Speaker 1: This is Bloomberg Business Week from Bloomberg Radio. Hi, I'm
Speaker 1: Jason Kelley and I'm Carol Masser. Welcome to the Bloomberg
Speaker 1: Business Week Weekend podcast. As you know, it's a double issue,
Speaker 1: so we've got some more stories from the issue that's
Speaker 1: currently on newsstands and online. I love it. There's so
Speaker 1: many deep dives into different companies. One has to do
Speaker 1: with Amazon. What's going on at that company. They're spending
Speaker 1: a ton of money on lobbying efforts in the nation's
Speaker 1: capital also locally, but it's not necessarily having the impact
Speaker 1: that they thought it might. Also going to talk a
Speaker 1: little bit about Warby Parker. It's a company that we
Speaker 1: followed for a long time. Austin Carr wrote that story.
Speaker 1: We had an interesting conversation with him, and so it's
Speaker 1: another thing for you to feast on. In this post
Speaker 1: Thanksgiving edition, they're eyeing a new business. How do you
Speaker 1: like that? Oh boy, the puns. The puns are fast
Speaker 1: and furious. Also one of my favorite stories. You might
Speaker 1: be thinking about traveling. You may be traveling right now, amtrack. Uh,
Speaker 1: They've got a Channel Jing road ahead of them. As
Speaker 1: it were. A new CEO man, he means business plus
Speaker 1: Google at war. It's the cover story. The search giant
Speaker 1: wants the military business, but many of his employees do not.
Speaker 1: All right, that's a great story and a very good
Speaker 1: deep dive. But first up, private equity continuing to look
Speaker 1: for ways to put massive amounts of money to work
Speaker 1: could lead to the biggest leverage buyout of all time.
Speaker 1: We're talking about KKR and Walgreens. Twenty nineteen has been
Speaker 1: an interesting one when it comes to deals in the
Speaker 1: public and private markets, and there's one that's out there
Speaker 1: in the news that combines both markets. We're talking about
Speaker 1: KKR approaching drugstore giant Walgreen's Boots Alliance about a deal
Speaker 1: to take the company private. It would be the biggest
Speaker 1: ever leveraged buyout. Well, as you know, I'm obsessed with
Speaker 1: this story for so many reasons, and very proud of
Speaker 1: the team here at Bloomberg for breaking news on this continuously.
Speaker 1: It's a fast moving story, we should point out, but
Speaker 1: we wanted to take a step back with Nabilla Ahmed
Speaker 1: because she has some great insights in the magazine this
Speaker 1: week about how this all came about and maybe what
Speaker 1: it means for the broader market. She's here where us
Speaker 1: in New York City? So wow, this is potentially a
Speaker 1: huge deal. The fact that we're even talking about it
Speaker 1: seems important. How did this all? How do we get here?
Speaker 1: I think we traveled back in time and it's two
Speaker 1: thousand and seven. Guys, we've gone back in time. Look,
Speaker 1: how did we get here? As we know, private equity
Speaker 1: has so much money to put to work. I think
Speaker 1: it's something like more than two trillion now. Just in
Speaker 1: the past couple of years, it's doubled so much money.
Speaker 1: So they're looking at increasingly bigger and more complicated deals
Speaker 1: to sort of have a bit of an edge, looking
Speaker 1: at industries that they know about, looking at companies they
Speaker 1: have already worked with. And this is Westefano Pissina comes in.
Speaker 1: He is a CEO of Walgreens and he is an
Speaker 1: incredible maverick, an incredible dealmaker. He started off with a struggling,
Speaker 1: one single, struggling drug wholesaler in Naples in nineties seventies.
Speaker 1: It's a shop that his dad gave him to fix it.
Speaker 1: And he fixed that business, and he went on to
Speaker 1: fix his dad's friends businesses. Then he expanded to Spain
Speaker 1: and France and in the UK and now he is
Speaker 1: leading the biggest drug store retailer in the world. How
Speaker 1: did you get there? Though? That's interesting. She talked about
Speaker 1: really starting kind of at you know, ground level, the
Speaker 1: ground level here, and how did he get there to
Speaker 1: the point where he was involved with Walgreens and also Boots.
Speaker 1: So he sold his UK company to Alliance Boots and
Speaker 1: then he did a deal with KKR to take that
Speaker 1: company private. Eventually they went on to buy Walgreens here
Speaker 1: in the US and they have actually made over the
Speaker 1: nine year association, him and KKR out of that deal
Speaker 1: have made three times their money. They started off with
Speaker 1: two point one billion dollars, they made seven billion for
Speaker 1: their investors. It's gone really, really well. And so it's
Speaker 1: no surprise then that when KKR dealmakers are looking around
Speaker 1: and saying, no, what's out there to buy? We got
Speaker 1: this part of money. What do we know what might
Speaker 1: be a little bit undervalued, maybe not distressed quite but
Speaker 1: certainly not distressed exactly. If not distressed, a little bit stressed. Uh.
Speaker 1: And this is a guy we know. K CA are
Speaker 1: well known for sort of cultivating these managers. I guess
Speaker 1: now that we've dealt with the equity side. Let's go
Speaker 1: to the debt side, because the leverage and the leverage
Speaker 1: buyout means you've got to borrow in this case tens
Speaker 1: and tens of billions of dollars. Is that even possible?
Speaker 1: That's the thing. Analysts is saying that you're going to
Speaker 1: need about fifty billion dollars zero five zero of debt
Speaker 1: for this company. Not for no reason? Is it the
Speaker 1: biggest buyout in history? Would it be? And there are
Speaker 1: questions about whether that can actually be raised in the
Speaker 1: leverage loan market, which has traditionally been the market where
Speaker 1: M and A buyouts are funded. Because people are starting
Speaker 1: to kind of push back. In the past few months,
Speaker 1: you've seen the single B rated, which is where most
Speaker 1: M and A loans are rated. People are selling those
Speaker 1: off because people are starting to get a bit worried
Speaker 1: about riskier assets and they're gravitating more towards investment grade.
Speaker 1: So if they were to do this deal, they would
Speaker 1: have to do some kind of financial engineering, some kind
Speaker 1: of cool clever things to make it happen. Well, and
Speaker 1: I do wonder do they have to pull in somebody
Speaker 1: else to help get that deal done? You know what
Speaker 1: it was so that maybe pulls in something on the
Speaker 1: equity side or something like would they need to could
Speaker 1: they pull in another person beyond KKR. We know that
Speaker 1: other private equity firms had also looked at all Greens,
Speaker 1: so there are probably others out there who could potentially
Speaker 1: partner with them, as I mean they would exactly there. Also,
Speaker 1: we know have been talking to their LPs so their
Speaker 1: fund investors about going in with them, because you know,
Speaker 1: pension funds and sovereign well funds also have a lot
Speaker 1: of money to put to work, So there are a
Speaker 1: lot of people looking at this deal. You know. I
Speaker 1: think they would need about thirty billion dollars of equity
Speaker 1: as well as the fifty billion dollars of debt. Yes,
Speaker 1: the other thing I think about is what happens to
Speaker 1: Walgreens even if this deal doesn't work out, right, they
Speaker 1: need to do something. It seems like, Yeah, they are
Speaker 1: definitely stressed. They are under so much pressure on a
Speaker 1: number of different fronts. They tried to do this buy
Speaker 1: out of Wright Aid a couple of years ago. They
Speaker 1: weren't able to do the deal at full scale that
Speaker 1: they wanted to do, so they're now closing some stores.
Speaker 1: They said that they're going to cut about one point
Speaker 1: eight billion dollars over the next couple of years. That's
Speaker 1: an annual save. So they're having to really scramble to
Speaker 1: figure out what's next. And that's Nobilla. I'med great to
Speaker 1: catch up with her. She's on the M and A beat,
Speaker 1: the Deal's beat, and man, this one has really caught
Speaker 1: people's attention. The size, the scope, the names involved, fascinating,
Speaker 1: pretty remarkable. We'll see how it ends up. Spending heavily
Speaker 1: unlobbing efforts in Washington Check lobbing more US government entities
Speaker 1: than any other technology company. Yet they've got that one covered.
Speaker 1: To lobbing locally, Jason, they're doing that as well. They're
Speaker 1: doing it all well. Amazon. Were used to them being
Speaker 1: ubiquitous and comprehensive in many ways. Eric Newcomer is here
Speaker 1: with us. He's got a great story in this week's
Speaker 1: edition of the magazine. It's about Amazon on K Street,
Speaker 1: the famous abbying corridor there hasn't gone so well. They
Speaker 1: also hasn't gone so well in some of these local races, right,
Speaker 1: So they spend a ton of money on lobbying, you know,
Speaker 1: four million dollars in a quarter. I think they lobbied
Speaker 1: more than on more issues than any tech company. Last year,
Speaker 1: they spent about one point five million just on their
Speaker 1: local Seattle race. So Amazon is flooding politics with money.
Speaker 1: But then you know, as I documented, the story has
Speaker 1: a lot of problems, like issue to issue, just really
Speaker 1: struggling sort of with this tech lash and to to
Speaker 1: win the political battles with all that money. So is
Speaker 1: it the company at large has problems or there are
Speaker 1: a few individuals who really have some problems. Well, the
Speaker 1: company is a business obviously is doing great. But then
Speaker 1: you know Jay Karney runs, you know, former Obama Press secretary,
Speaker 1: runs this huge policy shop with his deputy, this guy
Speaker 1: Brian Hughesman, former Publican Administration, Federal Trade Commission lawyer, and
Speaker 1: and together they've really tried to staff up so they're
Speaker 1: ready to fight and so on a lot of issues,
Speaker 1: you know, whether it's like trade wars. You know they
Speaker 1: have somebody in talking to the administration trying to lobby.
Speaker 1: But then on some of these bigger, more iconic issues,
Speaker 1: you know, we talked about the move to New York,
Speaker 1: We could talk about Seattle, We could talk about this
Speaker 1: huge Jedi contract where Amazon was competing to win a
Speaker 1: ten billion dollar government contract, and then Microsoft came out
Speaker 1: of nowhere and took it from them. So so Amazon
Speaker 1: has had just a lot of trouble on the policy front. Well,
Speaker 1: and it's interesting too, because you document very well a
Speaker 1: number of these cases which you which you just described
Speaker 1: in brief. But what strikes me too is that on paper,
Speaker 1: it looks like they did all the right things. They
Speaker 1: hire a big time Democrat, they hire a big time Republican,
Speaker 1: they've got the team in place, and then and this
Speaker 1: feels very twenty nineteen, it's a bunch of unforced errors
Speaker 1: in a lot of ways that ultimately sort of set
Speaker 1: them back. Tell us about that, right, So if we
Speaker 1: take you know, Jay Carney, this very polished communicator, I
Speaker 1: think coming you know, he's hired during the Obama administration
Speaker 1: when it seems like Hillary Clinton might win. And again
Speaker 1: Amazon takes, you know, responding to Trump tweets, a sort
Speaker 1: of almost hostile posture towards Trump, then Trump exactly during
Speaker 1: the campaign, and then Trump selected and so they Bezos
Speaker 1: and Trump have this very negative relationship, partially because Bezos
Speaker 1: owns the Washington Post. Then they have a Democrat as
Speaker 1: their chief sort of spokesman. So that's a challenge, and
Speaker 1: then time passes and Carney has now more recently given
Speaker 1: an interview where he suggested that there weren't any patriots
Speaker 1: working in the Trump administration unlike the Obama and Bush administrations,
Speaker 1: which he apologized for. He made this really bad tweet
Speaker 1: about umpires during the National Games, which so he's just
Speaker 1: had some challenges as sort of the public voice of Amazon.
Speaker 1: And then the other character is this guy, Brian Hughesman,
Speaker 1: who's sort of the inside operator and he staffed up
Speaker 1: this team. But there's just been a lot of drama
Speaker 1: internally well. And that's what's interesting because right you're seeing
Speaker 1: the drama player within the company as well. So they've
Speaker 1: done apologies externally as well as having to apologize to
Speaker 1: everybody inside as well. Right, so with people questioning what
Speaker 1: they're doing exactly, you know, with Carney, he wrote an
Speaker 1: email titled self criticism to his staff just talking about
Speaker 1: the umpire tweets, reflecting that he's not just some you
Speaker 1: know guy out on Twitter. He reflects this global powerhouse
Speaker 1: of a company. And when can I just can I
Speaker 1: read that tweet um calling the umpires quote a bunch
Speaker 1: of overweight, diabetic, half blind geriatrics. He ended his tweet
Speaker 1: with a call to bring in the machines, right, And
Speaker 1: you know, obviously the first half is what everyone is
Speaker 1: upset about. But then for a company that's accused all
Speaker 1: the time of automation, it's just very strange to be
Speaker 1: hitting a message of you know, automating out the umpire
Speaker 1: Like in every way the tweet is just odd. Where's
Speaker 1: Jeff Bezos and all of this? I mean, these are
Speaker 1: his key people here. I mean, he's you know, very
Speaker 1: behind the scenes, and I think, given his ownership of
Speaker 1: The Washington Post, has wanted to take a more or
Speaker 1: you know, confrontational or at least sort of strong position
Speaker 1: against Trump. And and you know that that he's picked
Speaker 1: Carney to sort of be a guide. But the basis
Speaker 1: is very behind the scenes. I mean, it's it's hard
Speaker 1: to know exactly what the CEO is thinking about, you know,
Speaker 1: the small sort of the in fighting within in his
Speaker 1: DC office. And so Eric White the aperture for us
Speaker 1: a little bit because you look across the tech landscape
Speaker 1: you understand how these companies work, not just Amazon, but
Speaker 1: you know the whole array. I guess of social media companies,
Speaker 1: tech companies who all of a sudden really have to
Speaker 1: care more about Washington, in part because Washington is all
Speaker 1: of a sudden caring a lot about them, and maybe
Speaker 1: not in a good way. Yeah, I'm growing tired of
Speaker 1: the phrase. But we're in a tech clash, right, That's what.
Speaker 1: And there's you know, an anti trust investigations, the Federal
Speaker 1: Trade Commission, the Department of Justice, that was, judiciary committee,
Speaker 1: state attorneys general, you know, everybody is investigating big tech companies,
Speaker 1: including Amazon, into ant trust. They're the punching bag. And
Speaker 1: so that's the situation Amazon faces. You know, in my story,
Speaker 1: I talk about a lobbyists who uh, you know, has
Speaker 1: a generally positive view of Amazon, sort of defending them, saying,
Speaker 1: you know, some of the problems are just they've you know,
Speaker 1: grown so much. I think they doubled sort of the
Speaker 1: lobby staff over the last three years, so that's part
Speaker 1: of the reason. But he says Amazon might have trouble,
Speaker 1: but they're doing better than Google and Facebook, and I
Speaker 1: think that is a sort of fair defense. You know,
Speaker 1: I don't dig in to Google and Facebook. That has
Speaker 1: a whole another dive, but there is a general sense
Speaker 1: that the tech companies in general are struggling to respond
Speaker 1: because as much as the President himself has gone after
Speaker 1: Jeff Bezos, we haven't seen Jeff Bezos testifying on Capitol Hill.
Speaker 1: We have seen Mark Zuckerberg and Charles sand you know,
Speaker 1: so there is this element that despite some of the
Speaker 1: headwinds that you describe, that maybe they're doing okay. Yeah, well,
Speaker 1: and some of the problems are relative. Yeah, I think
Speaker 1: definitely when it comes to testifying front of Congress in general,
Speaker 1: sort of uh, sort of congress men animosity towards the CEO,
Speaker 1: Mark Zuckerberg is winning that fight in Bezos looks a
Speaker 1: lot better. But you know, Amazon has a lot of
Speaker 1: has had a lot of problems, like in Seattle, in
Speaker 1: New York, so they're not all sort of the federal
Speaker 1: like election type problems that Facebook has had. But I
Speaker 1: do think about as these big tech companies look to
Speaker 1: broaden out their revenue streams, you know, the cloud and
Speaker 1: particularly playing into those government contracts. Those are big deal contracts,
Speaker 1: And I mean I think about our audience investors. I mean,
Speaker 1: they're watching this to see whether or not they're able
Speaker 1: to make some inroads, right, and you know, Jedi, This
Speaker 1: Defense Department contra isn't just about that ten billion dollar deals.
Speaker 1: It's sort of that's what's getting you in deeper with
Speaker 1: the Defense Department. And so I don't think it's just
Speaker 1: that amount of money. It's significant, but Amazon is a
Speaker 1: eight seventies something billion dollar market cap company, you know.
Speaker 1: But it's about the long term relationship that deerk newcomer
Speaker 1: love this story about what Amazon is up to. Their
Speaker 1: spending heavily and lobbing efforts in Washington. They're lobbing more
Speaker 1: US government entities at any other tech company. But it's interesting, Jason.
Speaker 1: It doesn't seem to be paying off. It's not working
Speaker 1: at all. You're exactly right, Carol. And this is coming
Speaker 1: at a time where the relationship between Washington and Silicon
Speaker 1: Valley and the words of Facebook, it's complicated, Jason. You
Speaker 1: had me at You're exactly right. So, Carol, I caught
Speaker 1: up with the co founders of Adams you see me
Speaker 1: where they're I have. I wanted to know the story
Speaker 1: underneath it, and I have to say it is even
Speaker 1: more fascinating than I thought. It's a husband and wife team.
Speaker 1: What Kassa Ali and Sidra Kassim. They met in their
Speaker 1: village in Pakistan. They came to Brooklyn via y Combinator.
Speaker 1: It's so cool. Here's your conversation, all right, So this
Speaker 1: is a shoe that I really like. I have to say,
Speaker 1: I'm a bit of a sneaker head and I love
Speaker 1: the different feel and just the whole different vibe of
Speaker 1: this shoe. So I'm a little bias coming into this interview.
Speaker 1: What I want to start with you because the story
Speaker 1: of this company Pakistan, y Combinator, Brooklyn. How did that happen? Um?
Speaker 1: It's it is a kind of crazy story and we
Speaker 1: did not intended it to be like this when we
Speaker 1: were starting off, We had no idea. We started our
Speaker 1: first two company in in our hometown in Pakistan, Kada,
Speaker 1: and then we kept going. It was a small project,
Speaker 1: became a kick Starter project. Then we applied into y Combinator.
Speaker 1: First shoe company to get into y Combinator, first company
Speaker 1: from Pakistan to get into y Combinator, and we moved
Speaker 1: to the US in San Francisco and So Sidro. Why
Speaker 1: do you think the pitch resonated so much? There are
Speaker 1: a lot of first there. What was it about this
Speaker 1: particular company? That you think caught the interests of Y
Speaker 1: Combinator and ultimately a lot of big name investors. Yeah,
Speaker 1: so this company is not part of Y Combinator. Our
Speaker 1: previous shoe company was part of Y Combat. But I
Speaker 1: think the exciting thing is that these shoes is not
Speaker 1: just a shoes. This is a very very personal shoes,
Speaker 1: like very comfortable, very durable, very breathable and as well
Speaker 1: as the fit is very precise for you. And uh,
Speaker 1: like when we were inviting our friends to try on
Speaker 1: the first sample, and I still remember like their impressions,
Speaker 1: like they were super super excited to try on the shoes.
Speaker 1: And we started this as a very small project and
Speaker 1: somehow like it started becoming bigger and bigger, and so
Speaker 1: what was the inspiration recast for this particular ship. So
Speaker 1: we were making and selling dress shoes already, we we
Speaker 1: and when we were in Pakistan, we had no idea
Speaker 1: that people are actually more mainly were sneakers every day.
Speaker 1: They don't wear dress shoes as much. Even that trend
Speaker 1: is declining, even you're wearing your atoms right now. Absolutely,
Speaker 1: so we noticed that and then we were like, hey,
Speaker 1: we weren't We both are very passionate about product, particularly
Speaker 1: in shoes. It's one of the hardest products to ever make. Shoes,
Speaker 1: very difficult, and we were like, hey, can we make
Speaker 1: a shoe that people would want to wear every day?
Speaker 1: Not that we want to sell. Can we build a
Speaker 1: shoe that people would want to wear every day? And
Speaker 1: that is where this idea of a casual very very simple.
Speaker 1: All the products we wear every single day, they tend
Speaker 1: to be very simple, still extremely extremely comfortable. We were
Speaker 1: going after the best of the bast in the industry
Speaker 1: after Nike, and it it doesn't comfort uh, And we
Speaker 1: only make one shoes, so we put a lot of
Speaker 1: effort into the precision sizing, the quarter sizing, the comfort
Speaker 1: of the shoes. The lace says how how high or
Speaker 1: how house small something is like this Midso it took
Speaker 1: us six months to work on that to just make
Speaker 1: it more comfortable than it does six months on the
Speaker 1: mids Earlieah, it was very It was one of the
Speaker 1: hardest things because if you only make one shoes and
Speaker 1: your pitch is that you're going to wear it every
Speaker 1: day when you make this one product, you can't just
Speaker 1: like compromise on that. You have to get it right.
Speaker 1: Otherwise you have no business, right of course, And so
Speaker 1: why is manufacturing so difficult for shoes? Because this is
Speaker 1: something you've worked on for a long time, You've worked
Speaker 1: in Korea, I believe on that particular aspect of the business.
Speaker 1: Why are shoes so difficult? I think one of the
Speaker 1: most important reason is you have all your body weight
Speaker 1: on the shoes, and then she would actually go into
Speaker 1: different environment like you sit in the office, with different
Speaker 1: sitting positions. Some people they stand a lot, some people
Speaker 1: they walk a lot. So basically shoes is not just
Speaker 1: like a simple product like your handbag where you store things.
Speaker 1: She was as something which basically you carry on throughout
Speaker 1: the day from morning to evening. So that's why, like
Speaker 1: making a product which is basically accommodate your throughout the
Speaker 1: day and as well as super comfortable, it is very
Speaker 1: hard to make. I guess I've never really thought about that.
Speaker 1: I mean, there's a lot of physics involved, I guess
Speaker 1: in our interaction with shoes in a way that we
Speaker 1: don't have with a lot of other products. So why
Speaker 1: do you think, especially having been in the dress shoe
Speaker 1: business and now in the sneaker business, why are sneakers
Speaker 1: having such a moment. Mainly it is because of a
Speaker 1: lot of cultural icons are the face of this movement.
Speaker 1: That is one part America especially and world in general
Speaker 1: is becoming more and more passionate because we have so
Speaker 1: many young people coming into the world these days, and
Speaker 1: they are they are not hesitant. They're not hesitant about ideas,
Speaker 1: they're not hesitant about movement, They're not hesitant about their
Speaker 1: interest or passion about certain celebrities or icons or whatever
Speaker 1: we want to call them. So that is like what
Speaker 1: we we learned. We actually have a name for our
Speaker 1: customer called the new creative, and these are people who
Speaker 1: are very considerate about what they buy, where they buy
Speaker 1: it from, what things look like. And every brand like
Speaker 1: Nike and ADI does they championed with sportsmanship. And now
Speaker 1: we're seeing a lot more uh entertainment, a lot more lifestyle.
Speaker 1: And that's wakas Ali and Sidric has seen the husband
Speaker 1: and wife team behind Adams. It was so cool to
Speaker 1: catch up with them. I have to say, I love
Speaker 1: their sneakers. I wanted to meet them. I really didn't
Speaker 1: know what to expect and it was an amazing story,
Speaker 1: great story, Jason and I love the backstory to about
Speaker 1: this company and these two individuals. It's this week's Bloomberg
Speaker 1: Business Week Extra podcast, So check it out. Everyone. Google
Speaker 1: the early years, all about the company's search engine, all
Speaker 1: about online advertising, and yet the company hitting middle age Jason,
Speaker 1: so it's looking for some different revenue streams. Well, we
Speaker 1: talk a lot about sort of existential questions around companies.
Speaker 1: I feel like this story hits at Google's in a
Speaker 1: lot of ways. Don't be evil that was back in
Speaker 1: the day and now in the business with the military
Speaker 1: trying to figure out what they're going to be, as
Speaker 1: you say, in middle ages, and that they get grow
Speaker 1: more and more grown up. Joshua Brucine here with us.
Speaker 1: It's a terrific story and I love the headline it
Speaker 1: had me from that Google and the general tell us
Speaker 1: about this intersection that this tech company Silicon Valley is
Speaker 1: having with the military industrial complex. Sure, so we tell
Speaker 1: the story of Google's basically tortured relationship with the Pentagon,
Speaker 1: and we really saw this come out into the public
Speaker 1: view UM early last year when Google employees began objecting
Speaker 1: to what had been a secret military program called Project
Speaker 1: Maven to use um advanced artificial intelligence technology to analyze
Speaker 1: drone imagery. Um. And so this was a program that
Speaker 1: drones gather an immense amount of video. Actually analysts watch
Speaker 1: it for the most part, and the Pentagon said, if
Speaker 1: we could have some sort of automated analysis that would
Speaker 1: just tell them which parts to watch, that would be useful.
Speaker 1: Google was one of the company who was helping with this.
Speaker 1: Some of its employees said that seems like we're getting
Speaker 1: too close to building weapons and basically broke out into
Speaker 1: this huge public spat and Google backed out right and
Speaker 1: eventually Google decided not to renew its work on the contract. Yeah,
Speaker 1: and stopped working on it earlier this year. Well, it's interesting,
Speaker 1: and I think it speaks to the kind of tortured
Speaker 1: relationship that Google has with the government. Like we were
Speaker 1: talking in the news room about for such a long time,
Speaker 1: Silicon Valley, big tech, we're kind of proud to kind of,
Speaker 1: you know, um, tell Washington to kiss off, basically, thank
Speaker 1: you very much. And now they're embracing Washington right because
Speaker 1: they are looking for new business lines, particularly AI or
Speaker 1: the cloud. They want to be more involved. Yeah. I
Speaker 1: think what's interesting here is you have this very sort
Speaker 1: of visceral um reaction to a specific military program. I
Speaker 1: think of defense work makes a lot of people uncomfortable. Um,
Speaker 1: but if you look a little bit below that, you
Speaker 1: also see another transition happening at Google that is making
Speaker 1: people at the company uncomfortable, which is it's moving. It's
Speaker 1: trying to supplement its consumer business, the search engines, the
Speaker 1: email all based on advertising, with a cloud computing business,
Speaker 1: and that means basically entering into specific relationships with large
Speaker 1: institutions and helping them analyze their data and do something
Speaker 1: with it. And so talk to us about Google specifically
Speaker 1: in this case because as sort of set up the conversation,
Speaker 1: we do go back to this you know, kind of
Speaker 1: rag tag startup back in Silicon Valley. I mean, it
Speaker 1: was in many ways the quintessential you know, sort of
Speaker 1: you know, university dropout, create this company that changes the
Speaker 1: world type situation. But as it's grown up, it's really
Speaker 1: had to wrestle with its own image and its own
Speaker 1: values in a lot of ways, and a lot of
Speaker 1: those came to the four in the project may even protest.
Speaker 1: But this hasn't really died down that much. In many ways,
Speaker 1: these discussions are still pretty fierce within the company. Absolutely,
Speaker 1: I think in comparison to other large tech companies, Google
Speaker 1: has always kind of been the most extreme case of
Speaker 1: this Silicon Valley idealism. I think, you know that a
Speaker 1: lot of the work the company does is actually just
Speaker 1: kind of academic research. Um. Its original mission was to
Speaker 1: organize the world's information. Uh. You know. Initially even uh
Speaker 1: was um concerned about maybe even going into a vertizing.
Speaker 1: It really just wanted to do the tech. Eventually it
Speaker 1: kind of got over that, and obviously the advertising is
Speaker 1: you know, the the business right now. Um, but you
Speaker 1: do see it's moving into new businesses and challenging its
Speaker 1: own assumptions at a time that sort of the Silicon
Speaker 1: Valleys culture generally is being challenged in many ways. But
Speaker 1: it's interesting because I feel like different members of big
Speaker 1: tech and Silicon Valley in particular, are challenged differently. In
Speaker 1: other words, Microsoft gets a big government cloud contract and
Speaker 1: it seems to be okay. But Google gets involved and
Speaker 1: there's a lot of pushback internally from its employees and
Speaker 1: I even think publicly, So what's the difference. How are
Speaker 1: we breaking out big tech in terms of their relationships
Speaker 1: and involvement with the government, particularly defense. Well, so I
Speaker 1: think Microsoft is actually a pretty good contrast. There's I
Speaker 1: think two differences between Google and Microsoft. I think the
Speaker 1: first is an internal difference, which is that Google has
Speaker 1: always had this culture where they kind of debate everything.
Speaker 1: There's a series, there's a long history of these message
Speaker 1: boards where like everything came up for kind of rigorous debate.
Speaker 1: Microsoft a very buttoned up company, top down. And then
Speaker 1: the second thing, to allude to your point about sort
Speaker 1: of the way the public looks at them, you know,
Speaker 1: Microsoft has kind of receded as a real consumer facing company.
Speaker 1: Most of its business has been an enterprise computing lately.
Speaker 1: Google is like one of the things we think about
Speaker 1: as the Internet. So when people, um, you know, people
Speaker 1: use Google Search every day and then they think, wait,
Speaker 1: they're building weapons or you know, they're hearing you know,
Speaker 1: they're building military something, and that makes people uneasy in
Speaker 1: a way it doesn't maybe with companies that have that
Speaker 1: are not in their day to day uh, you know, consciousness. Well,
Speaker 1: and I want to go back to something you said
Speaker 1: a minute ago, because it really sort of flips this
Speaker 1: around in a really interesting way, and it ties to
Speaker 1: another story I believe you were involved in in the magazine.
Speaker 1: This week around Amazon and its lobbying and you know,
Speaker 1: trying to find its way in a much more complicated
Speaker 1: nation's capital in a lot of ways. And then nation's
Speaker 1: capital filled with lawmakers, regulators, and politicians who are a
Speaker 1: little more skeptical about tech than they were ten years ago.
Speaker 1: So how does that play into the decision making it Google?
Speaker 1: When you have antitrust investigations and this sort of skepticism
Speaker 1: and dare I say tech lash? Yeah? Absolutely, And you
Speaker 1: mentioned at Amazon is also in a very difficult although
Speaker 1: I think different, yes, situation for Google. What happened was
Speaker 1: it publicly rejected the military. I don't think that was
Speaker 1: its intention. It certainly wasn't such leadership's intention, but it
Speaker 1: did it. And Google has a lot of enemies, um
Speaker 1: on the right who saw this as an opportunity to
Speaker 1: attack the company as being unpatriotic, especially because it does
Speaker 1: some work in China. Um. I think there was some
Speaker 1: genuine confusion and outrage within the Pentagon. You saw senior
Speaker 1: Mility Harry officials criticizing a commercial company, which is not usual.
Speaker 1: And Google has basically spent the last year backpedaling, trying
Speaker 1: to reassure the government and the military specifically that Hey, no,
Speaker 1: we're willing. We're good actors here, We're willing to work
Speaker 1: with you. I get the feeling that within the pentagon
Speaker 1: that has been working interesting, but within the political class
Speaker 1: not as much. But it's interesting, you say, Joshua, their backpedaling,
Speaker 1: but they're also courting big time, right the U. S.
Speaker 1: Government and the Defense Department. Oh yeah, I think Google
Speaker 1: wants in the the the the format of backpedaling is
Speaker 1: to say, oh, we're backpedaling, we'll take your contracts, which
Speaker 1: is what they want anyway. So it is kind of
Speaker 1: self serving backpedal, if you will. And so what do
Speaker 1: you make of the current state of the internal debate
Speaker 1: at Google. You talk to a lot of people there.
Speaker 1: As you say, the message boards still pretty lively. There
Speaker 1: has been some action taken against employees around media, leagues
Speaker 1: and other elements here. It still feels unsettled when it
Speaker 1: comes to the internal politics of the company. It's definitely unsettled.
Speaker 1: Google has been in a very contentious relationship with some
Speaker 1: faction of its workforce. UM. You've seen action taken against
Speaker 1: internal activists, mostly for doing things like accessing information that
Speaker 1: companies leadership said was confidential. UM. And you see the
Speaker 1: company really not wanting to back down UM like it
Speaker 1: did with Maven. And at the same time, you see
Speaker 1: people within the company UM who want to shape its
Speaker 1: future trying to extend beyond military contracting into things like
Speaker 1: border contracts, even into things like dealing with the oil
Speaker 1: and gas industry. So there is a real tension going
Speaker 1: on there where both sides are trying to kind of
Speaker 1: claim as much ground as they can in their own
Speaker 1: internal debate. How important is all of this in terms
Speaker 1: of branching out and being more involved in government contracts
Speaker 1: important for Google's future. So I think that Google sees
Speaker 1: cloud computing as a big part of his future. UM
Speaker 1: Right now, it is clearly in third place behind Amazon
Speaker 1: and Microsoft. The actual government contracts are big. Uh, this
Speaker 1: big cloud computing contract Jedi, which Microsoft just wanted ten
Speaker 1: billion dollars, that's big, but it's not really big in
Speaker 1: the big the large scheme of cloud computing contracts. I
Speaker 1: think what Google is hoping is to if it could
Speaker 1: win some government contracts, it's sort of a sign of
Speaker 1: confidence for the rest of the market that hey, we
Speaker 1: can do the serious work, and that's really what it
Speaker 1: wants to do. Here well, and what's interesting is you
Speaker 1: talk about Google's history that they should have been in
Speaker 1: this market early on. Correct in terms of the cloud,
Speaker 1: they understood what was going on very early on. Yeah. Absolutely.
Speaker 1: If you look at what cloud computing is, it's basically
Speaker 1: being good at building large data centers, which weeps been doing,
Speaker 1: and being the best at artificial intelligence software that can
Speaker 1: take an enormous amount of data, analyze it and do
Speaker 1: something with it. Now, that's Google specialty. Um For whatever reason,
Speaker 1: it has fallen behind some of its key competitors, and
Speaker 1: I think that stays. That's Joshua Brewsting on our cover
Speaker 1: story Google at War. It's Google looking to expand their
Speaker 1: revenue streams. But it's not going to be so easy,
Speaker 1: especially when you've got employees internally not happy about that
Speaker 1: internal strife. I think is one of the most fascinating
Speaker 1: aspects of all of this, and really a window into
Speaker 1: Silicon Valley right now, and it's very complicated relationship with
Speaker 1: Washington and even itself. It's not your father's our grandfather's
Speaker 1: Wall Street, that's for sure. And get ready for even
Speaker 1: more changes as trading firms look to get into gaming
Speaker 1: and sports betting markets. Jason, we know the world of
Speaker 1: financial world is definitely changing. Well, it's trading firms, it's
Speaker 1: exchanges as well. And this came up in a conversation
Speaker 1: we had not too long ago with the diner Freedman
Speaker 1: over at the nazac Any Massa is here with us,
Speaker 1: taking us into the world of sports and exchanges and trading.
Speaker 1: So what do you find? Wall Street firms are dipping
Speaker 1: a toe in the water of sports betting. And it's
Speaker 1: an interesting time right now because a federal ban on
Speaker 1: sports betting was lifted in the US last year, and
Speaker 1: you're starting to see about thirteen state legalizing the practice,
Speaker 1: with more potentially to come, and you've got a couple
Speaker 1: of different kinds of firms looking for ways in. This
Speaker 1: is so interesting because I think about how many conversations
Speaker 1: we had with our sports team about this. They were
Speaker 1: all looking forward, you know, to the ruling and what
Speaker 1: it meant for online betting firms, But I didn't really
Speaker 1: think about the potential for Wall Street firms benefiting from
Speaker 1: it as well. And that's what this is about exactly.
Speaker 1: There is some overlap for certain types of firms. The
Speaker 1: most obvious example is that NASDAC has licensed some of
Speaker 1: its exchange technology to horse race markets in Hong Kong
Speaker 1: and Australia and Sweden. It's a trading platform exactly. It's
Speaker 1: a trading platform, and as they were saying, there's no
Speaker 1: need to reinvent the wheel when it comes to handling
Speaker 1: large volumes of transactions on these kinds of markets. And
Speaker 1: UM they recently also licensed matching engine technology to a
Speaker 1: UK based UM sports betting platform where you can UM
Speaker 1: own stakes and players. So that's one way that UM,
Speaker 1: a Wall Street firm, is getting into this business. So
Speaker 1: talk to us about who is the most interested in
Speaker 1: from your perspective, most interesting name here? Well, one really
Speaker 1: compelling UM case that we go into in the story
Speaker 1: is UM Susquehanna, which has created a sports betting division,
Speaker 1: UM operating out of Dublin right now and they're betting
Speaker 1: on the outcomes of US sports games. But UM the
Speaker 1: idea is to kind of almost make markets, make two
Speaker 1: sided markets on online exchanges that exists in the UK,
Speaker 1: for example. And it's interesting because there are some parallels there.
Speaker 1: Just as they operate in as a market maker in
Speaker 1: financial markets, they can do a similar thing in sports
Speaker 1: betting markets too, and I think about the potential. I
Speaker 1: mean people the sports betting market, it's a huge one, right,
Speaker 1: So this is potentially a big revenue stream for some
Speaker 1: of these financial firms. Potentially potentially it isn't as big
Speaker 1: as financial as other financial markets, which I think will
Speaker 1: actually limit its growth. Some of the projections are all
Speaker 1: over the place for how big this could be in
Speaker 1: the US, but we found projections that it could be
Speaker 1: about seventeen billion dollars, which if you think for for
Speaker 1: huge market making or hedge fund firms, that's not gigantic.
Speaker 1: So who's likely to get involved? So we're not talking
Speaker 1: about your big Wall Street firms potentially right who you know?
Speaker 1: We mentioned Susquehanna. Who else might get involved? It seems
Speaker 1: like a kniche opportunity for expert market makers where you
Speaker 1: could leverage some of your technology in these kinds of places.
Speaker 1: When you think about this more broadly, this is coming
Speaker 1: into time. This is what you look after every day,
Speaker 1: your primary person looking after Black Rocket. A number of
Speaker 1: the big money managers folks are looking for different ways
Speaker 1: to make money right now. We had a conversation with
Speaker 1: a long time Wall Street guy, former broker, who was
Speaker 1: saying look, these guys are gonna make money somewhere, especially
Speaker 1: in the age of zero fees. Yeah, so that's why
Speaker 1: I think that you're seeing different kinds of firms looking
Speaker 1: for ways in. While I could never really see in
Speaker 1: the immediate term like a black Rock getting into sports betting,
Speaker 1: on the brokerage side, there are some interesting opportunities and
Speaker 1: both t D and merrig Trade and Interactive Brokers have
Speaker 1: some sports betting related projects in the works. I don't know,
Speaker 1: I'm thinking as investors, like, what should we be watching
Speaker 1: out for. What kind of you know, developments do we
Speaker 1: anticipate are coming in the new year. Well, on the
Speaker 1: individual investors side, TD and merrit Trade has said that
Speaker 1: they're exploring ways into this market. Interactive Brokers is kind
Speaker 1: of an interesting case where they have a platform that
Speaker 1: they run that's all kind of a game of sports betting,
Speaker 1: but you can't you have the potential to earn um
Speaker 1: free credits and trading commissions. I will say, I'm not
Speaker 1: sure how that has changed in the aftermath of the
Speaker 1: few wars where you have commissions going to zero, but
Speaker 1: you have opportunities to um win some real returns of
Speaker 1: some kind and um I think the whole idea there
Speaker 1: is to expose their users to the concept. If you
Speaker 1: think about it, these brokerages have these platforms with users
Speaker 1: existing who might, yeah, who might want to participate in
Speaker 1: some way, so they're looking for a way into well,
Speaker 1: and it does feel like there are a couple sort
Speaker 1: of mega trends here. I mean, one is sort of gamification, right,
Speaker 1: I mean, people love betting for a lot of obvious reasons.
Speaker 1: They loved it for centuries, literally because it ties ties
Speaker 1: to to lots of different games. But also this idea
Speaker 1: that these companies, these firms want broader, deeper, more meaningful,
Speaker 1: and ultimately more profitable relationships with their customers. And so
Speaker 1: if you can give them another reason to hit the
Speaker 1: app or hit the website. I mean, I don't know
Speaker 1: if anybody actually like calls their broker anymore, but you know,
Speaker 1: to extend and deepen that relationship, it would make sense, yeah,
Speaker 1: and a way to just apply some of the technology
Speaker 1: they already have to another kind of market. It doesn't
Speaker 1: have to go gang busters, but it could just be
Speaker 1: another little way to eat out some more revenue for them,
Speaker 1: which sort of takes us back to Nastac and the
Speaker 1: conversation that we had with the Dina Friedman when she
Speaker 1: was our guest on Business Week Talks. I mean she
Speaker 1: talked about this because to your exact point, Annie, is
Speaker 1: this idea is like, look, we got this technology, like,
Speaker 1: we know how this works. This is ultimately a market.
Speaker 1: This is technology that we have that maybe no one
Speaker 1: else does. We're global. So yeah, and the exchange space
Speaker 1: is interesting too, because that's a place where you've seen
Speaker 1: the revenue that you can earn from just trading operations
Speaker 1: shrinking in the very developed stock market. So I think
Speaker 1: that's part of the reason that NASDAC has looked for
Speaker 1: how else can we apply our technology? And that's Annie
Speaker 1: Massa a look into Wall Street, maybe from a little
Speaker 1: bit of a different lens. A callback definitely to a
Speaker 1: conversation we had a little earlier this year with the
Speaker 1: CEO of Nastack. And we should note Interactive Brokers is
Speaker 1: a sponsor of Bloomberg Radio. It's eyeglass frames are everywhere
Speaker 1: now wants to take that success and applied to contact.
Speaker 1: We're talking about Warby Parker. I have the glasses. I'm
Speaker 1: not wearing them. Austin Carr has glasses. He is wearing them.
Speaker 1: He went deep into this company. It's a fascinating story
Speaker 1: because we talked with Joel Weber, the editor of Business Week,
Speaker 1: about this. This isn't part of strategy story in a
Speaker 1: lot of ways, because this was a company that launched
Speaker 1: a whole line of imitators in various businesses. Tell us
Speaker 1: where Warby is right now? Totally yeah. I mean this
Speaker 1: was the company that sparked this, you know, crazy trend
Speaker 1: of what we call direct to consumer companies sort of
Speaker 1: if you have all Birds or Casper mattresses, or want
Speaker 1: to order a razor online or underwear short shorts, what
Speaker 1: have you. There's a zillion unicorns out there that have
Speaker 1: built a huge brand off of being the Warby Parker
Speaker 1: of X. And the big question for Warby Parker, which
Speaker 1: has a billion dollar plus valuation itself, was do they
Speaker 1: want to become a platform, a retail platform and sort
Speaker 1: of instead of just selling glasses like the ones I'm wearing,
Speaker 1: do they want to launch into all these other verticals
Speaker 1: or double down on vision care. I'm gonna make you
Speaker 1: take a step back. I'm gonna assume we all know
Speaker 1: what this company is, but just remind us about what
Speaker 1: they do because they really have upended the way you
Speaker 1: sell things totally. I mean, just a few years ago
Speaker 1: we were talking about the retail apocalypse, and in many
Speaker 1: ways we're still talking about. This is the one store
Speaker 1: company that sort of bucked that trend. They back in
Speaker 1: Neil Blumenthal and Dave lle Boa came up with this
Speaker 1: idea to disrupt Lexotica, which was this massive conglomerate in
Speaker 1: the eyewear space that was sort of a monopoly. A
Speaker 1: lot of analysts think when it comes to distributional licensing
Speaker 1: everything rayband, sunglass, high pro vision, what have you. And
Speaker 1: they often marked up their frames massive rates. I mean,
Speaker 1: just if you you buy ray bands for a couple
Speaker 1: hundred dollars, they're they're pretty expensive. With Warby Parker, they
Speaker 1: had one low price point of ninety five dollars. Uh.
Speaker 1: It was just very straight forward direct consuper marketing. So
Speaker 1: they sold online then eventually moved on offline into physical
Speaker 1: retail and they're they've they've really become known for as
Speaker 1: this sort of bespoke brand that has this end to
Speaker 1: end customer experience that's that's very seamless, and you've seen
Speaker 1: a lot of copycats in that trend well, and it
Speaker 1: is this sort of threading of the needle as it
Speaker 1: were getting toward where it feels like we are especially
Speaker 1: high end consumers who expect high touch retail, but also
Speaker 1: the convenience that you get from online. I mean the
Speaker 1: process of warby Parker, it's pretty great. It's pretty I
Speaker 1: mean what they became known for was this at home
Speaker 1: try and experience. If you've ever gone to a store
Speaker 1: and you look in front of that little mirror, you know,
Speaker 1: it's self conscious, You feel a little awkward doing that.
Speaker 1: They send you five pairs in the mail, you get
Speaker 1: to try them on for free, then send them back,
Speaker 1: and they send the one that you pick once you
Speaker 1: pay for it. It's a very seamless experience. And if
Speaker 1: you've been to the stores, especially around in York, they're beautiful,
Speaker 1: they're gorgeous. They're very seamless, and it doesn't feel like
Speaker 1: a stodgy optometry office. If you've ever had that experience
Speaker 1: of being up sold by your your doctor and you
Speaker 1: really went right there too. One of the tensions of
Speaker 1: this story, which is okay, selling a razor online not
Speaker 1: that complicated, Selling socks online not that complicated, But when
Speaker 1: it comes to your eyes, it is a little more complicated.
Speaker 1: There's a whole sort of established way that people do this.
Speaker 1: Let me screw up. You can really scrap somebody's eye. Really. Yeah.
Speaker 1: There can be infections, there can be eye disease um.
Speaker 1: So that's a big thing. It's a much harder category
Speaker 1: to get into, but they think it's a build an
Speaker 1: eleven billion dollar more contacts contacts category and eye exams.
Speaker 1: That's one of the big things that they have to
Speaker 1: push into because although they've done prescription eyeglasses for a while,
Speaker 1: for for many years, putting something on a piece of plastic,
Speaker 1: a piece of silicon on the end of your eye,
Speaker 1: obviously is a little bit more dangerous, especially when you're
Speaker 1: ordering these things online. Uh. They're also part of a
Speaker 1: big category that Luxotica also owns, which is, you know,
Speaker 1: they they have people that prescribe the contacts. They own
Speaker 1: i med, which is the second largest vision insurer in
Speaker 1: the company, and they've really locked Warby Parker out of
Speaker 1: that market. You can't buy your glasses in network through
Speaker 1: vision insurance, and so they basically said, you know, we're
Speaker 1: going to do this on our own instead of just glasses,
Speaker 1: We're also going to offer UM contacts and do the
Speaker 1: eye exams. They're tripling the number of optometrips they have
Speaker 1: on staff who are going to basically help you with
Speaker 1: your insurance and then hopefully you know, sell you contacts
Speaker 1: and Warby Parker glasses downstairs one of the things you
Speaker 1: get into though Austin. So here they are like looking
Speaker 1: to go from glasses now to contact kind of build
Speaker 1: out the vertical if you want, if you want UM.
Speaker 1: But what's interesting is is, you know, I think the
Speaker 1: question is are they spending too late? Like, are they
Speaker 1: you know here they created this model and now that
Speaker 1: they're express spreading out, did they just wait too long
Speaker 1: to do this? I think that's a fantastic question. Especially
Speaker 1: we note in the story one of their co founders,
Speaker 1: UM Jeff Frader, actually left in the early days to
Speaker 1: launch another unicorn, which is Harry's another the Warry Parker
Speaker 1: of of of shaving, which is has a one point
Speaker 1: four billion dollar valuation I think, and then a couple
Speaker 1: of their other executives went on to find found a way,
Speaker 1: which is the Warby Parker of luggage, which again has
Speaker 1: one point four billion dollar valuation. So it's a really
Speaker 1: good question whether or not they waited too long. At
Speaker 1: the same time, they really pitched this idea that they
Speaker 1: don't want to chase the flash in the pan, you know,
Speaker 1: sort of different verticals. A lot of the vcs that
Speaker 1: they were talking with in the early days said, oh,
Speaker 1: become the next shoot ass will become the next group
Speaker 1: on and they said, you know, we're just gonna be
Speaker 1: focused on this one thing. We do it really well,
Speaker 1: and now we're going to expand a little bit more.
Speaker 1: And they pitched this as sort of the anti we
Speaker 1: work that they don't want to be this crazy, you know,
Speaker 1: massive hundred million dollars a hundred billion dollar overnight soft
Speaker 1: bank investment. They want to be the mature, step by step,
Speaker 1: increm mental growth company. Well, and I feel like that
Speaker 1: speaks to who these two guys are. You got you
Speaker 1: get into a little bit of of kind of how
Speaker 1: they manage this company. Their approach. They're very I mean,
Speaker 1: if you spend time with Neil and Dave, they're very precise.
Speaker 1: They you know, there as precises the prescriptions and their glasses.
Speaker 1: I mean, they really have this attention to detail. They're
Speaker 1: not you know, the Adam Newman type characters that are
Speaker 1: just going to uh, sort of brag about, you know, tomorrow,
Speaker 1: we're gonna triple the size of this that one of
Speaker 1: the guys said, you know, we're we're comfortable launching thirty
Speaker 1: three stores this year, forty next year, forty five year
Speaker 1: after that. This is not We're gonna launch stores tomorrow. Well,
Speaker 1: and it's also interesting to think about this business, especially
Speaker 1: this expansion into contacts and I exams and you alluded
Speaker 1: to this earlier. Austin is the people intensive business. I mean,
Speaker 1: there's in addition to the manufacturing they're doing. You know,
Speaker 1: these are big jobs, a lot of jobs in a
Speaker 1: lot of ways, and high touch. It's it's not you
Speaker 1: know what. What they've also been pitching is it's not
Speaker 1: just the in store experience, but all the under the
Speaker 1: hood refinements. They have an optical lab where they do
Speaker 1: a lot of their manufacturing and upstate New York that
Speaker 1: has about a hundred jobs. And they're also pushing into telemedicine,
Speaker 1: which is a massive category that we've seen other eyewear
Speaker 1: makers move into. And that's basically the process of can
Speaker 1: you update your prescription using just your phone in a
Speaker 1: MacBook Essentially you can measure the distance between your laptop
Speaker 1: and your phone, and you can check your eyesight. Doing
Speaker 1: an eye exam at home seems risky, but that could
Speaker 1: be the future. And if you and if they're pitching
Speaker 1: it is not a replacement but a compliment to eye exams. UH.
Speaker 1: Some people think it's risky. A lot of optometry community
Speaker 1: really felt this is a bad move by the industry,
Speaker 1: but it seems to be words headed. That's Austin Car
Speaker 1: great dive into warby Parker, the individuals, the two co
Speaker 1: founders behind the company. I mean, their model really impacted
Speaker 1: the retail industry overall, UH and created so many other
Speaker 1: companies in other business lines. But what's interesting is speaking
Speaker 1: of business lines, whereby Parker now wants to do contacts well,
Speaker 1: and this decision to go essentially verticals, staying with the
Speaker 1: eyewear industry when so many people have mimicked their model
Speaker 1: to get into all sorts of things. Claus Summer is
Speaker 1: back with us, the president and c of Porsche Cars
Speaker 1: Porsche Cars North America, back in New York City. Hannah Elliott,
Speaker 1: I know I corrected myself. Listen anyway, great to have
Speaker 1: you back this last time. You're here, we're downstairs with
Speaker 1: a car this year. You're here for the Year Ahead event,
Speaker 1: so let's start there. What is in store for the
Speaker 1: year ahead in your business? Oh, it's all about the brand.
Speaker 1: You know. In former times, actually products were building the brand,
Speaker 1: and now you have to define your brand, your brand purpose,
Speaker 1: and then you built the products, which is a huge
Speaker 1: shift for us in terms of product planning and in
Speaker 1: terms of communications. I love what you see about brand
Speaker 1: purpose because a big theme of the Year Ahead this
Speaker 1: year is all about sustainability and companies thinking about kind
Speaker 1: of the broader impact that they're having on our world.
Speaker 1: How does that obviously work into in terms of um
Speaker 1: I think about, you know, alternatives to carbon field vehicles
Speaker 1: and so on and so forth. Talk to us about though,
Speaker 1: how that plays in with what you're doing. Well. When
Speaker 1: the first phase actually a transition to better electric vehicles.
Speaker 1: Our car sold in will have a plug so it
Speaker 1: will have either a combustion engine or with a plug
Speaker 1: in modules or hybrid or better electric vehicles. So that
Speaker 1: transition is taking place as we speak. The first car
Speaker 1: is out and about. It's the Takon, and we're pretty
Speaker 1: happy about the reception here in the United States. I
Speaker 1: have to say I am very excited. I just had
Speaker 1: a chance to drive it. Congratulations on that car. I
Speaker 1: would love to know. Why was Porsche of the right
Speaker 1: company to bring out an electric sedan in the performance segment.
Speaker 1: We actually had a long discussion when we started looking
Speaker 1: at the source of business to then launch a battery
Speaker 1: electric vehicle, whether it should be what everybody looks at,
Speaker 1: which is SUVs, or whether we should stay closer to
Speaker 1: our brand heritage and have a fly line that looks
Speaker 1: more like a n or like a real sports car.
Speaker 1: So we decided at the end of the day, let's
Speaker 1: not look at the business potential, Let's look at the brand.
Speaker 1: Let's look at what people associate with, what Porsche has
Speaker 1: been known for for decades. And that's why the Taikon
Speaker 1: is actually the right car. It's a bit bigger than
Speaker 1: the nine eleven course, because we need battery size and
Speaker 1: battery space in order to also fulfill our customers expectation
Speaker 1: when it comes when it comes to a performance range,
Speaker 1: charging speed and so on and so forth. So class.
Speaker 1: When you think about the Porsche customer, how does he
Speaker 1: or she feel right now about the economy, What are
Speaker 1: they saying to you about the sort of how they're feeling,
Speaker 1: how they're spending as they look ahead to the next
Speaker 1: year when they come to buy a car. Well, if
Speaker 1: you look at our figures were in good shape even
Speaker 1: without the tai Kon, we're above previous year six point
Speaker 1: five pc, while the market is slightly down. So I
Speaker 1: think we've got the right strategy, the right products, the
Speaker 1: right communications, the right sales force with our US dealers,
Speaker 1: so we are confident they are confident buying into the brand.
Speaker 1: But we're not boiling the ocean here with three cars
Speaker 1: out of a thousand UH that are sold here in
Speaker 1: the United States. So we probably in a spot that
Speaker 1: we consider being fortunate. What makes sense for Porsche in
Speaker 1: terms of luxury brand doing an electric vehicle. I think
Speaker 1: if you have the right technology, and if you say
Speaker 1: this car speaks Porsche, this car is d n a
Speaker 1: Porsche and the right technology is there. Now we have
Speaker 1: an ache involved system with the first manufacturer applying that
Speaker 1: to a car. We have everything we know about the
Speaker 1: chassis and the drive train embedded in the car, and
Speaker 1: now you drove it, it behaves like a true sports car.
Speaker 1: Thumbs up, Thank you for that. So it's it's the
Speaker 1: right time, um. And looking at our order intake and
Speaker 1: we're not talking numbers. Just before you ask me, our
Speaker 1: order intake is exceeding our expectations to to put it
Speaker 1: that way, all right, So what worries you? Because I
Speaker 1: do think about how many times we sit around the
Speaker 1: table here clouds and we're talking about some of the
Speaker 1: big macro issues, whether it's US trying to trade or
Speaker 1: trade wars in general, or a global economic slowdown of
Speaker 1: some sort, interest rates, interest rates, Like, what are we missing?
Speaker 1: What is it that you guys spend a lot of
Speaker 1: time discussing. Obviously you want to focus on your brand,
Speaker 1: getting your message out there, getting a great vehicle out there, um.
Speaker 1: But what else? Um? Well, for us internally, its customer experience.
Speaker 1: But let's put that aside. If we look at macro
Speaker 1: economics at this point of time, now, our biggest warrior,
Speaker 1: of course, we're the tariff. The tariff discussion. That that
Speaker 1: was something that was hanging like a black cloud above us.
Speaker 1: Now it's not gone the cloud, but it has lightened
Speaker 1: up a bit. Very recent reports show that I think
Speaker 1: our messaging has arrived. And I'm not talking just for Porchia.
Speaker 1: I'm also talking for our mother company BW. They have
Speaker 1: just announced eight hundred million investment in Chattanooga, creating another
Speaker 1: thousand jobs for better electric vehicles that will be produced there.
Speaker 1: We've done our homework as car manufacturers in this wonderful country.
Speaker 1: We've invested billions and there are many thousands of people
Speaker 1: dependent on on those cars being produced here and and
Speaker 1: even export it to other countries. So that's because it
Speaker 1: makes business sense, correct, It completely makes business sense, yes, absolutely,
Speaker 1: So you know, that's a responsibility we are very aware
Speaker 1: of and we're living up to it. And I think
Speaker 1: that has not arrived with the administration. UM and I
Speaker 1: just hope that everybody stays calm and believes in free
Speaker 1: and fair right. And that's Klaus Zelmer back with us.
Speaker 1: He's the president and CEO of Porsche Cars North America,
Speaker 1: along with Hannah Elliott, our car expert. Love catching up
Speaker 1: with them. Of course, the last time he came to
Speaker 1: see us, he brought a car. We have to sit around,
Speaker 1: play around with a car. What's interesting too, is it
Speaker 1: you know, it's more about electric vehicles and hybrids, but
Speaker 1: we also talked a little bit more broadly about the
Speaker 1: infrastructure needed to support all of this. So a great conversation.
Speaker 1: So you love it, you hate it, And if you
Speaker 1: live on the East Coast, you most likely have found
Speaker 1: yourself on the northeast court of Amtrak for work or
Speaker 1: pleasure at some point in time. But I didn't know this, Jason.
Speaker 1: There are so many more roots and thousands of miles
Speaker 1: more that make up the Amtrack long distance network. I'm
Speaker 1: going to say this is my favorite story in the
Speaker 1: magazine this week. It's such a great tale. Devin Leonard
Speaker 1: is here with this. He wrote the story. He was
Speaker 1: on the trains, he was with the man that was
Speaker 1: on the charge of the whole enterprise right now, a
Speaker 1: plane guy turned trained guy, Richard Anderson, running Amtrak. Devin
Speaker 1: Leonard here this in New York City. So what was
Speaker 1: the inspiration for this to begin with? I don't I
Speaker 1: think Joel. I think Joel had the idea. But we
Speaker 1: we knew, we meloved beloved editor, but no that we
Speaker 1: we just knew that there's controversy, people getting upset with
Speaker 1: this guy who was a guy from the airline industry.
Speaker 1: And uh, it seemed as though some people in sort
Speaker 1: of the the Amtrak ecosystem, sort of trained ecosystem, we're
Speaker 1: sort of rejecting him, so we wanted to find out
Speaker 1: what was going on. Well, the magazine has done stories
Speaker 1: on the Northeast quarter, right, and the problems in the
Speaker 1: infrastructure problems. Yeah, exactly, but and that's actually a profitable
Speaker 1: part of the business of the Amtrak business. But you
Speaker 1: went much more broader out into the country. Yeah. I
Speaker 1: took the Crescent down to New Orleans. What is the Crescent.
Speaker 1: That's a train that us daily from Penn Station and
Speaker 1: it's uh, leaves in the afternoon. It's supposed to arrive
Speaker 1: you know, kind of you know, in the evening in
Speaker 1: New Orleans the next day, but it rarely arrives on time.
Speaker 1: I don't think about three quarters of the time, only
Speaker 1: about you know, about three quarters at the time. It's late,
Speaker 1: often two hours late. And uh, I wrote it and
Speaker 1: it was late. But it was kind of a wild experience,
Speaker 1: and I talked to all kinds of interesting people and
Speaker 1: why they took the train, and it was it was
Speaker 1: pretty cool. And it's a microcosm in some ways because
Speaker 1: you go through big cities, you know, you sort of
Speaker 1: lead the Northeast corridor that Carol was talking about, and
Speaker 1: you go all the way to New Orleans, through you know, Georgia, Alabama,
Speaker 1: Mississippi into Louisiana, and as you say, there are different
Speaker 1: people who have sort of different relationships with with the
Speaker 1: am track. What did you learn? Well, I think the
Speaker 1: biggest thing, Jason, is that you know, we all think
Speaker 1: of I guess, I guess you just think of Amtrak,
Speaker 1: as you know, they owned the trains, and they own
Speaker 1: the tracks, and and you know, and the story, but
Speaker 1: that's not that's not the reality. The reality is that
Speaker 1: they owned most of the Northeast Corridor from Austin to
Speaker 1: to Washington. Throughout the rest of the country, they're running
Speaker 1: pretty much on freight railroad tracks and they have a
Speaker 1: very sort of difficult relationship with the freight railroads and
Speaker 1: their their freight rail is just supposed to give them preference,
Speaker 1: pull over to the side, let Amtrak trains past. But
Speaker 1: that's not what happens most of the time. And it
Speaker 1: didn't happen on the crest of what I took it.
Speaker 1: And this blew me away. And I love the the
Speaker 1: sort of phraseology everybody talks about, like the freights right
Speaker 1: saying this our God, that is limited to this world
Speaker 1: they called the class ones and anyway. But yeah, so
Speaker 1: you can really go deep on this, but you're right,
Speaker 1: this has created a very tense relationship. And going back
Speaker 1: to Richard Anderson who's now running Amtrack, this is the
Speaker 1: main thing he's really got to figure out, is this relationship,
Speaker 1: right right, right, because because I mean basically, people will
Speaker 1: take a train that that that's on time, and you
Speaker 1: know that's why the Northeast Corridor it's very successful. Of course,
Speaker 1: there's a ton of people, it's very can you know,
Speaker 1: dense test populated area. It's hard to get around on
Speaker 1: the highways and all this stuff. But the throughout the
Speaker 1: rest of the country, well, really these roots they go
Speaker 1: back a hundred years. The long distance routes, the Crescent
Speaker 1: you know, pretty much goes back a hundred years and
Speaker 1: they were created at a time when America is a
Speaker 1: really different place. You know, of course far fewer people.
Speaker 1: But also say on the Crescent city like Charlotte was
Speaker 1: kind of a you know, an afterthought, and it was
Speaker 1: it was no big deal. The Crescent goes through there,
Speaker 1: you know, in the middle of the night, that's the
Speaker 1: only time you can catch you know, trade in Charlotte.
Speaker 1: Of course today it's the headquarters of Bank of America.
Speaker 1: It's a big, blooming city. And it's kind of ridiculous
Speaker 1: that that. I mean, the crescent set up just end
Speaker 1: to end. You want to leave New York and at
Speaker 1: a reasonable time get into New Orleans at a certain
Speaker 1: time time for dinner, of course, you know. But but
Speaker 1: but everything else along the way is sort of you know,
Speaker 1: I guess it's good to get into a Lanta in
Speaker 1: the morning, maybe get into d C around around dinner time.
Speaker 1: But everything else is just kind of like stops on
Speaker 1: the way. And it's based largely to kind of how
Speaker 1: we travel around America, right. We don't think twice. We
Speaker 1: just automatically get on a plane and go somewhere if
Speaker 1: it's a short hop. You know. You go over to
Speaker 1: Europe and they're using trains so much more. And I
Speaker 1: do wonder if there's a way to kind of reorient
Speaker 1: our country so that the trains are more in demand
Speaker 1: and they can be better systems. Carol, That's what Richard
Speaker 1: Anderson wants to do. And you know what he wants
Speaker 1: to do is Amtrak has a right of way. You know, well,
Speaker 1: actually it has a right, well it is the right way,
Speaker 1: but it is a right to operate trains on these
Speaker 1: freight uh, these freight tracks because the railroads agreed to that.
Speaker 1: When you know, they turned over their passenger service to Amtrak,
Speaker 1: which is sorry, do you want to Amtrak which is
Speaker 1: losing money in two thousand and seventy one. So he
Speaker 1: wants to do is instead of running trains that basically
Speaker 1: you know, go these long distances that would be much
Speaker 1: easier to fly and cheaper at this point, he wants
Speaker 1: to segment the routes. So so for instance, they'll be
Speaker 1: more trains in between Atlanta and Charlotte, you know, these
Speaker 1: these sort of urban centers that needs service and or
Speaker 1: you know, or you know at Atlanta birminghammers you know,
Speaker 1: or something like that. These look these corridors and because
Speaker 1: the roots aren't as long, there won't be as many
Speaker 1: opportunities for delay and also hopefully but but for that
Speaker 1: to work, you have to work something when the freight railroads,
Speaker 1: so not delaying the trains, but if these shorter routes,
Speaker 1: routes between cities that that are much bigger than they
Speaker 1: were in nineteen seventy, let alone a hundred years ago
Speaker 1: and these roots were created that that's his vision. It's
Speaker 1: a really interesting idea. Yeah. Well, and it does speak
Speaker 1: to something that is building maybe quietly right now, which
Speaker 1: is questions around sustainability and climate and there have been
Speaker 1: footprinted all these different things and the way that we
Speaker 1: move around lesson cars and maybe lesson planes, which takes
Speaker 1: this back to Richard Anderson in many ways, very successful
Speaker 1: at Delta. Anyone who flew Delta during his tenure knows
Speaker 1: who he is because he was the Richard Anderson Delta
Speaker 1: you know, he would pop up on the screen campion. Yeah,
Speaker 1: but you know he was a guy who came in
Speaker 1: the airline had gone bankrupt. He engineers the merger with
Speaker 1: Northwest and really puts Delta on a path where it
Speaker 1: is now to be a top airline. But he didn't
Speaker 1: make a lot of friends doing that. He's not making
Speaker 1: a lot of friends doing this. Well, No, that's the thing.
Speaker 1: I mean. The unions are upset with them because of
Speaker 1: his cost cutting. And then you have these senators from
Speaker 1: the rural parts of the country and they're they're worried about, oh,
Speaker 1: if you know, changed the long distance routes there, you know,
Speaker 1: their constituents are going to you know, lose service, you know,
Speaker 1: you know, as paltry as it is. And these sort
Speaker 1: of little stations, I don't want to send them to nowhere,
Speaker 1: but they're not they're not not in big cities, but
Speaker 1: you know, they're very important to a small group of people,
Speaker 1: and that makes them very important to these senators. And
Speaker 1: on top of that, you have people just love trains,
Speaker 1: and that was really interesting to kind of talk to
Speaker 1: some of those folks. But they feel really strongly about
Speaker 1: how Amtrak should be run and they don't want to
Speaker 1: see things changed. And some of the things that Anderson
Speaker 1: is doing, like changing the service in the dining cars,
Speaker 1: and you know even you know, suggested substante bus service
Speaker 1: on part of the south West Chief that's people just
Speaker 1: go berserk over that, right. Well, and it's interesting, and
Speaker 1: I do wonder about the financials. Right, it's still getting
Speaker 1: what two billion dollars and subsidies from the US government. Right,
Speaker 1: it's still operating at a loss, and I do wonder
Speaker 1: what the financial viability of this is going forward. Well,
Speaker 1: he's got a plan for that too. Better no, no,
Speaker 1: but but his his plan is let's get amtrack. You know,
Speaker 1: profitable or at least break even on an operating basis.
Speaker 1: And he's gotten it better, right Yeah, well, yeah, yeah,
Speaker 1: he's I guess the the adjusted operating loss this year
Speaker 1: was was thirty million dollars. That's way down even last
Speaker 1: year it was a hundred and seventy one million. So
Speaker 1: he's on track to break even next year. And you know, fisical.
Speaker 1: What he wants to do is then is take the
Speaker 1: money that they get every year from Congress and use
Speaker 1: that to fix up the system, which needs a lot
Speaker 1: of work. They're already getting new trains and doing things
Speaker 1: like that, but the ideas, the idea is to show
Speaker 1: Congress and look, we can run amtrack, you know, efficiently
Speaker 1: and probably and probably profitably. Excuse me, So, now let's
Speaker 1: do something about addressing the bigger problems. That includes the
Speaker 1: Northeast Corridor, which needs forty one billion dollars in you know,
Speaker 1: in sort of infrastructure repairs to because the systems crumbling
Speaker 1: at Penn Station one billion dollars. Yeah no, but it's
Speaker 1: kind of interesting, and I do wonder whether or not
Speaker 1: he can make this work ultimately. Well, that's the thing.
Speaker 1: It's the typical problem when you bring in somebody from
Speaker 1: the business world into a government agency. This is something
Speaker 1: that's happened at the Postal Service over the years too.
Speaker 1: But people say, this thing needs to be run like
Speaker 1: a business, and let's let's get somebody, you know, some
Speaker 1: successful corporate executives. So they bring them in. But these
Speaker 1: government agencies are not businesses. There's all sorts of red
Speaker 1: tape and constraints and all these different constituencies. Yeah, the
Speaker 1: government corporation is yeah, yeah, yeah. So the things he
Speaker 1: could do a delta and you know, you know, and
Speaker 1: despite the fact that they upset people, he could do them,
Speaker 1: you know, and if he showed that they worked, you know,
Speaker 1: people ultimately accepted them. But here it's a much more
Speaker 1: complicated thing because I mean, you know, as he said
Speaker 1: testifying on the hill to you know, people who were
Speaker 1: upset with him in the senators like, look, you're my boss,
Speaker 1: you know so, But whatever the term is, having all
Speaker 1: those bosses, that's not something that you know, I Gotic
Speaker 1: Bridger danatation has used to. So I think he's trying
Speaker 1: trying to do his best. We'll see, we'll we'll we'll
Speaker 1: see if it if it works. But this is the
Speaker 1: first time these are I think that's the first time
Speaker 1: Amtract has had, you know, these sort of new ideas
Speaker 1: and innovation. You know. Ever, you know it's certainly not
Speaker 1: not not not in decades, and it's a really important
Speaker 1: system and it needs to be changed, and you know
Speaker 1: it's about time somebody was you know, some fresh ideas
Speaker 1: was in there. That's Devin Leonard And I always loved
Speaker 1: Jason when he does a story because he actually took
Speaker 1: a train ride to get a feel of what it's like.
Speaker 1: He got to see the delays upfront and personal, but
Speaker 1: also talked to individuals why they choose trains over planes,
Speaker 1: and uh, it just tells you about some of the
Speaker 1: successes and some of the failures that is Amtrak. It's
Speaker 1: a great story and certainly worth reading at a time
Speaker 1: when everybody's traveling around the country. And that wraps up
Speaker 1: Bloomberg Business Week's Weekend podcast. Thanks so much for joining us.
Speaker 1: I'm Jason Kelly and I'm Carol Masster. Be sure to
Speaker 1: tune into Bloomberg Business Week Radio Live Monday through Friday
Speaker 1: starting at two pm Wall Street Time. And if you
Speaker 1: can't catch us live, get our daily podcast. Check that
Speaker 1: out at Bloomberg dot com or wherever you get your podcast,
Speaker 1: and of course you can get this week's edition of
Speaker 1: the magazine that is on newstands now. We'll be back
Speaker 1: right here next week at the same time. This is
Speaker 1: Bloomberg