Acquired - Acquired Episode 39: Whole Foods Market

Episode Date: June 21, 2017

Ben and David are once again live on the scene, this time covering the biggest disruption in grocery since… well, sliced bread: Amazon’s $13.7B purchase of Whole Foods Market. We place this deal in context by diving deep into the long, intertwining history of grocery, tech and Amazon, from the infamous dotcom flameout Webvan (domain name now owned by Amazon) to its much more successful progeny Kiva Systems (acquired by Amazon in 2012) to current Silicon Valley unicorn Instacart (founded by former Amazon logistics engineer Apoorva Mehta). One thing is clear: for Amazon and Jeff Bezos, realizing the longterm vision of the Everything Store truly means building the everything store.Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Topics covered include:The  origins of Whole Foods Market as “Saferway” in the late 70’s Austin, TX hippie scene, founded by CEO John Mackey (“the Steve Jobs of grocery stores”) and his then-girlfriend Renee Lawson HardyWhole Foods’ expansion through acquisition throughout the 80’s and 90’sThe company’s recent struggles with competition, leading to sales declines and  attracting activist shareholder interest from Jana Partners  Amazon’s acquisition of the company on June 16, 2017 for $13.7 billion, a 27 percent premium to the stock's previous day closing priceIn depth history and analysis of the four keys to understanding this deal: Webvan, Kiva Systems, AmazonFresh and  InstacartFollowups: Walmart/Jet buys Bonobos for $310MThe Carve Out:Ben: Mark Zuckerberg’s 2005 CS50 guest lectureDavid: Exponent on Podcasting and Centralization

Yep. Yep. Completely agreed. Podcasting is the new groceries. Yeah. Well, good thing we're here on the scene. Welcome back to episode 39 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today we are coming in hot with the just announced Amazon acquisition of Whole Foods for $13.7 billion all in cash. Are we ever.

We are not planning on doing an episode today, but David and I woke up, saw the news and absolutely could not resist. We live for this. So here we are. We do. It's 4 p.m. PST on Friday, June 16th. The day the acquisition was announced this morning. And hot takes flying all over the internet. David and I do not purport to have any of the answers, but we do have hot takes of our own. So in true Acquired fashion, we will probably be wildly speculative. We have no idea what they're going to do with this acquisition, and we certainly cannot give it a grade that we feel very confident about, but it's going to be real fun to talk about. Before we dive in though, important, important

announcement. So Ben's birthday is coming up this week. And if you want to get him a present, like me, you should leave Acquired a review on Apple Podcasts. See what we did there. No, seriously. David gets on my birthday present too,

apparently. I'll write you a review then. But no, seriously, we have some... Acquired is growing a lot and we have some amazing guests coming on this summer and that's possible

because of the growth and the way to keep the growth going is through Apple Podcast Reviews. So if you have a minute, please leave one. We really, really appreciate it and thanks for being a listener. We do.

And now I get to skip my section where I normally ask for Apple podcast reviews. My present to you is giving you a break from this. Perfect, perfect. Well, listeners do know that we have a Slack. We're 750 strong now and it was blowing up today. So if you're a new listener to the show

and you want to talk about any awesome news that is dropping on the day that it drops in technology, join us, acquired.fm. You can join the Slack and be part of the discussion. Okay, listeners, now is a great time to tell you about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation.

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to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. Now, David, let's do this. So for the show today, we are of course going to do history and facts as always, but it's going to be a little different than usual. One, because we didn't have the time to do the in-depth research that we usually do into whole foods. So it'll be a somewhat truncated history and facts on whole foods, but we'll still tell some fun stories. But we don't think that we can actually give kind of the full analysis and

treatment of this deal and what it means without looking at a couple other companies too. So we're also going to talk about Webvan, Kiva Systems, and of course, Instacart, which will be a big topic of conversation today and already is in the media given what happened and Whole Foods being an investor in Instacart. But so to start off, Whole Foods was started in 1978 in Austin, Texas by a young man named John Mackey and his then girlfriend Renee Lawson Hardy. And it was originally not called Whole Foods. It was a natural foods store, mostly for hippies, which they were in the late 70s in Austin. And they called it Safer Way, which was an intentional dig at Safeway. I have not heard that.

That is awesome. It was great. John was on a podcast recently, and I think it was NPR's How I Built This. And they called it that, and they were sort of hoping that Safeway would sue them because then it would be like free publicity. But they were so small and insignificant that Safeway didn't even notice. I think I'd heard in the past that Whole Foods is this Texas-owned company, and this is shocking. Growing up, when we got one in Ohio, I remember thinking,

oh, this is probably something like San Francisco. Like, you know, where are they eating like this? And when, where would there be like a hippie commune that would inspire this and, you know, keep Austin weird, but shocking that it was in Texas to me. Well, I mean, as we all know, Austin and his stereotypes about it are not always true, but Austin is definitely hippie Mecca and was in the seventies even more so. But so Mackie kind of basically goes on. He's still the CEO of Whole Foods many years later, will continue to be under Amazon. It was announced, but he's basically like the Steve Jobs of grocery stores. So he dropped out of UT to start the company. And he talks about kind of when he was at UT, he sort of had this very

jobs like experience, you know, like jobs had at Reed in Portland when he was there for a semester. You know, Mackey kind of didn't like the structure of college and having to have a major. And so he just decided he was going to bum around and take whatever classes interested him. And he ended up. He's like exactly the Steve Jobs. It's exactly the Steve Jobs experience. And he ended up through kind of that route, getting involved with a vegetarian co-op on campus. That's where he met Rene and started getting into food and natural foods and whole foods. And the two of them had this idea that they should start their own store. So they borrowed $10,000 and then they raised another $35,000 from investors and they start Safer Way and they put it in an old building

and the store was on the first floor and then they had a restaurant on the second floor and then they lived on the third floor. Oh, that is awesome. Yeah, super cool. So they do it for a couple of years and it starts really working and they get lots of business and people really love what they're doing. But of course, because Austin's a hippie town, there are other natural foods markets in town. And there's one called the Clarksville Natural Grocery. And that was run by two guys, Mark Skiles and Craig Weller. And Mackie, the Whole Foods CEO, kind of admired what they were doing. And he approaches them about merging and becoming a bigger store combined together. So they do. And then they had

to rename the business and they renamed it Whole Foods Market. And thus Whole Foods is born. We've done other ones that have origin stories in these small mergers, too. Like you look at Il Giornale and Starbucks. Kind of a similar thing. Very, very similar here. Mackey's basically the Howard Schultz and Steve Jobs combined of the grocery business. So they do the merger.

And then a couple years later, they start expanding. First elsewhere in Texas and then they go to New Orleans and they buy a company there called the Whole Food Company. And then basically they kind of learn that growing through acquisition there are lots of local natural food stores throughout the country. Especially in kind of more liberal hippie areas. It is so true. It is like shockingly true. I did like a weird little anecdote but I was doing this bike trip up the coast of California last summer and we'd get into these little towns that had like, it became the running joke of the trip. Like the little towns that had like three or four buildings and it seemed like there wasn't much going on

there, but it have like an incredible natural market. And it is amazing. Like when you get into these, you know, if those were any bigger, you could totally see Whole Foods just gobbling that up and it being right under their brand. And that's really how they grew by acquiring a lot of those little stores and little chains, and then slowly over time, turning them into Whole Foods and into the big box store that Whole Foods is today. But as they do they do that, they're over the decades, you know, this sort of they catch the wave of whole natural foods, organic foods. They really help start the organic food wave and publicize it among not just hippies, but kind of everybody,

and especially young people in the American population. So they keep growing. And by the mid-2000s, they're above a $10 billion market cap, one of the largest grocery chains in America. Then the recession happens in 2008, and the financial crash, and the stock craters then. But then it kind of goes right back up, and growth continues. By 2014, Whole Foods has become the 30th largest retailer period in the u.s wow but then over the last couple years unfortunately for them growth kind of stopped so as of you know today when amazon acquired them for the last seven quarters straight they've had declining sales declining same store sales and the stock has fallen precipitously. Huh. Declining same-store sales. It seems like, I mean, this is like the urban Seattle bubble I'm

in, but it sure seems like the health food movement is in more full swing than it's ever been. People are woke, David. This is really odd to me, too. I just don't know enough about the grocery industry to know what was happening. But the little I was able to read, and this makes sense, is that it was actually kind of mostly growing competition from other stores that are maybe Trader Joe's or plenty of other,

even regular grocery stores now are offering plenty of natural and organic foods, often cheaper than Whole Foods. I mean, the knock on Whole Foods is it's expensive. And you totally see that here. I've been shocked with Kroger-owned QFC here in Seattle. The last couple of years really stepped up their game to the point where I can get enough really healthy stuff there

where I can totally see why the same source sales would be declining for Whole Foods. Yep. So the stock's been under a lot of pressure for the last couple of years. And actually, there's an activist hedge fund, Janna Partners, that I believe ended up getting board seats and has been really pushing the company

to take a corporate action, meaning sell itself. This is totally interesting. Last fall, Amazon was, at least this was, I think it was a Bloomberg story, that it was reported that Amazon was considering buying Whole Foods, but then Jana stepped in as an activist investor, and that calmed down for a little while. And there's been other talks recently, we'll get into the Albertson stuff, but Albertson's was considering a takeover a bit more recently. But on this Jana Partners thing, Jana acquires, I think it was 8.3% of Whole Foods last fall, and then is able to flip it for the premium that they

got to Amazon today. And Amazon was interested before Jana stepped in. So I'd love to know that story of how did Jana manage to make that happen when Amazon knew the price was only going to go up when that happened. Yep, yep. Well, nothing drives acquisition interest like other acquisition interests and viable alternative paths, too. So we don't know now, but I'm sure lots of stories will come out in the coming months. But yeah, so as you mentioned, back in April, it was rumored that Albertsons was looking at buying the company. And then today, the big announcement that Amazon finally would acquire the company for $13.7 billion in cash, so $42 a share, which is where the average grocery store is trading these days, which I assume that's how grocery chains trade. Disclaimer, we don't know much about the industry. Well, David, this is fascinating. I just had this conversation with a coworker and I was doing some of the research for the show. The annual sales last year for Whole Foods was $15.6 billion. And I was like, wait a minute. So the market cap of this

grocery store is actually less than a single year of revenue, which to us in the tech business, you get a two, three, four, 10x multiple on revenue. And if you look at the grocery store business, apparently not the case. And I think actually retail all up. I heard another stat when I was talking to someone who's kind of in the know about this, that boutique retail, actually the general valuation for that is around a quarter of your annual sales. So it really, it's a totally different ballgame than we're used to covering. And that just comes down to margins, right? I mean, the margins in retail generally are tiny. I mean, Amazon trades, I believe, trades at a much lower revenue multiple than other tech companies because it is a retail business and has lower margins. And grocery is like razor, razor thin thing, so you mentioned that 29%, or I'm sorry, 27% premium listeners, David and I were chatting with a friend who's kind of in the know

before the show today and mentioned that Whole Foods had been aggressively pursuing a sale six months ago after Jana Partners came in and their main intention was to slim operations or streamline operations, which I don't really know how much you can do in the timeframe from when they took that position until now. So I can't really speak to if that actually happened, but they were aggressively looking for a seller for the last six months. And it's fascinating to see like 27% premium over where they're trading in the public markets. It's in the range of what you would expect from these things, but it's certainly on the high end. And it's really interesting and certainly implies that there was a tremendous amount of competitive pressure

that even when they were looking to sell so hard, they still had enough leverage to get that sort of a premium. Yeah, well, and it speaks to what Amazon can do with the business that nobody else can. So let's put a pin in that for a minute. We'll come back to Whole Foods, of course, but we want to talk about these three other companies quickly that are pretty key to the story.

So the first is the infamous Webvan. So, you know, the brunt of all dot-com jokes, you know, back in the day. This company was founded in 96 by Louis Borders, who is the same Louis Borders who was co-founder and CEO of the Borders bookstore. No way. I never knew that. All of the intersections across this whole story between, you know, with Amazon at the center

and books and retail and like it's all the same people. And it's really key. I think this is something that hasn't been talked about yet in the few hours since the deal was announced in the press. But to really understand what's going on here, you have to understand this background. So Borders started Lewis Borders. It was a separate company from Borders, the bookstore. But he started Webvan in 96. And immediately, he was a superstar, raised capital, raised about $10 million. He invested a third of it. And Benchmark and Sequoia each invested the other third in 97.

Sequoia later put in another $50 million. SoftBank put in another $160 million quickly after that. Goldman Sachs put in another $50 million. This is all very quickly in kind of 97, 98. And what the company was doing was delivering groceries to people's homes, web van, grocery van. And so they started in the Bay Area. But then they even before they'd really proved that it was working in the Bay Area, because they never proved it really worked anywhere. They immediately started investing all this capital to roll out across the country. I mean, these were the go-go dot-com days that we

talked about in the Amazon IPO episode. So Amazon was, of course, watching this with great interest. So the company ended up going public at the end of 1999, so just a couple years after being founded they raised another 375 million dollars in their ipo and their market cap at ipo was close to five billion dollars so and at this point the company had done a grand total of just under four hundred thousand dollars in sales oh my god i mean this is why this is you know the cautionary tale about the dot-com bubble. And pretty quickly, the musical chairs stopped playing and the company just imploded. So shortly, a little over a year after that, in the middle of 2001, they filed for Chapter 11 bankruptcy, laid off all 2,000 employees that they had at that point. And they lost all the money.

So basically, the whole nearly billion dollars that they raised, they just burned all of it. And so this was sort of the initial view that the world had on technology and internet approach to grocery delivery was that you don't want to be webbed. Look what they did. Yeah, I mean, that's like the very long, extended, and very painful visualization of the hype cycle curve, where the value isn't there yet, but the hype is really high. It comes completely crashing down

and then has to slowly build back up to what it once was and may never even reach the hype that it previously hit. Yeah, but what's super interesting about it is how much of that DNA from Webvan has still, to this day, held on to the dream of grocery delivery. There's been this perception in the world that grocery delivery doesn't work, that Webvan proved it. But really what Webvan proved is how not to run a startup. Not necessarily anything about the market. There was a company that actually came directly out of Webvan

called Kiva Systems. And Kiva was founded in 2003, I believe. Wait, Kiva came out of Webvan? This is incredible. This web is ridiculous. So Kiva Systems, which Amazon ends up acquiring in 2012, was founded by a guy named Mick Mounts. And Mick had been at Webvan and he was in charge of logistics in the fulfillment centers that Webvan had all around the country. And Webvan knew that the margins on what they were doing were terrible. They were losing tons of money

on every order, which is why as they grew, they went belly up so quickly. And his job had been to try and turn it around and he didn't have enough time. But he kind of stayed obsessed with this idea about how could you make a fulfillment center more efficient and be able to eke out better margins out of a fulfillment center. It's like Amazon's whole promise. This is basically the entirety of Amazon's retail operations today, is just solving that problem.

So Mick founded Kiva and what Kiva did, he saw an opportunity to use robotics to not just replace human labor. And actually what Kiva systems do is they don't necessarily replace human labor, but they make human labor much more efficient. They're robots that take pallets and racks that are in fulfillment centers. And rather than them just being in the same place and having the employees walk around to pick the items from them, they actually, the robots, move the racks themselves to the employees

and the employees stay stationary. And it's been a major improvement and innovation in distribution and fulfillment center systems. So much so. And actually, listeners should know, it's probably worth saying, this is a very different Kiva

than the Kiva.org that is the sort of micro-lending. Yes, not micro-lending, different Kiva. So in 2012, Amazon acquired the company for just under $800 million and started, Kiva had had customers like Staples and actually both Zappos and Diapers.com were Kiva customers, which was probably why Amazon started.

Let's make the web even bigger. Yeah, exactly. Probably why Amazon started to realize, after they acquired those companies, the power of Kiva systems in fulfillment centers, Amazon buys the company and then completely shuts down all other third-party customers and brings all the tech in-house. And has since kind of remade,

I believe at this point, probably the majority, if not all of their U.S. fulfillment centers into Kiva-run fulfillment centers. Yeah, I'm not sure. I know someone recently that went and did some work in one of the fulfillment centers that wasn't Kiva-enabled. Yeah, it may not be. I believe the goal is to convert every FC into a Kiva center, but they may not be fully done yet because it requires a huge amount of capex and time to make these conversions. So this has become a big, big part of Amazon and kind of directly came out of the ashes of Webvan.

Separately, Amazon acquired the domain name for Webvan. So if you go to webvan.com today, it won't resolve. But Amazon actually owns it. And they've been, as the world knows, and we've been talking about on this show for a long time, Amazon's been thinking about groceries. They didn't just wake up this morning and say, gosh, we should buy Whole Foods.

Why did they not point that at Amazon Fresh? Yeah, it's bizarre. You would think it would just redirect. They must have been waiting for the Whole Foods acquisition and now it'll be the name of the Instacart. Yeah, totally. Oh man, that would be just amazing. So back in 2007, even before they acquired Kiva Systems,

Amazon started thinking about groceries and launched Amazon Fresh in Seattle. So if, like us, many listeners in the show, you have lived in Seattle for the last few years, you see Amazon Fresh bags on doorsteps all over the city. Wait, is Fresh only here? So for many years, actually for six years, it was only in Seattle. And sort of the lesson that they took, and many, not just the Akiva founders, but many former Webvan employees actually work at Amazon now and are part of Amazon Fresh.

And the sort of key lesson that they took from Webvan after spending many years analyzing it, both on the Amazon side and folks having lived through it, is that the problem with Webvan wasn't that the business didn't work. It was that they grew way too quickly. And because the margins are so small, growing a new market is incredibly costly because you need density and scale to be able to leverage your fixed costs enough and the distribution costs enough to be able to actually turn a profit.

And so if you grow too quickly, you'll really quickly flip the boat upside down, which is what Webvan did. So for six years, Amazon Fresh was just in Seattle. Then in 2013, they launched in LA. And then at the end of 2013, they launched in San Francisco. The next year, they went to New York and San Diego and Philadelphia. And basically the rollout has been accelerating ever since. So they're in most major US cities at this point. They're international. They're in London. They're in Berlin. They're in Tokyo.

And it's really been accelerating as they've started to perfect the business at the same time. It's funny, but Instacart I, is actually more pervasive in the US. Instacart just launched in Columbus, I know. They're getting into a lot more markets than these major top 10, 20 markets. Well, you're foreshadowing the next company being Instacart. But just to wrap up on Fresh, Amazon has been doing a ton of innovation,

as we've talked about, around grocery with Amazon Go, the pilot that they're launching with cashierless stores in Seattle and pickup. They actually have a location in Seattle now where you can order your, as a consumer, you can order groceries online, drive your car to a center, and then have the groceries put in your car. So they're doing lots of innovative things around fresh and around groceries in general, even before Whole Foods. So separately, the third track here is, of course, Instacart.

And Instacart was founded in 2012 by a guy named Aprova Mehta. And Aprova had been an engineer at Amazon, and in particular, an engineer focused on fulfillment centers. And he was in Seattle and actually left Seattle, moved down to the Bay Area a couple years before and started working on a bunch of startup ideas. Knew he wanted to start a company

and eventually came back around to this idea of grocery delivery. But he took a very different approach because he knew from the get-go, he talks about this on, I think he was actually also on the NPR, How I Built This. He also has a really great talk at startup school one year about how the whole thing got started.

But he knew that Amazon was going to be his main competitor and he had to take a different approach. And so what Instacart, as most listeners know, has done is said, screw this whole logistics thing, that's really hard. And actually, grocery stores are pretty good at it in terms of keeping the produce fresh and things frozen that

need to be frozen and refrigerated and managing the inventory. Why don't we just build a thin layer on top of it that's just the delivery layer to give the consumers the product experience they want of grocery delivery, but just have people come directly to grocery stores, shoppers. So basically paying that retail premium and then just solving the last mile problem instead of trying to eliminate that middleman and make all that margin in the middle. Like Webvan tried to do back in the day and that Amazon's been building now for 10 plus years. As Jeff Bezos would say, I couldn't have built Amazon without all the infrastructure already in place, the UPS, the internet, laid by the telephone wires,

all these things. So now we can build Amazon on top of it. It's sort of that same approach, but with a different market at a different time. Yep. And so Purva, he started the company in 2012 and pretty quickly it started growing really fast. And they did Y Combinator right after he started the company

and then pretty quickly Sequoia invested after that, I believe led the Series A. They've gone on in the last five years to raise almost $700 million. So approaching web van levels of investment. And what's interesting about that in terms of you know it's so funny how it's all the same people all over again uh mike moritz from sequoia led the investment and is on the board and he had led the web van

investment back in the day whoa i didn't know that yep huh so instacart's sitting here today having raised all this money at a 3..3 billion valuation on their latest round, one of their investors, their biggest grocery store partner that they have an exclusive relationship with, and as part of that, the company invested in Instacart, is Whole Foods. And so everybody woke up this morning and the whole world changed in this space. Yeah, I mean, it's heavily, heavily promoted in the stores at Whole Foods. I think if you buy a certain amount,

then you just get it at store cost instead of, I think this is right, instead of paying the Instacart markup for it. It's like much more heavily integrated than any of their other grocery stores. And, you know, as we'll sort of get to, Whole Foods is a super premium brand. Yep, yep.

Just speaking from personal experience, having used Amazon Fresh and Instacart and many of the other delivery services, we would use Instacart often just solely for Whole Foods to get the premium products from Whole Foods. That was the most compelling aspect of it for us. Yep. I love Instacart. I've been a user for a really long time.

Since it launched in Seattle, it's awesome. But you sort of have to wonder at this point, they knew Amazon was going to be their competitor at the very outset. And today the news comes out. And if you would have asked me a week ago, how does Instacart compete against Amazon or the impending Amazon, then I would have said probably that the Whole Foods partnership was their greatest leverage point.

And I'm super curious now, do these partnerships, much like music streaming, like if Spotify were to get acquired, then all of their rights negotiation that they did with the record labels would need to be renegotiated. Those all dissolve upon a liquidity event. I'm curious if the same sort of thing happens here, or if Instacart can still hold Whole Foods to the contractual agreements that they agreed to. Yeah. And I don't think we know yet. The early indications seem to be that the deal that Instacart and Whole Foods had, I believe it's looking like was a four year deal that they were one or two years into and that it does have to be honored. But again, this is, you know, these are private agreements. We don't know. So we. So it'll be very, very interesting to see. And even if it does have to be honored, you can bet that as soon as that deal expires, Amazon is not going to renew it.

Right, right, yeah. Tenuous position to be in. I'd be very curious to sit down with some Instacart folks and try and figure out what they think the mode is right now and what do you do from here. Because maybe the move is not to sit down with some Instacart folks and try and figure out what they think the mode is right now and what do you do from here. Because maybe the move is not to double down and strive for world domination, but to try and figure out how to play in Amazon's world.

I don't know. Well, and it's interesting. I mean, we're getting into analysis now, but I think we have to given all the players involved in this situation. But Porva has argued quite compellingly, I think, certainly with investors, that he knows that Amazon is going to be his main competitor, but that the way you have to compete with Amazon is to compete on a different delivery and all of those other folks are scared of Amazon too

and sort of need Instacart as a partner, that they'll be able to provide a better experience because Amazon itself will have a limited selection, only what they carry. Oh, please, please, David. I'm just telling you the argument. Let me give you a playbook. Amazon becomes, they sell books on the internet.

And they're the retailer of these books and you buy from them. And they would never turn themselves into a marketplace, would they? I mean, they're a retailer. Right, right. Gosh, how could you ever imagine third-party grocery store sellers coming on to Amazon's distribution and customer platform? I don't know. Yeah.

Well, then there's also the fact that, you know, grocery is a very different business than books or any other type of retail. True. Very true. You know, if you look at, you know, what is differentiation in grocery stores, and this is actually probably a big reason why Whole Foods was struggling in recent years. You know, you don't, you need a lot in a grocery store, but you need a set number of stuff. And if you have the stuff that people want, which is the same, you know, you go to a Safeway

around the country or you go to a Publix in the South or a Kroger's elsewhere, like they're the same, they have the same stuff. So as long as you have that stuff and you have, you know, the, you know, high end natural stuff that Whole Foods has, you know, which again is differentiation. The only reason at least me and Jenny used Instacart, you know, if you have that stuff, do you need anything else? Is selection that important anymore? Right. It seems like selection in like all the random stuff on Amazon from a retail perspective is much more long tail distributed than it is in in a grocery store. In a grocery store, it seems more concentrated toward the head of the curve. Which granted is a lot of SKUs, but it's a pretty standard set.

Yep. Yep. Spend some time talking to people today and looking around for opinions. And before we get to acquisition category, I just want to talk about a few things to come out of this story. So one of them is that just yesterday, John Mackey was talking about how there's an activist investor called Janna Partners, which holds 8% of his $11 billion, then $11 billion grocery chain. And he says, we need to get better and we're doing that.

But these guys just want to sell us because they think they can make 40 or 50% in a short period of time. They're greedy, and I'm not going to say this because we have a clean reputation, but they're greedy guys, and they're putting a bunch of propaganda out there trying to destroy my reputation,

the reputation of Whole Foods, because it's in their own self-interest to do so. Wow, that was yesterday? That was yesterday. Wow. I mean, you can't argue that John didn't know this was going to happen. Yeah.

There's no way that like, actually we did do the deal. So how does he really feel? Well, right. And it's fascinating because what he doesn't really say there, the good news is he can still be an effective CEO inside of Amazon because he doesn't throw Amazon under the bus. But definitely wanted to continue being an independent entity there. And these guys did get a huge pop,

Janna Partners, since the time they bought. Oh, I thought they did. Yep. Another, let's spend a little bit of time and cover some basically hot takes on what this could represent. And then once we kind of cover all that, then I think acquisition category

will start to come together and make sense. But right now, I would imagine they're not going to immediately transform these Whole Foods into Amazon Go's. But like, holy crap, what if they know internally that Amazon Go is like such a fantastic experience and rather than like slow rolling it out and allowing competitors to start coming in and then potentially Whole Foods to go up in value as they start doing similar things or go up in value for Amazon as people start doing similar things or go up in value for Amazon as people start seeing the obvious synergies? What if it's just like, we should

own this now so that we can go big fast with this Amazon Go concept? Yep. Which is, on the one hand, and Go's been delayed the public launch supposedly because of trouble getting it to work public-facingly. But at this point, I think the point that I was trying to make, that we were trying to make in telling the full story and all these other companies, Webvan, Kiva, Instacart, Amazon didn't just wake up yesterday or today and decide to do this. They've been thinking about this category for over 10 years at this point. So if they're going to do this, you can be sure they have a very clear plan.

Yep. Okay, so they're really the only ones who can do this. There's a $400 million breakup fee on this. So if Instacart gets another bid or pulls out in some way, then, you know, is not being acquired right now. Yes. Yes. Let's be clear about that. We'll talk about that later, but right, right, right. You know, it, right. It's a $400 million breakup fee. So you start thinking who even else could bid on them. And the thing is, nobody in the grocery world has $14 billion in cash. In fact, in the physical retail world at all, Walmart has $6.5 million of cash. So unless Apple or Google steps in, Kroger only has $400 million. Dan Primack was raising this point on Twitter. Amazon's really the only one who could win this deal.

And so that's sort of an interesting thing to consider. Yep, totally. Nobody in the grocery world would have the capital to do this. Nope, nope. Another good one, GeekWire was reporting that a really interesting thing here is that it's really a training ground for AI retail research. Amazon has all these incredible machine learning, artificial intelligence, PhDs, and Whole Foods has probably zero. I mean, maybe some small amount of data science, but you start to marry the amount of data coming in from Whole Foods and

having Amazon have the ability to deploy that all over their ecosystem, not only to make Whole Foods better, but to use that in other parts of the business. It sure seems to contribute to the flywheel. Yep, absolutely. Yep. Another good one. I was reading Freight Waves, a friend who's in the back as urban warehouses for things that they want to start putting around to unlock. Imagine Amazon Prime now launching everywhere there's a Whole Foods because they can keep things in Whole Foods in a non-customer facing way, or maybe they can actually just deliver things directly out of the Whole Foods retail area. It really opens up the potential of reduced freight costs because you just have so many more nodes on the network. Yep, absolutely. So then another

one that I was, another thing I was thinking about is Whole Foods has, let's see, 456 stores in the US and Canada. Now that's zero international. So Amazon has a global footprint. Will we see them start to make international grocery moves? Well, Fresh is already in London and Berlin and Tokyo. So you've got to imagine, yes. Will they need M&A? Whatever they're doing with Whole Foods, will it make sense to buy a big international chain as well?

Which, as we talked about, is how Whole Foods grew through acquisition. Yep, absolutely. And then lastly, this one might be a little bit more out there, but who knows? Amazon has reportedly been working on some prescription and pharmacy efforts. And CNBC reported that if Amazon wants to sell prescription drugs, Whole Foods could provide the real estate on top of not just prescription drugs, but incredibly high value real estate with high net worth clientele all over the place. So it's a premium customer set at premium real estate

and they can do all sorts of things with that, including launch a pharmacy brand. I feel like we should call this a new section on the show. Call it just like pure speculation. Yeah. Ben and David wildly speculate, including a whole bunch of things they read on the internet. If it's on the internet, it must be true.

That's the mantra of Acquire. Yep. So, all right, with that, should we come back to Earth? Acquisition category? Acquisition category here? Let's do it. Yeah, all right, with that, should we come back to Earth? Acquisition category? Acquisition category here? Let's do it. Yeah, what do you think?

Well, I think I have to say two here. And the two are business line, with the caveat that Amazon already had this business line. This is just a massive accelerant and reshaping of that business line. And then the other one is asset, as you were alluding to in the wild speculation section of the show. This is now instantly 450 plus new, you know, in last mile distribution centers in cities that are extremely proximate to the

majority of Amazon's customer base, which is people middle to high income, people mostly younger demographics that live in cities. So this is an incredible real estate asset that they just acquired. David, it is like you are literally reading out of my text. I had those two bolded. New listeners to the show, we have people, technology, product, business line, asset, or other. And those are my two as well.

And what's this? I mean, I don't think either of those is, you know, even in the couple hours since the acquisition, you know, I don't think there's any great depth of insight in, in either of those.

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But before we do that, should we hop to what would have happened otherwise? And we should talk about Whole Foods and Amazon, but in particular, I want to talk here about what's the future for Instacart? Yeah. Okay, wait, pausing on Instacart real quick, what would have happened otherwise? So when we're thinking about what we were talking about earlier with Amazon marketplace and they have fulfillment by Amazon for customers who are merchants who are on the marketplace, it's interesting to think about first they had to be their own retailer and then they could open up the marketplace. In this case, it seems to me first they're going to be their own grocer, which let's not forget, I don't think we've said this

on the show yet, grocery is an $800 billion market. Grocery is the market. And it's a massive- If you look at all of retail, not just e-commerce, but all of US retail, grocery is about 15% of that. So it is enormous. I mean, it is as big as Amazon's entire business. It is as big as all, bigger than all of e-commerce combined right now. Well, I mean, it's basic human stuff, right?

Like look at Maslow's hierarchy. Like we need food. We need food, we need shelter. And actually, if you look at maslow's hierarchy like we need food we need food we need shelter and actually if you look at um household spend in order it's taxes house car food if you're looking purely at retail the first two of those don't apply uh house right taxes and it's car and food right and like think about think about uber and lyft and you know and And well, okay, I'm going to pause here. I'm going to save this for tech themes. Continue.

Yeah, yeah. Okay, so massive, unbelievable, ridiculous market. People need to eat. And it's interesting that to me, Amazon is going the direct route with being the place where you buy the food when they buy owning Whole Foods and not opening it up as a marketplace.

One direction they could have gone is to go to every physical grocery store at scale and say, you can reach customers online using our platform the way that Instacart did. And it's interesting that they sort of went the other direction with it and really bought their way into possibly unfolding it in the same way that they unfolded from their normal retail business. Yeah, absolutely. I don't know. If they didn't buy Whole Foods, would they have bought a different grocery store? If you look at Albertsons bought Safeway for $9 billion a couple of years ago.

I suppose Albertsons could have bought Whole Foods. I know they were considering it. Amazon maybe could have bought Albertsons. At the end of the day, I think Whole Foods was the best one to buy because it has the best selection and the most premium customer segment and the most premium real estate. And it actually had, to the extent any large chain did, it actually had differentiation. I mean, I don't think it was lost on Amazon.

I seriously doubt Jenny and I were the only folks that used Instacart to get Whole Foods. And I really doubt that that was lost on Amazon. Yeah, I think you're right. So to me, Amazon gets a heck of a lot more leverage out of buying Whole Foods than Albertsons would get out of buying Whole Foods. And so from a value creation perspective, I guess it creates more value for the world for Amazon to own the asset. So let's talk quickly about Instacart. I mean, what do we think is the future for them here?

I mean, they have a very large valuation. The product is great. I completely agree with you, Ben. I mean, we love it. But we love it to get Whole Foods, right? This is, you know, big for them. What's the path forward? I have some thoughts, but well, I'll go first. So on the surface, I mean, this is a bad day. It's a very, very bad day for Instacart. On the other hand, though, you know, I don't think all is lost for them by any means.

They have, I think, the only model that makes sense to, that is capable of scaling quickly in anything less than a decade-long time frame in this space, which is let the stores and the companies that are good at logistics do logistics and we'll do the last mile. Zero inventory risk. When we talked about the web van boat flipping upside down, it was that they had plowed so much money into inventory and their fulfillment centers,

and then when they were losing money on every order and a tidal wave of demand came in. It didn't fail because people didn't want the product. You know, it failed because they just, the capital demands got too great on the business. That's how they lost all of the, you know, $800 million they raised. Instacart doesn't have that problem. More demand is more, you know, gross margin for them. So that's good. And I think with this acquisition, what this is

certainly going to do in the medium term is it is going to drive everybody from in the grocery, pharmacy, any local retail space. If they weren't afraid of Amazon already, they're going to be driven into the arms of Instacart. I think probably starting with Trader Joe's. If Instacart can land Trader Joe's, to my mind, they're sort of the last bastion of differentiation in this space. And they're sure as heck not going anywhere near Amazon after the Whole Foods acquisition. So I don't think all is lost.

Then the other thing for Instacart is, of course, the other player in the commerce space, which is Walmart, which has been very acquisitive, acquired Jet, just also acquired Bonobos today in a story that was vastly overshadowed by Whole Foods. But acquired ModCloth, plenty of others. They are going to be very interested in this space too. And Walmart's in food.

I mean, they have the super stores that are effectively just huge grocery stores attached to Walmart. Now the problem has been, as you mentioned, Walmart only has $6.5 billion of cash on their balance sheet and Instacart's sitting at a $3.3 billion valuation. So Walmart's not going to spend all their cash on this deal if they buy Instacart.

So returns are limited there. That's interesting. If you're a Porva, do you take Walmart stock? Yeah, well, you better think hard about that. I believe Jet was all cash, right? I don't actually remember. I think it was. With heavy, heavy earnouts.

Heavy earnouts, right, but all cash. So, you know, Mark, Laurie didn't have to make that bet. Yep. Hey, I mean, look, you can go head-to-head with Amazon. Like, Instacart might actually just deliver like a way better consumer experience. I mean, maybe, I don't know. Well, yeah.

Keep going. It's a dangerous thread of logic that you go down when you start thinking that way, but go. Right, right. Well, I'll pivot a little bit because I hit it when you did too. What I hit on is price, right? The thing is, Instacart is more expensive than going to the grocery store. And if Amazon, now owning Whole Whole Foods can make it cheaper, you just can't compete, right? And this

is how Amazon won retail. And maybe there's a play for Instacart to aggregate the long tail of all these independent grocery stores and smaller grocery stores and everything that is not Whole Foods. But you have to imagine at some point, Amazon will open up a marketplace for this. But the thing is, so with grocery delivery, Amazon Fresh is much more on like this sort of, I've actually never done it, but I think on this sort of weekly cadence or bi-weekly cadence, right? Whereas Instacart's much more on demand yeah i think that's right you can do on demand from amazon too i believe but um but they try and funnel you to uh to a weekly cadence yeah and so this thing for instacart the ability to aggregate third-party sellers on a platform

in a sort of in an aggregated way where I can go to Amazon and order from three different third-party sellers. And since they're all fulfillment by Amazon, they sort of get to my house at the same time. It's all through the same system. Since Instacart uses a on-demand system, you really can't actually order from multiple grocery stores

because the logistics of that, sending a shopper in the next two hours to both grocery stores is prohibitively expensive and time consuming and so you know there there actually isn't really a play to aggregate the long tail to go to multiple stores but maybe there's a play to aggregate the long tail where in in every local market you have all the smaller stores on there that uh that amazon doesn't have with Whole Foods. I don't know. I mean, yep.

But you're competing with the everything store and aggregation theory, as we've talked about. Well, we'll see. I certainly don't think Monday, starting Monday or today, that Instacart is doomed. Actually, there certainly are plenty of ramifications from this deal that are positives for them. But it does just speak to,

in the world we live in right now, Amazon is the new Microsoft from the 1990s. Yeah. Dude, that's okay. I'm glad you're going there because that's my first tech team. Take it away. And I think probably one of yours too.

In one sense, they're the new Microsoft. In another sense, the big five right now, Facebook, Amazon, Microsoft, Google, Facebook, are way more powerful, just way more powerful because of machine learning and because of the data assets that they have than Microsoft of that era. Because I really do think that there is this, well, we can out-execute this company right now because they don't know how to do consumer.

They don't know how to... With these companies, it's just a matter of time. I really thought, wow, Amazon Fresh isn't as good as an experience for a long time as Instacart. But at some point, Amazon just has so much cash and these companies have so much cash, they just go in and they buy this huge asset. And they get this incredible data asset out of it. And they learn how to optimize every single experience

for every single customer based on exactly their wants and needs. And I think that also with the availability of cloud computing, you start your two pizza team inside Amazon and it's small and you work on a thing. And then suddenly if it's working and you find product market fit, you get the power of Amazon's cloud behind it. I really do think that the big companies now have ability to enter markets that they just compete with everyone and they're fierce. I think it highlights the importance of if you're going to do the crazy thing and attack one of these guys head on, well, you can't attack head on, but attack them on their turf.

The angle you enter at has to be completely orthogonal to the angle that they're approaching the market. it. And I think Instacart, you know, you listen to Apoorva and again, it's very articulate and makes a good case for why Instacart can do things and offer things that Amazon couldn't and probably still can't. But I don't know that the angle, like it was a little too acute, you know, like as we've been talking about it, it's not so totally different that enables a completely different customer experience. And I think you're right. The power that the big four, big five, however you want to categorize it, have right now make the power that Microsoft had in the 90s look quaint. I agree.

And to pile on that point one more time, the market really doesn't believe that anyone can compete with Amazon once Amazon decides to enter a market. Amazon is by far the scariest of those five horsemen right now because here's how the market responded today when this deal happened targets down

nine percent walmart's down five percent costco six percent sprouts eleven percent and kroger 13 wow like amazon signals they're going to enter a market and just which is ironic too i mean like this should not be news to anyone like amazon has signaled for 10 years that they're coming for groceries. David, the irrationality of the market will never cease to be a topic on this show. But actually, that is a good point that I think is worth a moment. As scary as Amazon is, they can't start from zero and destroy you.

Really, I don't think this would have happened without the 10 years of, you know, from, from web van to, you know, to, uh, to Kiva, uh, to fresh, you know, and then to observing Instacart. Um, everybody knew this was coming. Um, so, so, you know, I don't think like, you know, if you're, um, you know, if you're Airbnb and you have another amazing marketplace, but you're nowhere near Amazon. I don't think Amazon can launch Amazon stays tomorrow. So there is some solace there. Especially in those marketplaces, right? Of building up a big supply and a big demand.

Yep, absolutely. They do not happen overnight, regardless of who you are. But I think it also highlights something else that, you know, if I were, I don't happen to believe necessarily the bear case on Amazon right now. But nobody seems to be making it. So I'll take a stab. Here's my bear case on Amazon. As they grow and everything you were just saying and enter so many new markets, there is going to be this incredible, incredible human capital management problem there.

And I think Jeff Bezos is amazing. He's one of the best management leaders ever to be able to grow Amazon as it is in such a decentralized fashion. But at some point, even in as efficient an organization as Amazon, those communication costs within the organization are going to get higher and higher. So there is probably a natural human limit to how much they can scale in terms of businesses. Yeah. I mean, that's always been the case against big companies and the case against conglomerates for a long time.

The question is, has Amazon really found the formula to make that I think they've done better than just about anybody else in history right but what is the upper limit of their current model and you know you could certainly argue that in today's world and in tech we've talked about this I think we're in tech themes now on the show about how technology is a lever and like the two pizza teams in Amazon, like a two pizza team started Prime Now and Amazon Go and Amazon Fresh and all these things. One thing that we shouldn't lose though,

like we're glorifying these two pizza teams, the Amazon Go team with one location that is only open internally to Amazon employees is like a thousand people. And those are a thousand people with individual personalities and politics and, you know, wants and needs and desires. So again, I'm not sure, you know, I don't want to compete head on against Amazon. But if you were to articulate a bear case, to me, that's the best one right now. Yeah. Another interesting, it's not as much a tech theme,

but an Amazon theme is, Amazon's never done an acquisition on this order of magnitude before. Like all of their M&A strategies sort of changed from buying these sort of properties that they can integrate into their systems, Audible and Zappos and things like that, to buying technologies that were even cheaper.

And then they sort of stay on this, buying lesser expensive technologies for a while, or maybe more expensive in the sort of Kiva or elemental technologies or things like that. But really, they haven't been acquiring these sort of, I guess in the media world, to be like properties or like retailers. And so it's really interesting to come out swinging so hard. They're really putting a stake in the ground that this is a huge business for us.

And there's this great chart on Axios, and I'll just read it from the bottom up, of deals above $500 million. So you have Quidzy in 2010, Kiva in 2012, Zappos in 2009, and those were like $500, $700, $900 million. Twitch for $970 million in 2014. Then you have Whole Foods at $13.7 billion. And the next step down from Whole Foods,

it's kind of between Twitch and Whole Foods, is an office building that they bought in 2012 from Vulcan for $1.16 billion. So literally, South Lake Union is the next acquisition. Yes, they bought an office building, yeah, for one order of magnitude less than this deal. And that was their next one down. But still bigger than Twitch. That talks about, you know, order of magnitude less than this deal and that was still bigger than twitch that's not yeah right well anything else you wanted to say on that no okay perfect lead-in to the tech theme that i

really want to talk about here uh which is the power of big markets uh and and the lead-in that i was the connection i was making is that you know estate market is enormous if you're going to pay more for an office building than you would for Twitch. But taking a step back here, I think a lot of people and certainly the press and the public kind of look at this whole situation that we've discussed in all these companies and say, man, Silicon Valley is crazy. Venture capitalists are nuts. These people are so stupid. How could you put so much money into Webvan, into who knows, hopefully Instacart has a bright future ahead,

but maybe that goes to zero too. Maybe Amazon just killed it. How could you do that? How could you be so irresponsible? And I think the answer is that when you're talking about a market as large as grocery, I mean, literally a trillion dollar market, you know, 15% of US retail, you have to think about it in terms of like, what if I'm right? You know? And, and, and this is how Amazon and Jeff Bezos thinks about things. It's like the power of attacking a large market,

it's going to be very hard by necessity because there's going to be a ton of competition. And your odds of success are certainly not 100%. But if you get it right, I mean, if Amazon gets this right, it's literally going to double the size of Amazon. And think about how big Amazon is already. And people thought AWS was a big business. Yeah, and these are the kind of bets that lead to,

I use the word bet, I don't like the word bet because it's not a bet, it's about the hard work that you do over a decade-long period that Amazon has done to get here, and they have another decade ahead to continue to realize it. But if you can be successful in that, that's how you build Amazon-scale businesses. Yeah, I love that.

I love that. And in venture, it's not about all the ones you lose, it's only about the ones you lose. Well, right. I mean, close to a billion dollars lost on Webvan, right? But already, if you take those learnings and you had bought Amazon shares or even Instacart shares,

you would be getting a nice return on that. You want to grade it? One other one I wanted to do real quick. I don't know that there's too much more insight to add, but I don't think we've talked about it yet and we can't have an episode on Amazon without talking about the flywheel. Because that is the other,

besides making big bets, that is the other core element to Bezos and Amazon's philosophy. And if you think here about kind of, um, especially, you know, Alexa, right. And, and, and echoes and like, where do echoes live? Like they live in the kitchen, you know, and, uh, and, and that, how that business has grown within Amazon and then attaching a grocery business to that, and Alexa, bring me some milk, you can start to see the flywheel spinning, and that's how you can create this just insurmountable competitive advantage in a space.

Yep, absolutely. All right, should we go back to wild speculation and grade this thing? Yeah, Yeah. I mean, I don't know. Okay. So they've spent, what was it, $13.7 billion, right? Yep. Yep. And, you know, I mean, what's the return they get?

I mean, that's what... Yeah, so here's an interesting, what else could they have done with that that could have possibly, let's see if we can do like an expected value calculation. So you pour that into something else and we can think of what that something else could be and then I guess like try and figure out

what the coefficient of possible success. Every city in America. Right, right. Like there aren't that many more like bigger markets than this um that am and especially that amazon's already playing in transportation well there's there's there's three there's government and taxes there's uh u.s real estate and there's transportation those are the only markets that are bigger than this wow it's funny Amazon doesn't, I mean other than the buildings they own

they don't really play in real estate they so far aren't really playing in transportation other than logistics, like certainly no consumer transportation do we want to make any calls on this show? I know this isn't grading it but we should to make any calls on this show? I know this isn't grading it, but we should make a long bet or something that in five years, are they competing with Waymo, Uber, Lyft or not? And Airbnb and real estate. Yeah. There is so much that Amazon's

not competing in yet. Yep. I mean, well, what you're talking about is, is, you know, no longer a big five in tech, but a big one. Um, I don't know. I have a hard time seeing that happen. Well, you know, if we're, if we're grading this acquisition and we're being that speculative, I just didn't think it was that much further of a leap. Well, um, well, I mean, I think right now I'm going to give it an A-, which is in line. This feels weird to say given the difference in magnitude between the two of them, but I'm thinking about our last episode in Sound Jam. And in some ways this feels like a SoundJam to me. Amazon was going to do this anyway.

Clearly, they've been doing it for a decade. This is an acceleration to their plans. And hopefully for them, it works out like SoundJam worked out for Apple. But I can't give it more than an A-, even if it does work out beautifully, because I don't think it's a fundamental transformation. This isn't like an Instagram that's going to come in

and just completely take the whole organization in a direction that it wasn't going. It was already going this way. The only caveat on that is it could actually be direction that it wasn't going. It was already going this way. Right. Yeah. The only interesting caveat on that is it could actually be their biggest business in five years. But for me, if our A is a next or an Instagram, a business and a team that just completely transforms a company,

this is not transformative. No. That's a great point. a business and a team that just completely transforms a company. This is not transformative. No, that's a great point. Well, it certainly won't. And honestly, if it fails, well, then there's a lot of money to spend on this. It's really just the opportunity cost of that capital. So assuming, if they succeed, I give it an A-minus. Maximum grade.

Maximum grade. Really? I mean, what if they start commanding six of the $800 billion in this market? Oh, but I think they could do that anyway. They didn't need to buy Whole Foods to do that. Okay. All right. A it might have sounds good to me all right there we go um follow-ups follow-ups and hot takes well we mentioned walmart buying uh bonobos um which i don't you know whatever like great jet jet is gonna target customer fit to me um no but i think what the deal is, is I think that Amazon, I'm sorry,

I think that Walmart, you know, through Jet, is really just trying to buy a bunch of these sort of smaller e-commerce companies that people love and figure out, you know, can they just own a portfolio of these things? They may not sell them, you know them in Walmart or something like that, but if the goal is to go around and buy a bunch of these like Casper and Harry's and internet and now Warby Parker,

those sorts of businesses, does it make sense for Walmart to own a big portfolio of those? and Warby Parker, those sorts of businesses. Does it make sense for Walmart to own a big portfolio of those? I don't know, but I don't think this was... This wasn't a huge outcome for Bonobos. No, not given how long the company was around and how much money they raised. But, you know, nice exit. Honestly, what it feels like,

and I think this is a Ben Thompson tweet earlier, but these being announced on the same day is just the contrast. It really showed how stark the contrast is where Walmart's kind of playing checkers and Amazon's kind of playing checks. I love this. I'm going to throw in one more tech theme that actually I've been thinking about a lot lately and I think is a very powerful one. Amazon is playing offense. Walmart is playing defense.

You don't win by playing defense. Especially as a startup. Not that Walmart's the opposite of a startup. When you're a startup, you have nothing to defend. You can only play offense. That's the only way to win. Are you insinuating that Amazon may be playing like a day one company? I hadn't thought of that.

So insightful. I know. All right, carve outs. Carve outs, let's do it. So mine is a friend of the show, Brian McCullough, from the Internet History Podcast, which if you're listening to this show, you would love that show tweeted this this link out the other day and I had to just go watch the whole thing because it was like just one of these things you can't take

your eyes away from it is Mark Zuckerberg in 2005 coming back to Harvard to give a guest lecture in CS50 oh man I saw that I haven't watched it yet. I need to. It is unreal. First of all, it's super insightful from a technology perspective to understand how Facebook succeeded in a way that a lot of their other precursors of social networking sites failed. So it's interesting to learn about Facebook's early architecture from a tech perspective. But then on top of that, it is just so stark to see Mark Zuckerberg speaking the way that he spoke in 2005, juxtaposed against the way that we all hear him today. And Mark without PR training, and Mark without a team of writers, and Mark without a perfect

diet and hitting the gym all the time. And he's, he's, you know, he's just insanely off the cuff and almost a little like bro-y, like there's a little streak of that in there. Well, two things, one, Wirehog. Yeah. Facebook was, he was just a side, a way for him to launch a Napster competitor. And then two, the Sequoia pajama pitch. He was total bro. Yep, yep. And in this pitch, he probably earned this lecture.

He's like, we have two hours. I'll probably talk for like 15 minutes because I don't know what you guys want me to talk about. And then probably 15 or 20 times. I know, right? Over the course of the, of the two hours, he says like, yeah, I don't know if this is interesting to you guys at all. I don't know if this is relevant. Like, I don't know what you want me to, what you want me to say.

I don't know what, you know, like, I don't know, uh, like, I don't know if this is relevant. And you just keep saying that over and over and over again. And you're like, wow, this guy, it's so different. And look at him today. I mean, yep. What, what matters is potential, not the current state of things. Potential and network effects.

And flywheels. And big markets. And playing offense, not defense. All of the things. All right, my podcast is the episode this week of Exponent. Ben Thompson and James Alworth's great podcast that I'm sure many of you guys listen to

and should if you don't already, on podcasts. We've talked about this on this show. We did the episode a while back on Midroll and Stitcher. But it really feels like with Apple announcing that they're going to bring a whole bunch of changes and improvements to the platform of podcasting, now might be the time. We've argued on this show,

podcasting is obviously near and dear to our hearts. And we are in the startup and venture world. But it's just too soon. The market's too small. You can't build big businesses here. But I wonder if now's the time that things are changing. It's a great time to be in podcasting, David.

It is. Which is also why it's a great time to tell your friends about Acquired. Couldn't help myself. No, it's great. It leads exactly into our show close. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC2,

ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple. Yep, Vanta is the perfect example of the quote that we talk about all the time here on Acquired. Jeff Bezos, his idea that a company should only focus on what actually makes your beer taste better, i.e. spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers. It plays a major role in enabling revenue because customers and partners demand it, but yet it adds zero flavor to your actual product. Vanta takes care of all of it for you. No more spreadsheets, no fragmented tools, no manual reviews to cobble together your security and compliance requirements. It is one single software pane of

glass that connects to all of your services via APIs and eliminates countless hours of work for your organization. There are now AI capabilities to make this even more powerful, and they even integrate with over 300 external tools. Plus, they let customers build private integrations with their internal systems. And perhaps most importantly, your security reviews are now real-time instead of static, so you can monitor and share with your customers and partners to give them added confidence. So whether you're a startup or a large enterprise and your company is ready to automate compliance and streamline security reviews like Vanta's 7,000 customers around the globe, and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you.

And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. So listeners, happy Friday night. You probably listen to this in another time, but David, enjoy your weekend. You too, Ben.

Listeners, if you haven't subscribed and you want to hear more, you can subscribe from your favorite podcast client. And if you feel so inclined, we would love, love, love a review on Apple Podcasts. So with that, go shop at Whole Foods. Go shop at Whole Foods. To more wild speculation in the future.

Yes. Alright, thanks everyone. Thank you.