Big Technology Podcast - Will The Fed Blink And Save Tech — With Ranjan Roy

Episode Date: October 12, 2022

Ranjan Roy is the co-author of Margins, a Substack newsletter about the financial markets. He joins Big Technology Podcast for a conversation about the Federal Reserve's steep interest rate raises, how they've harmed tech valuations, and whether the Fed might reverse course and bring the party back. Stay tuned for the second half where we discuss the short-form video wars and the likely outcome of Elon Musk's pursuit of Twitter.

LinkedIn Presents. Welcome to the big technology podcast, a show for cool-headed, nuanced conversation, of the tech world and beyond. He's back. Ron John Roy is here for, I think, his fourth episode. He is our, we'll call you maybe you're a resident in-house. economics and Elon Musk slash social media expert.

I don't know, Ron John. How should we, how do we call you? The title I always dreamed of when I was growing up, economics and Elon Musk expert. Economics and Elon Musk expert. You might know Ron John from Margins, the newsletter that he writes on Substack or from CNBC. He's often on tech check.

Got to always watch his appearances there. Before we get started, just a quick apology to everybody. Last week I recorded my interview with Tom Allison. on my internal mic unplug plugged it back in internal mic that's why i sounded like garbage um anyway we're back here with the professional mic and we're ready to kick off what i am sure is going to be an interesting show we have a lot of ground to cover uh the economy what's happened to tech stocks then we'll talk about short form video what's going on with facebook and tick to youtube and instagram and um all the above trying to compete with each other and we will then

close out the show with an update on the Elon Twitter scenario. You've probably been overloaded on what's going on. And we're recording this a couple days ahead of publish. So the whole thing will probably turn on its head again. So we will dedicate some time at the end. But in the meantime, let's talk about what's going on with the economy. Ranjan, a lot has changed since the last time we spoke about the stock market. I think things are a little less stupid, let's say, since the last,

three times have been on. I mean, this morning, we're publishing on a recording on Friday, the jobs number came out and it was in line with expectations, which were good. And of course, that's bad for the market. The Dow ends down 600 points as we're speaking. Tesla's down 6.5% tech stocks are getting crushed again because it means that the Fed is definitely going to state's course. Everyone is waiting to see any kind of sign that the Fed's, Fed might pivot. And they've been abundantly clear that they're going to try to fight inflation and that they are not moving away, not changing course from hiking rates. And the market is not taken too kindly to that. Right. And so just to pull back a little bit, we've in the past talked

about how the Fed had zero interest rate policy, which effectively made money free to borrow, which funneled a lot of cash into higher risk investments, meaning things. like crypto and tech companies with, you know, big growth prospects in the future are, you know, would start to get funded in ways they never would in a more rational world. Now the Fed is in the middle of this process of raising rates and everyone's looking at these signals like jobs numbers, for instance, as like, okay, if the job, if there's more unemployment than maybe the Fed slows down because the Fed cares about employment, but the employment numbers are strong, meaning the rates continue to go up.

so all of these exploratory places to park your money become less and less appealing. Is that the right way to look at it, Ron John? Yeah, no, that's exactly the right way. And I think one of the most interesting dynamics right now is this idea, again, that good news is bad, bad news is good, the idea that the jobs number came out well and people are still employed. So that means that the Fed will keep hiking and the stock market is taking a hit. And I think the Fed is in this very interesting position. Because you're starting to see an increasing narrative that the Fed wants people to lose their jobs, that the Fed is trying to engineer a recession.

And I think this is the most important thing that everyone needs to kind of monitor around the story because for so long the Fed enabled this insane growth, ZERP zero interest rate policy has been a favorite topic of ours and has led to all sorts of weirdness in the economy, all sorts of little bubbles popping up everywhere. and that's ending and that's definitively ending and it's not necessarily going to be good for the economy in the short term. And it also, I guess you have to qualify what good is in the sense that if it takes a lot of the froth out of the economy, it's not the worst thing in the world. Will it lead to increased unemployment and job losses? We have yet to see that, but we still see elevated inflation. Yeah, one of the things that people have talked about in this moment has been the resilience of the labor markets. People are still getting, you know, keep staying in their jobs, getting jobs, getting hired when they need to. And it's really the capital markets that have

taken the hit, right? The S&P 500, while we're recording is down 23, 24% on the year, which is just astounding. Basically, the core of the S&P has evaporated over the past 10 months, nine months. And there's an interesting narrative that's emerging about how this is like kind of the, the, working man's correction. And here's a tweet for Matt Stoller. He says, talking about the resiliency of labor and the tough time that the stock market is going through. He says, how come no one else is enjoying the fact that the Fed keeps trying and failing to throw normal people out of work and instead keeps smacking billionaires in private equity? What do you think about that? Yeah, no, no, I think there's something to this. Even if you look at housing, on one side, you have the idea that mortgage

rates are going up, this could potentially cause a slight correction in the housing market. But on the other side, you've seen a massive affordability crisis in housing, which leaves out the 40% or so of Americans that don't own their own home. And you've seen craziness in the rental market also associated with this. So I think there is definitely some healthiness to the correction. And as Matt Stoller and others have definitely said, you know, the idea that the working man's correction, that this will actually even out the playing field. And even if you look at technology, right now, when big tech fang, these stocks have taken a hit, that will decrease their power. Already, think about, it's interesting to me, the connection between labor markets and the

tech industry, where we both focus most of our time. Equity compensation has been a weapon of choice for every big tech company, and that's how they attracted people with these amazingly inflated pay packages, that's going away. That's, you know, and that could actually lead to better recruiting and talent attraction for smaller mid-sized startup. So I think every one of these things that, even if the top line, the numbers move a certain way, underneath that, there's definitely a balancing, or rebalancing that's happening a bit. Right. And it's interesting. Speaking about tech, I did this story a couple weeks ago that I think some people were skeptical about that this is a moment of vulnerability as well as opportunity for big tech. And I focused on the vulnerability

because, you know, while they will inevitably consolidate some areas that they're competing in, they're going to lose some of the most entrepreneurial talent who isn't going to have those high equity packages. And we do know that there are hundreds of billions of dollars of dry powder out there that VCs are now investing in Series A and seed companies, that an entrepreneurial person from, you know, a big tech company who's now getting paid less might go head and take advantage of and eventually compete with them. What's your read on that? Good or bad for Big Tech? Yeah, no, I think was it Bill Gurley who had tweeted this is the best time in the last decade or 15 years to start a company? And I do agree with that in a way that now you're

entering a period where the froth is going to be gone. Talent can actually be attracted. Big Tech is no longer going to dominate you, take you out with an early acquisition, thanks to antitrust oversight. I mean, every single one of these factors is moving towards where I think we're actually going to see rebirth and innovation in the early stage rather than just the same old thing that we saw for the past decade. This is the optimistic way to look at it. I know. I'm rarely optimistic. On this one, I actually am. And now I press you on the other side, which is, you know, is the Fed going to end up doing too much? I mean, it's the working man's correction now, but that doesn't necessarily need to apply. Because eventually, if we do go to the inflation,

do go to a recession, and we get the job loss to combat inflation that the Fed wants, who does that end up getting hit? You know, that unemployment rate ends up hitting, you know, working people. Of course, of course. But to me, the idea that there's this big question, is the Fed losing its credibility now? Will they lose their credibility? To me, honestly, the Fed has not had credibility for the past decade in the sense that they were trying to get inflation to two to two and a half percent. That's what got us to zero interest rates for years. And there's always this the mystery. Where is the inflation? We can't find the inflation. So it's clear that they did not have their hands on the wheel or whatever, you know, to actually move things where they wanted to.

And then on the other side, inflation starts rising. It's called transitory. Everything is being done avoid hiking rates. And remember, the first rate hikes were only in March. We're only six months into this cycle right now. So I think that the idea that the Fed has this like perfect view and they can engineer the economy in exactly which direction they want, they already showed that that's not possible over the last 12 years. I don't think right now they will be the ones necessarily creating a recession or causing a recession. I think, again, if the economy can't handle 4% interest rates, 4 and a quarter percent interest rates with savings account giving you a couple percent? I mean, if we can't build a functioning economy around that,

I think we have bigger problems. And I think that's where we've all gotten a bit spoiled by the last Zerpy decade. Right. And now I'm tempted to push back and say, well, you know, these actions are going to cause pain to working people, you know, middle class, working class. However, the other side of it is 8, 10% inflation probably hurts them worse. Of course. In the 8 to 10%, I mean, 8, whatever, are we at 8.3 right now? That is killing anyone who is actually just trying to balance their checkbook and buy basics. I mean, that's the person who gets hurt the most.

So, again, I think it goes back to this idea that, yes, the loudest voices you're going to hear are those that have a vested financial interest and the ones who benefited for the less from the last 12 years, and their world is not going to be the same as it was. But the idea that suddenly those people are so concerned about the people who no one talked about when income inequality grew over the last decade, I think, is a bit disingenuous. Right. And then, but there's also like, I mean, I guess you're getting hit by inflation, but it just, it does kind of suck to like not, I don't know, be extremely wealthy right now because,

I mean, it hurts for everybody. Right now. I mean, imagine, I mean, normal situation for folks, they're renting, right? Their real estate, their renting costs are going up. Their portfolio is down and their wage is, you know, growing, you know, stagnantly or, you know, bit by bit. And, yeah, their portfolio is shrinking. Yeah, no, but one that assumes a portfolio to begin with. Right.

I mean. Well, lots of people have retirement. you know, pension, all that's invested. No, no, but retirement and pension, but you're not accessing that to pay for your weekly groceries. Right, right. I think, again, the idea that inflation versus the risk of unemployment, I do think the Fed's staying the course and being, I mean, just, it's amazing how coordinated they are and then purposeful they are, that every speaker who comes out makes it clear to the market, we're not going to give in unless inflation comes down. So if we see a hit in the market, that's not our mandate. It's inflation, and we're going to stick to it.

And it's rare that you've seen that coordinated a communication effort. And I think they're doing the right thing. And they waited to do this as well. There was still a bit of vagueness. Some of the governors were still saying, you know, maybe we'll wait and see. We're data dependent. This is the first time that we're really seeing everyone coming out together. Yeah.

What do you think about this tweet from Joe Wisenthal, previous guest of the show? This year, the Fed has crushed. the stock market, tech, and real estate all in its mission to ease the burden on the brenter class. Basically, is your assessment that's true and it's worth it? I think it's relatively true. I think, and I do think, again, the question of, is it worth it? I think it's definitely a different track than we've gone for the past decade. So I think there's definitely good to it.

It's not all bad. It's not all good. But I definitely think it's going to, it's rebalancing the economy in a different way, which I, would say I support. Right. Okay. Now, underpinning this entire conversation has been this assumption that inflation is is less temporary and is actually here to stay. And I want to get into that because there was this other tweet that I saw from Conner Sen, who's Bloomberg opinion columnist. I think you've noticed this. It was actually kind of funny. He's talking about an inflation burp versus persistent inflation.

So he says, I'm becoming increasingly convinced we went through an inflation burp rather than some structural 1970s type thing. It's fair to point out that the Fed hikes this year have had an impact in squashing it, but it's clearly happening now. Okay, and he goes through, and I've reported on some of this, and we're actually going to try to get Ryan Peterson, who's the CEO of FlexPorter on the show, so it looks like that will happen in November. But shipping from Shanghai to Los Angeles has gone from somewhere around.

$12,000 a container late 2021, early 2020, to $2,995. That's astounding and almost a return to where it was. Let me see if I can understand some of his other charts. Okay, used cars, right? They were way up in, again, early 2021, early 2022. Now they're falling to pandemic level, pre-pandemic levels. What else do we have here? Okay. I can't understand this one. And then job openings are coming down.

And then the case, Case Schiller home price index. Right. Yeah, home price and job, job openings are coming down. So there is, there is a case to be made that, okay, maybe the transitory, people who said inflation was transitory, that it was just here, you know, for a moment because the shipping lines got messed up during COVID. And everybody had this stimmy money that they, you know, were spending. And that was, you know, causing prices to rise. And eventually that would. that would even out on its own without the need for aggressive Fed action or maybe minimal Fed action. And in many ways, it looks like that's happening in some areas. I mean, home price, cars, shipping, these are the things that were fueling inflation. So what do you think about that? Yeah, no, the global supply chain pressure index, it's put out by the New York Fed, is down 66% since 2021 from the peak. But this has already happened. The supply chain, opened up, the bottlenecks and the pressure, for the most part, opened up in the spring. That's why every retailer is sitting on insane amounts of inventory.

That's why Nike's inventories are up 65%, but average selling prices are still staying either equal or even rising from retailers. So there you see the perfect dynamic where even though inventories go up, that should be deflationary, but it's not. They're still charging consumers more. And that's exactly where, because they don't know where the economy is going, they need to already absorb those margins that they paid up for. So they're going to charge a consumer more. And I think that's where you see these kind of like cyclical dynamics where, you know, just because something, even in an economics textbook should, you know, increased inventories, decrease prices, that's not the way this stuff plays out in the real world.

Right. And did you, a lot of this discussion has played out on CNBC. Did you see Jeremy Siegel, the Wharton professor, sort of lose his mind over the Fed being too aggressive? Yeah, yeah. No, no, there's a whole, that's what I'm saying. Out of the financial pundit world, there's a lot of people freaking out about the idea that the feds get engineer recession. And none of these people were screaming when the Fed was engineering a bubble with zero interest rate. so you can see where the bias lies.

Don't you think the Fed, you know, well, now that we're talking nuanced and balance, right, the Fed is messing, has messed up here, right? I mean, one of the points that Siegel made is they were way too easy, right? With their zero interest rate, they allowed all this crap to happen. And now they're, you know, you shouldn't be in a position where you have to engineer a recession to fix your mistake effectively. Yeah, but I, okay, even though I may be bad, nothing the Fed right now. I'm not someone who believes this is intrinsically the fault of the

Federal Reserve at all. I mean, there's a lot over the last decade, especially in the early 2010s, that because the government was gridlocked and was unable and fiscal policy could not drive actual growth that the Fed was basically the only actor in the financial system that could push forward any kind of policy. So I think there's an entire other side that the Fed tried to do whatever it could. But they are where they are right now. We all are where we are and it's not a great place. Other than for early stage startups. It's never been a better time for them. Printing all this money, what do you think, do you think that that was a necessary thing to get us through COVID or was the government sort of drunk on its power to spend our way through it? I mean, I think that was, you

saw how the past decade informed the immediate reaction. None of us knew what was going to happen. The economy had to get shut down. Something had to happen. I mean, there's been the most insane stories coming out about PPP fraud. And then you have to, the New York Times had an amazing investigative piece and there's a podcast with the daily on it. But at the time, it actually stabilized the economy and actually helped a lot of people. So I think everyone did the best, I actually believe overall in good faith, people acted as best they could. But, you know, we're seeing the negative follow-on effects of a lot of that. Yeah. And some folks don't seem to have learned their lesson. I think Gavin Newsom, the governor of California, said to fight inflation and

gas prices, he's going to give everybody a thousand dollars. And it's like, dude, that doesn't fix That's the problem here. Well, I mean, and actually, which brings us in terms of gas prices, when we're talking about supply chain bottlenecks, you know, that inflationary impact actually receding, energy prices, geopolitical risk, that stuff is not anywhere close to going away. So I think that's like another thing to remember that when the Fed is, you know, communicating, should they start easing up a little bit, there's a whole host of risks out there that they have no control over, but we have to protect. against. Right. And now, okay, so there have been, there has been a movement in the tech world or folks that invest in technology to sort of read into what's happening now, again, looking at some of these indications of pricing coming down, and say actually like the Fed is about to pivot, realize that we're sort of coming back on our own and is not going to raise rates, you know, to the degree that

A lot of people thought they were, Kathy Wood was just on tech tech. I figured you were referring to a certain innovation-based investor. Right, right. And she was saying like basically suggesting that we'd hit the bottom, saying that tech usually and innovation usually leads our way out of a recession. And the Fed is going to be surprised, surprised by how inflation or deflation will tell off or deflation will come into play. We're definitely titling, you know, this episode,

will the Fed save tech? Will the Fed? I mean, Kathy Wood is spoken on, she's continued pushing for the past year as inflation skyrocketed, that deflationary forces are coming, that there's any number, including magical technological innovation, that will be deflationary. She's talking her book.

She has the highest beta portfolio ever that when, And we've already seen ARC is down however many percent over the year. Like, of course, because if inflation stays and rates do continue to rise, a portfolio like hers is going to continue to get obliterated. And I think that's why, I mean, she can't say anything else. Right. Well, do you think there's a chance the Fed does save tech, though? I think the Fed, I think Jerome Powell does not think about the tech industry when he wakes up

in the morning. He does not think about Tiger Global's returns over the past 12 months. Right. And we know the Tiger Global, speaking of them, there's just some breaking news that they're going to actually have a fund that's like half. Right. But much less than what they've been spending, which I'm sure a lot of VCs listening to this show are going to welcome. So anyway, yeah, so okay, can't really count on that. What about crypto? Seems like a lot of that growth in

crypto was due to people trying to find riskier investments when the interest rate was zero. It's pretty wild. The Fed signals interest rates are going to go up and the bottom falls out of Bitcoin and many of these other crypto markets. Do you think we've seen most of the pain already? Or is there going to be more on the way when it comes to crypto? This is going to be my second Bill Gurley tweet reference of the episode. But another one that's stuck with me is where down 70% doesn't mean there's not another 70% left to fall, something to that effect, and that's what we saw in the dot-com bust. And it is. There are stocks the first 60, 70% move down. You think how much more pain can there be? But I mean, everything can change. You see with

direct-to-consumer companies, this has been fascinating to watch where everyone was talking about price to sales in terms of how they were valuing companies. And you saw companies like all-birds and Warby Parker trading 15, 20 times sales. And then now these companies are trading at less than one time, or not those two, but like rent the runways trading, Stitch Fix is trading at less than one time sales because we're back to price to earnings. We're back to actually looking at profitability to try to value these companies. So I do think you're, even when I thought, you know, I as well got so conditioned to looking at certain ways of valuing companies that that entire framework change where we're back to actually multiples of profit.

And so there's room. There's still room. Right. I better not say those companies' names because I did write about what I was going on with direct-to-consumer and effectively got angry emails from almost all of them. And some blaming me on what was happening to the market. The Fed's going to save tech after you killed it, Alex. I'm like, I don't know.

I mean, look, I appreciate their faith in the power of big technology, but I don't think one newsletter article is going to quash a segment of the economy and by the way Peloton I just like at the risk of giving away you know one of my story ideas

here on the show like I've been trying real hard to find a Peloton employee to talk about what was what the experience has been like going through this company as it like plotted along and then set up until like one of the hottest companies in the world only to come crashing down

They went from, I think it was like a nearly $50 billion market cap to $2 billion market cap in a span of months, which is just unbelievable. And they laid off again last week. Yeah, they just had their fourth round of layoffs. And it's the craziest part for Peloton for me to think about is them introducing the Peloton rowing machine in the midst of all this carnage and chaos. Like the idea that you have to introduce after the treadmill did not do amazingly, you have to introduce this entire. new product line to try to save the company while your stocks crashing while employees are getting laid off. It's one of those reminders that there's the kind of reflexivity on the downside where as the stock price is crashing, it will have second and third order effects, employees leaving

demoralization. And I agree that I don't think that's something that's really been covered and explored in depth, that how did the actual move down in people's own, you know, equity compensation or their options valuations. How did that change the actual direction of these companies and the decisions they made? It's worth looking at. Yeah. Well, if you're working at Peloton and listening to this show, you know how to reach me. Ron John Roy is with us. He is the author of margins. You can find it margins.substack.com. Is that the right address, Ron John? That is. Or readmargins.com. Readmargins.com. He's also on Twitter. Ron John. Ex-Roy. You can catch him on Tech Check pretty frequently. One of my favorite guest appearances on CNBC, a place that I show up every now and again as well. And it's great to have him here on Big Technology Podcast. We're going to take a break, come back, talk a little bit about short-form video wars between Facebook, TikTok, Instagram, YouTube, et cetera, et cetera. Maybe be real. And then we'll talk about he who, who, who,

shall not be named, Mr. Musk. Hey, everyone, let me tell you about the Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than 2 million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now, they have a daily podcast called The Hustle Daily Show, where their team of writers break down the biggest business headlines

in 15 minutes or less and explain why you should care about them. So, search for The Hustle Daily Show and your favorite podcast app, like the one you're using right now. And we're back here with Ron John Roy on Big Technology podcast. Ron John, so, you know, we talked a little bit about the economy. So it sounds like you're feeling good about it. You're rooting for rationality. Best time to start a company.

Let's just repeat that over and over. But you're also, it also seems like like we've, we've, we've sort of, sort of been on this roller coaster ride, and it seems like we're starting to go from these wild up and downs and, you know, GameStop economy to one that seems more predictable. Yeah, to me, that's what excites you. That's what I'm reading. To me, the GameStop economy, Uber being valued at however many tens of billions of dollars while losing billions of dollars, like that stuff did not signify a good economy to me. So that's why, like, right now when everyone's saying or everyone's very worried about what possible negative impact there is in the economy, to me, it's not that the economy was good over the last however many years.

Right. Okay. So an interesting battlefield that we're seeing in companies, again, that we look at closely is the rise of short form video. I mean, just to kick off just this week or, well, last week, if you're listening on Wednesday, I actually started working with an agency to do. do TikTok and YouTube short videos that are highlights from the podcast. Wait, is this, are we going to do tick? These might be shorts, yeah. All right. And the stuff that they, I mean, just watching these videos take off is amazing. It is clear that whether it's just people's interest in content consumption or the platform

is pushing these formats, that, you know, 10 cents on, you know, a longer form platform will get you a dollar on on a tic-tok or youtube shorts that's a long way of saying that like the reach is just insane they take videos and explode them and the interest is unbelievable um i posted a video of the francis howgan podcast just a what a minute long or the agency did it and um it had like 15 000 views and a hundred plus comments and in like 12 hours which you just don't get anywhere else so So what's your assessment? I mean, is this just the new form of social media that we have? And can you handicap the race in terms of who's going to win and who will lose? All right. So to me, this is the single most fascinating thing to watch in tech right now, the short form video wars. Yeah, because I mean, look at you have Instagram copying TikTok, YouTube's copying TikTok, Snap has spotlight. Everyone has, I'm waiting for LinkedIn to come out with a short form video product. I mean, everyone has it. And everyone has it. Everyone's focusing on it.

And just as you said, you apparently as well are being the beneficiary of the algorithm getting tweaked to push this stuff. So, you know, when we, every creator has been, you know, missing out on engagement because it's been getting harder and harder. Clearly, these platforms have completely prioritized short form video that, I mean, Mark Zuckerberg and they're begging you to post reels. They're trying to, you try to post a video. it will get converted to a reel. Everything is turning into short form video. YouTube and their shorts product is exploding as well. So who's going to win?

And then obviously TikTok is the OG and this. I think YouTube is the most interestingly positioned. And here's why Facebook and this is slash meta. I think this is a much, it could be a whole other conversation, their power has always been the. social graph and social graph-based recommendation. And the way the entire

short-form video ecosystem is developed is not that. It's contextual recommendation. And Facebook has admitted that we're going to start showing you stuff. We think you might be interested, not based on who you follow. They're behind on that, and that actually is

not their superpower versus TikTok. Owner is bite dance. They invented tootiao. They've been doing contextual AI for over a decade now. And then who else is the best of that YouTube? The entire YouTube product, the right recommendation rail for as miserable as it could be sometimes, their strength has been contextual AI-based recommendation. So if anyone can already actually recommend you the right videos and is in that position, and you use YouTube for video consumption, they have over 120 million daily users, just nudging all those people towards shorts, and that's already what

you're very good at, I think really makes them an interesting player in this. And when you say contextual, you mean just based, context based off of what you might be interested in? Yeah, yeah. So the difference being, and I remember, because I've followed, I, in my past life in the mid-2010s had created a personalized news service. We'd built a contextual recommendation algorithm. So we were actually watching Totia, which is the news app that ByteDance first created pretty closely.

And they were famous that you could literally scroll through just a couple of stories and they would magically know everything to recommend to you. Because rather than you don't have to build a follow graph, you simply based on what's inside each individual piece of content and how much time you spend on there, that actually forms the recommendation. to further drive whatever is going to show up in your feed. And it is. It's become like kind of a, almost a meme now where everyone talks openly about training their TikTok algorithm. Like we've become accustomed to this idea that I'm going to spend a little more time on this, like this, and that will mean it'll make my feed more tailored and show me more

of this content. So that's versus my friends shared this. And that's why I'm seeing this. That's the main difference. it's interesting that we don't have why do you think we don't have a totiao in the u.s or for english speakers i mean i tried to build it circa 2014 what were the lessons that you learned um maybe yeah go ahead for us at the time um this is going back down memory lane uh facebook actually took over news consumption 2014 2015 that everyone are users people we talked to and we would see a drop off and engagement we had and

ask users, they started getting their news on Facebook. And Facebook moved heavily into news, and social-based news consumption actually became, you know, the thing of the moment. So I think that was the biggest push away from any kind of pure contextual news consumption. Apple News was supposed to be the closest to this. I don't know. Do you use Apple News? I'm sure they have some hundreds and millions of users. But it clearly hasn't become like a, pure staple, but I do think the way American news consumption worked for a number of years was socially driven. So that's why the contextual side of things never developed in the same way it did as in China. Yeah, there have been so many moments where I've like heard about new news

apps that come up. And the premise always seems good, but I just never see the path for them taking off in the U.S. Maybe it will come as AI gets better. Yeah, I think, I don't know. I mean, That's a big conversation, but I think the way news consumption continues to grow in the U.S., I do think it's still much more social and everything's socially driven, which versus, again, short-form video, which is much more entertainment-driven. Even though there's clearly news types of stories that break through these channels, it's still much more entertainment-driven, which is more conducive to contextual recommendation. Yeah. Okay. So back to our discussion about short form videos, YouTube has been doing this for a long time. I agree. I'm guessing you don't agree with our previous guest, Tom Allison's perspective on this. And let me see if I can represent his case and you tell me what you think about it. Facebook is a place that you're already interested in speaking with friends and family. Who are the people that you share these videos with? You might do it on Messenger. You might do it on Instagram. You might do it in the newly built messaging functionality that's about to come back to the Facebook app, and there's 2.97 billion people on Facebook. So you already have these social connections, and you're going to have content from a bigger user base than

anything, by multiples than anything that exists right now. And if this is the new social media, then maybe Facebook is well positioned, even if we are used to seeing, you know, friend content in the feed. Thoughts? I don't think this is social media. That's what so interesting about Facebook's making such a push into reels and making into push into content from people you don't follow. And the TikTok's, like, you know, TikTok's greatest advantage in this is I could sign up and I don't need to have a social network. I don't have to have a hundred friends or a thousand friends. That was always Facebook's biggest challenge, but which they overcame incredibly to get you to build that initial network so they could start better tailoring the

content. TikTok's, again, their superpower was you just sign up and within a couple of swipes, they can start getting you content that you actually want. You don't need an entire social network. And I think from the creator side, that's where it also gets really interesting. And this is where I do think Facebook is cognizant of TikTok's advantage for creators. If I were to create an Instagram account six months ago and try to build a following and get engagement, first you have to build that following. And it's tough. So to go from one to 10 to 100 is really difficult, especially because it's saturated versus TikTok. And I'm convinced the algorithm does reward early creators early on in their account creation because obviously that virality and that

engagement makes you want to do it more. And it definitely would wait that slot machine effect for people who are just starting to create content or their accounts relatively fresh. And I think that's why now, like Ryan Broderick at The Garbage Day Newsletter had an amazing piece about culture starts at TikTok, memes start at TikTok. And it's because all these people could go there

and start getting engagement and views instantly. Yeah, I mean, that's definitely what I'm experiencing. It just blows stuff up. And the reason why I thought about starting this was I posted a YouTube short just to see what it was like. and it got 30,000 views like basically overnight and I was just like

oh this is probably worth trying for the podcast drives the behavior they gave me a little taste and now I'm addicted they gave you a taste by the way if folks want to follow

it's you can get it my YouTube Alex Cantrowitz and you can do it on on TikTok it's just Cantruits so you can see little clips from the podcast there

and that being said should we move on to our final story, the Elon situation. I think it's time. Do we do we do we so right now that the trial is stayed to October 28th when the both parties have a both Elon and Twitter have a deadline to basically say are we going to make an agreement to have this company sold a 5420 or um you know is this is this going to then go to trial in November. I love that Chancellor McCormick was like If you're not ready, by that point, email me and we'll set a trial date.

It is so ordered. I love that ruling. I was thinking about doing an emergency podcast as soon as Elon said that he was going to buy Twitter. And I stopped short for two reasons. One is I think folks are probably oversaturated with this story. And it's probably better to wait a little bit and cover it with some context and distance. And I think that turned out to be the right choice because, that it initially looked like Elon was going to, you know, buy it, no questions asked.

And then you started to look at the language of the letter and Twitter's reaction. And it was like, well, maybe this isn't actually going to happen. So let's start here. Do you think this deal is going through a 5420 and Elon's going to buy this company? We have been asking ourselves this question since March repeatedly. Absolutely. But he says he's going to do it again. I'm still going with, man, it's difficult right now.

I don't think he is going to buy Twitter at 5420. I think this gets continued to be dragged out. I think the financing is going to be where things potentially fall apart or just become more and more difficult, even though even if he's held to it, still actually going from being held to account and executing on the deal and coming up with the money and signing the check and having it cashed on the Twitter side, I mean, the space in between there, There's so much room for so much to happen. I mean, as again, we're recording Friday.

I'm praying that this news is going to hold. Otherwise, we have to chop off the last few minutes of the show. The Russia, the entire crazy Russia poll tweet was this week. Yet, again, we're in such an Elon news cycle that it feels like it was weeks ago or months ago. We're back to anything can change every single day. Right. So talk about the financing part because that's pretty interesting. So is there, it's always seemed to me like there's a world where Elon's putting up some of his money,

but he also got commitments from Morgan Stanley, Larry Ellison, some others. And now he's saying he's going to buy Twitter at 5420 after disparaging it in public for, you know, how many months. Now he's going to say, now he's like, whoops, actually I'm going to go buy it. Can I have those billions of dollars that you were going to give me to do this? So is that where some of the, you know, you mentioned that there's a lot of room between point A and point B. Is that where some of the tensions going to hit? Are they, are what can one of these lenders say, I don't want to do this? I mean, okay, so you have the two sides of it. I believe it's like 12.5 billion in debt financing from banks and then the 30 odd billion in the equity financing

portion. So on the debt side, it's already a bit complicated because the markets are completely different than they were back in late March, early April. And then there's Citrix, which was a big LBO that just took place. The banks, when they actually went to try to sell the debt, they had to take a big loss on it. So there's already a lot of talk about the debt side. Before we go. Right. And before we go to equity, just talk a little bit about how this process works.

So they say that they are going to give Elon, you know, X billion in debt. And then who do they sell that debt to? How does that, how do they come up with that money? Oh, yeah. No, typically they would go out and sell it. To who? To not hold it to institutional investors, endowments, such funds, anybody. So it's like you can fund this loan and get, you know, X percent interest back.

Yeah, yeah. But and again, now there's a lot of speculation around the idea that, you know, are they willing to take a big enough loss because they have made, they can make it back in investment banking? fees or just overall have made enough money off of Elon that they're willing to. But again, the market is completely in a different place than it was before. But on the equity side, I mean, I think it was in Matt Levine. He Matt Levineed it very well where he was talking about, like imagine Larry Ellison, first of all, those text messages, which were the most amazing tech

moment of the year for me, how casually Larry Ellison is pledging one or two billion dollars. Does Elon Musk go back to him after saying this company is essentially a fraud? And it's like, are you still good for that $2 billion? Like, how does all that work? What does it look like? If he's on the hook for $33 billion in equity financing, if a lot of those $1 to $2 billion checks or whatever, if the Andreessen $250 million are not there anymore,

is he selling down Tesla shares to get to actually raise that capital, which is a whole other thing that can happen on the actual Tesla equity side. Like, there's so many twists and turns and intricacies to how he actually gets to the $44 billion that, I mean, the amount of moving parts that a judge saying you owe this does not mean it's showing up in Twitter's bank account. Right. Do we know if he went and had, like, Larry Ellison and Andreessen, like, sign agreements? Like, are there agreements behind this agreement that they would be? held to or is it sort of like what do you think Alex what do you think I I don't know I mean you would imagine that business people work it up behind the scenes but reading through the text maybe like

Larry's like yeah I'm just good for it and you don't I don't know hard to tell what do you think you think there are signatures or it's just kind of chill bro bro code type stuff I I would like to think they're signatures but I don't I don't I don't like how casual it all was and that's why to me again it was one of the most it honestly should like live in the history books of how technology the business of technology worked over the past decade because everyone always had the suspicion and now we got to see it firsthand and that's what was so interesting about it to me and and again Elon Musk has made Larry Ellison an ungodly amount of money based on like Tesla stock appreciation so sure maybe he could be like yeah two billion

and that's fine. And like, you know, only when it gets to it, I'll have my people work it out with your people. But, no, I mean, I cannot imagine based on the text messages, there was reams of documents being poured over and that got signed. Hey, Ron, let me try this out on you. Tell me if this is interesting. Conversational OS for your digital life.

Wait, what? You haven't seen this? This is Mark. Benioff texted that he was in those Elon texts. He's like, let me know if interesting, Twitter as conversational OS for your digital life. And Elon's like, I don't own it yet. Just like leave it alone. Okay, all done. Some of those are some unbelievable. I'm not always speaking the most positively of Elon, but I have to give him credit. Like, he is as good at texting as he is at Twitter. Like my favorite was, you had people.

writing these, like, you know, long, thought-out messages asking for, and he just went with the emoji reaction, like, like, thumbs up, cool. Like, it's like you're trying to date someone and pouring your heart out, and they're just like, cool, thanks, thumbs down. When he responded at all. I mean, also, one of my favorite was Satya Nadella's response to him, where he's like, thanks for the time, Elon will definitely pass along that team's feedback. Oh, yeah.

I can only imagine what that is, yeah. But, yeah, the, I think how kind of like, what's a slap dash or just casual, that entire world of tax messaging was, I think that's just, again, a reminder, like a week or was just a few days ago when he announces, Elon Musk has sent, his lawyers have sent a letter that they're going to go ahead and buy Twitter, it's a reminder that is there some 4D chess strategy behind. this or is it all kind of shoot from the hip and see what happens and try to try to and again bringing chaos into the system is one of these greatest strengths and then turning that into it as advantage so he's certainly shown he's still able he's still got it it's so interesting also to watch how like it's maybe it's because we're on tech twitter but it seems to us like and like all Twitter is focused on Elon all the time like the way that he's He caused that conversation about Russia where you have like the Ukrainian ambassador telling him to F off.

And then the Russian prime minister saying we agree with, or not prime minister, but one of like these high-ranking Russian officials is like we agree with Elon, like pretty extraordinary situation now. Twitter works best when there's a main character, a central main character. And without Donald Trump, that there's a vacuum. And Elon comes in once every few weeks or months, and he fills it. But other than that, I mean, if you try to think, there's no one else who really centrally captures the attention of everyone and is so perfectly divisive that it allows everyone to quote, tweet them and apply their own heuristic and whatever they're thinking to whatever he just said. So, I mean, he's not the try guys. not the dry guys are still niche yeah um it'll be interesting to see what happens if he does eventually take uh ownership of of twitter and then lets donald trump back on and now he's no longer the main

character that gets all the attention right it's trump saying those things about russia um how do you think he reacts to that i i what happens if he takes over twitter it's still something because it It comes up a lot. You see a million pieces written about what would this mean for free speech. I just can't mentally get there. Right. We already got our edit button. I don't know if you saw.

I did. Yes. Yeah, some people are getting it. Like, what is going to be, I mean, does he fix the worst ad targeting system ever invented in the history of digital media? Like, I mean, is he going to turn it into the everything app in the WeChat of the East? We chat of the West, like, sure, could go in a lot of different directions, but I think we're so far away from getting there that it's tough. I was driving earlier, and I kind of let my mind wander and be like, oh, maybe there are some good things he can do.

Like maybe, you know, he has payments experience. Maybe he puts payments into Twitter, maybe some right hailing. You know, he does cars. Maybe he comes up with, and this is like kind of the X factor with Elon. Like maybe he just comes up with these Elon ideas and makes it better. It's possible. It's interesting. It'll be interesting.

It won't be boring if he owns this app. No, it will not be boring. But that old conversation did get me thinking, why did Facebook not execute on building the Everything app? Like, yeah, I was really trying to think through that they, and then reading your most recent piece where Facebook is going to try to like re-inject messaging into the core app. experience, like, they had it, or they still maybe do have it. But if anyone had the social network, had the messaging, started to have, at least on the marketplace side, the commerce, like the beginnings of it, even though there's been a lot of reporting and rumblings that they're cutting back on commerce efforts. Like, if anyone should have been able to do it,

Facebook should have. So that one's always fascinating to me why it never has actually, no one's realized that vision outside of China so far. It does all start with payments, right? Because once you get your credit card in there and you're used to paying and scanning QR codes and paying with your app, then you shop. And then like in WeChat, you might want to buy lottery tickets or pay for a bus ticket in the app. And then it becomes interesting, but you need those payments first. Do you think Libra was the distraction that prevented payments in crypto, like Libra on crypto, Lieber being Facebook's big crypto initiative, was the distraction that prevented that from having. Yeah, it's a great question. I think that Facebook tried to come up with all

these non-obvious solutions to do payments, right? Like, they couldn't settle for the simple answer, which is just, again. Get everyone's credit card. Get your credit card in there. All 2.97 billion or whatever, yeah. This is kind of, that's how we chat did it. They got everyone's credit card in there. And they said, you can scan a QR code and pay in your phone. That's the foundational layer. And instead, they went for these convoluted. We're going to do crypto, right? We just got lost in messaging.

And even before that, they said, let's do messaging, right? Yeah, and they spun out Messenger, which at the time seemed okay. But it was all predicated on this belief that you wanted to chat with businesses. But you just don't. You know, you mostly don't. And so had they just, again, gotten that credit card in, use it for physical purchase, purchases. and then imagine you go like you even if you're window shopping right if facebook became the default payment app and you walk by a like a storefront you walk by a macy's and you see

something that you like and there's a q car qrr facebook QR code next to it you scan it right and um and then customize it for your size and and look and you you have it shipped to your house that's a thing that that probably will eventually happen there are subway stations in korea i think or maybe this was experimental, I don't know, but where you, while you waited for the subway, it would basically look like a grocery store, and you could do all your grocery shopping all you waited, scan the QR codes, add to your cart, checkout, groceries are there when you get home. So this is, there's an opening there. And if this is what Musk, if Musk does eventually pie Twitter and this is what he wants, I don't see a reason why that wouldn't be successful.

It's not the worst idea. It's not the worst idea. And honestly, I mean, If someone pulls it off, it's a good thing. I still have dark horse hope that Snapchat still somehow pulls this off. I think they're the ones, the forgotten social network that quietly lurks in the back. But again, messaging first, still holding on to, that's actually where I think the most, I mean, related to the short form video topic, the idea that Facebook is essentially seating the social graph by moving to contextual recommendation. opens up where's our where's the social network going to go i mean i've had friends complain to me they're like i just want to post photos and have my friends see it it's such a such a simple core thing we all got used to and it doesn't work like that anymore i think that that is all in messaging that's where it

goes like instead of posting and having all your friends you're going to set drop those photos in your group chats yeah or apple ios shared albums for once kids come into the picture that's how the parents. Well, right, you can do those and Apple's working on their ad products now. So eventually they'll rank those albums with an algorithm. And then they'll insert. And then inject short form video and do it. And then it will eventually, you'll see photos from outside your network. And Tim Cook will say, we're so very excited about I videos. To introduce AI-based content discovery with Apple privacy first advertising. Oh, man. Oh, man. You can see it.

Save us Elon with the X app, please. Okay, prediction for Twitter, then we'll call it. I think this stretches out well into November. I don't think there's anything finalized as of early November. I think in the end, I still think Elon is not the owner of Twitter come January 1st. So he just passes it off to someone. Somehow he gets out of it or passes it. Gets out of it.

Interesting. No, no, no, I mean, at a cost, but at a significant cost. But I don't think he ends up the owner of Twitter for $44 billion. Well, whenever there's the final outcome, I hope you're ready for an emergency pod where we'll talk it over. Sounds good. Ron John Roy, thanks for joining. Awesome having you again. Thank you.

Okay. Thank you, Ron John. Thank you, everybody for listening. This was definitely a fun one. A series of fun one coming up as we move into the next couple weeks. We have some great guests for you. So stay tuned every Wednesday. We have a new interview with The Tech Insider, Outside Agitator, analysts like Ranjan.

It's going to be fun. Thank you, Nate Gwattany for turning the audio around. Hopefully this time I actually plugged my microphone in, making your life more enjoyable. And thank you to LinkedIn for having me as part of your podcast network. Thanks to all of you, the listeners. Really appreciate you coming back week after week. We've seen a lot of new listeners recently. If you're a new listener, I want to say, thanks.

Great having you here. Welcome aboard and hope you're getting value out of the show. Not too late to review. The podcast just takes a couple seconds. If you hit five stars on Apple or Spotify, just do it. I'm sure you'll feel good about hitting that five-star rating. I know I do whenever I rate a podcast and also helps us get discovered by more people, including some of the new listeners that are here today.

All right, that'll do it for us here on Big Technology Podcast. We will see you next week.