stores and their you know, and
Speaker 10: their fulfillment centers and their website in a meaningful way.
Speaker 11: That Amazon is.
Speaker 12: You know, they worried about Walmart a long time ago,
Speaker 12: then stopped worrying when Walmart seemed just not to be
Speaker 12: active at all in the space.
Speaker 3: And elevant right when it came to online.
Speaker 12: I mean, for a very long time Amazon executives have
Speaker 12: told me for a long time, we were waiting ten
Speaker 12: fifteen years for Walmart to take advantage of well their
Speaker 12: key advantage, which was a store within ten miles of
Speaker 12: ninety percent of the population, and to use that either
Speaker 12: as pickup hubs or delivery many warehouses. And they are
Speaker 12: finally doing that, but it has taken a very long time.
Speaker 12: And so are they stealing market share? Not quite yet,
Speaker 12: but I think they are finally sort of competitive in
Speaker 12: the space, which sounds shocking to just have that be
Speaker 12: the minimum, but that's where we're at.
Speaker 3: I want to get into the acquisition of Walmart of
Speaker 3: Vipers dot Com because that was really pivotal, and I
Speaker 3: think even Business Week did a cover story. But I
Speaker 3: want to ask you from your reporting, these guys are massive,
Speaker 3: and I think about when I go shopping, I shop
Speaker 3: and then I look at Amazon, and I like, kind
Speaker 3: of it's kind of always my check. Are they getting
Speaker 3: too big? Both of them?
Speaker 1: You know?
Speaker 12: I say at the end of the book that I
Speaker 12: hope that the continued competition and the fact that Walmart
Speaker 12: is finally really competitive online leads to things, you know,
Speaker 12: better convenience for consumers, but also maybe better wages for
Speaker 12: employees as they compete for talent. They're both getting into healthcare.
Speaker 3: Which is something Walmart has gotten a lot of criticism
Speaker 3: for over the years.
Speaker 12: Correct, both getting into healthcare, and perhaps you know that
Speaker 12: is the industry that's ripe for better consumer you know,
Speaker 12: attention and and so maybe, but that's sort of an idealistic,
Speaker 12: you know, way to think about these two companies that
Speaker 12: have not always inspired you know, the you know, the
Speaker 12: greatest feelings among you know, I mean labor groups, consumer groups,
Speaker 12: small businesses and so are they too big? I mean
Speaker 12: I'll leave that to you know, regulators to figure out.
Speaker 11: I think Walmart's days.
Speaker 12: In the in the line in sorry, scrutinized spotlight fire, Yeah,
Speaker 12: has sort of passed, which has been you know, I
Speaker 12: report in the book Andy Jasse has been angered by
Speaker 12: that over the years, like white like they're the biggest
Speaker 12: retailer revenue, Like what's up and they've had to explain
Speaker 12: like it's it's our turn now, right, it's our turn.
Speaker 12: And so we'll be interested to see what happens with
Speaker 12: the FTC. Will that lawsuit eventually happened? And sorry, I
Speaker 12: think I well, I.
Speaker 10: Was just going to ask about the employees, because of
Speaker 10: course the two of them competing is good for consumers
Speaker 10: in the sense that it lowers prices.
Speaker 4: But I can't.
Speaker 10: Imagine how they would how that would benefit their employees.
Speaker 4: And I know the each try and put a positive spin.
Speaker 10: On things like paying a fifteen dollars minimum wage, or
Speaker 10: you know.
Speaker 11: They have college education programs.
Speaker 12: Yes, they both sort of match each other with over
Speaker 12: the years, but they.
Speaker 10: Do, I mean, make a bigger margin on the backs
Speaker 10: of these employees, right, I mean, the whole point of
Speaker 10: a business like this is to kind of squeeze costs
Speaker 10: in places like labor to make more money for the shareholders.
Speaker 12: Yeah, and they both drive drive people really hard. I
Speaker 12: have a chapter in the book that's all about how
Speaker 12: in the last five years Walmart has recruited a lot
Speaker 12: of warehouse leaders and other logistics leaders from Amazon and
Speaker 12: how they sort of imported the Amazon way and culture,
Speaker 12: which not surprisingly did not always go well. And I
Speaker 12: think as they add automation, the companies will say we've
Speaker 12: taken away some of the most menial work, some of
Speaker 12: the toughest work. But what often happens at the same
Speaker 12: time is the work speeds up. I see all these
Speaker 12: states investigating Amazon. It's not because it's not because the
Speaker 12: you know, one one act in the work is really difficult.
Speaker 12: It's because of the repetition and the speed, and so
Speaker 12: I think it's a big issue. And they say they're
Speaker 12: you know, they're constantly improving safety and the like. But
Speaker 12: there's a lot of investigations and evidence that proves otherwise.
Speaker 3: There's a lot of stuff things and I kind of
Speaker 3: mixed them together. But yeah, Jet dot com and Walmart
Speaker 3: talk to us about some of the kind of interesting developments.
Speaker 3: We've got about two minutes and then we'll come back
Speaker 3: and talk some more. But were these pivotal experiences.
Speaker 12: Yeah, so, so Amazon bought diapers dot com the parent
Speaker 12: company was Quizy way back around twenty ten, stole it
Speaker 12: from Walmart.
Speaker 11: Mark Lurriy, that.
Speaker 12: Entrepreneur spent a few years at Amazon, starts Jet dot Com.
Speaker 11: Maybe started working on it while he was at Amazon.
Speaker 11: Not totally clear.
Speaker 12: Wasn't really working out, but a lot of attention, and
Speaker 12: Walmart was needed a big you know, in books of talent,
Speaker 12: make the biggest acquisition in e commerce at the time,
Speaker 12: three point three billion. Mark Lori comes in, you know,
Speaker 12: some successes, some failures, but the metabolism of the online
Speaker 12: sales at Walmart picks up and then they both compete.
Speaker 12: Recently in healthcare on an acquisition called pill Pack, Walmart
Speaker 12: thought it had it. I have a great anecdote in
Speaker 12: the book. Ceo of Walmart, actually here's the Amazon deal,
Speaker 12: announced that they bought PillPack instead, tries to convince the
Speaker 12: entrepreneur that he should back out of the Amazon deal,
Speaker 12: even though I mean, it's kind of crazy. The deal
Speaker 12: is public to the world, and it just shows like
Speaker 12: in some key areas where they're trying to get first
Speaker 12: mover advantage, they've gone head to head and more often
Speaker 12: than not, it seems Amazon has one.
Speaker 3: Tell us about meeting because you did for this book.
Speaker 3: The CEO of Walmart, mister McMillan, yees.
Speaker 12: So I went down to Bentonville, Walmart's hometown, met Doug
Speaker 12: mcma in the what they call the home office. I
Speaker 12: guess they have a new one being built, so this
Speaker 12: is the original, and spent about ninety minutes with him.
Speaker 12: We had a sixty minute interview. Plan went a little
Speaker 12: over which I was I was happy about, although they
Speaker 12: did not. My original pitch was to trail him for
Speaker 12: a week. That did not really work out, and that's
Speaker 12: not something that Walmart really does much of. And so Doug,
Speaker 12: you know, I was really interested in getting to know
Speaker 12: him a little bit. He's been at that he's a
Speaker 12: Walmart lifer, but they saw him as a CEO kind
Speaker 12: of bridge generations, like you know, they talk. He talks
Speaker 12: about how he you know, he had an early Palm
Speaker 12: pilot and like was into tech and tech forward and
Speaker 12: they made him CEO about nine years ago, and so
Speaker 12: his challenge has been just massive, and so it was
Speaker 12: interesting getting his thoughts on it to both you know,
Speaker 12: help reinvigorate the store business, which when he first came
Speaker 12: on board was struggling, while also trying to just you know,
Speaker 12: get into Cornel buy in that Amazon could be an
Speaker 12: existential threat, which is how he called what he called
Speaker 12: it to his executives and also board members in those
Speaker 12: first couple of years as CEO. And you know, he
Speaker 12: sees a lot of progress there, but he told me
Speaker 12: he's still dissatisfied with the speed of transformation, the speed
Speaker 12: of change in some parts of the organization.
Speaker 11: I thought he might have.
Speaker 12: One more year in him, maybe at ten years he
Speaker 12: would step aside, but there was some good reporting recently
Speaker 12: that he's going to stay on board a couple more
Speaker 12: years as they try to really make sure that this
Speaker 12: new digital DNAs is infused throughout the organization, which you know,
Speaker 12: let's be real, it's one of the biggest companies in
Speaker 12: the world. Not an easy thing to turn that ship.
Speaker 4: I wonder what I wonder.
Speaker 10: What happens if the US further d keuples from China,
Speaker 10: because both of these stores, I had to be fair,
Speaker 10: I haven't spent a lot of time in a Walmart,
Speaker 10: but I do spend a lot of time on the
Speaker 10: Walmart app and on the Amazon app, and I often
Speaker 10: try and look for products that are made in America
Speaker 10: or I just noticed that all of my choices are
Speaker 10: made in China, like everything and the brand name is
Speaker 10: it's something you can't exactly so, but do they do.
Speaker 4: They make an effort to try.
Speaker 10: And I wish Amazon would have a made in America section,
Speaker 10: but they don't.
Speaker 3: For a while, Yeah, and I thought, and.
Speaker 12: I know Amazon now has like a small a small
Speaker 12: business badge, which I think there's been some reporting that's
Speaker 12: proven to not always be completely accurate. Small business from
Speaker 12: China and listen, Amazon made this bet back in about
Speaker 12: twenty thirteen, the twenty fifteen that they were going to
Speaker 12: go all out courting Amazon Sorry Chinese suppliers and sellers,
Speaker 12: and you know, they went growth, growth, growth, and they
Speaker 12: knew there would be some trade offs and they've just
Speaker 12: kind of lived with it. Walmart had an opportunity on
Speaker 12: their website at least when they were welcoming in new
Speaker 12: sellers trying to build that marketplace business, to take a
Speaker 12: different path. Now maybe that wasn't no Chinese sellers, but
Speaker 12: maybe that was US sellers only or something, you know,
Speaker 12: something that would be more curated and something they could
Speaker 12: market honestly. And they just I think mostly under Marc Luri,
Speaker 12: a previous e commerce leader and entrepreneur, they really went
Speaker 12: after just growth and expanding the seller base and they
Speaker 12: opened up to China in a big way. And you know,
Speaker 12: I hope it doesn't blow up in some way for
Speaker 12: you know, for either company, because that'll mean that something
Speaker 12: bad happened for consumers on the marketplace business.
Speaker 11: But it just, you know, there's a reason.
Speaker 12: It just doesn't seem natural to have every product available
Speaker 12: across the world at your fingertips without knowing a ton
Speaker 12: about the person behind it, And that's sort of where
Speaker 12: we're at today.
Speaker 3: But Jason, can we have a world where both Amazon
Speaker 3: and Walmart exist? I mean, your book is Winter sells all?
Speaker 1: Yes? Right?
Speaker 11: Right?
Speaker 13: No?
Speaker 12: So I think there was a long period of time
Speaker 12: where some people at the top of Walmart were concerned
Speaker 12: if they didn't start making a dent and getting their
Speaker 12: act together, that yes, in some key online categories, there
Speaker 12: would be one winner, and that would be Amazon with
Speaker 12: ninety percent market share, ninety five percent market share. I
Speaker 12: think they've done enough over the last few years that
Speaker 12: that reality does not seem, you know, in the near term.
Speaker 12: And putting aside Amazon's also its own struggles in the
Speaker 12: last couple of years with cost cutting and the like.
Speaker 3: But does Walmart have an advantage because it does have stores?
Speaker 3: And I think about some stores that I shop at
Speaker 3: that I love that I can order online pick up
Speaker 3: in a store. Do like I have a lot of flexibility.
Speaker 4: I don't like to hang out in a store. It's
Speaker 4: not as much fun to hang out online.
Speaker 3: But I do wonder is there that an advantage potentially,
Speaker 3: especially as it builds, it should.
Speaker 12: Be it should be and as you know, as we
Speaker 12: see labor costs up over the last couple of years,
Speaker 12: supply chain costs, logistics cost up, you know, returning items
Speaker 12: like returning e commerce items. It should not like the
Speaker 12: myth doesn't work to do it free by shipment. And
Speaker 12: so Amazon has failed up to date with a real
Speaker 12: physical presence. And I think they'll keep at it because
Speaker 12: it is an advantage for Walmart, even if it's just
Speaker 12: to give customers, yes, place to pick up, but a
Speaker 12: place to return.
Speaker 10: Right.
Speaker 12: I ordered trying to get ready for this week in
Speaker 12: my book launch, ordered like forty seven different white shirts
Speaker 12: online and like, you know, knowing I could just ship
Speaker 12: him back or in some cases return to a store,
Speaker 12: but not an Amazon store.
Speaker 4: It's interesting in terms of.
Speaker 10: The fact that no one's written a book about Amazon Walmart,
Speaker 10: and no one's really done that.
Speaker 3: Bradstone, He's written to books, Well, no Amazon.
Speaker 4: That's about Amazon. I'm talking about Walmart.
Speaker 11: Yeah.
Speaker 4: Are they secretive or they are? You know, is it
Speaker 4: hard to get in there? They wouldn't.
Speaker 10: Yeah, hang out with the CEO for a week. I
Speaker 10: get that because that's annoying. But yeah, and they've they've
Speaker 10: they are, they're very secretive. They are secretive, I think listen.
Speaker 10: I think they participated in some way for a couple
Speaker 10: of reasons. I think I showed them over the years
Speaker 10: I was going to publish stuff that they didn't think
Speaker 10: would get out of the company that did, and so
Speaker 10: I would continue to And I think they wanted to
Speaker 10: tell try to tell the story that they are finally
Speaker 10: turning a corner and that they you know, they get
Speaker 10: how far they were behind, and but that they can
Speaker 10: lead in some ways. I think also, you know, for
Speaker 10: a lot of years when they were they've seen you know,
Speaker 10: Amazon has been in the spotlight for a lot of
Speaker 10: bad reasons in the press and in DC for the
Speaker 10: last couple of years. So they have some opportunity here
Speaker 10: to tell a different story as well and sort of
Speaker 10: stand apart from Amazon.
Speaker 3: I'm thinking of our audience just got about unfortunately, Jason,
Speaker 3: about thirty seconds left here, we talked about healthcare healthcare earlier.
Speaker 3: Should our investment world and audience be watching these two
Speaker 3: in terms of what they might do to healthcare?
Speaker 12: Absolutely, I think ten years from now we may. I
Speaker 12: don't know if we're being these jobs, but if we were,
Speaker 12: and we were back here, I think we may look
Speaker 12: back and say, the biggest impact these companies have had
Speaker 12: in the last ten years on everyday people have is
Speaker 12: in healthcare, whether that's physical clinics like Walmart clinics one
Speaker 12: Medical Clinics which now Amazon owns, or virtual care, or
Speaker 12: maybe upending the insurance industry in some way. You know,
Speaker 12: the biggest challenge to Walmart in the healthcare is they've
Speaker 12: just churned through leaders yea, and they say there's a commitment,
Speaker 12: but we need to see that, you know, that sort
Speaker 12: of come through in steady leadership.
Speaker 3: This was fun.
Speaker 11: Good luck with the book, thanks so much.
Speaker 3: Good luck with the white shirt.
Speaker 11: I mean I have many at home waiting to go back.
Speaker 3: Jason Delray. The book is Winter Sales All Amazon, Walmart,
Speaker 3: and the Battle for our Wallets.
Speaker 1: You're listening to the Bloomberg Business This Week podcast that's
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Speaker 2: On Bloomberg Radio, the Bloomberg Business App and YouTube.
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Speaker 4: Hey.
Speaker 3: June is Equality Month here at Bloomberg, So every Monday
Speaker 3: and Thursday in the month of June. We're looking at
Speaker 3: all aspects of equality today. Our focus is on the
Speaker 3: lack of equal access when it comes to connectivity, something
Speaker 3: we often talk about at Bloomberg and I feel like,
Speaker 3: you know, Matt coming off the pandemic, when we saw
Speaker 3: kids working from home or trying to work from home
Speaker 3: and then you know, parking in a lot outside of
Speaker 3: McDonald's or something because they just didn't have internet access.
Speaker 3: I thought things were going to get a lot better,
Speaker 3: but as you remind me, it takes time.
Speaker 10: Well, look, that's the biggest problem with the lack of
Speaker 10: broadband nationwide is that when schools sent all the kids
Speaker 10: home and said, you know, work from your laptops or
Speaker 10: you know, telecommute with your iPads, not everyone could do
Speaker 10: that for a various reasons. It's expensive right to own
Speaker 10: that kind of equipment, and even if you are a
Speaker 10: rich person, if you're living in some remote area of
Speaker 10: the country, you just can't get online. So do we
Speaker 10: have to roll out fiber? Is there are there other options?
Speaker 10: We just saw for Elon Musk getting approval from the
Speaker 10: Pentagon to provide starlinks to Ukraine.
Speaker 4: But we also talk about.
Speaker 10: Wireless broadband spreading the joys of high speed connectivity across
Speaker 10: the country.
Speaker 4: Still, it's a big country.
Speaker 10: It's a very, very very big country, and I don't
Speaker 10: think a lot of Americans realize just how big it is.
Speaker 3: You're right, You're right, things we take for granted in
Speaker 3: big metro cities is not the same across the country.
Speaker 11: Well.
Speaker 3: Heidi Binko is co founder and executive director of the
Speaker 3: Just Transition Fund, established in twenty fifteen by Rockefeller Family
Speaker 3: Fund in the Appalachia Funders Network. They are about helping
Speaker 3: communities tap in to federal funding opportunities, including those in
Speaker 3: connectivity and broadband. She joins us on Zoom from Charlottesville, Virginia. Heidi,
Speaker 3: good to have you here, and you've been listening to
Speaker 3: us rant on a little bit. Tell us a little
Speaker 3: bit about your organization and the work that you're doing
Speaker 3: to connect more Americans.
Speaker 14: Yeah, thanks Carolyn, Thanks Matthew for having me today. I'm
Speaker 14: really glad you're talking about broadband. I think there's a
Speaker 14: sort of a quiet crisis in America that you're right, Carol,
Speaker 14: that those of us in metro areas really don't think about.
Speaker 14: So the Just Transition Fund is a nonprofit philanthropic organization
Speaker 14: that I founded a number of years back, and essentially
Speaker 14: we help communities affected by the downturn of the coal
Speaker 14: industry diversify and grow their economies. So we're helping them
Speaker 14: realize they realize their own vision and vision for a thriving,
Speaker 14: vibrant economic future. And we realized along the way that
Speaker 14: we cannot work on economic development. You know, as you
Speaker 14: said in your opening statement, you can't work on workforce development.
Speaker 14: Kids can't access the internet for educational purposes if there
Speaker 14: is not a good broadband connection in these places. And
Speaker 14: people in urban areas don't realize this. I think most
Speaker 14: people don't realize it. But this problem is particularly crude
Speaker 14: acute in rural America. It's even more acute in the
Speaker 14: rural communities in which we work. So third of the
Speaker 14: coal communities that we work and don't have access. And
Speaker 14: it's even worse than some places like West Virginia the nation.
Speaker 3: It's interesting, I'm thinking right now. You know, we're on radio, obviously,
Speaker 3: but we're also on YouTube, and we're on Bloomberg Originals
Speaker 3: are streaming service. And for something like here, you know,
Speaker 3: people take it for granted again, like being able to
Speaker 3: kind of tap into us on multiple platforms. But you're right,
Speaker 3: it's not the case across certainly rural parts of the country.
Speaker 3: What are the government programs that are out there in
Speaker 3: a week where we're talking a lot about governments.
Speaker 10: Well, we have the Big Broadband true, what's it called
Speaker 10: Broadband Equity Access and Deployment deployment, right, the Bad Program,
Speaker 10: which is bad program forty two billion.
Speaker 4: Dollars, so a lot at least, it's like a lot.
Speaker 10: At least the government realizes that there's a problem, right
Speaker 10: and are trying to do something about it.
Speaker 14: Yeah, that's exactly right, Matthew. The Big Program, which is
Speaker 14: administered by the NTIA, the National Telecommunications Information Agency, is
Speaker 14: one of several agencies that is receiving a lot of
Speaker 14: money for broadband to speed broadband adoption across the federal government. Actually,
Speaker 14: I don't think people realize it, but there's over one
Speaker 14: hundred billion dollars available through this administration to support broadband
Speaker 14: access access. The problem is it's not that easy for communities,
Speaker 14: particularly rural communities or low capacity communities to access those funds.
Speaker 14: So that's where that's where the Just Transition Fund comes in.
Speaker 10: So what do you do I can imagine, because this
Speaker 10: country really is so big that it's not just West
Speaker 10: Virginia or I don't know, Kansas, but there are multiple
Speaker 10: states where you know, the population per square mile is
Speaker 10: less than one. Right, So how do you you can't
Speaker 10: roll out fiber to all of those places?
Speaker 1: Right?
Speaker 4: Is it about fixed wireless access?
Speaker 14: It's about a lot of different technologies and in your right, right.
Speaker 14: The problem is particularly particularly acute in places like southern Illinois,
Speaker 14: Western Colorado, different places in Ohio, all across the.
Speaker 4: Country, Wyoming, Mexico exactly.
Speaker 14: Right, Like the tribal communities are hit particularly hard the
Speaker 14: Navajo Nation. In some areas, ninety percent of the communities
Speaker 14: can access can't access the internet, right, So it's it's
Speaker 14: it's it's particularly bad. And essentially what we do is
Speaker 14: we act as an early stage investor to help communities
Speaker 14: access the federal capital capital they need to build out
Speaker 14: and access broadband infrastructure. So whether it's you know, fixed
Speaker 14: wireless or or broadband or fixed wireless or starlink or
Speaker 14: what have you, there are different ways to access the
Speaker 14: you guys start these federal problems, do you guys tap
Speaker 14: into st some of our Yeah, some of our communities
Speaker 14: out in out in travel areas are working on that
Speaker 14: are using that. The problem with starlink is that it's
Speaker 14: really expensive now, right, and that's another problem, right, I mean,
Speaker 14: that's what makes this broadband problem so so hard to
Speaker 14: deal with, right, Like, it's not only a problem of
Speaker 14: physical infrastructure of access, but it's also a problem affordability.
Speaker 3: What's what's a successful project that you guys have done
Speaker 3: and we've just got about thirty seconds.
Speaker 14: Yeah, great project that we worked on was in West Virginia.
Speaker 14: We helped a series of communities access more than forty
Speaker 14: five million dollars in federal funds and it ended up
Speaker 14: connecting over thirty thousand of the most disconnected households in
Speaker 14: West Virginia. So those kids that you heard about during
Speaker 14: the pandemic that we're going to the McDonald's Wi Fi
Speaker 14: right parking lot to get Wi Fi to do their homework,
Speaker 14: that's what this project helped.
Speaker 3: Wow, that's amazing.
Speaker 4: That's very good.
Speaker 10: Yeah, absolutely, yeah, because what a disadvantage and it's tough
Speaker 10: that some families, so many families had to endure that.
Speaker 10: Hopefully they don't have to go through that again anytime soon.
Speaker 3: Yeah, and especially in a world, especially when it comes
Speaker 3: to things like school. I mean, that's how kids, that's
Speaker 3: how they work. It's just very different, certainly from when
Speaker 3: I went to school, and maybe when you went to.
Speaker 4: School, a little different from back in the seventies.
Speaker 3: Here, Heidi, thank you so much. I'm glad we were
Speaker 3: able to check in with you. Heidibinko, she's co founder
Speaker 3: and executive director of the Just Transition Fund, joining us
Speaker 3: on Zoom from Charlottesville, Virginia. No, I just remember with
Speaker 3: my own daughter, like it's like all these assignments came
Speaker 3: in on, like laptops and everything, and how they communicate
Speaker 3: with teachers and great, like, it's just different.
Speaker 4: We should revolt, all right?
Speaker 3: You ready ready to do?
Speaker 8: Okay?
Speaker 2: All right?
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Speaker 3: All right, Well, no doubt about it. N VideA betting
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Speaker 3: goes Elon is everywhere. I know that that's not what this.
Speaker 5: Story and that one, you know, goes from a couple
Speaker 5: of years ago, even when you know there was going
Speaker 5: to be a lot of interest this.
Speaker 4: But the thing that I think that reveals.
Speaker 5: Is that in video is really at the heart of
Speaker 5: the AI conversation, which you know that newslash not the
Speaker 5: first person to say that. But what has been impressive
Speaker 5: is that they've only become more entrenched and more powerful
Speaker 5: and more valuable as a company.
Speaker 4: That in this time.
Speaker 5: Yeah, and the person who's leading the company is really
Speaker 5: kind of a fascinating person. And he's been at the
Speaker 5: head of the company for a really long time, right Austin,
Speaker 5: And so you guys to spend some time with him.
Speaker 4: What's he like?
Speaker 15: Jenson's long He's a fascinating, extremely intense, very sharp elbowed
Speaker 15: chief executive officer. He was a co founder of Nvidia,
Speaker 15: has been there since. It was known as a gaming
Speaker 15: pioneer back in nineteen the late nineteen nineties for developing
Speaker 15: graphics cards, and only recently if they started to get
Speaker 15: credit for their expansion into developing graphics processors for AI.
Speaker 15: But even though you know, we're just getting hit to
Speaker 15: them with them passing a trillion dollars market cap or
Speaker 15: being at the core of open AI's sort of foundational
Speaker 15: technology with their microchips, they've been, you know, working on
Speaker 15: this AI challenge since the mid two thousands. It's a
Speaker 15: huge bet. The company took back in a round two
Speaker 15: thousand and six to start pivoting towards these sort of
Speaker 15: high performance computing problems, developing graphics cards that could handle
Speaker 15: a lot more than just loading up a game on
Speaker 15: your laptop. And so this company, helm by Jensen Wang,
Speaker 15: really deserves credit for making this big bet and actually
Speaker 15: pulling it off over a lot of years of doubt
Speaker 15: about what this technology can do beyond gaming.
Speaker 10: So because he you know, I always think of Nvidia
Speaker 10: with gaming. I'm a big call duty guy. You can
Speaker 10: play against me my gamer tag, a shower fan. But
Speaker 10: I never think of them as doing anything else. They
Speaker 10: have made other bets that have failed, right.
Speaker 15: They've paid a lot of bets that failed. Jensen Kuang
Speaker 15: actually prides himself on that. He used to say back
Speaker 15: in the day that they were always ninety days of
Speaker 15: from going out of business. He bet on you know,
Speaker 15: tablets going into the smartphone space with more chips, bet
Speaker 15: on various graphics cards that failed, and so this, you know,
Speaker 15: although it looks prescient in retrospect, this was actually one
Speaker 15: of many bets he laid over the past decade or two.
Speaker 15: But he's always operated on that sort of knife edge,
Speaker 15: which is actually pretty rare in the semiconductor industry when
Speaker 15: if you do mess up a chip cycle, it can
Speaker 15: have huge, huge impact. And you know, these companies really
Speaker 15: suffer if they miss a cycle or missed a chip generation.
Speaker 15: And yet that's something that Jensen Hong is really pushed toward.
Speaker 15: He's not just going toward the incremental update. He's actually
Speaker 15: making this massive other bet beyond loading Call of Duty
Speaker 15: to sort of power chat, GPT and all these other
Speaker 15: apps through the graphics cards that they developed that are
Speaker 15: sort of bizarrely and sort of serendipitously very good at
Speaker 15: number crunching and data crunching for the type of brain
Speaker 15: that AI needs to survive and endure. And that's something
Speaker 15: that you wouldn't have expected maybe ten or fifteen years
Speaker 15: ago when Intel was sort of the head of that
Speaker 15: conversation and really known as the you know, the develop
Speaker 15: of the big CPUs and owning all the data centers
Speaker 15: out in the world. But that that has completely changed
Speaker 15: with the advent of AI and what the technology they
Speaker 15: need to to sort of uh sort of be developed on.
Speaker 5: I want to I want to talk more about that,
Speaker 5: but but first I want to talk about a public
Speaker 5: service that you provided in the story, which was before
Speaker 5: he wore the leather jacket, he had kind of a
Speaker 5: different outfit and then he just owned the leather jacket
Speaker 5: and it just became a thing.
Speaker 4: And I just love that about it.
Speaker 10: Totally changes his persona. I think of him as a
Speaker 10: cool dude, a total Yeah. You know, Jobs had the turtlenick.
Speaker 10: You know, you know what's one up on the turtlenick,
Speaker 10: A leather jacket.
Speaker 4: It's way better.
Speaker 5: Yeah, Austin, what was that? What's been the transformation of
Speaker 5: Jensen along the way?
Speaker 15: Like, I think that's a really good question. And you know,
Speaker 15: people make a lot of the leather jacket or sort
Speaker 15: of any uniform that that Steve Jobs or even Mark
Speaker 15: Zuckerberg wears today, and I think, what what what? That
Speaker 15: leather jacket actually came up unprompted in many of my
Speaker 15: conversations with a lot of sources and executives, insofar as
Speaker 15: that it was sort of a very computational decision. Jensen
Speaker 15: is an engineer by trade. He's brilliant, but the way
Speaker 15: he thinks about problem solving is very much like an engineer,
Speaker 15: and so I think part of it based on My
Speaker 15: reporting at least was that he adopted that that uniform
Speaker 15: not be you know, Steve Jobs had sort of an
Speaker 15: aesthetic that he was trying to go after, whereas I
Speaker 15: think Jensen sort of made the decision one day to
Speaker 15: stop dressing like sort of you know, a geek squad
Speaker 15: member at Best Buy and start dressing a little bit
Speaker 15: hipper and have more stage presence. I don't think it
Speaker 15: was sort of core to his fashion, but I do
Speaker 15: think he realized that it was something he needed to adopt,
Speaker 15: sort of like an avatar in the metaverse. That's how
Speaker 15: I sort of compare it to. So it is an
Speaker 15: interesting thing. But you saw him grow as the CEO
Speaker 15: and become much more of a luminarian statesman, having been
Speaker 15: around for decades. I think he's the longest running CEO
Speaker 15: in the semiconductor's base. He's got to be that there
Speaker 15: and the sort of tech CEOs who've been around and
Speaker 15: at the helm of the company for this many decades.
Speaker 15: But that's sort of a testament to how strong, wild
Speaker 15: he is and sharp elbow he can be with employees.
Speaker 5: I gotta I gotta work on it. There's I haven't
Speaker 5: found my leather jacket. Yet, but you know it's out
Speaker 5: there somewhere.
Speaker 4: You have your uniform. Shoot, I got the sneaker.
Speaker 5: I've got some, I've got some a couple of things
Speaker 5: that you know are part of my look. But okay, Austin,
Speaker 5: there's another part of the story that I felt like you,
Speaker 5: you and Ian King your coolin and the story did
Speaker 5: a great job of breaking something down that I did
Speaker 5: not understand, which is, talk to us about the shopping
Speaker 5: cart metaphor.
Speaker 4: That you use that is the CPU.
Speaker 5: That is like, it's foundational to what has made in
Speaker 5: Vidia and VIDIA and until your shopping cart analogy, I
Speaker 5: didn't fully appreciate it.
Speaker 15: I appreciate that, Joelt. Just know that we've worked on
Speaker 15: many different metaphors and analogies before we landed on this.
Speaker 4: I like where you landed. I like your leather jacket.
Speaker 4: Go ahead and walk us through it.
Speaker 15: But basically, if you want to take away one thing
Speaker 15: from the story, it should be the difference between a
Speaker 15: graphics processing unit also known as the GPU, or what
Speaker 15: Intel makes which is called the central processing unit or CPU,
Speaker 15: and the way we describe it in the story as
Speaker 15: the difference between sort of a shopping cart, which is
Speaker 15: the equivalent of a CPU at a grocery store, you
Speaker 15: can run around and pick up all your groceries. You
Speaker 15: can hold a ton in that individual shopping cart, but
Speaker 15: it sort of takes a while to work through the
Speaker 15: grocery store each of the aisles. What in Vidia makes
Speaker 15: is called a GPU, and that it does a lot
Speaker 15: of small and repetitive tasks very well. So it's sort
Speaker 15: of the equivalent of having a bunch of smaller shopping baskets,
Speaker 15: which on their own could not hold as much as
Speaker 15: a shopping cart. But I imagine if you had twenty
Speaker 15: of them running around the store picking up your toilet paper,
Speaker 15: or your orange juice, or your milk or other groceries,
Speaker 15: you could get done a lot faster than what a
Speaker 15: shopping cart or Intel CPUs would do. And so that's
Speaker 15: really the core of what Nvidia has been doing well,
Speaker 15: which is, you know, all these AI training models, they
Speaker 15: need a bunch of hand baskets essentially of data to
Speaker 15: sort of train chat GPT and make sure it can
Speaker 15: speak fluently and then respond to your queries. And that's
Speaker 15: what a GPU is really good at doing repetitive small
Speaker 15: data tasks simultaneously, which a CPU.
Speaker 3: Is not very adept ad So how does a company
Speaker 3: go from being almost as you said, They've gone through
Speaker 3: like a couple of iterations. They almost ran out of
Speaker 3: cash at one point. What was the key turning point
Speaker 3: in Nvidia that has set it up for us to
Speaker 3: be kind of talking about it as much as we
Speaker 3: do today.
Speaker 15: To be honest with Carol, I actually think a lot
Speaker 15: of people think about this as a hardware story developing,
Speaker 15: you know, the microchips that are go inside these data
Speaker 15: centers or servers. But it's actually more of a software story.
Speaker 15: One of the big bets he made back in the
Speaker 15: mid two thousands which develop a programming language that could
Speaker 15: sort of build software for these GPUs much in the
Speaker 15: same way that game developers make Call of Duty or
Speaker 15: other you know, high graphics intensive games for these graphics cards.
Speaker 15: And so he built a programming language along with his
Speaker 15: team that really took a while. I mean back is
Speaker 15: you know, let's say twenty fourteen, twenty fifteen, Wall Street
Speaker 15: just had no idea why they were investing this. Even
Speaker 15: employees told us they had no idea what any of
Speaker 15: this had to do with gaming, and the reality was
Speaker 15: it really didn't. It was a bet on something else,
Speaker 15: which was going after sort of large scale supercomputers and
Speaker 15: making sure this technology could be programmed to do stuff
Speaker 15: like what has become chat GPT. So I think that
Speaker 15: was a key turning point. You see a lot of
Speaker 15: other companies like Google, Microsoft, Facebook developed their own competitor hardware,
Speaker 15: but what they don't have is a programming language that
Speaker 15: in Vidia has spent a decade plus developing and bringing
Speaker 15: in developers to build on.
Speaker 4: Okay, so marquee product now and where's it headed the market?
Speaker 15: Product now is you're lucky if you can get your
Speaker 15: hands on a Joel all those.
Speaker 4: I can't you buy vibing one maybe a leather jacket.
Speaker 15: Well, yeah, it would cost more than a leather jacket.
Speaker 15: It goes for maybe ten or twenty thousand dollars, depending
Speaker 15: on if you're getting it on retail or secondary markets.
Speaker 15: It's called the Hopper one hundred. And it's just someone
Speaker 15: compared the initial past couple of generations of GPUs is
Speaker 15: going for let's say a BMW to a Lamborghine. But
Speaker 15: then they couldn't really come up with a comparison for
Speaker 15: this next stage of graphics carent I mean, maybe it's
Speaker 15: a space Sprocket or something. But it's really fast. It
Speaker 15: can These are leaps and bounds over what past generations
Speaker 15: have performed. And I think what you're going to see
Speaker 15: is this sort of just insanely exponential growth and AI
Speaker 15: performance out there based on this training that these GPUs
Speaker 15: can process at once. And so that's why Elon Musk,
Speaker 15: that's why Sam Oltman, everyone's after these GPUs because they
Speaker 15: want them in their data centers, training their models, these
Speaker 15: large language models that power things like CHATGPT.
Speaker 10: So also twenty four billion, fifty four billion components on
Speaker 10: this GPU, and it's time.
Speaker 15: You wouldn't see. You'd have to have basically a very
Speaker 15: refined microscope to see down there. If you actually touch
Speaker 15: it feels pretty smooth. But beneath the surface, yeah, it's
Speaker 15: We described it as sort of like looking like the
Speaker 15: Tokyo subway map, except with about fifty four billion more stations.
Speaker 3: All right, So Austin, you've really kind of spelled out
Speaker 3: why you know they have I guess first mover advantage.
Speaker 3: It feels like for this AI ephor you I mean,
Speaker 3: this is a stock We talked about it earlier with
Speaker 3: a guest. You've got a current pe of over two hundred,
Speaker 3: a ford looking pe of almost sixty. Many people think
Speaker 3: it's getting heady. Can somebody else do what Nvidia is
Speaker 3: doing when it comes to AI, Not yet.
Speaker 15: I think it's it will take some years. You know,
Speaker 15: Google chips right now, some have said, are just as
Speaker 15: fast as the ones that are out from Nvidia on
Speaker 15: the market. But again, this next generation h one hundred
Speaker 15: product is going to be catch up and match the
Speaker 15: performance of Google chips. And again they have that software
Speaker 15: component which Google does not have. You know, I think
Speaker 15: there's two ways this could go. You know, in Vida
Speaker 15: just continues to steal the market like Intel did with servers,
Speaker 15: you know, decades ago, and maybe they you know, right
Speaker 15: now they have this eighty percent market share and these accelerators.
Speaker 15: Other analysts feel that maybe they stumble, maybe a competitor
Speaker 15: does come out with some product that that steals the
Speaker 15: market or developed some software. But I think that's that's
Speaker 15: still years ahead, and right now in videos in a
Speaker 15: pretty good place. I mean, everyone we talk this is
Speaker 15: said that this is sort of invidious market to lose.
Speaker 10: Austin, I'm curious because you've mentioned a couple of times
Speaker 10: you've said he has sharp elbows, and it's also been
Speaker 10: pointed out in your story that if he loses, he
Speaker 10: can just you know, fire everybody or humiliate senior staff,
Speaker 10: like is.
Speaker 4: He a jerk?
Speaker 15: I should clarify that he actually is known famously. He
Speaker 15: even said this that he's never fired anyone. But if
Speaker 15: you talk to sources about him, that's because he will
Speaker 15: make it a place that you don't necessarily want to
Speaker 15: work if he's unhappy with your performance. So I wouldn't say.
Speaker 3: It sounds like a boss to me.
Speaker 15: Sounds like a boss. Yeah, Joel's very much the same way,
Speaker 15: but bosses, But yeah, no, he is I would say
Speaker 15: very intense. But I will say he has this core
Speaker 15: following of loyal executives that have been there decades, and
Speaker 15: there's got to be a reason they're working for him.
Speaker 15: If if he was sort of just a jerk or
Speaker 15: could be very mean and sharp elbow, they wouldn't continue
Speaker 15: to work with him. But they get to work on
Speaker 15: fascinating project. They really feel like they're on the tip
Speaker 15: of the sphere of technology, and I think there's a
Speaker 15: reason why he inspires that loyalty in his troops and
Speaker 15: especially as employees. They really look up to him, and
Speaker 15: he has this sort of loyal, sort of militant life
Speaker 15: following inside the video.
Speaker 5: My other favorite thing in the story, and there are many,
Speaker 5: it's like the fact that he like has the you know,
Speaker 5: he tries GPT and then what's the first thing he does,
Speaker 5: writes a poem about his company.
Speaker 4: It's like opening. It's some great Then he never uses
Speaker 4: it again, but he pays. But he pays the monthly
Speaker 4: because they need the money. They need the money all right.
Speaker 3: Thanks to Austin Carr and Jill Weber.
Speaker 8: Check it out.
Speaker 3: It's in the current issue of Bloomberg business Week magazine.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. That's us
Speaker 1: live weekdays from two to five pm Eastern on Bloomberg Radio,
Speaker 1: the Bloomberg Business app.
Speaker 11: And you too.
Speaker 1: You can also listen live to our flagship New York station.
Speaker 1: Just say Alexa, play Bloomberg You love him thirty.
Speaker 4: You say you on a rebel?
Speaker 3: You know.
Speaker 8: We all want to change the world.
Speaker 3: Yeah, a little bit of a.
Speaker 4: Can we play this?
Speaker 2: What do you mean?
Speaker 4: I feel like you don't. We have to pay somebody
Speaker 4: if we play this. I don't know why.
Speaker 10: It's specifically the Beatles, but I feel like it's expensive
Speaker 10: to play the Beatles.
Speaker 3: I think you're allowed to play a certain amount.
Speaker 4: Like less than thirty seconds.
Speaker 3: So you know what's really important. We're going to talk
Speaker 3: about a revolution that's going on.
Speaker 4: Yeah, I've been on Reddit lately.
Speaker 11: I know what's going on.
Speaker 3: So let's get to it, because this story it has
Speaker 3: to do with really kind of a changing world. Whether
Speaker 3: it's the ad market online, whether it's AI. There's a
Speaker 3: lot of stuff that we're trying to figure out in
Speaker 3: a very new environment for the social media world. And
Speaker 3: our Joshua Brustin gets into it in the new upcoming
Speaker 3: issue of Bloomberg BusinessWeek magazine. So let's get to it.
Speaker 3: Joshua of course here with us along with the editor
Speaker 3: of Bloomberg business Week Magazine, Joil Weeber. Joshua, by the way,
Speaker 3: it is Bloomberg business Week Technology editor. So the story
Speaker 3: is very telling, right as we talk so much about
Speaker 3: AI Joel and trying to understand the importance of data
Speaker 3: going forward. It's important to AI generative AI.
Speaker 5: Yeah, and then there's Reddit, which is just I think,
Speaker 5: you know, for the past couple of years become the
Speaker 5: great hope of the Internet it is, you know, as
Speaker 5: we've seen.
Speaker 4: Weird, so weird, Remember it was no one's hope.
Speaker 5: You know what The genius of Reddit though, was that
Speaker 5: it reminded us of how great the Internet was, like
Speaker 5: in two thousand and two, before there were social networks
Speaker 5: and stuff, and it just was it's so basic, you know,
Speaker 5: it just puts it all out there.
Speaker 2: Yeah.
Speaker 10: I learned everything I know about crypto originally on Reddit,
Speaker 10: like before anyone before it was one thousand dollars bitcoin.
Speaker 10: I went on Reddit, I joined the subreddit, I got
Speaker 10: to know people. I bought my first bitcoin through the subreddit,
Speaker 10: you know, for six hundred bucks.
Speaker 4: Yeah, what's your handle? Like leather jacket? I can't tell you.
Speaker 4: No inside joke there from yesterday. What struck me about
Speaker 4: this though?
Speaker 5: Podcast Also, if you were going to swallow the internet,
Speaker 5: Reddit would be a pretty great place to start. And
Speaker 5: that's sort of what's kicked off this current controversy and
Speaker 5: remind Reddit still not a publicly traded company, which has
Speaker 5: also been part of this.
Speaker 4: So Josh, what happened?
Speaker 8: Well, what happened started in April when Reddit said it
Speaker 8: was going to start charging for API usage. This is
Speaker 8: basically how you would systemically ingest Reddit data for your
Speaker 8: own for your own programs. And as you mentioned, one
Speaker 8: big use of the Reddit API is to take data
Speaker 8: and use it to train AI models. It's part of
Speaker 8: the model that is used to train chat GPT. I
Speaker 8: think Google's model uses it as well. And it's just
Speaker 8: this big data set of people talking. And if you
Speaker 8: want to teach a computer to talk like a person,
Speaker 8: Reddit it's one place to start.
Speaker 4: So Reddit wants to make sure you're smart. I start
Speaker 4: training with Reddit.
Speaker 10: I mean, actually, my wife works for a company I
Speaker 10: won't name it that scrapes places like Twitter and Reddit
Speaker 10: for data. They do that for corporations, so that, for example,
Speaker 10: this is not a client.
Speaker 4: I'm just using it.
Speaker 10: If PEPSI wants to know, you know, how people on
Speaker 10: Twitter feel about them, this company goes and uses the
Speaker 10: Twitter API and scrapes all the mentions and figures out
Speaker 10: you know, which are positive, which are negative, and which
Speaker 10: are neutral.
Speaker 5: So yeah, yeah, that's actually learning a lot about Matt.
Speaker 5: You know, I'm glad that the revolution was hinted at
Speaker 5: the beginning because yeah.
Speaker 8: You know, and what Reddit wants to do is make
Speaker 8: your wife's company pay for that. Yes, because they're exactly
Speaker 8: some commercial use from this. And at first the announcement
Speaker 8: was made in April, you know, people said, huh, that's
Speaker 8: an interesting look at like what might happen with AI
Speaker 8: in the future. And then it became clear that this
Speaker 8: was also going to impact a lot of developers that
Speaker 8: make apps on Reddit that Reddit users really like today
Speaker 8: and Reddit users really didn't like that, And after some negotiations,
Speaker 8: if you can call it that, with the company, the
Speaker 8: company refused to change its policies and the entire site
Speaker 8: or big parts of the site went dark last week.
Speaker 10: So I mean, for example, Carol uses Twitter, not through
Speaker 10: Twitter dot com, but she has some third party tweet
Speaker 10: deck that she uses, and tweet Deck I guess would
Speaker 10: hook up to Twitter with an API as well. And
Speaker 10: you're talking about people using Reddit with such third party apps, right, yeah, exactly.
Speaker 8: There are some very popular Reddit readers that ingest Threddit
Speaker 8: and give you a better or give you a different
Speaker 8: user interface. Those apps run ads that they don't share
Speaker 8: the revenue with Reddit, so Reddit wants some of that revenue.
Speaker 8: But also the API is used to build tools that
Speaker 8: things like the volunteer moderators that make Reddit run use
Speaker 8: just in their day to day use. And that was
Speaker 8: really kind of what moderators said, if you take this
Speaker 8: away from us, we can't do our jobs and we're
Speaker 8: giving you free labor.
Speaker 5: So which is key part there, Jush rights, but Reddit
Speaker 5: power users or something else using the site in a
Speaker 5: way that seems more like employment than leisure, except for
Speaker 5: the getting paid part.
Speaker 4: Like this is one of the amazing things about the Internet.
Speaker 4: You find a community of people who care and they
Speaker 4: will do all that work for free.
Speaker 5: Yeah, right, which also is I'm sure part of but
Speaker 5: you know, the AI swallowing it all likes.
Speaker 8: Yeah, at the heart of it, this is a conflict
Speaker 8: between two groups of people who said, I don't want
Speaker 8: to do something without getting paid for it or getting
Speaker 8: you know, I don't want to do something for free
Speaker 8: if you're going to exploit me.
Speaker 4: The moderator is being exploited.
Speaker 3: By everybody else is going to get paid, and I'm being.
Speaker 8: Exploited by the AI companies, the or the third party
Speaker 8: app companies or whoever.
Speaker 3: I love. There's a quote in a professor at the
Speaker 3: Institute for Advanced Study, and I guess was in the
Speaker 3: Biden Administration's Office for Technology and Science.
Speaker 5: Policy.
Speaker 3: People are anticipating that there's a change in the economy
Speaker 3: of the internet company. Right, we're finding the ad model
Speaker 3: can just go so far, right, and now we're increasingly
Speaker 3: we knew data was worth something, Right, We've all been
Speaker 3: trying to figure out who ultimately benefits from all that
Speaker 3: data collection, right, and now we're kind of getting to
Speaker 3: a whole new level of it because it's needed to
Speaker 3: make generate of AI so much smarter, right, And that's
Speaker 3: kind of what it gets into on a bigger, broader level.
Speaker 2: Yeah.
Speaker 8: Absolutely, I think a lot of people are very nervous
Speaker 8: about the changes coming in the Internet, and there's a
Speaker 8: question about who creates value online and who is going
Speaker 8: to be compensated for that value and how.
Speaker 4: Okay, so what does this mean for that IPO that
Speaker 4: never quite happened.
Speaker 8: Well, I think it's fair to say, although Reddit will
Speaker 8: not say that part of the initial reason to do
Speaker 8: the changes were to shore up its business as it
Speaker 8: looks ahead to this IPO, and I think how it
Speaker 8: impacts it really depends on the outcome of this. There's
Speaker 8: real concern out there that if the moderators continue to
Speaker 8: be in revolt, that Reddit won't work as well, and
Speaker 8: might not be as good of a business going forward.
Speaker 8: It might kind of fail to function as a service.
Speaker 5: What it reminds me of a little bit is the
Speaker 5: Dungeons and Dragon cover story that we did not so
Speaker 5: long ago, because Bro also tweaked the licensing agreement before
Speaker 5: the big blockbuster came out right, and the nerds did
Speaker 5: not like that. They there was a revolt online. Then
Speaker 5: Hasbru ultimately had to back down, but there was so
Speaker 5: much money at stake, And here we are again. I
Speaker 5: won't call Reddit users nerds, but they are nerds. Okay,
Speaker 5: well you said it, but it basically creates this moment
Speaker 5: where you've got, you know, a platform that everyone has
Speaker 5: turned to. I mean, this is the hope of what
Speaker 5: it was, back to the future, bet that the future
Speaker 5: of the Internet actually maybe look more like Reddit, and
Speaker 5: all of a sudden, the underlying value proposition is the
Speaker 5: thing that is at risk.
Speaker 4: It is pretty crazy, Mike Drop, It's really kind of right.
Speaker 3: It's kind of heavy thinking of like how this moves forward.
Speaker 4: Well, here's the thing.
Speaker 10: AI is the the you know, the dawn of generative
Speaker 10: AI has made us all realize, oh, Reddit is worth something.
Speaker 4: I mean, there's real value there, highly entertaining, right. I mean,
Speaker 4: I've loved Reddit for over a decade.
Speaker 3: You still use it.
Speaker 10: I use it all the time, like literally every day
Speaker 10: on multiple devices. But I always thought it was our user.
Speaker 10: I always thought it was fairly worthless. Although I guess
Speaker 10: now that I think about it, it's need answers for me,
Speaker 10: so many questions, your time, your your eyeballs.
Speaker 4: Think about how much that's worth, right?
Speaker 3: Yea? What is Reddit thinking? Joshua inside? Internally as they
Speaker 3: work this way this through.
Speaker 8: Well, Reddit has said there have been some memos that
Speaker 8: have come out from inside the company where the executives say,
Speaker 8: you know, this is these flaps happen every once in
Speaker 8: a while. Reddit is a very restive community, and the
Speaker 8: idea is like, let's keep let's keep our heads down,
Speaker 8: you know, we'll take our lumps and a month from
Speaker 8: now everything will be back to normal and we can,
Speaker 8: you know, move forward with this plan. The economics will
Speaker 8: be better and problem solved or at least, you know,
Speaker 8: problem lessened.
Speaker 4: Wait, who are the overlords that run Reddit?
Speaker 10: Like Alexis Ohanian is gone right now, He's like a
Speaker 10: women's soccer guy, So.
Speaker 4: Who who are the bosses? Who's the corporate face of Reddit?
Speaker 8: So the CEO of Reddit is is Steve Huffman, the
Speaker 8: other co founder. And Reddit, as you might remember, was
Speaker 8: bought by Conde Nass soon after it was founded, and
Speaker 8: it is now an independent subsidiary or it is it
Speaker 8: is its majority owner remains Advanced Publications, which is Conde's
Speaker 8: parent company.
Speaker 5: Cool, So, how do we think they might attempt to
Speaker 5: navigate this, Josh, Like, what are their options really?
Speaker 4: And they You're right, they have gone through this before.
Speaker 5: I'm thinking of remember the anti work kerfuffle where like
Speaker 5: the community sort of ousted the moderator that it had, right, Like,
Speaker 5: there's been tensions like this that have simmered before. But
Speaker 5: how do you think they go about navigating this?
Speaker 8: Yeah, this thing, this kind of thing happens from time
Speaker 8: to time. And I think that's what Reddit is betting on.
Speaker 8: And it says it's going to build a lot of
Speaker 8: moderator tools or has already released some that will replace
Speaker 8: some of these, uh, some of these third party tools
Speaker 8: that might not be able to function if they have
Speaker 8: to pay for the APIs. And I think that they'll
Speaker 8: hope that moderators will find out that, oh, these things work. Okay,
Speaker 8: maybe this isn't such a big deal after all. You know,
Speaker 8: I love Reddit, and it turns out I can continue
Speaker 8: to do my job, and you know, and they got
Speaker 8: mad and then they get better and things calm down
Speaker 8: for a little while until the next time they get mad.
Speaker 5: And what about for for the AI companies that are
Speaker 5: out their attempting to swallow the Internet?
Speaker 4: Like, will they pay up?
Speaker 8: What do you think that dialogue looks like it certainly
Speaker 8: seems like the AI companies are preparing to pay in
Speaker 8: some way. You know, Reddit is not the number one
Speaker 8: source of material, but there may be some licensing deals
Speaker 8: worked out. And I don't think I think the economics cere.
Speaker 4: That provides it.
Speaker 10: That's not You've just provided me with another ques actually me,
Speaker 10: what is the number one source of material?
Speaker 4: If not read it? So basically wonder like where do
Speaker 4: these lives come from?
Speaker 3: Where should I be going?
Speaker 10: Is Wikipedia a better source? I mean, what are these
Speaker 10: AI models doubling up?
Speaker 11: All of it? All of it?
Speaker 4: No hierarchy.
Speaker 8: Yeah, it's it's an immense it's a large range. I
Speaker 8: actually don't know off the top of my head what
Speaker 8: the number one is number one sources, but there's you know,
Speaker 8: there's like thousands of websites that it's scraping and you know,
Speaker 8: putting together sure millions.
Speaker 3: Even what does this mean for Elon and Twitter? Potentially
Speaker 3: he's trying to figure it out too well.
Speaker 8: One thing that this shows is that, you know, Reddit
Speaker 8: users have some power over the site, whereas Twitter users don't.
Speaker 2: Really.
Speaker 8: I mean, people are mad at Elon, and Elon's like, well,
Speaker 8: go go ahead, you can leave if you want, but
Speaker 8: they can't shut Twitter down.
Speaker 4: And they don't leave. By the way, if you look
Speaker 4: at the data actually use to increase.
Speaker 3: Everybody lost their checks and we're like, okay.
Speaker 10: Everybody said, like when when Trump got elected, people are like,
Speaker 10: I'm gonna move out of this country if Trump gets elected.
Speaker 4: Fast forward, nobody moved out. Same thing about with Twitter.
Speaker 10: You know, they said I'm gonna quit Twitter if Elon
Speaker 10: must take They're all still there.
Speaker 5: I'm genuinely curious here when you go to Reddit, like
Speaker 5: what are the sub threads that you traffic in?
Speaker 10: I feel like that's such a private question, which is
Speaker 10: why I won't even tell you my handle. Like the
Speaker 10: last thing in the world I want is for anybody
Speaker 10: to see my Reddit money.
Speaker 2: Back.
Speaker 3: I've worked with Matt for so long and he said
Speaker 3: something earlier, and I'm like, you still surprised me twenty
Speaker 3: plus years in coming.
Speaker 4: He's full of surprises.
Speaker 8: You don't maintain multiple Twitter or Reddit hand I do have.
Speaker 11: I do have.
Speaker 10: Tell us your family friendly, you know, I mean, so
Speaker 10: I look and I look at like a leather jackets thing.
Speaker 10: Although for that I use even more embarrassing forums than Reddit, like, uh.
Speaker 4: We learned yesterday Matt is I mean, I'm kind of
Speaker 4: obsessed with leather jackets.
Speaker 10: I'm also kind of obsessed with leather boots and shoes,
Speaker 10: and Reddit has a very good forum for for boots.
Speaker 5: We actually didn't ask you about this yesterday in video
Speaker 5: CEO Jensen very very much. It owns the leather jacket.
Speaker 5: Where do you rank his leather jacket like critique, I
Speaker 5: don't get more than one though, exactly so, I don't.
Speaker 5: They didn't look so amazing.
Speaker 10: I don't think he's getting them from like the best
Speaker 10: shinky horse hide tanneries in Japan.
Speaker 4: You should reach out. I think that was he on
Speaker 4: the Reddit formula. The thing is for jackets, you've got
Speaker 4: to go to the door. Lounge is even worse.
Speaker 5: Please, I think I think there needs to be uh,
Speaker 5: you know, fashion consulting with Matt.
Speaker 4: I'll reach out to and video.
Speaker 3: How come somebody put chaps in our ib chat? Did
Speaker 3: you say chaps?
Speaker 11: Chaps?
Speaker 4: Chaps?
Speaker 3: I don't know.
Speaker 4: Leather pants is what he's asking about.
Speaker 11: I have a few pairs of, you know.
Speaker 3: But that's for riding your motorcycle.
Speaker 4: And we're good.
Speaker 3: Are you staring?
Speaker 2: All right?
Speaker 4: Maybe not?
Speaker 3: Okay? Talk about a revolution?
Speaker 4: We just had one.
Speaker 2: All right.
Speaker 3: That's a wrap, guys, Thank you so much. Josha brustin
Speaker 3: Tech Editor BusinessWeek. Here in studio Laitil Weber, the editor
Speaker 3: of Bloomberg BusinessWeek, is story and the new issue at
Speaker 3: BusinessWeek Magazine on newstands tomorrow, online at Bloomberg dot com,
Speaker 3: slash business Weekend, on the Bloomberg and on leather Chaps.
Speaker 3: We're taking a break. This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. Catch us
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Speaker 3: Well, there was a story on the Bloomberg Today was
Speaker 3: an analyst at with a note saying nothing is AI proof,
Speaker 3: but live sports may come close. And basically they're saying
Speaker 3: maybe sports as an asset and sports rights are something
Speaker 3: that maybe's protecting from Aha.
Speaker 4: Well, absolutely, I mean continuing to appreciate.
Speaker 10: One of the most read stories was about a Sydney,
Speaker 10: Australia based fund manager who said, I'm not going to
Speaker 10: buy you know, Nvidia and the ship makers of the
Speaker 10: data center operators, but I'm going to buy stuff that
Speaker 10: can't be broken by AI right. And he said it's
Speaker 10: a very small field. There's there's few things, you know,
Speaker 10: but there are things out there.
Speaker 2: All right.
Speaker 3: So we are so obsessed with AI right and how
Speaker 3: it's going to impact our world. So joining us to
Speaker 3: talk a little bit about it. From Menlo Park on
Speaker 3: Zoom is Bob Muglia. He's former CEO of Snowflake, the
Speaker 3: global infrastructure software company. He was there from twenty fourteen
Speaker 3: to twenty nineteen. Before that at Juniper Networks and then
Speaker 3: a Microsoft divisional president back in nine. He is a
Speaker 3: board director for a lot of companies. Board memberships on Microsoft,
Speaker 3: Snowflake relation AI and a few more. He's got a
Speaker 3: new book out. It's called The Data Datapreneurs, The Promise
Speaker 3: of AI and the Creators building our Future. And I apologize, Bob,
Speaker 3: I've had a hard time getting out. It's basically a
Speaker 3: play on data entrepreneurs. And I love the title. Welcome, Welcome,
Speaker 3: How are you good?
Speaker 4: I'm good.
Speaker 16: It's glad to be here down the Bayer this week,
Speaker 16: so it's fun. I'm warmly up in Seattle, but I'm
Speaker 16: down the this week.
Speaker 3: So I think, are they talking a lot about AI
Speaker 3: in the Bay Area?
Speaker 4: That's all they talk about down here?
Speaker 1: Well?
Speaker 3: Rightfully, So from your vantage point, should we all be
Speaker 3: talking about AI? And how should we be talking about it?
Speaker 3: And of course I'm talking about machine learning, generative AI,
Speaker 3: kind of the next level, if you will.
Speaker 16: Well, I think it really has hit the vernacular of
Speaker 16: common people and it's become part of everyday lives with
Speaker 16: tools like jack GPT, and it's really just the beginning.
Speaker 16: I mean, this is going to affect us in a
Speaker 16: very deep way. I think we're going to see all
Speaker 16: sorts of wondrous things coming in the next couple of years.
Speaker 16: These assistants or copilots that are going to help us
Speaker 16: in a whole bunch of ways. Just about every application
Speaker 16: is going to be updated, big, big time, lots of
Speaker 16: change in technology. It's the biggest thing I've ever seen
Speaker 16: in my career, actually.
Speaker 10: So, I mean, it's absolutely huge, and the co pilots
Speaker 10: are one of the things I'm most excited about for Microsoft.
Speaker 10: Do you think there's a killer app that we haven't
Speaker 10: seen yet or are there just so many uses is
Speaker 10: that it will be hard to pin one down.
Speaker 16: Well, honestly, one of the killer apps is going to
Speaker 16: be searched, for sure, and you know we have an
Speaker 16: opportunity to see search truly reinvented with these answer bots
Speaker 16: that are being created. Bing was one of the first ones.
Speaker 16: There's a number of others out. I have an investment
Speaker 16: in a small company called Perplexity that's that's in that space.
Speaker 16: But it's really the first time you've been able to
Speaker 16: take on Google. I'll say, I'll say that for sure.
Speaker 16: I think the office is going to be tremendously updated. Really,
Speaker 16: just about every application is going to up be updated.
Speaker 16: I saw Salesforce made some major announcements a week or
Speaker 16: two ago. You're going to see just about every application updated.
Speaker 16: And you know a company I ran for five years, Snowflake,
Speaker 16: is going to be making major announcements next week. Lots
Speaker 16: of stuff happening. So yes, lots of apps. I don't
Speaker 16: know if it's any one app. I think it's many
Speaker 16: apps that'll be that'll be, it'll be killer apps.
Speaker 3: Bob Bloomberg Business recovering in a story about Reddit and
Speaker 3: basically it gets to a bigger question about who owns
Speaker 3: the data that is going to help make generative AI smarter? Right,
Speaker 3: that's crucial. What's your view on that.
Speaker 16: Well, there's an awful lot of data out there, and
Speaker 16: one of the things that people are learning about with
Speaker 16: these generative AIS and these machine learning programs is the
Speaker 16: quality of the data really matters. So I think you're
Speaker 16: going to see corporate data becoming very important, proprietary data
Speaker 16: becoming important assets that people are using. You know, public
Speaker 16: forms like Reddit and lots of public forms that are
Speaker 16: out there. Those are all that's data that people are using.
Speaker 16: They may try and monetize it in some ways. I
Speaker 16: think see you'll see people starting to do that if
Speaker 16: people have sources of public data. But in general, people
Speaker 16: are going to be using their data as a way
Speaker 16: of generating proprietary information. And what we haven't seen yet
Speaker 16: is this really break into the enterprise and that's a
Speaker 16: tremendous opportunity over the next couple of years.
Speaker 3: Does this generative AI make different social media platforms more
Speaker 3: important than before? In other words, we were talking about
Speaker 3: kind of who's the top right place, right Matt in
Speaker 3: terms of social media is does it kind of upend
Speaker 3: the hierarchy?
Speaker 16: If you will, it probably will over time. I mean,
Speaker 16: it's hard to say. It's hard to say. As I said,
Speaker 16: you know, I can see for the first time, you know,
Speaker 16: applications like search, which have the opportunity to be disrupted.
Speaker 16: I think social media will be different because you're gonna
Speaker 16: want to have AI summarize things for you. One of
Speaker 16: the challenges with social media there's so much garbage on it.
Speaker 16: It'd be nice to have a bot be able to
Speaker 16: say what's interesting in that that happened today. And so
Speaker 16: perhaps with the media company that does the best job
Speaker 16: of that may wind up in the best position. But
Speaker 16: we'll have to see to find out.
Speaker 4: I mean, Carol, how many emails do you get every day?
Speaker 3: Too many? I don't even read them all literally, and if.
Speaker 10: I could have I'm constantly typing eight nine go, eight
Speaker 10: nine go, which is spam and delete on the Bloomberg.
Speaker 3: I don't even I don't even delete anymore because it
Speaker 3: would take so much time.
Speaker 10: It would be great if AI. That's one area in
Speaker 10: which I can't wait for AI. One thing I'd bristlet
Speaker 10: a little bit, Bob is when when Carol says make
Speaker 10: it smarter, I mean, it's not really getting smarter, right,
Speaker 10: That's a term that you use for a human and
Speaker 10: I think.
Speaker 3: We but it is becoming right, it's the use of data.
Speaker 3: It's different.
Speaker 4: It's the right word. It's the right word. Well, what
Speaker 4: do you do?
Speaker 10: You share the concerns voiced by people like Musk and uh,
Speaker 10: you know open AI, Sam Altman about you know, somehow
Speaker 10: this program becoming smart enough to subjugate humanity like that
Speaker 10: seems to me to be a ridiculous and be kind
Speaker 10: of takes responsibility away from the companies that are running
Speaker 10: these programs.
Speaker 16: Well, you know, we've as we've all grown up, we've
Speaker 16: been seen many dystopian science fiction things, Terminator being perhaps
Speaker 16: one of the most the most accomplished of all of those.
Speaker 3: I don't.
Speaker 16: I don't know how you can. You can be much
Speaker 16: worse than Terminator was to humanity. So there's a lot
Speaker 16: of there's a lot of of of of literature and
Speaker 16: science fiction that goes into this. You know, in the
Speaker 16: short run, the real concerns are what people will do
Speaker 16: with AI, and people to do everything with AI, good, bad,
Speaker 16: and evil, and as they do with social media, right,
Speaker 16: like they do with social media exactly, And and AI
Speaker 16: can do some things faster than humans can, so there
Speaker 16: may be some new challenges, but it also can help
Speaker 16: to fight against those challenges too, And so you know,
Speaker 16: we'll see AI defending us against bad AI, good AI
Speaker 16: defending us against bad EI.
Speaker 4: In the short term, you know, the long term concerns.
Speaker 16: About about existential issues about humanity are really about will
Speaker 16: will this intelligence get smarter than all of us and
Speaker 16: then you know, go become rogue and go against us. Now, honestly,
Speaker 16: I do think it's going to get smarter than all
Speaker 16: of us. It's on a path to basically be able
Speaker 16: to take the ideas and the intelligence of everybody in
Speaker 16: humanity and to put a lot of that together into
Speaker 16: a system that can be immediately trained and replicated and
Speaker 16: grow and things. So there is a lot of opportunity
Speaker 16: for this stuff to get smarter. But ultimately we will
Speaker 16: be creating whatever it is. And I've always been a
Speaker 16: believer that values will reign supreme in the end, and
Speaker 16: that while humanity does many things wrong, ultimately we come up.
Speaker 16: We never really screw it up that badly, and ultimately
Speaker 16: we'll make the right things happen. I think AI is
Speaker 16: going to do great things for all of us in
Speaker 16: the short and medium term and in the long term.
Speaker 16: Who knows what will happen, But I still have a
Speaker 16: very positive outlook. I'm definitely a techno optimist.
Speaker 4: I love your optimism, Bob. We need more of that.
Speaker 4: Let's get more.
Speaker 3: Bobs also think it's it's important.
Speaker 4: Yeah, it's all about people.
Speaker 16: I mean, ultimately, the thing to realize is these tools
Speaker 16: are being created by people, and we will do to
Speaker 16: it what we do with everything. And like I say,
Speaker 16: lots of great things and maybe some bad things too,
Speaker 16: but we'll figure out how to control it and make
Speaker 16: it work.
Speaker 3: I think about healthcare like the ability, because healthcare is
Speaker 3: far from even as we know. It's an old story, unfortunately,
Speaker 3: But I think about the possibility if you've got something
Speaker 3: and there's no way the medical community can keep up
Speaker 3: with all the research that's out there, and so the
Speaker 3: ability to somehow use AI to figure out, Wait, what's
Speaker 3: your you know, ailment and your the nuances to it.
Speaker 3: And then here's the reason, I don't know.
Speaker 10: I just think it's so dangerous at first. Do you
Speaker 10: ever get a little bit sicknical on WebMD? Then like
Speaker 10: all of a sudden, you're dying.
Speaker 3: But that's not as smart as it could be, right
Speaker 3: bub Yeah, and web md is.
Speaker 16: Unfortunately you go, you go on the web and you
Speaker 16: don't know, you know, you really know what you're looking for,
Speaker 16: and you see all sorts of nasty things.
Speaker 3: Dying I'm always dying, to be quite honest.
Speaker 4: Talk about these co pilots.
Speaker 16: Think about it. Think about a physician's assistant copilot right
Speaker 16: that has access to all the latest medical research and
Speaker 16: can look at a scan, for example, and compare it
Speaker 16: to millions of other scans that have been done, and really,
Speaker 16: do you know, find things that people wouldn't be able
Speaker 16: to find. These co pilots are going to be incredibly
Speaker 16: helpful in medicine. It's one of the areashe we'll see
Speaker 16: some of the biggest advancements in the next five years.
Speaker 3: And I'm going to have a co pilot here in
Speaker 3: the studio.
Speaker 8: Man.
Speaker 4: As much as I love you.
Speaker 3: I'm going to have a co pilot, and I'm just
Speaker 3: going to tell you you deserve one. He will be,
Speaker 3: as you know, entertaining probably or whatever. Still with us
Speaker 3: is Bob Mugley. He's former CEO of Snowflake, also at
Speaker 3: Juniper Networks Microsoft. He's got a new book out. It's
Speaker 3: called The Datapreneurs, The Promise of AI and the Creators
Speaker 3: Building Our Future. Still with us on Zoom from Menlo Park, California,
Speaker 3: and I promise, I bet if we have AI to
Speaker 3: revenge they can say this titles, so forgive me. I
Speaker 3: do think it's interesting though, about the data entrepreneurs that
Speaker 3: are out there kind of figuring this out, Bob right now.
Speaker 3: And I feel like your vantage point and having worked
Speaker 3: with some visionaries very early on, likea Bill Gates or
Speaker 3: even a Sam Altman who is now increasingly because of
Speaker 3: Open AI become a household name, tell us take us
Speaker 3: back there, though, to maybe give us some insight of
Speaker 3: what that era was like. As we feel like we
Speaker 3: are embarking on a whole new kind of data era.
Speaker 7: Yeah.
Speaker 16: Well, the book The Datapreneurs is really about the entrepreneurs
Speaker 16: I've known that have made a data industry and today
Speaker 16: AI what it is. And the basic theory is that
Speaker 16: there's an arc of innovation that has occurred really since
Speaker 16: the advent of digital computing, with continued new improvements, new
Speaker 16: technologies that have happened over time that have been advanced
Speaker 16: by these incredible people, and that has brought us to
Speaker 16: where we are today. And it has been this series
Speaker 16: of progressions. Back in the late eighties early nineteen nineties
Speaker 16: I worked very closely with Steve, Steve Baumer and Bill
Speaker 16: Gates in the work on Windows, and back then there
Speaker 16: was a focus on something called information at your Fingertips.
Speaker 16: This was a vision Bill had come up with about
Speaker 16: how we would be able to find any information we
Speaker 16: wanted by just going to our PC and asking and
Speaker 16: running a query and asking a question if it really is.
Speaker 16: Back then, most people didn't even have email. Email was
Speaker 16: relatively new back then, the Internet had yet to be invented,
Speaker 16: and so this was a pretty novel concept. And while
Speaker 16: it didn't pan out the way Bill had anticipated, it being,
Speaker 16: which was really a desktop centric, Windows centric view of
Speaker 16: the world. The Internet really changed that and really brought
Speaker 16: us information at your fingertips in every way we could
Speaker 16: have ever imagined. And now we have this incredible amount
Speaker 16: of information available to us, and in some senses, the
Speaker 16: largest problem we have is it's too much for us
Speaker 16: to digest and to really make sense of. And and
Speaker 16: that's where AI can really help us, because you can
Speaker 16: go through a lot of that data and turn it
Speaker 16: into information that is useful for us and and and
Speaker 16: much much easier for us to consume. So it's been
Speaker 16: it's been an ongoing trajectory. The world was very different back.
Speaker 1: Then, you know.
Speaker 16: I've often made the comment that I saw you know,
Speaker 16: I saw Microsoft from from a bird's eye vantage point
Speaker 16: and got a chance to see it all. I've often
Speaker 16: said I saw the good, the bad, and the ugly
Speaker 16: at Microsoft. I was one of the twelve witnesses who
Speaker 16: was in front of Judge Jackson and the DJ case
Speaker 16: than David Boyce, and that certainly would qualify as the
Speaker 16: ugly in my opinion. But and then I did penance
Speaker 16: on that for a couple of years afterwards, when I
Speaker 16: kept going back to Washington, d C to clean up
Speaker 16: some of the last issues we had with protocol documentation
Speaker 16: on the DOJ.
Speaker 4: So I lived through all of that back then.
Speaker 3: What is there going to be a penance, if you will,
Speaker 3: or a similar tough time when it comes to AI.
Speaker 3: Is there going to have to be a very significant
Speaker 3: role by regulators in your view?
Speaker 16: Well, first of all, let me start by saying that,
Speaker 16: you know, the Microsoft case really created a lot of law,
Speaker 16: and I think all the industry as a whole has
Speaker 16: learned a tremendous amount from the mistakes we made way
Speaker 16: back when, so they can avoid a lot of the
Speaker 16: challenges that we went through. You know, in terms of
Speaker 16: regulations for AI, there certainly will be some I think
Speaker 16: understanding what needs to be regulated is something that's still
Speaker 16: being considered. I think that there are areas where people
Speaker 16: taking AI and doing things with it that you know,
Speaker 16: that are that are that that like deep fakes as
Speaker 16: an example, there may need to be some new laws
Speaker 16: associated with that, because, if I understand correctly, the laws
Speaker 16: that we have today don't necessarily fully cover the idea
Speaker 16: of somebody creating a complete image, a complete like image
Speaker 16: of a person and then having that image saying things
Speaker 16: that are just not true and clearly that that can't
Speaker 16: be allowed, and we need to make sure that things
Speaker 16: like that are not permitted. So the laws will get
Speaker 16: updated somewhat, but actually most of the existing laws can
Speaker 16: be applied because people are behind these things.
Speaker 4: And if you can, if you if you can.
Speaker 3: Take a look what happened with crypto right like it
Speaker 3: got me. It's gotten messy.
Speaker 16: Crypto is messy to begin with, though, isn't it.
Speaker 3: That's true, that's true, that's but do you feel like
Speaker 3: you know what I'm saying that it feels like there
Speaker 3: was quite a lag in terms of regulatory oversight.
Speaker 16: Well, there always is going to be a laged. There's
Speaker 16: always going to be alaged because technology will move faster
Speaker 16: than the government can ever move. And so we you know,
Speaker 16: we discover you know, the Sam Bankman freeds that happen.
Speaker 16: You know that that is something that perhaps could have
Speaker 16: been caught. But now I think people have a clean,
Speaker 16: a keen eye to look for things like that.
Speaker 3: So I am curious. You're the kind of person that
Speaker 3: if I was going from New York to the West Coast,
Speaker 3: I'd love to be sitting on a plane with because
Speaker 3: I would pick your brain and probably drive you crazy.
Speaker 3: But having said that, what is when people know your background?
Speaker 3: What is the question that they ask you most? When
Speaker 3: it comes to our new world and our obsession, it
Speaker 3: feels like it almost euphoria when it comes to AI.
Speaker 3: What's the smart conversation too that we should be having?
Speaker 16: Well, I think the interesting question is that I keep
Speaker 16: hearing is what are the new innovations that are going
Speaker 16: to come about? What are the areas where applications are
Speaker 16: going to be transformed, and how is the technology going
Speaker 16: to transform it. One of the things we've learned in
Speaker 16: the last few months, which frankly wasn't clear in December
Speaker 16: or January, is that this AI is going to be
Speaker 16: available to just about everyone at effect zero cost you.
Speaker 16: It'll be advertising based in some ways, and services will
Speaker 16: come out that are available to consumers as a whole.
Speaker 16: And I think that that you're going to have these
Speaker 16: services available to people really in all socioeconomic brackets. That's
Speaker 16: one area where it was not obvious a few months ago,
Speaker 16: and now it does seem to be clear. We've seen
Speaker 16: an incredible explosion of development of new open source technology,
Speaker 16: so it's not just coming from the big boys. Uh,
Speaker 16: there was an initial thought that you had to have
Speaker 16: spent tens or hundreds of millions of dollars to build
Speaker 16: these these these models. That is certainly still true. But
Speaker 16: what's happening is is that open source models are appearing
Speaker 16: that have a lot of that work already done that
Speaker 16: can then be customized. So the interesting question is where
Speaker 16: are these things are going to make a difference in
Speaker 16: the next few years. And I think you know you're
Speaker 16: going to see it in just about every application. And
Speaker 16: it's not just technologlogy coming from Google and open AI
Speaker 16: and Microsoft that'll make it happen.
Speaker 3: Love this, come back anytime and open invitation, no doubt
Speaker 3: about it. Really appreciate it and good luck with the book.
Speaker 3: Bob Muglia. He is the former CEO of Snowflake. As
Speaker 3: we said, the datapreneurs, the promise of AI and the
Speaker 3: creators building our future. It's a new book, it's out.
Speaker 3: Check it out, so relevant to what's going on right
Speaker 3: now on zoom from Menlo Park, California. Bob again, thank
Speaker 3: you so much. You're listening to Bloomberg Business Week watching
Speaker 3: us as well. I'm Carol Masser along with Matt Miller,
Speaker 3: and this is Bloomberg Radio.
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Speaker 4: Let's get to our.
Speaker 3: Guest, because we want to talk about some of the
Speaker 3: challenges fame seeing the music industry due to artificial intelligence.
Speaker 3: With us again right here on Blomberg Busines, speak Michael Happy.
Speaker 3: He's president CEO of Sound Exchange, and organization that essentially
Speaker 3: collects royalties for music creators. Right, I'm saying it right, Yeah,
Speaker 3: back in studio. I'm good to have you back with us.
Speaker 13: I'm pleasure to be here, always happy to come and
Speaker 13: chat with you about whatever issues are on your mind.
Speaker 3: Well, there's there's a lot of issues that my therapist
Speaker 3: has marked don't want to go exactly. Having said that,
Speaker 3: AI talked us about your members or the folks that
Speaker 3: you work with. Are they a little nervous about the
Speaker 3: rise of AI?
Speaker 13: So look, AI is a very interesting uh topic in
Speaker 13: the music industr, right now there's there's you know, there's
Speaker 13: certainly concerns about it, but there's a lot of opportunities
Speaker 13: as well.
Speaker 3: You know.
Speaker 13: On the one hand, you know, when you think about
Speaker 13: the issues that AI brings, I typically put them into
Speaker 13: three buckets, legal, cultural, and financial. On the legal front,
Speaker 13: there's obviously there you know, there are a lot of
Speaker 13: copyright issues about what is AI allowed to scrape? Can
Speaker 13: you go and scrape copyrighted contents? You know, for instance,
Speaker 13: all of those very excellent you know databases out there
Speaker 13: that you guys supply is AI allowed to scrape copyrighted things?
Speaker 13: When AI creates a product, is it copyrighted? These are
Speaker 13: all some questions that are that are being engaged. Although
Speaker 13: we think copyright law pretty much protects creators the way
Speaker 13: they need to. But you know what people don't talk
Speaker 13: about as much. And thank you for bringing up Drake
Speaker 13: in the weekend. It isn't just about copyright law. It
Speaker 13: is just it's equally about artists rights, creators rights.
Speaker 4: You know what we call name, image and likeness. That
Speaker 4: the thing that bothers.
Speaker 3: They took their sound, right, they took their sound.
Speaker 13: But you know what you're also doing when you imitate
Speaker 13: an artist with fully you know, creative age chalk.
Speaker 3: And a bar singing karaoke.
Speaker 4: Excuse me, you.
Speaker 13: Know you're basically marketing on the you know, the the
Speaker 13: brand and the image that Drake and the weekend and
Speaker 13: that's just not right in any in any scenario.
Speaker 3: Agreed, Agreed. Right, it's a brand, it's a branding.
Speaker 4: But it's it's not just about the legal party.
Speaker 13: You know what, what what would I think the music
Speaker 13: industry wants everybody to be aware of, is there's this
Speaker 13: cultural component as well. You know, there's something about human
Speaker 13: artistry that we're actually part of a coalition called the
Speaker 13: Human Artistry Campaign DOT and you know it talks about
Speaker 13: as an industry, not just music, but all the creative industry.
Speaker 4: It talks about.
Speaker 13: Look, AI is a really cool tool, and we should
Speaker 13: talk about the benefits that it brings to the music
Speaker 13: industry and elsewhere. But let's not forget the human element.
Speaker 13: Let's not forget the value that human artistry brings.
Speaker 10: I think that's irreplaceable also, Michael, I mean to be fair,
Speaker 10: AI could be really helpful in the studio. If you're
Speaker 10: a guitarist, like a singer songwriter and you want a
Speaker 10: certain drum beat. You can probably much more easily now
Speaker 10: get AI to create that for you with whatever time
Speaker 10: signature you want, and you know, whatever drum kit you
Speaker 10: wanted to sound like. But you're not going to be
Speaker 10: able to write the kind of hit that resonates with people,
Speaker 10: you know, for generations with a software program right now.
Speaker 4: So you are absolutely right on, and it reminds I disagree.
Speaker 3: I think you could. You're going to be able to
Speaker 3: use AI to write songs.
Speaker 10: Yes, you can use AI to write songs, but you're
Speaker 10: not going to be able to churn out a Stairway
Speaker 10: to Heaven. You know, you're not gonna be able to
Speaker 10: do a great Eagle's Greatest Hits Volume two. You're not
Speaker 10: going to be able to get in a lot of
Speaker 10: more as set. You know, something that sells millions of
Speaker 10: copies and speaks to people in their hearts for twenty
Speaker 10: thirty forty years at jingle Yes, a commercial okay, but
Speaker 10: you're not.
Speaker 13: Going to be able to really move people time soccer program.
Speaker 13: I've got two responds to that. First of all, AI
Speaker 13: is actually not that new. What's new is you know,
Speaker 13: completely generative AI. But AI has been around in the
Speaker 13: music industran elsewhere for decades. Brian Eno back in nineteen
Speaker 13: ninety six, not to date myself, you know, talked about
Speaker 13: he actually put out an album and talked about AI music.
Speaker 13: And it's been, as you said, drum kits, synthesizers, you know,
Speaker 13: voice modulation. So it's been around for a long time.
Speaker 13: What's the game changers? Predictive? But to your point about
Speaker 13: not being able to replace it, I'm reminded. I was
Speaker 13: in an industry event just two days ago here in
Speaker 13: New York and Joe Walsh speaking of the Eagles genius
Speaker 13: Joe Walsh, I saw.
Speaker 3: An award and big time love of Stevie Nicks by
Speaker 3: the way, yes, well.
Speaker 4: Who doesn't I know? And he had a great quote
Speaker 4: that stuck with me. He's talked about.
Speaker 13: AI briefly when he was giving this award, and he said, look,
Speaker 13: you know, we're all being told that the future is AI,
Speaker 13: and pretty soon hits are going to be shot from
Speaker 13: these you know, digital canons at the speed of sound,
Speaker 13: and we're all going to become obsolete. Needless to say,
Speaker 13: Joe Walsh. Walsh thought that was a lot of bs,
Speaker 13: and he had a quote that I will never forget.
Speaker 13: He said, he said all of that, and he said,
Speaker 13: you know what, you can't program the gift.
Speaker 4: Of a songwriter or the soul of an artist. I
Speaker 4: agree one percent. And that is exactly the thing about
Speaker 4: Midnight in Harlem, Carol.
Speaker 10: You know Susan Tadashi and Derek Trumps, they have such
Speaker 10: a unique sound and the way they work as artists
Speaker 10: and the way they work together, that just I don't
Speaker 10: believe that a computer program, whether it's generative or not,
Speaker 10: can replace that.
Speaker 11: Now.
Speaker 3: I guess what I'm saying is that they could maybe
Speaker 3: create a song. I'm not necessarily saying like that what
Speaker 3: you get in a live element or you know, performers
Speaker 3: singing together, like there's something that's magical. But I do
Speaker 3: think you could use AI easily, machine learning generative AI
Speaker 3: to help fill out a song full about lyrics.
Speaker 13: Absolutely, And actually, Caroll, that's a great point AI. A
Speaker 13: lot of the industry also sees the all of the
Speaker 13: industry sees the upside of AI. Let me tell you
Speaker 13: some of the pots I.
Speaker 3: Want AI, right, Matt, We want to do ourselves.
Speaker 10: Want jobs, so many use cases. I think it would help,
Speaker 10: but I don't think it's going to place.
Speaker 4: You know, you know what I want. I want, AI
Speaker 4: like it.
Speaker 13: You know, the new Indiana Jones movie that is coming out.
Speaker 13: The first segment of that of that film, they have
Speaker 13: taken the practically unlimited tapes and videos from earlier Indiana
Speaker 13: Jones and they de aged him Indiana Jones, not Sean Harrison.
Speaker 13: For that's what I want, in fact, the past. In fact,
Speaker 13: if you're putting this on on on webcasts, can you
Speaker 13: do that to me before post production? That be, But
Speaker 13: there's other things AI can do.
Speaker 3: John Lennon, you know, AI Paul McCartney talking about it
Speaker 3: and being able to extricate, you know, some of his
Speaker 3: voice from a demo about two years before he died
Speaker 3: in nineteen.
Speaker 4: Eighty Music Resurrection.
Speaker 13: They think, for those of you who don't know, I mean,
Speaker 13: they're pulling out from a demo tape and they're going
Speaker 13: to release the Beatles last record. They haven't said, no
Speaker 13: one is, They haven't officially said what the title of
Speaker 13: the of the record is, but a lot.
Speaker 3: Of them are predicting John Lennon.
Speaker 13: Well, it's done with John Lennon's permission. It's done with
Speaker 13: it's done, you know, with his estates permission, and you.
Speaker 4: Get it run.
Speaker 1: We got it run.
Speaker 3: Thank you so much of a great weekend cover much.
Speaker 3: This is the.
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