Pivot - The Biggest Deal in Video Game History, and the FTC Comes for Meta (Again)

Episode Date: January 14, 2022

Kara and Scott discuss the return of the FTC’s monopoly case against Meta, Take Two's purchase of Zynga, and a new lawsuit claiming the nation’s top universities colluded to fix pricing. Plus, United Airlines' Covid staffing woes, and a prediction on Pinterest. Send us your Listener Mail questions, via Yappa, at nymag.com/pivot. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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You need Indeed. Hi, everyone. This is Pivot from New York Magazine and the Vox Media Podcast Network. I'm Kara Swisher. And I'm Scott Galloway. Listen, you keep sending me your location information. I want to know what that's about. I don't mean to do that. I don't know what's going on there. You are on the Atlantic coast of Florida. Thank you for that information.

I mean, I usually, when I drop a pin, it's usually got something to do with male prostitutes or crystal meth being dropped off. Right. That's what I figured. Yeah. So I'm curious why you keep... I saw that. I saw, why is she sending me a map? Yeah, you've done it a couple times. I said, why is she sending me a map? And I'm like, no, I just sent her a map of where I live. Yeah, yeah.

I'm definitely easing into that old man. By the way, I'll sell that to the highest bidder. Doesn't get it. I'll sell that to the highest bidder. Oh, yeah. What a thrill. What a thrill. Anyway.

Don't roll with the dog. It's like, I can see you like misdoing your iPhone. And then, oh, I sent this by accident. Am I talking into this? It's very funny. Kara, you have no idea. Yeah. But it's not at night.

It's not late at night. It's like in the morning. It's not like. No, there's no excuse. I'm not even drunk. It's really funny. Anyway, Scott is on the Atlantic coast and anyone wants to know. I'm sorry to interrupt you, but I have a board meeting today for my company, and all of them got wonderful pictures of my dog and children bathing.

Because I didn't realize, I thought I was sending out the deck. And I'm like, oh, there's a PDF. That feels like a picture. And they all are so nice. They're like, this is really cute. Oh, how old is the young one now? And I'm like, sorry, didn't mean to send these. Oh, wow, that's professional.

That's professional. Anyways. So today we're going to talk about the FTC's case against Meta, which is back. We'll take a look at the biggest video game deal in history. And we'll take a listener question about the future of retail. All such interesting things. But first of all, Magic Leap is pivoting into healthcare. The company previously set out to make a consumer AR headset, and its next product will target

applications for surgeons instead, which is interesting. It's a big area. Meanwhile, analysts are excited about Apple's VR and AR gear, even though the company hasn't announced any. But as you and I have talked about, it's probably going to be nifty. So talk about, you know, Magic Leap was sort of, it's a Florida company. So I want you to take the lead here. You know, it was lots of big investors and Google was in there, like everybody was in Magic Leap. Huge amounts of money. It's now being run by a very terrific executive named Peggy Johnson, who I know from Microsoft. She was doing their acquisitions and strategy there. Really smart person. So, what do you think about this? Is it just they're like, look,

this is too hard to do from an entertainment perspective or what? Well, first off, it's a real knock on Florida. We only, I mean, until recently, we only had two unicorns, Chewy, which is a really inspiring company out of Miami, focused on pets. They kind of came in and proved that you could compete against Amazon, great merchandising, great operations. And then Magic Leap was sort of the first. And Magic Leap, there's just no getting around it. Magic Leap has been an enormous disappointment to date. And it was supposed to be kind of the original of original, you know, the OG in VR.

Yeah. Very interesting founder, et cetera, et cetera. Yeah, reportedly, you know, supposed to be a genius, one of these. And anyone who spoke to this person wanted to invest, and they did. But I think the pivot here is necessary and smart. And that is, if you think about VR, the costs, A, the economic costs are large, and B, the non-economic costs, specifically putting something like this on your head, are also really high. And the notion that they would go after B2B markets where the utility of performing a surgery in India with somebody who doesn't have access to a world-class, you know, cardiothoracic

transplant surgeon, and maybe you can simulate it with a combination of robotics and VR. I just think, I've always said, and the lesson here is the following, or what I would tell young people, is that, and I'm trying to reverse engineer this to career decisions around their human capital. I've always said, have a bias towards B2B versus B2C. Because B2C is more interesting, more romantic. It's more fun to talk about Netflix. It's more fun to talk about vans. It's more fun to talk about a headset for consumers and gaming. So it's overinvested. Take your company and sell it into large enterprise and small and medium-sized business. Because if you can show some utility there, they're much less price sensitive.

It's not nearly as overinvested. Every company I've started has been a B2B company, except for one, B2C, which was Red Envelope. And that was my fucking Vietnam. I can't get over how demanding consumers are and how price sensitive they are. If you walk into Walmart and say, I can help you figure out your digital innovation, or I have data that can help you, they will pay real money, and they're nice to deal with. Consumers, oh my gosh, are they difficult. So, I like this. I think it's a smart pivot. Do you have any thoughts? You know the CEO. I have a lot of regard for Peggy

Johnson, and I'd love to hear her talk about it. Maybe she will at some event soon. But I think it's, you know, I think they have a lot of weight on them, given all the investments. People, it's been sort of the longest running next big thing for a long time. You know, it had a lot of mystery around it, a lot of problem. The founder had done some really crazy interviews, as I recall. I don't even remember them, but I remember they were crazy. And so, you know, I think it was interesting. They located in Florida.

It was interesting, the investors. And so, you know, you've got to make something of this. And it's an incredibly – they probably have fantastic technology. I don't doubt it. But I think there's a lot of people piling in here, and they've got to get going, right? You can't – there's an expression, the planes are in here and they've got to get going, right? There's an expression, the planes are covered with the bodies of pioneers. They don't want to be those pioneers, I guess, you know, in the early days of this stuff.

They were definitely early to this and the first people talking about it. And a lot of it was sort of fluffery, but some of it was very significant. So, yes, I think so. I agree with you. It's a nice pivot. We'll see. I'd like to hear more about it, is what I'd like to do. So here's another story you're going to like. A new lawsuit claims that the nation's top universities colluded to fix prices and violated federal law.

The suit names went at a dozen universities, including Yale, Georgetown, where I went, Cornell, and Columbia. I also went there. Lawyers say more than 170,000 former students could join in the suit as plaintiffs. Oh, exciting for me. Currently, it's just five. Scott, will you be called as an expert witness? Tell me, what do you think about this colluding? I used to do a lot of expert witness work. Did you? So, yeah, a lot. Did you pretend you were a doctor?

Dr. Scott Galloway. It's likely that she was dead for more than 24 hours. So, donk, donk. I just kept waiting for that sound after I would say something. I would make these bold declarative statements. But all my expert witness stuff was around IP. Wait, wait, wait. I'm going to take down a little highway here.

What do you wear an expert witness on? It hurts my feelings that you're this shocked. Well, I am. I'm like, what could they possibly- Let me put it back to you. What do you think I was an expert witness on? I don't know. Marketing? Marketing. I was an IP and brand strategy expert. I would talk about IP violations for brands. It shocks me that you find this so humorous and unbelievable.

Okay. I'd like to meet those lawyers. There's an Alan Dershowitz around somewhere wandering around. I was the go-to expert witness for Adidas for a decade. Okay, stop it. Three stripes. It's confusing when you have four or two stripes. This area is so dear to your heart to bash universities where you work. First off, a group of people colluding to increase prices and soak the middle class. Kara, I'm shocked.

I'm shocked. Look at what's going on here. Okay. So in every city, you have a duopoly. Well, I don't care if it's Los Angeles or New York or Chicago. Yeah. It's San Francisco. There's two great universities.

And then there are a bunch of, you know, what I'll call second-tier universities. And what do you know? What do you know? They all charge pretty much exactly the same price. Let's look at New York. There's Fordham, which has about a 50% or 60% administrate, a good college, not what you would call a great brand. There's NYU, which is for rich kids who can get into a good-to-great school.

And then there's Columbia, sort of the Mercedes, and admits 6%. They all charge somewhere between $50,000 and $60,000. Now, how does that happen? That's like saying, what would have happened if there were two auto dealerships and it ended up with, okay, we end up with Hyundais and Mercedes at the same price? Isn't something wrong? And we all raise our prices in exact lockstep. What if there were only two grocery stores?

Well, they sometimes do. Like people watch each other's prices. That's for sure, right? That's not a new impression. But there's no competition. And here's the problem. There's no pressure to bring prices down because the only way you can be a working university

is if you give your kids access to debt. And debt is based on your ability to issue debt to pay these usurious fees is based on accreditation. And who runs the accreditation institutions? The incumbents. meaning that we have exploded education companies or organizations, despite the fact there's massive demand, and two out of three jobs now need a college degree, whereas one in three just 20, 30 years ago. We have exploded the market by 0.7% a year, such that we constrain supply. We leverage this rejectionist culture that makes us feel good about turning away 80%, 90% of our applicants.

And what we end up doing is creating the best business model in the world that lets us increase prices, including colluding with each other around how much financial aid we're going to give each other. Collusion's a heavy word. Do you think it's colluding or colluding is- It's 100%. There's never been, they get in a room. Yeah. And they share, they mutually agree upon an algorithm for how much financial aid they're going to give, which is price fixing. And then the case said that was given – the universities were actually given an exemption from this collusion and allowed to collude if they were, quote, unquote, not need blind. And that is they weren't a cartel. They were not letting in people because they were rich and less needy.

And what do you know? Shocker. They found out a lot of people are getting off the waiting list because they were the sons and daughters of billionaires. This higher ed has been the greatest assault on the prosperity of the middle class of the last 40 years. We have soaked the middle class of a trillion and a half dollars. Everybody talks about rampant inflation being bad. It is because if your salary doesn't keep pace with the cost of goods, then your lifestyle, your purchasing power, your prosperity goes down. And the middle class has seen their wages barely keep pace with inflation, but the one thing that they are told they have failed as a

parent unless they buy has skyrocketed in cost. There has been – It's a real sticker shock. It doesn't matter how much money you have. It's really like expensive. It's like crazy expensive. Crazy expensive. And you can't not pay it.

But the amount of despair, even the accreditation process, it's based on curriculum and quality of faculty. We want people like us with PhDs, our buddies from Carnegie Mellon, and we want this full complement of courses, including things on sustainability and leadership and ethics. So if a university said, we got five smart practitioners who are going to teach four to eight amazing classes in cybersecurity, and I can get these kids jobs at 100 grand right out of school, they don't measure outcomes. They're not interested in outcomes. Yeah, that's the second part. Interested in PBS self-aggrandizement and arrogance. There are very few institutions and organizations that have been this rapacious and damaging to the middle class, all under the auspices of this fake nobility. Bring it.

This is overdue. I like it. I like it. Is it your lawsuit? No, I'm kidding. We'll see if you get called in. You could get called in. I bet you could.

But here's the problem. This lawsuit actually doesn't address the problem because here's the other dirty little secret. These universities, it's actually cheaper than most universities because they have so much money that they give out financial aid and the net costs, the net tuition at Princeton has actually gone down because they have so much goddamn money. So what happens? Increased income inequality. Princeton isn't one of the universities in a lawsuit, but it's similarly a lead school. So by way of example, you get into Princeton, you're set. You get an amazing degree

at a lower cost. You get arbitrage down because you haven't built wells in Africa or have a patent by the time you're 17 or your dad isn't Ray Dalio. And you end up in a mediocre car paying a Mercedes price for a Hyundai. This is really – I think there are a few things that represent a greater threat to America that we're not talking about than this rejectionist luxury positioning. Well, and everybody wants free college. It's so interesting. Oddly enough, I was reading Marianne Williamson's tweets today. I like Marianne.

And she was like, everybody in America wants free college, some gun control, this and this and this. And when we do none of this, like everybody, when you say free college to people, everybody wants it. It's a really interesting topic. And I agree. Speaking of which, you know, I'm people, everybody wants it. It's a really interesting topic, and I agree. Speaking of which, you know I'm speaking at Princeton this weekend. I am. I'm going up to Princeton. Good for you. I grew up there.

That's nice. I grew up in Princeton. I didn't get in, but I am speaking there. So, nonetheless. Can I just go on for another moment here? Yes, please. Okay. So, my class, we shifted to all online to the pandemic.

Yes. 280 kids, right? Yeah. What do they each pay? They each pay $7,000. So in order to take brand strategy with Scott Galloway for two hours and 40 minutes, 12 times, we charge them $1.96 million.

Young people, $1.96 million. Can you even think of another product that an organization charges $2 million for and gets 98 points of gross margin? Yeah. Can you even think of a product? I have one. What?

And that is Zolgensma, which is this life-saving gene therapy that costs $2 million for two doses. So either save your life and not die of a terrible genetic disorder or brand strategy with Scott Galloway. Neither of those is sustainable. Our brand strategy was Scott Galloway. Neither of those is sustainable. It is – the amount of money we are charging young people is – it's just staggering when you really think about the true numbers and the impact and despair and financial oppression it is levying on American middle-class households. Many people I know still to me. Many people I know still have college loans, and they're quite old. May I just say, though, you're priceless. In any case, 3,000 United Airlines employees have COVID. Did you see that, according to the CEO? I like the CEO. He's really interesting.

One-third of the airline staff in Newark called out sick from the single day. In better news, Kirby says the employee deaths from COVID have dropped to zero since implementing his vaccine mandate. So they're not dying, but they're getting sick. Previously, the airline averaged one employee death per week from the virus. Kirby credited United's vaccine mandate for the change. He wrote, quote unquote, there are approximately eight to 10 United employees who are alive today because of our vaccine requirement, unquote. Boom, he says. So, you know, all the airlines are canceling flights, not just airlines. We're just using them as a proxy here. Schools are like, schools are happening like everything, everywhere there's people out. And, you know,

pretty much in the school line, all the parents are discussing all the strategies of everyone being out and when to go in and this and that. And so, including with work and things like that. So, everyone's canceled flights. I'll just use flights as an example. So, this is a really, this is going to go on. Although today there was also a story at several places about the virus peaking everywhere. It's going to follow along Britain and South Africa's thing. So, it could be over relatively soon, relatively soon, the illnesses.

And people will work through them. Your words to God's ears. So just as every day we get better at renting our human capital via remote technologies, which chips away at the office industrial complex's ability to bounce back, the other industry that is just gonna get ravaged is business travel. And I track everything I do, but it's not coming back because we're getting so much

better, in 2014, I looked it up, I spent 238 days on the road for business. And again, I'm being existential or spiritual here. I think the lesson here or the opportunity when you think about the pandemic is, I've been thinking a lot about professional unlocks and there's also a personal unlock or there's an opportunity in that

is if you're blessed with resources and coming out of this pandemic in good health, look at technology and decide what is the unlock for me. And the unlock, and as always, I'll turn this back to me, I've decided I am never gonna spend more than 50 days away from my family unless it's with them and for fun or I'm doing something that's fun. There's just no reason to travel as much for business.

There just isn't. I used to travel all the time. I don't travel. I'm traveling a little more going forward. I have a bunch of stuff over the spring coming up. But you're right. You and I, for example, are going to Europe. But did you know that?

You and I are taking a romantic trip to Germany. Yes, we are. Oh, we're going to Hamburg. We're going to Hamburg. That's right. Because Daddy brings the cabbage in for the high-ticket speaking gigs. Anyway, but I agree with you. Can you believe Germans want us on stage?

I know, right? They love your chemistry. Yes. We think you're funny, Kat. Anyway, so here's the deal. I think that it's – these airline cancellations are interesting. Business travel, definitely. People are wanting to travel, though, I have to say.

Everyone I know does want to get on a plane. And pretty much everyone of my friends who's gotten on a plane has had a plane issue. And so, I think planes will be back for certain things. But you're correct about business travel. But I think most people really are dying to get the hell away from their houses in some fashion. And not near their houses. We're not dying to get away from our houses. We're dying to get away from the individuals who occupy our houses. Whatever. I think people want to go places. We're planning a lot for the summer, hopefully. And I think people are just like, okay, enough of dinner at home kind of thing.

So, I don't know. We'll see where it goes. But most people, I just did a really interesting interview with Emily Oster, who's an economist at Brown, very well known, and sometimes controversial because she really was pushing for keeping schools open back in the day. She said, you know, this was three weeks ago, she said the next six weeks are going to be really tough in terms of work. People are going to stick out. And she's been correct. You know, and it's going to have an economic impact. So, we'll see.

I hope we'll be over soon. Think about what COVID has done. There was a great article in the New York Times called Davos Man. Yes. Yeah. It was actually making fun of Mark Benioff, which I think is unfair. I think Mark's actually made huge efforts to redistribute his income. But anyways, if you look at who's benefited most, you know, trillionaires have increased their wealth.

I'm sorry, billionaires have increased their wealth 70%. And the people who are getting sick, the people who are resigning are the people on the front line who don't have the opportunities to stay at home and don't have assets. I mean, it's really been a double whammy. Speaking of which, you know what? I thought of you. Do you see Jamie Dimon's announcement yesterday? No. What did he say?

He said, if you want to be back in the office, he said, you have to be back in the office. And he said, and if you want to be back in the office, you need to be vaccinated. Yeah. And if you aren't going to be in the office, you can't work here. In other words, he said, if you want to work for J.P. Morgan, you need to be vaccinated. Yeah. And I think that's what, I think quite frankly, I think that's what leadership looks like. Well, this Kirby guy was firm.

What's that? He got a lot of pushback. The CEO of United, you remember, he got a lot of pushback from United staff. He was like, I don't care. I don't care. I don't care. But what you said, something you said really, and I'd like you to expand on it because it struck me. You said when we were talking about FinTech and Web3 and this notion of decentralization and all these VCs talking about the great decentralized future, which will give them opportunity for greater centralization of wealth. Yeah.

You said, guys, I'd rather have Jamie Dimon running it. Yeah. Yeah, I would. So say more. Because I think it reminds me of a lot of these. I was talking to someone about my book that I'm working on. And one of the things that was exhausting for most of the people I cover is they always have to do this change the world thing.

Like, we're changing the world. I was like, you know what? Jamie Dimon doesn't do that. He's just a banker making money. Like, stop it. You're all making money. And I think that was one of the issues is that they kind of, they sort of, I don't want to use the term virtue signaling, but they kind of, that's what it kind of is. Like, and so like, they always have an agenda that's not what they're saying. And I don't really feel like that Jamie Dimon is tricking me. Like, does that make sense? Like, at least he, like, at least I'm here to make money. This is what I'm doing.

I'm going to run it Adam Neumann because that's what I want to do. I want that deal. And so I just find, I just think the agendas that are behind the agendas exhaust me with these people. And they're using emotional terms with people who are more desperate to make them feel like they belong. It's very Trumpy. I find tech people very Trumpy in some ways. Popular people, we're here for the people, and they're the richest people on earth. I just, I don't buy it. That's what I'm saying. As you're speaking, the contrast I would offer is I spoke at, Jamie has a gathering of alternative investment professionals and he has a gathering of like 100 CFOs of the biggest companies and I spoke at it. And someone asked him about tax policy.

And he just said, and he seemed very earnest, he's like, people in this room have killed it. Taxes probably need to go up. It's time. It's just gotten out of control. And you got the sense he really meant it. And then in contrast, when you go to the Valley, it's like, we're better capital allocators. We're an interplanetary species. They start talking as if they're the ones that are going to save the world and you have a moral obligation to tax them less because they are better capital allocators than the government. Yeah, they like to do that.

And it's an entirely different sort of— Sometimes they are, sometimes they're not. You know, I know. It's like it's a religion with them. Listen, I've had a lot of beefs with Jamie Dimon, but I feel like I know where he's coming from. That's all. I just need to know where people are coming from.

And you kind of know what you're getting. Yeah, exactly. Anyways, I thought you would— Let's get on to our big stories. The FTC's monopoly case against Meta is back on.

The case was previously thrown out last June when the judge said that the FTC hadn't shown Meta was a monopoly. Now that's changed and are refiling the case

and this is under Lena Kahn who is not, who didn't file the original case, I believe. The FTC used comore data and time on site to show Meta is drowning out its competitors.

That was enough to convince the judge to let the case proceed. He just basically said, do better work, do your work and return it to me. If the FTC wins and breaks up Meta, would it solve the issues that came out last year? But it's on, essentially. That's what we're saying is on.

And is the problem at Facebook's size, Facebook's business model, and what can be done. Speaking of like, don't mess with us because markets will, it will be their argument, you know, like TikTok or whatever. That's what they'll say. So, but it's on. Yeah, they had to do this. They've been working nights because when a guy kind of pre-made an interesting comment when I was on his podcast saying that if you bring a case and it's dismissed, it's basically a very strong signal that this won't hold water. And so they had to come back and get approval to move forward with this. And this is absolutely needed. I believe the largest tax cut in the history of the corporate world would be if you figured out a way to lower the rents being charged by Facebook and Google. Because if a product or a service cannot be leveraged to

differentiate your product, as Nike did with TV or William Sonoma did with catalogs, but everybody has to use it, it's no longer an offering. It's a tax. So, if we were able to lower- John Greenblatt noted this. They can't abandon it. They can do it for a little bit for pressure, but they can't ask people to give up their economic advantage, essentially. Well, and people say, well, there's choice. I say this with firsthand knowledge. My firm, Section 4, the online ed company, so I have some credibility, I think, when I say I don't like Facebook. I don't want them to be successful. I don't think the executives there acquit themselves well. We will spend at Section 4 $3 to $5 million this year on Facebook. Yeah.

And you know why? We have no fucking choice. Yeah. Is there any choice? Any choice whatsoever. Well, it's Facebook. The answer is do you do Facebook or Google? And the answer is yes.

You have to do both. Right. They have sequestered the entire online world. Two-thirds of all, 60 or 70 cents in the digital dollar goes to them. It's probably 80 to 90 if you throw Amazon in there. Amazon has increased its rents or the percentage of the take from third-party retailers from 19 to 34 cents. The entire gestalt of the valley around criteria for investing is, would this be a good company that we get 3X on? No, we don't invest in that. Is this a company that could potentially establish monopoly power and monopoly rents?

That's everything they're funding. It's 80% Facebook and Google, according to the UK's Competition and Markets Authority, just digitalized. Okay. So, if you want to acquire customers online, which everybody does because the market, you just have no choice. You don't have a business. So I get, justifiably, I get pushed back and shit saying, Scott, you're such a critic of Facebook, yet you're funding them. And I'm like, well, I don't like coal-fired plants, but I turn on my lights. What choice do we have? So if you were to go in and break these guys up, Facebook, Instagram, WhatsApp, three separate companies, and you were to break up YouTube, Google, WhatsApp, three separate companies. Yeah. And you were to break up YouTube, Google, break up their advertising monopoly, and all of a sudden people had kind of eight choices, not two.

The rents would come way down. And think about what Google has achieved. There is no market in the world that has a 93% market share leader in a $150 billion category with the types of margins they have, which means they are extracting rents that are too high. So, I am all in on this. We desperately need the largest tax break in the history of corporate America would be us breaking up big tech and lowering the rents on everyone else in the ecosystem that really has no choice. I like the way – that's a good way to – now, listen, they're going to argue that they don't have a monopoly on social media. Other social networks exist, Twitter, TikTok, Snapchat, Reddit. Reddit's obviously going, doing an IPO. FTC is countering by saying the other social networks don't focus on connecting friends and family.

I would agree with that. I would agree with that. There's no others. The others are sort of communications or entertainment. Communications or entertainment are the rest of them. I mean, I don't go there with my family. I go there to read it. The data doesn't support that. 93% of search is one company. Two-thirds of social is one company. One company. Two-thirds of social is one company.

Right. And it's just not – and the market share point is – it's a data point. But I think we need to go to the more Brandesian view of antitrust. Brandesian. I like when you throw in Brandesian. But go ahead. I know. That's my safe word. Stop Brandesian.

That's my safe word. How can you get it out with a ball gag? That's a tough one. Actually. Ball gag. Brandeisian. Actually, you know what my safe word is. What?

You know what my safe word is. No, what is it? Oh, good God. I can't believe I just asked that. Go ahead. Maybe. Courtesy of George Hahn. Courtesy of G-Hahn.

G-Man. G-Man. Oh, he's big. Yeah. How about that? By the way, we were brainstorming for segments on my new CNN Plus show, and one of them's going to be George walks the dog, and he's just going to take me for walks, and I'm going to ask him a question.

Really? Isn't that funny? You make a star of George. I hope you do. I think he's already a star. I think he's going to make me. I think it's going to be the way around. I know, but people need to get some George.

People need a little more Jihan. Jihan, yeah. A little more Jihan. All right, back to this. So what do you think of this? I mean, I think that she has come to play. Like, Lena Kahn has come to play. I do.

Oh, no shit. She does her homework. She's like one of those people who does her homework, right? Like, no, that kind of thing. She's super inspiring. You know, she's, I think, early 30s academic who wrote a paper while she was in graduate school, and now she's advising the president. I don't think people realize, just because I follow this stuff pretty closely, when you listen to President Biden right now, it is literally, he is clearly that morning in the room with Tim Wu and likely Lena Kahn and likely Cantor and taking very copious notes.

I mean, they are having, it's just, I think I find it inspiring. Yeah. That people like Tim Wu and Lena Kahn, who devote their life to really trying to understand the domain of a certain narrow area, can end up whispering in the president's ear and having this kind of impact. They can be lifted out of a university at such a young age and have this kind of impact. I think it speaks well to, I mean, in addition to antitrust, it just speaks well to America. And they're both children of immigrants. Anyways, I'm super excited. I think the capitalist argument for breakup has to take center stage, not this bullshit that they're bad people or we're angry at them or Bernie and Senator Warren start attacking them for being billionaires. It's like, well, Jesus Christ,

that's your fault. Pass progressive taxes. Anyways, I'm super excited about antitrust. I hope it gets, it continues to get momentum. You're going to see more of it. Yeah, I think so too. All right. So, so we'll see what happens here. This is going to be an interesting thing. And also it'll be interesting, the discovery and how, how much the government's willing.

I do think there is a commitment on the part of the government to do something about this. All right, Scott, let's go on a quick break. When we come back, we'll talk about the deal with Zynga and take a listener mail question. Fox Creative. This is advertiser content from Zelle. When you picture an online scammer, what do you see? For the longest time, we have these images of somebody sitting crouched over their computer

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That's www.alexpartners.com. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters. Okay, Scott, we're back with our second big story. Games publisher Take-Two Interactive is buying Zynga, the company behind games like Farmville and Words with Friends, for $12.7 billion. It's the biggest deal in the history of video games, but investors didn't want to play. Take-Two stocks dipped on the news. The deal is expected to close by the end of June.

This is a long, long story. I've known Mark Pankus, the founder of Zynga, for a long time. He was almost there with a social network. He was really early to social networks and wasn't able to put off the ground. Long before, he was in Washington, D.C., and he had another company that was sort of early, very early to a lot of big trends that other people took advantage of later. But this is sort of an interesting, Zynga's been way down,

but under the new CEO, it's gone up a little bit. It's gone, but it definitely was sort of the hot ticket item and then isn't. So what do you think of this purchase? Take-Two's hits on the console and desktop, Grand Theft Auto, NBA, 2K Games. Zynga's are mobile, obviously. So what do you think about this? We don't pay a lot of attention to games. I'd like to get your take.

I've been doing all the talking here. I'm dominating them. Okay. Well, I just think it's, you know, Zynga has been sort of bumping along, bumping along, bumping along. They were certainly early to the game, but they just bumped along. They just had a lot of ups and downs and ups and downs. At one point, they owned like three buildings in San Francisco, a lot of parties, this and that.

And then sort of had a, it's been a very hard ride. I think it's probably a good outcome for their investors because it's up significantly from where their price has been. Although the price has been up significantly from where their price has been, although the price has been up significantly from where it was before. So I think it's okay. It's good. I think these people miss the boat, essentially. I think they miss the boat on this stuff.

Yeah, you're right. It's probably the most underappreciated industry relative to its size. Yeah. I think it's about $130 billion just by contrast. I think domestic U.S. box office, we're always talking about films and what was the latest film, what's happening in movie theaters. That's like $7 billion. I mean, this industry is enormous. In addition, it's growing high single digits. It's growing 8% a year. And there's just very few industries over $100 billion other than C above search and social that are growing at high single digits. It's an incredible industry, high margin. Its biggest growth driver, and this speaks to the rationale behind this acquisition, its biggest growth driver is Asia where it's growing double digits. And 70% of the players in Asia are playing via mobile. And the revenue model there is freemium,

microtransactions, and advertising. But essentially, the rationale for this acquisition, and Strauss Zelnick, who strikes me as a very savvy operator, nice guy, also super into fitness, is, anyways, is said, look, we have this incredible IP, you know, Grand Theft Auto. They have some amazing games. But we don't have the skills and the DNA for kind of this freemium mobile model. Yep. And Zynga does. And we said this last week that you are going to see the game space heat up.

And this is, I mean, I don't know about you, my kids, my boys, there's something about the male, young male brain, they just love video games. And I'm trying to do a better job of scolding my kids or manicure what they're supposed to be interested or not interested in based on my preconceived notions. And I've decided to lean into it.

My son, I did a coin-based account with my son because he seemed interested. And I thought, well, I want him to learn about the markets. Maybe this is how he does his learn to earn things. And the other thing I'm trying to do is, especially my youngest is really into video games. I'm trying to figure out a way for him to take these courses or online classes where we can learn how to try and program a video game because he seems interested. But that industry, oh, my gosh. There are two industries that are growing right now in media and everything else is kind of declining other than, you know, into the mobile space. I think that's one of the things

that some of these franchises, that they can make into mobile games. And so, you know, at first, investors were down. Now the stock is up. That's right. This is interesting. They just said it out loud, is we see tremendous untapped potential to bring Take-Two's renowned console and PC properties to mobile, a high priority initiative energized by the addition of Zynga's leading development, publishing, and live operations team. And that's true. This is where

they were there. Zynga has been there a long time. Often, Zynga was sort of a canary in the coal mine of a lot of things, and then didn't take the most advantage of it. But at the same time, it's good for them. I think people are now feeling better about this deal. I think they are.

You know, I think they're feeling better. It makes sense. And you're seeing a lot of other game developers doing the same thing. So, you know, I think if you remember when Farmville was so popular for a short, for, you know, it was one of those hot things. They rode to fame and fortune on Facebook, on the back of Facebook, speaking of which when Facebook was doing, was sort of the, was the accelerant for a lot of these different things. A lot of them, most of them fell by the wayside in that sort of trade. But it's also, it's good for them. There's also the issues around Apple's privacy changes.

So Take-Two needs more heft in fighting that. And so this privacy feature, as people know, has happened, has affected a lot of companies in iOS called App Tracking Transparency, ATT. And so, as they're bigger, it's important to get bigger to allow them to get over the privacy roadblocks that this has put in their way. Well, the unintended consequence of the Apple privacy moves is Facebook's earnings have not been hit because their ability to target has gone down. It's just they've passed through those price increases to end the end consumer.

And that is now to acquire consumers on Facebook. Your cost of customer acquisition has gone up, but it's not like Facebook has said, okay, we're cutting prices. And also, you brought up a really important notion. There's sort of – there's the haves and the have-nots now. And the haves are the ones that have enough interaction with their client base or with their customer base that they have enough first-party data to build that digital corpus such that they can come up with a recommendation engine or they can come up with better targeting for advertising. And so, everybody is talking about first-party data. The company I'm in or a company I'm involved with, OpenWeb, they pitch one of the things about a more robust comments section is you just get more interaction and more first-party data.

Because if the New York Times can't build an ecosystem that's strong enough to inspire a lot of interaction that they can then capture that data so they can serve you better articles or target you better, they're going to be totally dependent upon the ecosystems that do have first-party data, and that's specifically Google and Facebook. So everybody's trying to figure out, if I can't capture data from third-party, from other sites, I've got to get to a critical mass or heft of my own first-party data. Yeah, that's important. But this company, I'm sorry, go ahead, Kara. Go ahead, go ahead, sorry. Well, the other thing is, just around gaming, I mean, I'm looking at the market cap here. Take, too, some's important. But this company, I'm sorry, go ahead, Kara. Go ahead, go ahead, sorry. Well, the other thing is just around gaming, I mean, I'm looking at the market cap here.

Take two, some iconic brands. I mean, the thing's $17 billion or $18 billion in market cap right now. You don't think, and I trust the DOJ and the FTC will get in the way of this, but when Facebook realizes this Oculus thing isn't working out, but they're big, they really want to kind of jumpstart the metaverse, where do you think they'll go? Yeah. What do you think they could acquire? They'll start, and by the way, these are iconic titles,

and it would be a 2% dilution. It would be nothing. Absolutely. I think you're right. I think one of the things that's interesting is the ride of Mark Pincus. I mean, he, again, he was super early to a lot of this stuff, and it was the hottest company. He still is an owner. He's been CEO twice, if I, I think it's twice. He, you know, it was, it was the company, I can't even tell you. And then it was the IPO, they had a problem, and then they had all these pricey acquisitions and stuff like that. He had all these pricey acquisitions and stuff like that. And so he, but he owns about 5% of the company at this point. So he'll make some money here. Not as much as you think, but it's interesting. He's going to make a ton of money.

I think he's going to make about $400 million, something like that. But like he was going to be the, I don't know how much money he has at all, but he was going to be, he was sort of at the lead of it. And so then he's getting sold. It's kind of, I was going to write him saying, oh, this is how it ends, I guess. Okay. But it was Farmville and what he had done on Facebook was really a big deal way back when. And he had all kinds of, there was all, but there was all kinds of drama around that company almost always in terms of how they hired and different people that went in and out of there. And anyway, but they had some great ideas about the virality and different people that went in and out of there. Anyway, but they had some great ideas about the virality and this and that. So there's some sadness here in terms of that it was going to be the Facebook or whatever.

And then it's this. He's going to have to settle for $400 million? He's going to have to settle for $400 million. Well, okay. It was, oh, Don Matrick was in there, Microsoft's Xbox. And then he left. And then Mark was the CEO and they brought in this guy who wasn't as well known, who was from Electronic Arts, Frank Gibbo. Anyway, so it's just interesting. It's an interesting story. And, you know, good. This is what's going to happen. You're right.

There's a lot of others. A lot of people think that Pinterest should be in there. There's a whole bunch of companies that are at lows and so that you're going to see a lot more purchasing going on in the next six months

because a lot of them are at lows. Tons and tons of companies are... Pinterest and Twitter. Yeah. There's going to be interest in everything. Pinterest is the one I'm looking at. I'm looking at that one.

Really? Yes. I think it's a bargain. It's a bargain. It's a bargain. Anyway, and they've had ups and downs, but it's down a lot. So, we'll see. All right.

Let's pivot to a listener question. You've got... You've got... I can't believe I'm going to be a mailman. You've got mail. Hi. This is Hashim from the Mojave Desert. I'm a Silicon Valley escapee. My question is what you think the principles of good retail should be as we get through COVID. The pandemic accelerated e-commerce and shook out a lot of bad retail, but coming out of it, there seems to be a desire for physical connection and maybe a new approach to physical retail that isn't all about going to e-commerce. If you were starting

a consumer brand, what would you prioritize in a physical experience today? Thanks a lot. That's a great question from Hashem, but why did you go to the Mojave Desert if you're escaping Silicon? I'm thinking Hawaii, Fiji, or Scott's home in Florida where I can send you the map exactly where it is if you'd like. You answer this one, Scott. You're the retail. Well, first off, the desert is the most beautiful ecosystem in the world, Kara. Best sunsets. Anyways, look, you said this.

Retail is sort of bifurcating. From a consumer end, retail is bifurcating. And so either mass efficiency, I can get you everything at a good price within 48 hours to your doorstep, or experience. And whether it's the Museum of Ice Cream, or the way you feel in Lululemon, whether it's someone doing yoga in the room, or when you go into a restoration hardware and you think, wow, I'd like to hang out here for the entire weekend. Or you go into an Apple store and you feel inspired or a nice young man comes up to you and as a 57-year-old man makes you feel comfortable with him actually putting tea tree oil on your bags and you somehow feel like your eye bags think, wow, this guy really knows makeup and has incredibly high EQ and their cast is amazing.

That was probably a weird example. But I think it's one or the other. And like music festivals are a form of retail. They're going to boom. So merchandising always matters, the voice. Always matters, the voice, but it's bifurcating into experience or efficiency. And the new core competence, as led by Amazon, in terms of bifurcating or determining the winners and losers, is having enough capital to rethink and reconfigure post-COVID your supply chain. Whether it's a quick service restaurant that gets over 50% of its orders online, as the biggest QSRs do, or a company like Urban Outfitters is now basically an e-commerce company with 550 warehouses called Stores. Your ability to create,

you know, buy online, pick up in store, pick up at the curb, seamless returns across channels. Experiential is critical. I was just, I almost took a picture today and I didn't, maybe I'll send a man out and take a picture of all my boxes. Like, I'm like such an ad for what's happened. I squished them. I had them all in the basement. And I, because I'm anal retentive, I organized them lovely out at the curb for the recycling people. But it's just, I try really hard to shop local, but it is so frustrating.

It is, you know what I mean? Like, it's just, nothing's there. It's not just because of the supply chain, but you never find what you want. And then Amazon, you find what you want in two seconds or wherever, anywhere online, not just Amazon. And so, or Etsy, I've been shopping at Etsy quite a bit lately and some other places. I was at Macy's the other day. I bought something from Macy's online. Obviously, they have stores, Walmart, all kinds of stuff. And so I think the online experience has to be experiential in a creative, pleasing, or you can't get it anywhere else kind of thing. I think people have a tolerance. They may want to get back into stores.

The same thing with movie theaters. people have a tolerance. They may want to get back into stores. The same thing with movie theaters. They've got to have good popcorn or good seats or good something, something that makes it like, where I can, if I can do it at home similarly, why would I go there? Like, why would I go there? And I don't, you know, I know people talk about the social experience, say movies or things like that. I don't talk to anyone at the movies. I don't, you know, unless it's a totally packed theater, which you don't find anymore. And it's some like, you know, I don't know, Marvel movie or something. So, in any case, I think experiential is the only way to go here. Like something, something special. Correct? Well, I like to make things and then put them on Etsy. So,

I'm trying to sell my kids on Etsy. I don't know. That's good platform humor. I like furniture stores. I don't like shopping for fun. I like to go look. Although I just bought two chairs without going to a store, and they're very fine. They had a very good experience online. I bought two stores from West End. Literally one of my favorite things in the world on weekends is to go to the best furniture store in the world, this BDDW store in Soho, where like a lamp costs $45,000 and just walk around and look at it and have them ask me about five times if I can help you, which is their way of saying, get out of here.

I love a furniture store. But I literally just started buying furniture online. So I don't know. I don't know. It's got to be fun. It's got to be fun or interesting or something. Something, something. What's old is new again?

What's your favorite store? What's your favorite store? This furniture store? Gosh, that's a really good one. My favorite store? Oh, hands down, BDW. I think they do an amazing job. And I think Restoration Hardware is an absolute inspiration.

I think their grand plazas or whatever they're called. Even if you don't like that furniture, what they've done there. I think they're grand plazas or grand whatever they're called. Even if you don't like that furniture, what they've done there, I mean, little things. You know the restaurant on top? Yeah, that's a nice place. But you know what Gary Friedman did with the restaurant?

He said, wine, but no alcohol. I don't want a bunch of guys getting drunk up here and making women feel uncomfortable. Oh, yeah, it's a lot of ladies up there. A lot of ladies. And they feel like they're in Mendocino or in the wine country.

Yeah, it's pretty. And it just, the vibe is wonderful. And to do that and forego the margins of alcohol, every business person would go, no, that's a bad idea. And it's like, no, we want this to be a feel that you're in Sonoma. And they buy like a sham on the way down, a $4,000 sham. My favorite store ever was- What's your favorite? Now, my hardware store.

I love a hardware store. You can't have an- Amazon doesn't give you a hardware store experience. I love one. I'm just going to hold my tongue. I'm just going to hold my tongue. Ask Amanda. I love a hardware store.

I know I'm so happy in a hardware store. You're literally, you're baiting me. You're baiting me right now. This is literally a ploy to get me canceled. Well, I see what's going on here. I see what's going on here. Here is what I like. I like, there was a store when I was growing up called Fiorucci. I would take a bus from Princeton, New Jersey to New York to go to Fiorucci. It was delightful. I didn't know what I was going to find there. And it was like all these trendy. It was like Z Gallery when I was young.

I'm like, oh, they have the coolest furniture. It's cool. You remember Spencer's Gifts? They had the dirty toys. They had the dirty presents and stuff like that. That's really old. There's so much great retail. I love Super Target.

I love roaming around Best Buy. I guess the Apple Store, I suppose. Amazing stores. If Apple opened a coffee store, that would be my new office. I don't order it online. I go there. I go there. There's a store I go to.

It's just as easy to order online. Fantastic store. I enjoy it. I'm very happy there. Yeah, that would be a good example. Anyway, Hashim, thank you for the good question. I love airport retail. I love Bottega Veneta.

Oh, I do like airport retail. I love Kiehl's stores. I like airport retail. I like luggage stores at Veneta. Oh, I do like airport retail. I love Kiehl's stores. I like airport retail. I like luggage stores at retail. Anyway, we're so strange. Anyway. The Ramoa store. I love Ramoa.

There's so many amazing, great brands right now. I love the new On store. One of those. On Running store in Soho does a fantastic job. There's a lot of those. Le Cologne, that new artisanal coffee place. There's just so much great retail out there. And it has to be great.

I think called Compass Coffee. It's wonderful. Anyway, that's a good question. Send us more. Send us more. If you've got a question you're curious about, go to nymag.com slash pivot and submit it for the show. All right, Scott, one more quick break. We'll be back for predictions.

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month, every month. At Fizz, you always get more for your money. Terms and unused data roll over to the following month. Every month. At Fizz, you always get more for your money. Terms and conditions for our different programs and policies apply. Details at Fizz.ca. Okay, Scott, give us this week's bridge. It's so nice of us remembering good stores. Stores can be wonderful. Anyway, what is your prediction?

We need a prediction from you. By the way, I took my boys to Barnes & Noble last weekend. Speaking of stores, it's interesting. They're like, let's go to Barnes & Noble. We went to Barnes & Noble and Chick-fil-A. And unfortunately, I made the mistake of going on Sunday. All right. Jesus, getting in the way of my bonding with my kids.

Anyways, everyone just totally mocked me on Twitter. I'm like, we're off to Chick-fil-A. I'm like, shithead, it's Sunday. Anyways, my prediction. We're going to see there's a lot of really healthy discussion around the concentration of power and the onerous rents it charges on people, whether it's big ag, big pharma, and obviously the one we love, our go-to is big tech. In 2022, we're finally going to see an overdue discussion around big ed. And when I say big ed, I mean the cartel that is higher education and their ability to embrace, you know, preying on middle class homes, this dream that you've, you know, or this general feeling that you failed unless you send your kids to college. rejectionist culture that arbitrages kids down to a Hyundai for the price of a Mercedes, which places huge strain emotionally and financially on middle-class households. We need more competition. We need to reject the nonprofit status or revoke the nonprofit status of any school with an endowment over a billion dollars that's not growing its freshman seats faster than population. They've decided they're no longer public servants, that they are, in fact,

luxury brands. We need to dramatically open the spigot in terms of competition. We need to put schools on the hook for some of that bad debt. So their job isn't to get you debt sponsored by taxpayers that they then cash the check, and they have no real incentive to ensure you're able to pay it back because they got their money. They're not on the hook for it. So it is overdue. We're going to see the conversation around antitrust, around monopoly, and big whatever, put fill in the blank, is going to move to this talk around big ed. We know the problems, and it stems from the same ugly place, and that is artificial scarcity and monopoly power. So over the 2022, you're going to hear the term Big Ed more. Big Ed. All right.

I'm going to put in a little prediction here. Pinterest. Yeah, go for it. You're going to see some action around Pinterest. I'm just guessing. Pinterest. And who do you think it will be? I don't know.

That one I haven't figured out yet. We'll talk about that next week. It's probably going to be PayPal again. You know PayPal's interested. PayPal. Someone. You're 100% right. That number is so far down. Like, I kind of want to buy it.

You're in? You're ready? I'm in. I'm not buying anything. Are you kidding? Let's do it. You know what? We could do a Dow. The jungle cat and the dog Dow.

Okay. We're buying Pinterest. Yeah. Yeah. what? We could do a Dow. The jungle cat and the dog Dow. Okay. We're buying Pinterest. Yeah. Yeah. I just, I don't know. I just have, my little spidey sense is tangling. It's tangling. I think he knows something.

Anyway, Scott, as usual, what a great show. We are very excited to be going. I'm excited to go to Florida soon. We really do have a really good program that's coming up. And it's going to be great. So buy your tickets and stuff like that. I think we have a lot of people on the list, but please, if you'd like to go, let us know. Okay, Scott, that's the show.

We're observing MLK Day, so we'll be back on Wednesday. But we're not going to not have a show for you because that's the kind of people we are. So we are going to tape on Tuesday and come on Wednesday. Scott, will you read us out? Today's show was produced by Laura Naiman, Evan Engel, and Taylor Griffin. Thanks also to Drew Burrows and Mia Silverio. Ernie Entretat engineered this episode. Make sure you subscribe to the show on Apple Podcasts.

Or if you're an Android user, check us out on Spotify or, frankly, wherever you listen to podcasts. Thanks for listening to Pivot from Box Media. We'll be back next Wednesday for another breakdown of all things tech and business. The greatest assault on middle-class prosperity, the self-aggrandizement, arrogance, and poor commitment to the commonwealth of higher education that is drunk on exclusivity and has raised rents faster than any sector in the world. It is time to break up Big Ed.