Sharp Tech with Ben Thompson - Apple Gets a Patent War for Christmas, Europe's Ability to Hijack the Regulatory Process, Systemic Questions After Adobe-Figma

Episode Date: December 20, 2023

The patent dispute that has Apple ready to take Apple Watches off the market, the expanding powers of the EU regulatory regime, why the Adobe-Figma acquisition raised legitimate competition concerns, and the uncertainty for the startup ecosystem as mergers become more difficult across tech.

Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp and on the other line, Ben Thompson. Ben, how you doing? I'm doing well. I think the bigger question is, how are you? I'm doing all right. I had my second stomach bug in the span of three or four weeks earlier this week. The joys of parenthood are upon us all here. But I'm feeling 100% ready to rock and roll.

I see. Charles is just happy, the greatest baby in the world. and also getting blamed for all your problems. I see how it goes. It's all downstream of the Ben Thompson jinx of early December coming on here, complimenting Charles, best baby in the world. Now here we are. But no, I'm excited. We got a lot to get through.

It's a meteor week news-wise than I was expecting it to be. So I'm glad we've got two episodes. The mailbag, the party in the back will come later in the week. Look for that on Friday. But now we've got some Apple news. we've got Adobe Figma. We also have a reminder. The holiday season is right around the corner and there's still time to send.

No, we are in the holiday season. Christmas is around the corner. Let's be clear here. Well, there's still time to send me and Ben Thompson down your chimney by this tretechre bundle for a family member, a friend, whoever you care about in your life. Gift subscriptions are on sale now and you could go to your show notes if you would like to give the gift of Stratory this holiday season. And the gift of Sharp Tech and Sharp China and the greatest of all talk.

Don't sell yourself short here. That's right. We've got some Christmas games. We'll be previewing later in the week. A lot on the agenda. But for now, we're going to be talking about Apple at the top. And I want to start with a note from Bloomberg last week. They write, the rally in Apple, Inc.

The world's most valuable publicly traded company is showing no signs of easing. After closing at a record high on Wednesday, the iPhone maker's market value is approaching that of Europe's largest stock market, France. The combined market value of companies listed in Paris was about $3.2 trillion as of Wednesday's close versus the technology giants $3.1 trillion, according to an index compiled by Bloomberg. And Ben, I know Apple's a big company. It's just an astounding statistic that sort of stopped me in my track. when someone shared it on Twitter a couple days ago, more valuable than the combined market value of almost every single public company in France. That's where Apple sits right now.

I don't even have a take. Which was you rather own? Would you rather own Apple or would you rather own every company, every publicly traded company in France? So honestly, I think I'm going to take the variety that's coming with every single public company in France. I don't know. Where do you come down?

I mean, it is an interesting question. I mean, I think it gets to, I mean, obviously, diversification is generally an approved sort of strategy. You could make sort of a case that, you know, are there very long run sort of concerns about Apple, particularly with the rise of AI, things on those lines, all which are countered by Apple's sort of excellence and dominance with the actual touchpoints with consumers. But maybe here's another question for you. Oh, sorry.

And in Europe, meanwhile, in, you know, France or whatever other country, not exactly known as being tech. technology sort of stalwarts or sort of friendly to that sort of domain? It's the old world, you know? It's not what they do. Well, that gets to my next question. Would you rather, if you could only ever buy Apple products or if you had to choose, you can never buy a product from a French company again or you can never buy a product from Apple again, which would you choose? There's no question I can live without French products. We sort of went over this a year ago. We actually stirred up a bit of a hornets nest when we started to question how many, like, truly groundbreaking French companies there were. And it turns out there are a fair bit of impressive French companies, French business success stores. But no, I'm not living without

iPads and iPhones and my MacBook Pro here. Apple wins that 100 out of 100. I mean, maybe that ties into your, the previous question. Well, that's the thing. I was answering as just a person, not necessarily a. sophisticated investor, if you're giving me the choice between owning every company in France and owning Apple, I'm going to choose just a bunch of different companies because I feel like that leads to a pretty colorful life. But owning Apple is going to be a pretty safe bet going forward, although the market value could get complicated, particularly as the outlook changes in China. But who can say? None of that is related to today's actual Apple news.

It's kind of interesting, though, right? I mean, like the, I mean, it goes to show this is a bit of the sort of democratizing effect of technology, which is what is the luxury product in tech? It is Apple devices by and large, right? But because of, you know, the nature of technology where you build something once and you'd make a million of them, it turns out that the best, most luxurious device that you can buy is actually remarkable. remarkably accessible to sort of anyone in the world. Now, you can get a cheaper phone, you can get a cheaper computer, you get a cheaper tablet for sure, but relatively speaking, it's not that much more, right? Like, you know, say you buy a phone for $400 versus $700.

Like, again, that is in percentage terms fairly large, but in sort of big picture, it's sort of not that much. Particularly over the lifetime of the device, yeah. Right, right. Yeah, particularly on like a per minute basis on how much you actually use it. But you go to like the top French companies, right? Number one, LVMH, number two, L'Oreal, number three, Hermes. It's a very different sort of aspect.

It's sort of companies that are, the whole point is to be massively more expensive than sort of alternatives. Like I can go buy a bag at the night market down the street for five bucks or I could buy, you know, I could quote unquote buy an Hermes bag, by which I mean I buy like 47 other Hermes products until I finally get the permission to buy a bag for, you know, $15,000. And so it actually costs like $150,000. And it's just, it's striking. It's, it really is old world versus new world in, in more ways than one. You know, I think we've got a lot of Apple employees who listen to the show, certainly who reads Tretaicry. And even those Apple employees would admit that at the end of the day, if you side with the

French companies, you're going to be surrounded by much cooler people than if you buy into Apple for the rest of your life. And so maybe that's what breaks the time. high in the end is ultimately you're running with the jet set if you're buying out the entire stock exchange in France. So who could say? We'll leave it to the listeners. Email at sharp tech.fm.

As for this week's news, on Monday, Apple provided a statement to 9 to 5 Mac saying that, quote, the Apple Watch Series 9 and Apple Watch Ultra 2 will no longer be available to purchase from Apple starting later this week. The move comes following an international trade commission ruling as part of a long-running patent dispute between Apple and medical technology company Massimo around the Apple Watch's blood oxygen sensor technology. So, Ben, big picture, this is a pretty strange story.

There's Apple, there's this little company called Massimo, there's a federal organization called the International Trade Commission, and I'll be honest, I did not know that organization existed until earlier this week. And then you have the Biden administration, which has the power to overrule decisions by the International Trade Commission. But as of now, the ITC has ruled in favor of Massimo and found that the latest versions of the Apple Watch violate two Massimo patents related to blood oxygen sensing technology. and the ITC imposed an import ban on the Ultra 2 and Series 9 models of the Apple Watch that goes into effect December 25th. I think it goes in effect December 26 to be technical, but the 60-day review period ends on December 25th. So it's not a big deal, but that just to make sure we, you know, dot our eyes cross our changes.

I was about to ask whether I was characterizing all that correctly. Turns out the answer is no. Am I leaving anything out? Yeah, yeah, there's one thing I would push back on, this little company called Massimo. Massimo is like a 35-year-old company that has a $6 billion market cap. So relative to Apple, yes, they are small. But it is, I think, relevant context in this case where, you know, once you're like a billion-dollar market cap company, like you can afford the lawyers to fight this out, right? This isn't quite a, you know, a sort of scruffy little startup in a garage, you know, that like big, mean Apple. is taking their technology and they can barely afford, you know, the lawyer down the street.

They can barely afford you, right? You know, your former career to sort of like come in and represent them. So, I mean, again, it's not to say that this isn't in some respects a David versus Goli. I think it is in terms of sort of market cap. But it's also not quite a little company, if that sort of makes sense. All right. Well, so one more bit of context. I'll read from the Wall Street Journal.

We can all go back to 2013 here. Massimo, the developer of blood oxygen measurement devices, unveiled the mobile pulse oxymeter designed to work as an accessory with Apple devices at a trade show in 2013. Adrian Perica, then head of mergers and acquisitions at Apple, told Massimo executives in an email that Apple wanted to, quote, dig deep into Massimo's technology and what the company had coming next. Quote, let's discuss any ideas you have about how Apple could or should integrate some of these technologies into our products, Mr. Perica wrote. A few months later, Mr. Keani, the CEO of Massimo, said he got a call from his chief medical officer, Michael O'Reilly, informing him he was joining Apple,

which he said had agreed to double his salary and pay him millions in Apple shares. Mr. O'Reilly didn't respond to request for comment. Mr. Keani said Apple urged him not to worry about the hiring of Mr. O'Reilly, and the two companies continued to talk about potential plans. Apple, went on to hire 30 of Massimo's employees, he said. In 2014, Apple hired Marcello Lamego, a former Massimo employee who is chief technical officer at Massimo spin-off company, Suricor Laboratories, which licenses Massimo's technology. In an email before he was hired, Mr. Lemigo told Mr. Cook, he could, quote, add a significant value to Apple without conflicting with the large IP I have developed for Massimo and Syracore during the same period.

Mr. Lemigo did not respond to requests for comment. So that's how all this started 10 years ago. Now here we are. What's your reaction to what's happening this week? I did know about the ITC because it has come up in tech before. I think probably the most famous sort of episode was a decade ago when Apple was, you know, Steve Jobs in particular, was very upset about Android ripping off the iPhone and took it out on Samsung by and large. And there was, you know, all these lawsuits sort of going back and forth.

And there was two things that happened. Number one, Apple successfully got some number of Samsung devices barred from the U.S. by the ITC. And Samsung actually did the same to Apple, but President Obama vetoed it. And so the Apple devices were able to continue to be sold. So the reason why the ATC has, the ITC has this power, it's kind of like a parallel patent enforcement system. They are focused on imported products, obviously, you know, that it's about trade. And so they have the power to ban infringing products. They don't have the power

to enforce like financial fines or, or things of that nature. And so, you know, in this particular case, like international companies, if they violate the patents, then the U.S. body here. It exists to protect sort of U.S. industry. And that's actually one of the limiting factors in what they can or cannot ban. In fact, the ITC in this particular case ruled that Apple violated three patents, but two of the patents, they said, did not impact, like, domestic industry or something like sort of on those lines. So there's sort of only one patent at play. Now, where I could get into the actual patent question, you know, I think there's some dispute as to how sort of original it is.

Oxymeters, which I now realize I pronounced incorrectly on yesterday's update podcast, but oxymeters are not, like, they've been around like 100 years, right? And the idea of a wrist-worn one has been around for a very long time as well. So what exactly is unique about Massimo's technology? To what extent does it stand up? Well, a lot of their patents have actually not stood up. So when it comes to the patent fight, there's a review board where you can challenge sort of the validity of patents. And Apple has gotten a whole bunch of their patents invalidated already, but not this sort of particular one.

And so Massimo has sued them. They sued them for trade secret violations. the hiring of these employees and they sued them for patent violations. The patent violation case in district court has been parked. It's waiting for some of these other cases to go through. And so they've also simultaneously been working through the ITC system and they've obviously been more sort of successful there. So big picture, there's a whole debate to be had about the whole patent system. I think it gets very problematic when you're talking about software in particular. This is about hardware.

And the reason I bring up about Massimo being sort of a big boy and being able to sort of handle this sort of dispute is leaving aside the questions of capabilities and pocketbooks to wage a legal war. I think there's a bit of the system working as it should, to be honest. Like Apple should challenge these patents and Massimo should fight for IP and to get paid if they invented something novel. And so I don't have a huge problem here. I think, you know, the whole ITC system, the fact that it's, you know, it's being used in a U.S. versus U.S. fight, it just happens that Apple imports a much of their stuff feels a little not quite right. At the same time, it is sort of a welcome piece of leverage relative to Apple, given their size and how big they are. Like the fact they have this sort, it's like an extra check on them sort of engaging in this sort of behavior.

So when you say it feels a little bit unsavory or you're a little bit uneasy with it, is that essentially just discomfort with the idea that a body that's unelected and not a court can sort of unilaterally push out a decision that then has ramifications that everyone has to abide by? Right. And that the president of the United States can like sort of obligated to weigh in on because it's an executive agency. Yeah. It's more sort of a structural sort of issue. I mean, there are judges with the ITC, but it's. It's not like a traditional sort of court system. So, yeah, when I mentioned sort of discomfort with it, it's more big picture. I think the administrative sort of agency, you know, all of which come about for good reason. But then there's like just this massive apparatus that is not democratically accountable in any sort of way that is making these sort of big decisions at impact. It does make me sort of uneasy just sort of philosophically. but in the narrow context of this fight,

I think there's a bit where, look, intellectual property fights are a fact of life. I do broadly speaking support patents. I think they are important. I do think there's widespread abuse. I think a big problem is that patents are granted too easily, and they're not actually sort of figured out if it's a legitimate patent until it's fought over,

which means like the price of entry is the millions and millions of dollars that Apple and Massimo are sort of spending here. and if there was more, if there's more rigor applied to patent granting such that there was a strong assumption that they would be upheld in all cases, that would probably make life easier for everyone. But that would take a lot of investment sort of up front

into sort of the patent system and changing sort of the expectations and behavior of all these sorts of things. And maybe that's not sort of viable for lots of reasons. Again, there's like systemic sort of issues that go into this. But as far as the case narrowly, I don't have a big problem with it. I mean, even the Apple sort of versus Massimo sort of story, you quoted from this Wall Street Journal story that is talking to all these companies that allege Apple goes to talk to them to find about their tech and then hires away their employees and builds it themselves.

You know, on one hand, that feels unsavory. On the other hand, people that get really upset about this end up making like sort of like anti-poaching arguments that employees should not be allowed to like change jobs. Not necessarily pro worker, yeah. Right. And so, you know, I think it's an interesting story. But I don't really have super strong takes about it in any direction other than I say let them fight. I think the Biden administration should not rule on this. I don't think like it's it's a U.S. company versus a U.S. company.

You know, arguably the Samsung one was problematic too. But at least you could sort of like, well, you know, look, support the U.S. company versus the South Korean company. Or you could have sort of like perspective on that. I don't know. What's your take sort of looking at this from afar? Well, I'm fascinated by the ecosystem. ecosystem here. I'm also, I mean, having all this happen right around Christmas is pretty entertaining. And I'm not sure what Apple's going to do. I think it's kind of an accident. Yeah, like they just happen to rule on October 25th and it's 60 days or whatever it is. So that's why it ended up on December 25th. It works out to Apple's favor. And the Apple Watch is the ultimate Apple product that you want to give as a gift because it's like pretty cool. It's pretty nice. It's not something a lot of people would buy for themselves. And so you're excited to get it. And. And so you're excited to get it. but it's also led to...

I see AirPods guys here again, but yes, continued. Look, I don't necessarily need an Apple Watch, but I'll take one if you're handing them out at Christmas. Bloomberg says, in a memo to customer service agents about the pending sales halt, employees are told not to point shoppers to places where they can buy the devices. Quote, unfortunately, due to the ongoing legal matter, I am not able to provide you with any information about where you can buy Apple Watch Series 9 or Ultra 2, the employees are told to say. So if anybody wants to go out and do some research at their local Apple store and check

whether employees are actually abiding by that text, that script, please do it yet. I don't think they're going to do it until it's actually banned. Yeah, so the ITC can only, their only sort of purview is to tell customs what they can and cannot allow in the country. Right. And so Apple makes these abroad and Apple can't import them, but there are other U.S. retailers that have imported these Apple Watches already. And they, unless I'm mistaken, they can sell that stock as long as they have it, right?

Yeah, the ITC does not have jurisdiction over the U.S. market. They have jurisdiction over the companies they're ruling over and the customs agency. So they can stop Apple from selling and they can stop Apple from importing. But if Best Buy or Amazon or whatever else has stock, they can continue selling. This is not sort of a district court that has that sort of a domestic jurisdiction. So I would bet, I wouldn't be surprised if Apple's been like stuffing the channel to a certain extent over the past few months, getting as many of these watching sort of into the states as they can. And yeah, I would imagine they have to put that guidance in like for legal reasons, right? They can't be like encouraging customers to sort of violate the law.

Encouraging Best Buy to stock up. Yeah, no, it's just this idiosyncratic area of law that I wasn't familiar with. And I am curious as to how Apple is going to respond over the next couple of months because they're proposing to tweak some software and will attempt to solve it that way. But, I mean, Massimo has been pretty steadfast saying this is hardware that's violating our patents. And so it's unclear as to whether Apple's software tweaks will be deemed sufficient in terms of getting these watches back on the market. And the Apple Watch, the latest models are what Apple prioritizes. So it's not like there are older models that you can go buy as well. And so it's just Apple in general does like they take a pretty hard line.

And I think understandably stow against sort of like patent cases and fighting off licensing. And the issue isn't, you know, maybe Massimo is a super valid case. Again, we're not sort of getting into the details of it. But there's. always been a problem in tech of the certain patent troll sort of problem. Someone that sort of acquires a bunch of patents and then just finds companies that are violating them and seeks to, you know, sort of extract money from them. And so there's a, there's definitely a deterrent factor in Apple's actions. They don't want to give into anyone. They want to make

it clear that if you're going to get a dime from us, you're going to spend hundreds of millions of dollars to do it. Like, just be prepared. We're going to fight this to sort of the bitter end. And I think that is sort of understandable, you know, from Apple's perspective, at the same time, you know, this whole bit about Massimo is not sort of like a fly-by-night company. They are, they are sort of a real company with real products who are, by the way, readying like an FDA approved version of like a wearable that is like coming to the market soon or something like that, which, you know, in some respects gives Apple sort of grist to sort of argue against this. There's broader questions at play here, though, which is, in it gets to some of the fundamental nature. about patents, you know, there's a large group of folks out there, like the person sitting across from me in this podcast, virtually speaking, that is very suspicious and anti-sort of acquisitions, right?

Like, and so, oh, companies ought to invent. Well, you know, we have to be cognizant of, you know, what can actually be invented or not, right? Like at the end of the day, we're dealing with oxymeters, which again, is like a hundred-year-old technology that can be on your wrist, how many ways are there actually to skin a cat? And this does get into some of the patent sort of questions. Like, is this sort of a super obvious thing to do? Is there something actually novel that no one would have ever figured out?

Apple could have couldn't have figured out on their own or did not figure it on their own. And, and, you know, the implication, again, let's assume, you know, that, again, I'm not ruling on the validity of the patent. Let's assume it's pretty straightforward. anyone probably could have come up with it. Massimo just got to the patent office first. The implication of saying, well, number one, Apple can't buy companies for their technology because we don't want big companies buying tech.

And number two, we're going to have sort of a, you know, let's celebrate this. Yay, the little company is sticking it to Apple. The implication is that millions of people are then not getting. Just lose out on better technology. Yeah. Yeah, it lives on better technology. Now, again, none of this is making a statement about whether that's actually happening here or whether intellectual property laws are good or bad.

I do think, though, this technological dispersion angle is one that's very easy to lose sight of when it comes to questions like this, you know, which is like, what is the consumer benefit of lots more people getting access to their blood readings? I mean, the other one, Apple has this heart rate monitoring, which was another case. I can't, I don't have the name of the company in front of me, where the ITC again ruled against Apple also banned the Apple watch. but before that ban went into effect, Apple successfully invalidated the patent in question. And so, you know, in this case, I suspect that's why Apple didn't act before now. They thought they would invalidate all this

and sort of, you know, would be able to avoid the question. And so because it happened before. But then you get to, again, not to just to sort of sell the Apple propaganda, they love to have the videos like, oh, the heart rate monitor saved my life. I found out about, you know, this sort of issue,

X, Y, Z. I went there. And, you know, again, you want to be wary of using anecdote and sob stories to address philosophical and legal questions. But it is sort of a point worth keeping in mind about this sort of arena. And the more that the Apple Watch gets into health, I think the more of these issues are going to come up. This is probably, there's going to be more because the health, the whole medical device industry has been around a long time. A lot of what Apple wants to do is not reinvent the week. it's that they want to make what was only available in multi-thousand-dollar devices and only for a very narrow set of people make it available to millions of people at sort of a consumer grade level,

leveraging that sort of scale and that sort of capability that we talked about before. And I think this is going to be a point of tension repeatedly going forward. Right. Well, and you mentioned this as sort of a pattern of behavior with Apple. The Wall Street Journal article that you linked on Stratory was pretty eye-opening. where they write, Apple has tried to invalidate hundreds of patents owned by companies that have accused Apple of violating their patents. According to lawyers and executives at some smaller companies, Apple sometimes files multiple petitions on a single patent claim and attempts to invalidate patents unrelated to the initial dispute. Many large companies, particularly in tech, have been known to scoop up employees and technology from smaller potential rivals.

Software developers have given a name to what they describe as Apple's behavior in such cases. Sherlocking. The term refers to an episode about two decades ago when Apple released a software product called Sherlock that helped users find files on its Mac computers and perform internet searches. So number one, I'm just glad to discover the term Sherlocking and I hope we can incorporate it into future Sharp Tech episodes. This is a goal for 2024. Well, you're giving away the game of your late entry into being a tech pundit. I know. I'm coming to this with fresh eyes, people.

That's part of the pitch with the podcast. No, which I think is actually quite interesting. Actually, I want to dig into your point of view on this. Just to more context, I don't think introducing Sherlocking in this particular paragraph is actually, I mean, it is kind of. This is about software, right? Where there was a software product called Watson that sort of searched on your computer for files. Apple introduced a version called Sherlock. but then you back up and you're like,

should your operating system on your computer have the capability to search for files on your computer? Probably. This actually goes back to the Microsoft case, which is should an operating system have a browser? Absolutely. And yet we fought this massive sort of antitrust case. Now, again, Microsoft is doing lots of shady stuff.

A lot of their behavior with OEMs was actually redolent of Google and Android, and they were right, that's the main thing that they got trouble for in rightly so. But a big part of the case was the sort of bundling of Internet Explorer, and it's kind of bizarre to sit here in 2023 and think that a major tech company building an operating system would be sued for having a browser built into the operating system. Of course it should have a browser built to the operating system.

That speaks to, though, the challenges and how it's very easy to get, particularly in tech, some of this stuff wrong because you're, yes, at that time, browsers were new and novel. But if you fast forwarded, obviously a browser is going to be sort of an essential part of the computer. Obviously, searching on your computer for files should be a part of the operating system. And, you know, I think one of the, you know, the Sherlocking comes up with Apple a lot because they are, they will add new features to the OS for which you previously bought a little small utility that did it. Now, sometimes I think Apple probably does get in trouble. when they're doing more applications that don't have anything to do with an operating system, right?

They're just sort of like, you know, here you go, have this word processor or have this music app or whatever it might be. And I think that that consternation is probably a little more reasonable in that sense. But it's not clear why that should be illegal. And it's definitely not clear when it comes to what is just operating system level functionality, why that should be wrong. So that's number one as far as the Sherlocking part. Real quick, question on the Microsoft parallel. wasn't Microsoft also screwing with the performance of other browsers that would be installed on their devices? Or is that, am I misremembering?

Yeah, I think, I think you're kind of misremembering. I mean, there were, I think, more allegations about what Microsoft was doing relative to, I think, like other like word processing software, stuff like that. You know, they, they did deals with OEMs, made sure Internet Explorer was in there. They tried, tried to tie Internet Explorer as deeply into the system as you could so that you couldn't easily, sort of delete it or move it. And then they obviously bundled it. So it was there there when you started and you had to go download sort of Netscape or whatever. And remember back then, actually downloading a browser was a much more of a challenge because you had super slow internet speeds or you had to get like CD or something like that.

Right. But, you know, a browser should be tied into the operating system. There should. Oh, yeah. Imagine opening your computer today and you cannot get on the web, right? Like how do you even get Netscape in the first place? Totally, totally. I just recall that some of the evidence in that case made.

It's similar to Google where it was just like Google was writing emails, like announcing to the whole world. Like, we are breaking the law. That's sort of how some of the Microsoft evidence played back in 1997. But in any event, your point on Apple is well taken. And I actually, I really appreciated the takeaway in the article today because I think that it's the most clear-eyed way to look at it is the perspective of Apple makes sense and the perspective of Massimo makes sense. And it's, there's not necessarily like an evil villain here. It's a bunch of self-interested people in a really competitive sort of cutting edge technology space right now with these health sensors. Right. And to go to the Washington Journal article you quoted, absolutely Apple should seek to invalidate patents.

Again, that's that's sort of built into the system for better or worse. Patents are are granted relatively easily and not all of them should exist. And, you know, again, as a layperson, I look at this oxymeter one and I do question it. I think Apple's right to challenge it. And of course, Apple should then abide by whatever decision is made about that, right? Like, you know, that's the way the Wagle system should sort of play out. Same thing with this hiring of other employees. Like, again, it does feel icky. I can understand how it looks icky, but I think folks that sort of jump on board with Apple's the bad guy here are not fully thinking through the implications of what they're arguing.

A lot of those same people are also saying non-compete clauses are evil and anti-American. That's right. That's right. There's not a real systemic analysis happening here. Right. Yeah. No, point well taken. So what percentage of the French stock exchange is Apple's watch business?

How concerned are they by any of this at the end of the day? Good question. I don't know. Nermez. I probably not even that much. I mean, it's a good size business to be sure. It's like 5% of Apple's. Apple's revenue or something like that.

But, you know, I, you know, it's going to be interesting to see what happens. I suspect Apple's going to try to get through a software. I think right now they're trying to just like change the functionality, which I presume is make it worse. And then if that doesn't work, I would bet they would try to sort of just disable it. And, you know, worse comes to worse. It's not clear to what extent Massimo is willing to license whatever technology they have or, you know, what terms. This is not, this is sort of an important distinction. there are a number of technologies that are standards-based.

And so those have to be licensed at a fair and reasonable rate. They're called Fran-Fran sort of patents or something like that. And so, and Apple, by the way, we'll fight about these, too. Like, this is what the Apple Qualcomm case was about sort of a few years ago. Qualcomm had a bunch of Fran patents. Apple's like the way in which you're charging them, which you're doing like a percentage of the total phone is BS. We're not going to pay you anymore that Apple lost, by the way. and had to bake welcome.

But this is not a Fran patent. Massimo can charge whatever they want for it. So there is sort of a high level bit of brinksmanship here where how much is this actually worth to Apple if they exhaust all their alternatives. And then, again, they don't want to set the standard of paying for stuff that they don't think there's to be paid for. But they also have demonstrated they're also not willing to pay for stuff that they are obligated to pay for. So, I mean, Apple's no sat here, to be clear. Well, and that would structurally, that would be my answer to your question in terms of, well, what should they do if they want to have technology reach the millions and millions of people who enjoy Apple products? Like, you could just license it and pay fair market value for technology like that, right, rather than trying to buy off value, right?

Like, there's one seller and one buyer. Is that, you know, it's not like this is a liquid market where you can go to the store and buy a Massimo patent, not, you know, for a listed price. So, I mean, again, but that's fine. Apple's a big boy. They can figure it out. Massimo's are big boys. They can figure it out. They're fighting it out. I believe in broad strokes the U.S. legal system. I think there are real issues when it comes to how big you have to be to play this game. But in this case, they're both big boys.

So I'm not too bent out of shape about it, honestly, in sort of either direction. And I guess by one takeaway is I think that the Biden administration should let it play out. Like there's no need, I think, for a presidential sort of intervention here. and would be pretty blatantly, I think, favorable to Apple at this point based on the evidence that is out. And yeah, so I guess that would be my big take. By the way, I did sort of look up sort of the degradation issue when it comes to Microsoft and Netflix. What that was about was Microsoft wanting to push sort of web pages and web capabilities that were not standard. And so therefore there'd be like websites that didn't work well on Netscape.

It wasn't, but they weren't as far as I know. and I don't recall anything about this. But they did use the term acceptable degradation. But I think that was not about like the operating system, like making Netscape run worse. You know, say what you will about Microsoft and all those sorts of things. Like they, you know, the Wyn 32 has always been sort of a dependable API. And they haven't, they haven't messed with that to my knowledge.

I'm sure readers will let us know if I'm wrong. Well, I thank you for looking that up. That's good co-hosting by you. I feel like I failed the show here by not showing up with a workbench and an Apple Watch. We could crack open the Apple Watch and start examining the oxymeter and get to the bottom of what's infringing or what's not. But maybe in 2024. A very important thing that I've learned over the years. If you want to sort of hold yourself forth as any sort of expert on one topic is to not pretend to be an expert on ones that you're not.

Yeah. No, it's very, very good. All right. Well, to keep things moving here, you mentioned acquisitions earlier. They have been in the news as well. So I'll frame this with a Wall Street Journal story in September 22. Adobe agreed to buy collaboration software company Figma for around $20 billion, using the biggest deal in its history to acquire a small but fast-growing rival

that the tech giant hopes can give it access to a broader group of customers. The smaller company was valued at $10 billion in a funding round in 2021 and has been expected to surpass annual recurring revenue of $400 million for 2022, about 150th of its sale price. Adobe said Figma has gross profit margins of approximately 90% and positive operating cash flow. And then fast forward to this week. By the way, just one good on this, because a lot of that purchase price included stock and Adobe's stock is up.

So it's actually more like $26 billion in today's dollars. condolences to any Figma employees who are listening to this podcast. Continuing to this week from the verge, they write, following mounting pressure from regulators in the UK and EU, Adobe and Figma announced on Monday that both companies are mutually terminating their merger agreement, which would have seen Adobe acquire the Figma product design, acquire the Figma product design platform for $20 billion. As a result of the termination, Adobe will be required. to pay Figma a reverse termination fee of $1 billion in cash. Regulators cited Adobe's near monopoly in the design software market as they pushed back on the deal. By purchasing Figma, a fast-growing product design platform that's now more popular than Adobe's rival XD application, regulators worried that Adobe would harm innovation that could have occurred should Figma be allowed to flourish independently. Designers have expressed similar worries since the merger was announced in September,

2022, but Adobe pushed back on those claims throughout the various ongoing probes. So, Ben, a lot of directions we can take this. First and foremost, what do you think of a bunch of European regulators poking around our companies telling us what two California companies can and can't do? Well, I mean, I have a few bones to pick with the regulators. I think this is a big problem systemically, particularly like Europe has decided, like, Our innovative contribution to technology is regulation. It's like there is a, it is a fundamental issue.

The last card they have to play. Like, for example, there's this AI regulation framework that's been agreed to the European Parliament, European Commission. You know, we'll see what happens with it. France in particular, speaking of France, is pushing back pretty hard against it and certain aspects of it. Why? Because Mistral is like one of the weeding open source AI companies and it's a French

company. And that's fine. That's healthy, right? That's what you want. You want various stakeholders going back and forth and getting to sort of the right place. One of the fundamental issues, big picture when it comes to the European Union's sort of role in tech is you have very, you don't have countervailing sort of incentives, right? In the U.S., you know, there's, obviously the U.S. cares about tech companies. It cares about their profitability, It cares about their power, cares about their capability because this accrues to the benefit of the U.S. And obviously the U.S. has to also consider the consumers, the end users, and have the appropriate regulations and those sorts of things. And that's healthy.

That's sort of a good dynamic. This situation we're in where Europe has no tech industry to speak of, but they have plenty of regulators is a big problem. And it is bad for consumers. Like who here likes to click the, you know, cookie banner on every single page? 47 gazillion things or do, you know, I mean, that's the easiest one to pick on. But the reason it's so easy to pick on is because it's so ridiculous. It's so evidently stupid. And it's something that we're all just going to be living with maybe for the rest of our lives.

Like I don't see anyone in the EU repealing any of the regulation that doesn't work. Right. By the way, is an important concern. It's never rolled back. And so it's fair to push back against it as it's rolled out because it never goes the other direction. Right. This is a bit of humility that I think the pro-regulation set needs to keep in mind.

It's good. It's hard to pass regulation in the U.S. It's good. It takes a long time because there are massive long-term costs. If you get stuff wrong, there's always unintended consequences, there's dead weight loss, and you're stuck with it. Stuff does it. There's a one-way ratchet. And so we have this sort of entity broadly, speaking of Europe as a whole, that is cranking this one-way ratchet with no pushback.

and we're all left to deal with it. It's not great. It's definitely, and there's no, they don't care what happens to innovation in America. Right. They don't, and yeah. So I do have a problem with the big regulator. Number one, in Europe. And number two, I thought the way they handled this deal was really annoying.

Like they just waited until the very end to even start considering it. And then they asked for all these documents and they pushed it forward. And at some point, like, You put an 18 month, like an 18 month sort of window on closing a deal. That should be enough time. And you were seeing this happen again. Again, the FTC pulled the same BS with Activision where like waiting until the very end to sort of like, you know, do. You know, fortunately they got the court case in time and sort of it happened.

I say fortunately from just a process perspective, look, mergers should be reviewed. We'll get to the details of this one in a moment. But right. I think that it, you know, I'm not sure how to fix it, but I think it behooves regulators to act more quickly in this case. Let's at least resolve it, whatever way it gets resolved. Let's resolve it more quickly. And in this case, we didn't even get to a review because the clock ran out. And so just because like, well.

Yeah. I mean, I think the structural questions that this highlights are questions that we've encountered elsewhere, including with the Activision deal, where the UK nearly held up that merger. and it just highlights this difference in law that is going to continue to be a real problem for companies around the world, and primarily U.S. companies that are doing business around the world, whether it's mergers that are held up by China or the EU or the UK. And we've talked a lot about what an interesting time it is for antitrust and big tech on this podcast. And I think those questions should be answered in court and in Congress over the next 10 years.

But it also seems like a lot of these cases are going to be decided by like disinterested parties in the EU going forward. And that's suboptimal for everybody because. Well, not just that, but they weren't even decided. It was just slow rolled until it was killed. Right. Until these guys had to kill the deal. And then there's no real right to review. There's no path of appeal.

There's no standard that's laid down. Like, like, what is, like, if this was actually reviewed and it was actually banned, they would have to issue an opinion. They'd have to explain what was the issue here, which would actually give guidance to future companies, even if we're going to have this crazy structure where not improperly incentivized regulators in EU get to rule on U.S. tech acquisitions, at least you would know the way of the land. But this is an issue with EU regulation in general, is they just sort of issue these vague things. you have to do this. There's no actual guidance on how to do it. You try to implement it. They're like, nope, that's not right.

Do it again. It's like, it's such a staggeringly business, unfriendly sort of case. This should be part of your French sort of business sort of consideration. Like you need to. This is how you lose out to Apple in the long run. If you at least know what they are, you can work around them. But the EU doesn't even grant you that. Right.

And so I say that as someone who thinks that they reach the right decision here, I think that this merger. There was no decision. Okay. So I think that Adobe reached the right decision, abandoning its deal in the face of all these different investigations and the slow rolling on the EU side. Yeah, I am happy that this is not going through. But I also think it highlights real structural questions that the U.S. at a maybe diplomatic level, I'm not sure how to address this going forward. but if I were a U.S. company, I would be lobbying the government to take a more active hand

at resolving some of the discrepancies we're encountering around the world here. But as far as the details of this particular merger, can you explain why some people considered it anti-competitive in the long term and what some of the particulars are as we talk through it? Yeah. So, number one, I think this is the correct question. quote unquote decision. And number two, I think the worry and fears that some people in tech are expressing about this decision are completely valid and are something to pay attention to going forward. So I'll start with the first one.

In popular conception, it's like, oh, I think about a Photoshop competitor. It's not a Photoshop competitor. Photoshop has way more capabilities, get way more deeper into sort of like design or whatever or illustrator or whatever sort of your Adobe tool of choice. The difference is all these Adobe tools. They started in this world of personal computers and they were personal applications. You had a file. You would work on it.

And then you were done and you would put that file. One of the big innovations was like shared network drives where everyone can have access to the file. Then you'd get to these crazy, you know, sort of like append your V1, V2, V3, V3, V3, V3, 3, 3,00045 with, you know, AS. You're a former warrior. You've sort of lived this life as far as like passing back and forth. A lot of Microsoft Word documents, V6, V7.

V8. Yeah, it's great. And so this was very much the case in design as well. And so basically, all of Adobe's products have been a single player game. It's like you go in, you use their product and they've generally been licensed on a single player basis. You had an individual license. And, you know, one of the big shifts over time has been sort of the rise of collaboration, the idea of lots of folks working on one thing. And Adobe's products were fundamentally not collaborative. And so that's number one. Number two, there was this new space, which is call it interaction design. This idea, like when you're building it, say you're building an app, the number of screens, even in a simple iPhone app is like shockingly large, right? Like say there's like 50 possible screens or 500 possible screens, you have every possible permutation go to every setting, go in every sort of single thing. That needs a team to design and it needs a team to build. You're going to have the designers.

You're going to have the engineers. You have the product managers. You have the client that is reviewing it or the CEO or whatever it might be. and it's a fundamentally sort of collaborative sort of thing. Now, you had, but first off, as far as the design thing, you got a company called Sketch a few years ago that came out on MacOS, and they blew up with the iPhone because you had all this new sort of designs that were sort of happening.

That was also a single player game. It was sort of one person now had this application that was not Photoshop. It wasn't that heavy, but it had like it was much, it was lighter as far as its capabilities, but it was designed for designing these sort of interactive experiences. So sketch is there, but again, it still had the collaboration point where sketch files were V1, V2, V3, V4, V5. And ideally over time, they'd be in the cloud, but still, it was always sort of a hack. Figma comes along.

And Figma is a fascinating company for lots of reasons. One of them is which they, it took them like two years or something, maybe three years to watch the first version of their product. Why? Because web, like the fundamental technology of like undergirding sort of like the web, is kind of crappy, right? It's like actually the key innovation, you mentioned the Microsoft Netscape bit was Microsoft introduced this, this capability that lets you update the page in place.

And that was not a web standard. They just introduced it in part because it was useful, but also to kind of screw around with this market. Pages that use this is like, I can't remember what it's called, XML, blah, blah, blah, blah, blah, HP access or something like that. they would only work in Internet Explorer.

It wouldn't work sort of in other browsers. And it, but they did that. They also did ActiveX, which was proprietary. But this particular request, someone came along. I think it was, I think I'm in Brandon, like, with sort of like, like, with that Netscape or Firefox. And they realized you could use this to update sort of the page in, in place. And basically the whole JavaScript sort of revolution of these web apps where you could,

you know, go to Google Docs or you could go to any web application. and the page will change based on your input or based on your action. This is all using a scripting language or a language called JavaScript that is sort of being composed real time in your browser and that's how we got the whole world of web apps was actually through Microsoft kind of trying to

trying to screw Navigator back of the day and putting this capability in that became sort of a web standard by back door by sort of accident. So anyhow, that's a little bit of history lesson sort of for the day. I love it. Bill, they got our Sherlock lessons. Yep. all of this is a pile of hacks

and it's all like the performance is terrible and it's why your browser uses like five gazillion, you know, all your RAM and it's slow. Right. It's stuff hangs and all this sort of stuff. None of this is very suitable if you want to like be designing stuff. Like you're not going to like Photoshop in the browser.

Am I understanding correctly that basically it's architecture from like 1995 that if you were building it right, you would just tear it all down and start fresh with stuff that made more sense. but because there's so much existing infrastructure built on top of what existed in the early 90s that we can't do that. And that's why there's just hack after hack after hack and it's such a mess. Oh, yeah. I mean, like you should see, like we have this monstrosity as part of passport that formats your, it takes my posts and it formats it for email so that it will display in what, you know, on your iPhone, on your computer, but also in every sort of email client. Outlook is notorious because they're using like web standards from like 2003 or something like that.

So like all this crazy stuff we have to do. In fact, I think there's an outlook only rendering that happens. So most of it is like one way that there's a bit at the bottom. That's like, oh, if it's Outlook, like show it this way,

XYZ. And yet we're Outlook guys on this podcast. You know what I mean? We do like Outlook. Yes, they do make a good product, 2003 or not. But I mean,

there's definitely some Stockholm syndrome probably involved in calling it a good product. But yes, regardless. So, anyhow, yes, it's a pile of hacks. What Figma did is they spent two or three years building their own rendering engine. So basically what happens is when you go to Figma, it basically doesn't use like the core browser stuff. It's like they like insert their rendering thing that's super high performance that will work across browsers. And so you can actually have an interactive experience with design elements that feels like a desktop application. It's a remarkable story.

It is like the ultimate what's called a fat startup where they didn't get a minimum vial product out there and iterate on that, right? That's sort of like the sort of lean method or whatever it is. No, they spent years on hardcore computer science building this fundamental capability upon which they could have sort of figma. So, you know, all the credit in the world to them for doing that. But what they built was this interactive design application that was. that was inherently collaborative because it was built for the web, right?

You don't have to have everyone to install Figma and try to sync changes across things and all this sort of weird stuff that we still deal with with Microsoft Word Aware might be. You opened the page in your browser and you could work on it. Everyone could work on it because all the work was actually happening in the cloud. It wasn't happening sort of on your device. And so by being collaborative from day one, it has swept the industry because it solved this massive pain point, which was you had this category of applications around designing web pages and designing applications that sketch was there, but it was a single player game. Adobe came out with XD, which was XD was pursuing sketch.

And Adobe is a single game mindset company. And so it's a one player thing. Figma comes out here, blows the doors off all of them because it's collaboration from day one. It was built in from the core. And so the challenge for Adobe is not that they killed XD. XD wasn't that important to it. It made no real difference to Adobe's bottom. The issue is that if you have an application that is inherently collaborative that undergirds from Figma, you might open an image and then work on it in Photoshop or work on it an illustrator or work on it in whatever sort of design program of your choice.

But then it goes back into Figma because that's the connective tissue for an entire company that is building something, that is designing something. It's the analogy I make to it is it's the operating system of design. It's the core piece that everything else plugs into. Just like Windows used to be the operating system that matter for business. And then what does the Microsoft done with Teams? That's so impressive. Teams sucks as a chat app. What it does is everything plugs into it, right?

You can share a link there. It'll open the right place. You'll have a list. All the files are associated with the files are in the cloud and all sort of thing. It's the central hub around which stuff is organized. And when you're the central hub, you have power in that value chain. Like that power, it could be my. monetary. It could be like Figma can improve their capabilities to be make Photoshop less and less

necessary. They could favor or have a marketplace. They do have a marketplace where they promote maybe a Photoshop alternative and say this is actually a better deal. It's cheaper and it works natively with Figma sort of XYZ. So the issue here is not that Figma was the XT was really kind of a failed product. But obviously, you know, that kind of gave the game away that Adobe immediately sort of sunset XT, but that to me is less important than the fact that Figma was threatening to Adobe the entity. Now, Adobe's tried to make their stuff more collaborative. They have the creative cloud. They want to sync all this stuff together, but there's, there are a pile of hacks built up on a single player game. Figma is fundamentally disruptive and that it's approaching

it from the, it's starting collaboration first. It's just different than what Adobe does. And that is a threat to Adobe in the long run. So in this case, I think a narrow view of this case, in Adobe's bet was on a narrow view that regulators would say, yeah, it's not competitive with Photoshop, it's not really a failed product. This is not a competitive product. They wanted it to be seen as one of many products

and then they can acquire it. In this case, a sophisticated view, which I encourage, like, this is like the Microsoft Activision thing, right? In a narrow sense, you can understand the pushback. My point was you have to look at it holistically. You have to look at it in the context of consoles.

You have to look at the context of PCs. If we look at the context of the game's market as a whole. In this case, a holistic view is that Adobe is worried about being holistically screwed because they're just like a plug-in for what actually matters. And because of that, I think this is an appropriate sort of merger that should not have happened. Figma is very competitive with Adobe. It's a big problem for Adobe. And Adobe should not be able to solve it by buying them off.

Yeah. Well, and it's an interesting, I mean, as much as we. ragged on the EU here, I wonder whether the regulators in the U.S. could have won in court, because this is another case where the real anti-competitive threats posed by this merger are, in some sense, speculative. Like, you're speculating that there are going to be innovations chilled in the future if Figma is an Adobe property and then Figma is going to just prioritize Adobe products. The real decrease in companies for Photoshop is, is not that Figma competes with Photoshop.

It's that you remove. There's no incentive to start a Photoshop competitor. That's right. You remove the marketplace within which a Photoshop competitor would have arisen. Because obviously, if Adobe owns Figma, Photoshop is always the first class citizen. Exactly. Who's going to break in there?

Yeah, this speaks to the utter failure of the FTC. Thank you for bringing that up. Actually, I didn't even think of this. Now I thought that I could include my daily update today. Great. This was an opportunity to get in there and to make that exact case. But because they don't understand technology, because they're ideologically driven and just want to ban everything, they missed it, right? Just like the much of the-

They should listen to Sharp Tech, September 22. We were- No, this is the core problem. It is still festive season. And I'm going to air some more grievances. No, this is a perfect example. If you don't bother to understand the market, if you paint people who are trying to explain the market to you as apologists and corrupt actors, What you do is you, in your ideologically driven, what you do is you take on stupid cases like Microsoft Activision,

you get embarrassed, and you miss a case that was tailor made for the thesis you want to make, which is that we need, like, in technology, we need to consider the long run. We need to consider where this is going to play out. And this is an example of, in the long run, the Figma marketplace will become a arena in which Photoshop can be meaningfully challenged. That's what Adobe is trying to kill. That is a compelling legal argument. It's a novel legal argument, but it's a novel one that has the benefit of being true, right?

Which unlike many of their other novel arguments. But this is an agency. But under the law, it's difficult to measure that, right? I mean, that would be the challenge they bump into if they try to make that argument in court. But if you want to make that argument, make it with a case where you actually have the facts behind you, right? They're trying to make novel arguments about Microsoft Activision that is dumb, right? You do discovery on Adobe's emails about Figma, you're going to find definitely evidence to support this point. They do discovery on Microsoft Activision.

They can't find a single email to support their argument, right? How does this not occur to them? Maybe we're barking up the wrong tree. Like, there are issues to be addressed in tech acquisitions. There are issues of competitiveness in the long run. And they undergird this sort of thing. They undergird value chain shifts. They undergird where power, where control of a value chain comes from.

And this was an opportunity to do that, but because it's so ideologically blinded and it's so sure that all big tech is bad, the problem with that is sure, maybe you're a clock that's right twice a day. You're a squirrel that found a nut. Congratulations. But wouldn't it have been better to actually take the time to not assume that all acquisitions are bad, to not assume that every big tech company got there by malfeasance, but to actually try to figure out the market and then pick cases. that are winnable and also align with your broader point of view. So a squirrel that finds a nut, you're missing a modifier in there. You need a blind squirrel finding the nut. Oh, yeah.

Swirles find nuts all day long. Blended by ideology. Who's blinded it now. No, point well taken, heartening to know that festive season will continue forever on Sharp Tech. But to that end, I put this very broad question on our, outline. What does this say about the future of the innovation ecosystem? And what I mean there and what I'm curious about is what will it mean for startups and tech investors if regulators

succeed at blocking the mergers and acquisitions that some believe tend to harm competition over time, but they don't actually break up the bigger companies that have all this market power. because right now, if you're a company like Figma, it's really efficient to just sell to Adobe at an unbelievable premium. But if you can't do that and end up having to compete with Adobe's size and resources, not only does it take a lot longer to realize the kind of returns you would get from a sale, but the big company can still try to kill you or steal your business in a dozen different ways. I mean, going back to the top of the show with Apple and Massimo. And so I just wonder what this means for like the ecosystem with startups and what the path looks like at this point. Because there's still these gargantuan firms that wield all kinds of market power and can make your life really, really difficult if you're trying to go it alone. And if you're removing the off ramp for these startups and their investors,

the picture gets a little bit murky. So right now it sort of feels like we're in regulatory no man's land, where the giant companies are still giant, but also the life preserver is no longer a viable option in terms of acquisition. Does that make sense to you? Yeah, this is a huge concern. And this is, I think, why a lot of people in Silicon Valley

are freaked out about this. And I wrote this article, I remember very clearly, because this was my last sort of pre-COVID trip was in February 2020, and I was at this sort of conference at Stanford. I think it was hosted by the Justice Department. I can't remember what it was. About the, you know,

competitiveness in tech, you know, exactly what you would think. And I was so concerned by this panel I was on where there was this developing sort of idea that all big tech acquisitions are bad. And it didn't matter. Don't listen to them that only you should look at the big ones. And the FTC opened,

was opening this investigation into we're going to investigate all acquisitions. Usually if it's under a billion dollars, like it's never really reviewed or something like that. No, we're going to go back and look at the $50 million acquisition and the $100 million acquisition. And I'm like, crap. Like I've talked about, for example, how the Facebook Instagram acquisition was a screw up. I was on that from day one saying this was problematic. For all the reasons I've talked about because it was about acquiring this audience and demand, an aggregator or acquiring an aggregator.

and I'm like, oh, wait, there's a problem here. Like, I'm looking at this situation with a very high degree of subtlety, but that's not how stuff actually happens, right? It's sort of like a broad, like, look at it. I'm begging the FTC for subtlety, and we're not getting any of it, right? And that's supposed to be like the reason we supposedly have these, this administrative Borg or whatever it is is because we want to have experts in place. They can't be bothered to understand the tech industry.

What happens is you get very blunt implementations. And my concern is that we were veering towards a blunt implementation of just big, big, big companies can't buy anything. And that was a big, big, big problem. The problem is, to your point, so there's a few things that are bad about this. The beauty of Silicon Valley is just anyone can start a company, anyone does. And it's always fun. Everyone likes to find this stupid company like Juicero or whatever, you know, that is just like,

how did this get funded? The reason it got funded is because a ton of dumb companies get funded. because if we only ever funded companies that were guaranteed to be a success, none of them would be funded, right? Like, this is the beauty of the civil value ecosystem. This is the beauty of the venture capital ecosystem. Capital, and this is why the U.S. is fundamentally different than Europe in many regards. The willingness to risk money, knowing that the economics that play in your favor is that your downside is capped.

You put $10 million into a company. The company goes under. You lost $10 million. If that company becomes a billion dollar company, suddenly that's worth, like your upside is unlimited, right? And that's the math that undergird sort of like venture capital generally. But at the end of day, for that math to work, you do need exits. And the reality is it's not all IPO or out of business. A huge number of companies, they invent something or they come up with something,

but it's never good. Like one of the hardest issues of tech generally is it's hard to make money. It's really hard to make money. Like we talk about companies like Snap, for example, huge user base, lots of engagement, can't make any money. Twitter can't make any money, right? It's staggering how many successful tech companies don't actually make money. Like most of the companies that are really successful that are popularly thought of as successful

aren't making a ton of money even now. It's surprising, right, when you come in from the outside. But this gets to a tech product at zero marginal cost. That whole scalability bit I talked about where you can extend it, that makes it really, really hard to monetize. And the fact that anyone can get distribution because of the internet means that competition is absolutely massive. So it's actually really, really hard to make money.

And so the way the system works now, though, is something can get invented and it cannot, it's not going to make it as a company. It's never going to go public. But a Facebook buys it or a Google buys or an Apple buys it. What happens? Number one, the investors get some sort of payback. It's not the home run that makes a fun, but they get their money back or maybe they get a two-x return or something like that, right?

So they can take that money and then they can invest it somewhere else. number one. Number two, the founders, maybe they get some money, maybe they get a cushy job at Apple for four years, right? They vest out and Apple stock's worth a lot. So they don't get the reward they were hoping to, but they're not destitute, right? And so that means the cost of going out and starting a company is actually very low because the worst outcome is you get stuck at Google for four years or whatever it might be, right? And so, but then number three, to the extent they made something valuable, when that is acquired by one of these companies, billion of people get access to it. They didn't have to actually go out and go on this 10, 20 year journey to

becoming a public company and acquiring customers so that people could access to it. Everyone gets access to it right away. There's a ton of positive outcomes that come from big companies buying small companies. Now, the distinction in this particular case is, I think Figma is different than most startups in that it's not just a technological success, that whole building the renderer thing, it's a fundamental business model threat to Adobe. It is disruptive in the best possible sense. As seen through the valuation, I mean, that's why Adobe was willing to throw $20 billion. That's right.

They were eliminating a threat. Absolutely, for sure. And they weren't going to eliminate Figma. They would keep Figma because Figma was amazing, right? It would become the centerpiece of their strategy going forward. So Figma would be dispersed broadly. But this is a particular case where, like, the vast majority of these acquisitions companies make, there's no threat to Apple.

It's not a threat to Google. It's not a threat to META. It's like, oh, you know, They're just their part in the ecosystem. They pay off. There's a whole cycle where companies work at big tech companies and they go out and do a startup and then they get reacquired. And I title this article, first, do no harm, right? We have a system that's working pretty well.

It is driving almost all the economic growth and has been in America for decades. And you're going to come in and make this top down imposition that no acquisitions are bad because big tech is bad. you are messing with something that is finally honed, finally tuned is the envy of everyone in the world because why? You think you know better? You think you can decide what is better? This is central planning at its worst.

Like we have a system that is actually working very, very well. And an essential part of that is these acquisitions. And that's not to say you shouldn't look at acquisitions. Again, that's where I think the Figma one is sort of an approach. appropriate one. And it also speaks to the fact these people that want to come in and kill this didn't even have the wherewithal to challenge the right case. Right. And so this, like, even in this case where I do support this, I very strongly identify with all the people in tech that are very upset about this because I worry we're empowering people that don't know what

they're doing that are going to be very destructive and want to turn our innovation ecosystem into France. Okay. Well, I don't want to turn our innovation ecosystem. Felt good coming out the tongue. I got to tell you. Any means. Yes, maybe France will be a recurring theme on Sharp Tech. Yeah, no, I hear you. Well, France, I would love to do a live podcast in France. I'm not sure what our listenership looks like out there, but maybe we can expense it somehow. Yeah. Yeah, I, it's, I'm not sure how to best resolve the tension there because I think that prioritizing competition. The best way to resolve it is to not screw with what's happening. This is the issue like we at

some point can someone acknowledge where almost all of the economic growth and the the economic power of the U.S. is flowing from. Right. But that's six companies at the end of the day. And so if you think that there should be more diversity in the marketplace, then it's reasonable to say, okay, we need to come up with a different way. Okay, fine. But let's not make blanket statements that we need more than six companies. Let's actually try to understand why are there six companies? What, like, what are the economic forces that have resulted in this outcome? And my entire issue, my entire festivist theme is a refusal to understand how we got to where we were, to apply this old world framework and just to assume that there was malefeivance

and bad acting that result in these dominant sort of situations. This isn't, like Kroger buying Albertsons, right? A physical grocery store buying another one. Like that seems like that's pretty clear how they're trying to get huge. It's old school. It's easily understandable. It's addressed by our laws. This is not what happened.

Google did not get large through acquisitions. Meta not get large through acquisitions. Now, they enhance their power through acquisitions for sure, but to understand why. And they protect themselves long term. Right. And like all these are worth, worth considering. But if the, if the choice. I would like a subtle, well-informed sort of approach that understands this and can pick and choose what is the right ones.

If I have to choose between black and white, which kind of feels like I do between overdoing it and underdoing it, given the track record to date, I would definitely lean towards undoing it. Yes. And I would lean toward overdoing it because I think prioritizing competition leads to better outcomes long term. But you're just saying that. It's just like free speech does. Just like free speech. I think at the end of the day, there are going to be tradeoffs with any path you choose on this front. Now, I think the takeaway here, and when I put myself in the shoes of someone who works at Figma, like, if they were to IPO tomorrow, there's no way they're seeing anywhere near the value that they would have seen from the Adobe deal. and if you care about protecting innovation and the ability of startups to compete and compete in meaningful ways,

then merely policing mergers and acquisitions and basically imposing a de facto ban on mergers and acquisitions is not going to be enough to get the job done. And you have to take more structural steps to protect companies and their ability to really compete in the marketplace. Like that that is the ultimate lesson in my house. All I ask is that you bother to understand the structure first. And I don't feel that that's, I don't feel that that has been happening. Well, again, I understand the structure because we had a great conversation about Adobe Figma in September 20, 22. Yeah. No, and I encourage everyone out there at the FTC and any other regulatory bodies, subscribe to Sharp Tech.

Was that, was that when we were podcasting when we talked about it? I believe, I think we had just launched. or something. So don't go back and listen to that podcast. It's probably pretty rocky. But yes, it was in the infancy of the Stratacri bundle days. And look at us now, Ben. Do you have anything to add before we close out? Give the gift of Stratory. As always, the best, the best gift you can give anyone. You know, that's my opinion. A very, you know, and very well thought out, very well considered. I looked at all the options. And I decided you buying Stratory gifts for other people is the best.

But other than that, no, I'm looking forward to our, we are going to deliver a, Melvig episode. I said, I don't care if you're sick. We're going to get another one in here. It is going to hopefully be off the walls. I've not seen any of the questions. That's up to you. So we will see how it goes. But yes, I look forward to that. Until then, Ben, I will talk to you soon. Talk to you later in the week. Talk to you later.