Pivot - Saudi money, Facebook’s fib and Amazon HQ2

Episode Date: October 19, 2018

Recode's Kara Swisher and NYU's Scott Galloway talk about Silicon Valley's Saudi money crisis, the ongoing fallout from Facebook Portal and the cities that never had a chance in Amazon's HQ2 competition. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Every week on Pivot, we take a sharp, unfiltered look at the technology and media industries and highlight examples of winning leadership. When it comes to leading a successful business, time and again, entrepreneurs and executives from across industries share this incredibly simple secret, turn to the experts for help. That's why small and medium-sized businesses rely on Trinet for human resource solutions. No matter what industry you're in, Trinet tailors strategies for your organization to grow with confidence. Learn more about how Trinet's industry-tailored HR can work with your business at Trinet.com.

That's T-R-I-N-E-T dot com. Incredible starts here. Trinet. Hi, everyone. This is Pivot from the Vox Media Podcast Network. I'm Kara Swisher. And I'm Scott Galloway, coming to you live from one of the 19 cities that has been played and will not be HQ2, Cara, Chicago. This is Amazon, right? Correct? You got it. That's right.

Yeah, I like Chicago. It's one of my favorite places. 80% of New York for 50% of the price. It's the Old Navy of cities. All right, let's get started. When I woke up this morning, I thought there's never a dull moment, and then I thought this is awful that there's never a dull moment. But let's get right to the big story this week, and I think, and it's also has so many implications in tech, which is the Saudi money toxically awash in Silicon Valley, and how tech companies are responding to the disappearance of the journalist at the Saudi embassy, and not the disappearance, the murder of a journalist at the Saudi embassy

by the Saudis, which I think most American intelligence, all the reports are coming in that this is what's happened and the presence of Saudi money in Silicon Valley. So let's talk about it. Last week, Cara, you said that you couldn't get anyone to comment. What's happened between now and then? What is the response? What are they saying on the ground out there? Well, it was really interesting. I had a really interesting dinner with a lot of people who are involved in this stuff. And one of the

things, there's a couple of things. There's a few things. One is that there's been dirty money here for a long time, whether it was Russian money or, you know, and the fact that it's not just Saudi money, it's all kinds of money from the Middle East that is really problematic from some, you know, not just sovereign wealth, but also individual wealth, because there's so many wealthy people that is sort of washed into this area. And lately, it has been money from the Mideast comparatively. And then there's Chinese money. There's all kinds of different things going on. They were all talking about where the different money is moving in, which was fascinating to me. And one of the things that a lot, and there were several people who are involved in these things.

And one of the issues is, first of all, the first thing they did, they said they're not going to go to this desert, Davos in the desert, this event that MBS has, the head of Saudi Arabia, the crown prince has. And it's Mohammed bin Salam. I think that's his name. Right now, everybody is calling him Mohammed Bonesaw. I know, awful. That's an internet meme right now, but it's, I think, fine. It's good with me. So they were talking about whether they were going. So a lot of them

have gotten out. The first one was Dara Khosrowshahi, who is the CEO of Uber, and he was going to attend this, and now he's not going. He was one of the first to declare that. That said, he has not returned the $14 billion that they got, from half of which was Saudi money, from SoftBank's Vision Fund. And I think a lot of people are focused on the Vision Fund, which was the big fund that SoftBank raised, and they were about to raise another $100 billion fund, which was an unheard of fund,

which has been sort of throwing money at everybody from Slack to WeWork to WAG, which is a dog walking app, $300 million to the dog walking app. And so half of that is from the Saudis. Forty-five percent of that fund, $45 billion, is from the Saudis. And so anything that if Uber has gotten $13, $14 billion, seven of it is from the Saudis essentially, from the public investment fund that they have, which is called PIF.

And so nobody's giving the money back, let's just say. That's what's happening. And nobody wants to think about that idea. Now, whether they're going to take it from them going forward, that's a big question. That's the big question. Yeah, because do you think it's realistic that they, or even a reasonable ask to say give the money back? No, that's not going to happen. Yeah, that's not going to happen. That's not big question. Yeah, because do you think it's realistic that they, or even a reasonable ask to say give the money back?

No, that's not going to happen. Yeah, that's not going to happen. That's not going to happen. You know, it's an opportunity here, Kara. I think SoftBank, which, by the way, in the ecosystem, at least in New York, is showing up with a very, very big stick. And whereas these VCs with only billion-dollar funds might offer you $30 million at a pre of $60. They show up and say, well, put in $100 at a pre of $150. And they are literally muscling around U.S. venture capitalists. And they're taking a lot of the companies.

They're taking like 40% of the company. I think it will be – because they have been a little muscly, I would say. And I think a lot of people don't like it. But how can you – like what they have done is gone and said, if you don't take my $300 million, I'll give it over to your competitor. And, you know, they're very aggressive. They're an aggressive group of people. And so, and this is Masa San, who is head of SoftBank.

But I'll be interested to see what's going to happen going forward. Nobody is giving the money back. And like a company like Slack, Stuart Butterfield, who's the CEO there, he usually calls back and he has not called back. So I don't think, you know, I think there, I think these people are, everyone at dinner was sort of horrified and embarrassed. And at the same time, the money was not being returned. And it, you know, they were making the point that there's anywhere you tug at any company or any investment firm or any VC, there is either Saudi money or there's, there's questionable money everywhere across the system. And if you remove the Saudis from the worldwide global network, the money, everything collapses because this is where most – much of the investment money. And they're trying to obviously buy influence in technology.

And it's working. The reality is – Yes, and it makes everybody – The reality is people 10 times as important as you or me can be murdered and dismembered with a bone saw as long as you're buying a bunch of aircraft carriers or submarines. I mean, we've basically put a price on him. We said, OK, look, I would speculate the conversation post this event between Pompeo and Trump and the Saudi, the government there was like, look, you guys screwed up. We obviously had nothing to do this.

But if you want us to be co-conspirators in the cover-up, you're going to have to buy another, another, you know, 130 tanks or whatever it might be. We have put a price on moral leadership. And the presidents of the past have always tried to figure out the balance between kind of the real politic and our strategic interest. This isn't new. But we at least pretended to care. We at least said, okay, anything involving a bone saw, you know, it's time or I think it's time. Anything involving a bone saw. And by the way, I think this is the same infection that has caused illness across all of big tech that we're trading off kind of long-term moral leadership in exchange for short-term profits. Well, it is interesting, but this is where the money is coming from.

This is where the wealth is. This is where it is. And so, you know, there's two questions that people are debating. I was like, do they need this much money to, you know, they need the $300? They probably don't. They were fine with a smaller amount. They didn't need it. But everybody feels like they need to have these war chests.

They were like, we have to have the war. If they have the war chest, we have to have the war chest. And so that's, you know, that's how these things escalate. And the question is, what companies are going to go, no? And what was, one interesting thing was the previous Saudi investor was Talia, I can't remember all their names, but he was an investor. He had Kingdom Holdings and he was investing in Twitter and, or, or Apple or different things like that.

And he was just a basic investor. Kind of, he just, it wasn't investor. He just wasn't this similar. It wasn't this piff thing that was going on. And he was considered the good investor essentially. And he was one of the ones that was jailed at the Ritz. And then MBS took everybody's money there. He basically took hostage money, I guess, from them. And some of that is now what's flowing into Silicon Valley,

which is fascinating, you know, of all the people that were jailed at the Ritz-Carlton, which is a strange thing to say. And so, you know, they've got—what the key part is, is that Silicon Valley cannot say it didn't know. It doesn't know. Yeah, it's— What—where this is from. It's 100% true. But I would argue that the companies here, granted, they're complicit in it.

But at the end of the day, the reason we give—because of the structure of our capital markets, companies have a very difficult time not thinking short term. But the reason we give 23 cents on the dollar to our government is we pay them to think long term. And the ultimate reason that people buy Fords or have bought Fords was not because they were better cars, but because it reflected a belief in the middle class. The reason why people buy Nikes is it's about elite excellence can bring you to the highest echelons of performance and recognition. And the reason why we have inflows of capital, the reason why our publicly traded stocks traded at 19 times PE, not like 11 or 12 in other markets, is because we have rule of law and some sense of moral leadership here. And when we engage or traffic in bone sauce, we are long-term trading off our brand and the margin power that comes from our brand. So this is not only the wrong thing to do, it's economically

a stupid thing to do. I would agree. But, you know, one of the things that's interesting is the Saudis also have a lot of money in the stock market. So they own 5% of Tesla. Now, look, Elon Musk can't stop them from doing that, although he was talking to the Saudis, as you know, when he did the funding secure. That's exactly who the PIF, who he was talking about. And so that's interesting. But like Apple can't help it. I think the Saudis own 30% of Snapchat at this point. There's an enormous stake that they have. PIF does. It's a large amount of a lot of these tech companies, and that's what they've been buying into. Now, those you can't prevent. It's an open market situation. But you certainly can, even if these are your investors, say something.

And most of these companies have said nothing, really. You know, the strongest was Dara Khosrowshahi, but he has to because he has so much of their money. And I think Sam Altman, who is an investor at Y Combinator, did say he's not going to the Davos in the Desert event, whatever it's called. I forget. It's the PIF thing. And a lot of people have pulled out. I think the only people, Steve Mnuchin's still going. I think he's going, right? It's him and- Shocker. Right, exactly. I know. I think that's all who's going. But I know all the only people, is Steve Mnuchin still going? I think he's going, right? It's him and… Shocker. Right, exactly. I know.

I think that's all who's going. But I know all the tech people are definitely not going now, and they can't show up there. But there's got to be another step. They've got to start saying something like they have to make some declaration, even if they're not going to give the money back, but they haven't. And this is the whole trend is they now have to make declarations on everything. Like everybody has, like on everything that happens now, companies are on the hook for saying something.

In this case, it's such a bright line between what they have to say and how much money they're taking from them. It's unavoidable. So I'm going to keep bugging them. But it's an opportunity. Anyway. You know what it's an opportunity for? It's an opportunity for SoftBank. I think one of the ultimate brand moves of the past year was actually at the World Cup with a Japanese soccer team,

a national team, after a crushing defeat at the hounds of Belgium and Romelu Lukaku, one of the most underrated strikers in the world, but that's another story. You know what they did? Please don't tell it to me. They cleaned up their dressing room, and they stuck behind and helped the fans and the workers clean up the stadium. And then they wrote a thank you note. And I think this, we have unfortunately an ability or

we can't not stereotype organizations by their national identity. And I think SoftBank has the opportunity here to say, you know, the way we roll in Japan is that we're just a little bit more dignified. We're a little bit more polite. We're a little bit more honorable. And to not accept that money and take their fund down from $200 billion to $120 billion. He has not said anything. Masa-san has not said a word. It's an opportunity.

I think he's listening. All right, Masa-san. I don't think he is. I think he'll say nothing. We'll see about that. Anyway, by the way, I have a Ford Fiesta, Scott. I just can't even imagine that. It's a lawnmower with doors. We've got to get you out of that thing for safety reasons. I have a Ford Fiesta, Scott. I just can't even imagine that. It's a lawnmower with doors.

We've got to get you out of that thing for safety reasons. I have a turbo stick shift, so let's just start again. Turbo stick shift? That's right. It's very fast. You'll see. You'll drive it when you're here. We'll go around.

It'll be great. I would have an elbow sticking out of each window. That would look ridiculous. You and I are going for a ride in my turbo. I would look like Ichabod Crane out of a 70s movie. Everybody makes fun of my Ford Fiesta. Everyone makes fun of it, and they get in it, and they drive, and they go, oh, this is a great car. turbo. Everybody makes fun of my Ford Fiesta. Everyone makes fun of it. And they get in it and they drive and they go, oh, this is a great car.

That's because they're kissing your ass, Cara. They don't care. No, they're not. You're going to see. That's an awful car. It's going to be great. We're going to do pivot from the Ford Fiesta. And then we're going to get Ford to be our sponsor.

You see? This is how this works. Anyway, let's talk about something positive, a win of the week. Because it's been a crappy week. It's a shitty week. So we've lost all over the place in the Saudi situation. But what is your big—no, what is your winner? What is your winner?

I have two. Yeah. I have two. Okay. There was a wonderful article in the New York Times about a gentleman who was the head of the Japanese consulate in Lithuania during World War II, and it ends up that him defying his government and refusing to stop signing and writing visas

literally until he could no longer write. And then when he was extracted from Lithuania, writing these visas for Jews who were trying to get to Japan and into somewhere else, he, on his train ride out, was literally throwing visas out the window. And they've done some research, and it ends up that this gentleman, Shun Sugihara, likely saved 6,000 Jews, possibly 40,000 who are alive today. That's a great story. It's a wonderful story of moral leadership in the face of adversity,

moral heroism. Moral. It's interesting. Moral. There's been some interesting research here. The moral heroism stems from some of the same attributes of rebelliousness that creates great entrepreneurs. And it's just a lesson for all of us that it's pretty obvious what the right thing to do is. Sometimes it's really, really hard. And this guy saved 40,000 people alive today because of this guy. Just an inspiring story. And my second is Nike who made— You love that Nike.

Oh, God, I'm so into Nike right now. Go ahead. Justin Gallegos. I didn't much like their sexual harassment stuff. There's talk. But go ahead. Rain on my parade. Seriously, you've just shamed— Go ahead.

Go ahead. I feel shamed. Nike. What did Nike do? I feel shamed. All right, go ahead. What did Nike do? Justin Gallegos, a runner with cerebral palsy who's a pretty serious runner.

Nike showed up. Nike showed up and made him their first, or endorsed them, made him an official Nike athlete. And there's this fantastic two-minute film on it. And granted, it's commercial and it's sappy and soft lighting and soft music, but my feeling is the basis and the wonderful thing about capitalism is that as we pursue economic interests

for us and our families, really wonderful things can happen. And I think this was a wonderful thing. Scott, you're such a softie. What did you put the Afghan around you and have marshmallows and cocoa? This is lovely. This is a beautiful— Tara, hold me.

Hold me. Let me just— Hold me. No, I will not. Thank you. In the fiesta. Once again, crossing a line. In the fiesta.

Crossing that line. Never, never changes. Oh, my gosh. And listen, I had a win for the week. We were liking that Facebook had a tougher ban on false information posts. But, of course, what happened on Recode this week

is they introduced the portal, which we talked about last week. And you guys wrote this. And when, yes, when they said they introduced it, no, no, no, we're not using the data

for ad targeting. And then they called us back and what did they do? Yeah, apps. Apps are who you're calling, right? We're using, yes, yes, we are using the data

for our ad targeting, which was like just like for one brief second, we were like, okay, okay, we don't love their surveillance device, but at least they're not using it for ads. And then they were. That was just awful, I have to tell you. Just awful. You know these guys. I don't. What happened?

I don't know why they just didn't throw it in the trash. I don't know why. They waited six months to put out the portal, and then they just did it right in the middle of a hurricane privacy. I don't know. Have you heard anything about initial sales? I don't know what's going on. Or reception in the marketplace? Have you heard anything? All I know is literally I had a table full of internet people that said there's no way I'd put a dancing Facebook surveillance device in my home. So just like, I don't know. And this was the, these people would buy it.

But nobody at this dinner party was buying it. You know these guys. I don't. What do you think happened? That they knew they were targeting and then they lied to you and said, okay, now what do we do? We've lied. Do we let the lie hold or do we have to go out? I don't even know if it was a lie.

Was it incompetence or deception? What was it? I don't know if it was a lie. I just, I, they said one thing do? We've lied. Do we let the lie hold or do we have to go out of it? Was it incompetence or deception? What was it? I don't know if it was a lie. I just, they said one thing and I don't know. I couldn't tell you. I don't think they were lying. I don't know. I don't know.

I don't have any information for you on this. It's just, it was just like, what? Like, I... Strange. I'm telling you, Scott. Strange. They cannot, they literally, they just have got to get it together over the down there. Don't you think?

I'm so outraged. I'm going to go express my outrage on Instagram. That's it. I don't use it. I do not use Instagram. Anyway, we're going to go to predictions now. When we get back, we'll take a quick break. When we get back, we're going to make some predictions.

So stay with me and Scott. Every week on Pivot, we take a sharp, unfiltered look at the technology and media industries and highlight examples of winning leadership. When it comes to leading a successful business, time and again, entrepreneurs and executives from across industries share this incredibly simple secret, turn to the experts for help. That's why small and medium-sized businesses rely on Trinet for human resource solutions. No matter what industry you're in, Trinet tailors strategies for your organization to grow with confidence. Learn more about how Trinet's industry-tailored HR can work with your business at Trinet.com. That's T-R-I-N-E-T dot com.

Incredible starts here. Trinet. dot com. Incredible starts here. Try it. Okay, we're back with Scott Gallery. I'm going to demand predictions from Mr. Galloway. Mr. Galloway, some predictions.

The individual throwing out the first pitch of the opening game for the Washington Nationals 2019 season is Jeffrey Bezos. Okay, why is that? Explain. Imminently, they're going to announce that the D.C. metro area is the location of their HQ2, reflecting that this entire shitshow circus HQ2 is nothing but a ruse. That a man worth $145 billion at the age of 54 gets to live where he wants and where the Bezos want to live is D.C. Right.

He has a nice house. They're coming to you. Do you know my ex-wife's house is like seven doors down from him? It's really interesting. Really? He'll be a neighbor.

Are they close? Do they know each other? Yeah, we all know each other. We knew him when he was a little guy. Yeah, sure. I don't think we'll be going over for,

I mean, I'm not married anymore but we're friends and I don't think we'll be going over for tea. I don't see that happening but, you know, neighbors.

And how big is their house? I heard their house is bigger than the Museum of National History. It's just enormous. My ex worked for Google. She's got a big house. So does he. They're all big.

They're all these big, like, they look like the Bulgarian embassy. That's what it looks like. Really? They all do. Every one of them. Yeah, they're big. They're just big Washington houses kind of thing. And they look like embassies, every one of them in that neighborhood.

It's called Calorama. Obama lives there. Ivanka lives there. Rex Tillerson lived there. I think Mnuchin's somewhere around, wandering around. I'd like to party with Tillerson. Yeah, would you? Yeah, I think he, me, and Zach Braff would just slay it in Adams Morgan. A few beers. What? Me and Rex, some chili. What? Where did Zach Braff come in? He's always a good third partner when you're rolling. He's always a good third partner. So you think he's going to pick Maryland. He's going to pick Maryland or Maryland, Virginia.

You think that? Who's your – oh, by the way, I have some insight. You get all the scoop. I was on the train back from D.C. and I saw this really good guy, the dean of Cornell Business School, Hustlebacher, Hustlebacher. He's on the board of Amazon. And I immediately thought, okay, that means

that he was down there extracting a pound of flesh from Mark Warner or someone in Virginia. Anyways, that's my prediction. What's your prediction? Okay. I think Maryland

is probably a very good bet. And second backup is Pittsburgh. And do you think there's a backlash when everyone realizes they've been played? No. Everyone's like,

oh, well, I didn't win on that lottery ticket. Let's try again next week. You know what I mean? I just think the whole thing is to give the world's like, oh, well, I didn't win on that lottery ticket. Let's try again next week. You know what I mean? I just think the whole thing is to give one of the world's richest men a tax break is always an enjoyable thing to watch. Isn't it cute, though, how Indianapolis and Columbus actually think they have a chance? Isn't that just adorable that they think the wealthiest man in the world who doesn't need to spend 12 minutes, much less 12 weeks a year in Indianapolis, is going to decide to put his HQ2 there? I think it's just so cute.

Yeah, one can dream. One can dream. One has hopes and dreams and things like that. Yeah, I think he's probably going to allocate there. The only other option is if he picks like a Canadian city. Oh, yeah, that'll happen. That would be. That'll happen.

Well, I'm just saying. Okay, hold on. You never know. I'm just going to put it out there so I look smart. Tied for first wealthiest person in the world is Mackenzie Bezos. After spending 10 months here in rainy Seattle, she's going to think, I know we need to spend more time in Toronto. It's not going to happen, Kara. And they're not going south.

You're right. Yeah, you're right. That's a fair point. That's it. All right. Okay. All right. We'll see.

It's going to be very soon. The dark horse is Miami because I spoke at the same. I spoke after him at this J.P. Morgan Master of the Universe conference. And he was by the pool. And I think he was really happy there. Because be clear. It's nice there. I've been on. Isn't Miami great? I've been on the board of seven public companies, and I've gone through four headquarter relocation processes. You know what OS comes down to in retrospect? What? You find out the CEO cloaked business reasons in the decision, and the decision all came down to one thing and one thing only,

Kara. What? A pool visit? Where the CEO wanted to spend more time, where he was chairman of a golf club or where his next wife was living. I'm going to just leave it at that, except to say I love Miami. I always feel like doing something naughty when I'm there. Anyway, all right, so Amazon. You're rolling along Collins Avenue in your turbo fiesta. Next week we're going to talk about Uber's public offering, but not this week. I'm going to leave it at that, Scott, the second wife thing. And I have to get out of here. Did we miss anything? I think we're good, right? We're good. Yeah, this feels right as rain. We covered a lot of ground. I would describe you, the Fiesta, in this show as a tall drink of lemonade with vodka. Okay.

I don't even know what that means. Anyway, thanks, Scott. Looking forward to talking again next week. By the way, if you have any questions for us on this podcast, shoot us an email at pivot at voxmedia.com. Our show is produced by Rebecca Sinanis. Thanks also to Eric Johnson. If you like what you heard, please subscribe on Apple Podcasts

or wherever you're listening. Every week on Pivot, we take a sharp, unfiltered look at the technology and media industries and highlight examples of winning leadership. When it comes to leading a successful business, time and again, entrepreneurs and executives from across industries share this incredibly simple secret, turn to the experts for help. That's why small and medium-sized businesses rely on Trinet for human resource solutions.

No matter what industry you're in, Trinet tailors strategies for your organization to grow with confidence. Learn more about how Trinet's industry-tailored HR can work with your business at trinet.com. That's T-R-I-N-E-T dot com. Incredible starts here. Trinet.