Sharp Tech with Ben Thompson - Windsurf Madness, Big Tech Wins as the Silicon Valley Ecosystem Erodes, Cloudflare Wants to Fix the Internet Economy

Episode Date: July 18, 2025

A week of news surrounding Windsurf and Google (and now Cognition), why the Silicon Valley ecosystem as we've known it appears to be coming to an end, and why the hiring and acquisiton conventions emerging now are a clear win for big tech. From there: A counterfactual on the founding of OpenAI, and various reactions to Cloudflare's plans to block AI crawlers by default and offer a pay-per-crawl model to LLMs and websites. At the end: An email about having a second child spawns a discussion about parenting.

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? Feeling really washed, Andrew. I got on here. I'm like, we got to do a podcast. My voice is a little gravelly. Not sure how it is.

You jump on kind of a weak, gravelly hello, if I'm going to be honest with you. Really? Yeah, you know what? We were both in Vegas at Summer League last weekend. It's been like five days. We might be totally washed. I mean, look, I had a cold on the way into Vegas, and I was kicking it on the way in. And now I have to say the cold is still lingering, which 72 hours in Vegas and not very much sleep is not a good recipe for restoring yourself to full health.

That sounds like excuses. You're just getting old. Well, look, I think the gravel adds character. So as we age here and we both become increasingly washed, we're only going to sound cooler. You know, we're all just trying to get to Tommy Heinzance's level where you could hear the packs of Marlboro Reds that he smoked throughout his lifetime when he was announcing Celtics games. So that's my personal goal in podcasting. You're free to join me if you're down. Not sure how to respond to that.

I think we should keep going on the podcast. There's never a bad time to start smoking Marlboro Reds. Yes. Well, look, washed or not, it's great to be back. It's great to see you. And we're going to begin this episode with Winsurf. We are coming in batting cleanup after a week of news and rumors, occasional outrage surrounding a company called Winsurf that makes an AI-assisted coding tool. So for anyone who's unfamiliar with the story, I'm going to try to offer a brief recap of the context here before we get into a handful of emails. Back at the beginning of May, Open AI reached an agreement to buy windsurf for $3 billion. You and I mentioned it in passing on the show. It wasn't exactly a bombshell of a deal. However, between May and last week, Open AI was struggling to close the windsurf deal, in part because of tension between OpenAI and Microsoft because WinSurf didn't want Microsoft to have access to its IP.

And OpenAI and Microsoft couldn't reach agreement on that point. This is according to reports at least. And then on Friday of last week, which by the way, I think was day 61 after the deal was announced because that a 60 day sort of exclusivity window. Ah, there you go. Well, on Friday of last week, news broke that Google struck a deal worth about $2.4 billion to hire windsurf chief executive officer Varroon Mohan and co-founder Douglas Chen, along with a small group of windsurf staffers to work at its deep-minded AI unit.

Winsurf in that deal reportedly retained $100 million to be that could be paid out to those not hired by Google if the company shuts down in the near future. I think just a clarification to that point, that was the assumption. the stated reason was no windsurf is still a fine company they have customers they're going to continue serving them so a hundred million dollars to continue operations in that scenario is that right i don't think you said what it was for but the public statements was oh windsurf's gonna keep being an independent company they just you know got completely little bottomized but um the remain go absolutely yeah uh well all of this set off a weekend of speculation and outrage throughout the tech industry and at least on tech Twitter about what would happen to those remaining employees at WinSurf having been hollowed out, particularly the employees whose stock had not yet vested and who weren't sharing in the $2.4 billion that Google was paying for the licensing and the leadership team. And then since then, after like 96 hours of outrage, news broke that cognition, another startup working on AI software

development has agreed to acquire windsurf, including full ownership of the wind surf IP, as opposed to Google's license. And so those windsurf employees will now have a job at cognition. And it's possible that the $100 million left at windsurf will be split among the existing employee base. That has not been confirmed. Well, they have said that they're going to like, they're going to, so when you get stock options in a company, it's usually on like a four year vesting schedule. That's varied in changes over time, but say you're promised, I don't know, like $100,000 in stock over four years.

You get $25,000 worth of stock a year. The, anyone who was there and hadn't been there a year, nothing had vested. If you've been there one year, like a quarter of it had vested. And so I think the news from cognition is they're going to accelerate vesting so you'll get everything that's promised to you, which, and I, this is the sort of some reports and people doing, you know, digging up documents is that that $100 million broadly matches the outstanding promises to employees. So there is an angle where this is actually an even better deal for the employees because

they're like getting their four-year vest accelerated sort of immediately. Yeah. If I were a windsurf employee that got paid out, I might just want to bail, take the money and run. But yes, the, by and large, in a narrow sense. there's a happy ending here, which I think was kind of inevitable given all the outrage. Like, like, right. It was that, you know, this was a, if you're above the line, as it were, stuff gets solved.

Had no one noticed or cared, everyone would have been tough luck. Yeah. Well, and you mentioned that for PR reasons alone, it behooved everyone involved to try to take care of the remaining employees at windsurf. But that's the narrow sense. Let's broaden the aperture a little bit. bit. Tony says, Ben, can you comment on the second order implications of Google swooping in and hiring the core team at Windsorff? This feels like it is downstream of the broken tech regulatory

regime, but I also sense that there's a ton of negative implications for rank and file startup employees and the ecosystem as a whole. If early employees can no longer expect to share in the upside of these exits, then folks will be more hesitant to join startup. I just joined a cursor competitor myself, and now I'm a bit more nervous about my prospects. I'm a designer, and there's no way I would be part of the acquisition core if a windsurf type situation happens.

So what do you think? Where should we begin? I completely agree. I mean, the, this is a bit of a slow motion train wreck that usually I'm very excited to claim being right points. Here I have to mournfully. accept my grant of being right points. I told this story, I think on dithering earlier in the week, but throughout the 2010s,

I was pointing to the Facebook acquisition of Instagram. Obviously, this was just using that to highlight how people were thinking about regulation wrong. And the reason that was a problem is you had an aggregator in Facebook buying a burgeoning aggregator in Instagram, even though it was small, you could see where it was going. And there's two aspects of this, which is number one, it was knowable if you knew what was happening. Like, you know, it was clear to me when they bought it. It was a problem. I analogized it to Microsoft buying Netscape in 1993.

But there was no metric that it was bad. And by the way, in popular culture, Facebook was mocked endlessly for spending a billion dollars on this tiny little photo editing app or whatever or photo filter app. And it's really there's a bit where. sometimes people are just smart and they figure it out. And it's not, and everyone wants to, I think there's a general movement amongst, your people,

the sort of antitrust solves the world people. That's like self-ascribed, there's too much self-ascribed agency that we could have stopped this. We could have, you know, we failed. Da-da-da-da. And sometimes it's just the case that Mark Zuckerberg was ahead of the curve,

in this case, made a very smart acquisition, Twitter was trying to buy them as well. There certainly is a bit where people in tech who were really examining and understood how these companies grow knew that Instagram was going to be a big thing. But it's important to keep in mind that 98% of the world thought this acquisition was insane. And just because it worked out in spectacular fashion doesn't mean that ipso facto all acquisitions are bad and must be stopped. And unfortunately, that's the way I realized in 2020 it was being interpreted. I was at this antitrust conference at Stanford that was put on by the DOJ.

I was like a panelist on some sort of thing. And it was jarring to me at that conference how basically the accepted wisdom about Facebook buying Instagram was that big company should not be allowed to acquire. Like that was basically the takeaway. And to me, and I went back and I wrote, first do no harm, basically saying if this is the takeaway, we're on the verge of destroying the startup ecosystem. Because what makes Silicon Valley remarkable is the extent to which new companies and new ideas are almost completely de-risked. How so? Well, so everyone thinks, knows about the financial angle. It's just remarkably easy to raise money in Silicon Valley.

compared to anywhere else in the world. Because you have an entire financial category in venture capital and then go down to the seed investors, everyone knows the way to get rich in Silicon Valley, make a little bit of money and become a seed investor. All you need is get into like one little company that goes big and you've made it, right? And everyone is so eager to give away money. And it's an amazing cultural sort of situation where most countries, most places, you have to beg to get money and you're going to get all these terms around it. People are like, no, $50,000 check, no strings attached, here you go. I bought another lottery ticket for me. And it's amazing.

It's priceless. How important that is that, and that's how you get some of the biggest and most important companies sound stupid. And like they start as toys or dumb ideas. The fact that basically anyone can get money is amazing. And so everyone's aware of that part. The part people weren't thinking about at that conference. and what we're seeing manifest now

is that if you want to build a company, you don't just need money. You need people. That money goes to pay for the people. That's the cost, right? It's not really paying for compute anymore because with the cloud services, you pay as you go.

So when you start out, Amazon will give you $100,000 or $200,000 in credits. Azure will do the same thing. Your compute, all that stuff's basically free. What all the money is going for is for employees, to actually build the product, to actually, you know, eventually over time, customer acquisition and sales and all that sort of thing. Employees who could be working at big tech companies themselves,

but are willing to take a risk at a startup because of the security that this ecosystem. Well, they're not taking a risk, right? So usually this is another thing that, you know, I think people that are not in the valley, some of our listeners can probably attest to much more than people in the valley can appreciate in lots of areas. you don't take the stable job. You do the crazy startup that sounds dumb and it fails and you're screwed.

You're out. Right. You're done. Absolutely. Because you've got a family to support. I've got a friend right now who's about my age and debating whether to go join a startup. And it's a startup that's not in Silicon Valley. And it's a cool opportunity.

There is some financial upside. But he's got a son who's two years old. And if it doesn't work out three or four years down the line, like that really complicates things. He's going to be in his mid-40s, and it just makes it a lot more complicated to get a job at that point. And so these are the considerations that normal employees elsewhere in the country have had to weigh. And apparently that isn't as common in Silicon Valley. Well, the sort of implicit deal in Silicon Valley, again, this is just a broad characterization. I'm not saying this always happens. There's a lot of startups that fail and just go away,

and nothing ever happens. But by and large, there's new jobs to be had very easily. But more importantly, if you get a little bit of traction or you did something nifty, but it, like, the other thing is, you can do a startup that just focused on a cool idea and you'll get funded even if it's not clear what the market could be. Because there's startups, like take like an Uber, right? There's that famous set of like financial bloggers, like saying how Uber has no chance. And they were characterizing it by the size of the taxi market. They weren't actually considering that Uber might vastly increase the market for personal transportation, which is at, actually exactly what happened. And so you, now, obviously you want to, if you could go to a VC and say, there's this huge market opportunity, we're going to fill it. By definition, someone's actually

probably already doing that, right? Some of the best startups, it's not clear with the market is they create their own market. Actually, that's the key characteristic of aggregators. They created their own market. Facebook advertisers were created because Facebook existed. That's why they're sort of anti-fragile and their customer base isn't going anywhere. And same thing with Google, same thing with a lot of these companies. And so you have this situation where you can go in and just focus on a cool technology and say, I think there'll be a market. We'll see what happens. And if it doesn't materialize, but you still have a cool technology, guess where there are markets that could use that technology? The big tech companies. They have

billions of users. And so there's a real advantage in just buying a startup with a cool idea or getting something, you know, which is that idea immediately gets propagated to billions of people. Like that's actually a huge consumer upside from big tech buying small companies. It immediately becomes available. Whereas if a company has to go through and acquire customers, it might be 20 years before that technology is broadly available. Right. So there's a real consumer benefit aspect in big tech acquiring in that it disperses. Now, the counterpoint is a lot of ideas go there to die, which is true.

That is what happens in big tech companies. I'm not denying that. I'm mostly focused on the upside here. So just acknowledging there are downsides. But the other thing is a lot of. of companies, the sort of deal is, oh, I will acquire you. What happens in a lot of these aquilers is no one makes any money. So often the founders actually are the ones that really get wiped out.

What happens is the investors might get their money back at like a 1X. So they put in $20 million. They get $20 million back. They usually have preference in like the capital stack. So they get their money before anyone else does. So if you see a company that raised like $50 million acquired for $50 million, usually the founders made nothing because they're lower. in the preference stack. All that money goes back to the investors and then they get nothing.

What they get and critically what all their employees get is basically a four-year job at Google or a four-year job at Facebook. And yeah, they might, you know, I'll go work for the big company, da-da-da-da-da. Maybe they're going to work in their products. Usually they'll, they're going in as a team and we're going to support this and they get dispersed and they get sent to other divisions and things along those lines. But from an employee perspective, like if you're a founder, if you're the founder of Windsor, if you're fine from this deal, you're going to. You're going to getting paid big money. But if you're someone who did design, for example, and any future Google coding thing is going to go to Google's product, they don't need more designers. They have designers.

Ideally, even if it doesn't work out, you didn't make any money, but you have a good job. Like, that's a tremendous de-risk. And you're not left high and dry after working startup hours, 80, 90-hour weeks trying to get the windsurf product off the ground and making it attractive enough so that Google wants to hire the leadership team. I mean, if you're just left holding the bag after all that, that's really frustrating. And granted, in this specific case, that's not what is going to happen to those employees. But it's a valid concern. Yeah, well, let's not anchor on this specific face.

Let's sort of zoom out on the role this played in the ecosystem is big tech companies acquiring small companies, the vast majority of which have failed or not going anywhere, are not remotely an antitrust concern. These are failed companies. This wasn't an essential part of the Silicon Valley ecosystem. It's not just that capital. You can get risk capital that will invest in you. You can get employees that will take a chance because what's the worst that can happen? Now the worst that can happen previously was I get a job at Google.

Now the worst that can happen is, I don't have a job. And by the way, the hiring environment's gotten tight. It's a lot easier to get into Google if you're bought. to Google that have to go apply for a job with a gazillion other people and all these sorts of things that are going on. And that conference was such a wake-up call for me. I'm like, these people have no idea what they're about to do. And it's explicitly what I wrote.

I said the number one problem with this focus on acquisitions are bad without any real understanding of what made the Instagram acquisition unique is that it's going to really screw up the employee incentives to work at startups. And that's basically exactly what has happened. Well, and also, I mean, with this specific windsurf example, I think the reason the outrage hit a fever pitch over the last week or so is because it now, the context for all this is that it feels more urgent because you had meta buying Alex Wong and members of scale AI. You had Microsoft a year ago hiring some of the team at Infliction AI. Well, basically all the team from Inflection. Yeah, Microsoft started this. And then there's

also Google did with Character AI. So yeah, no, this is, you're right. This is not the first one. That's the workaround. Yep. And the problem I see, the issue is, is that the entire concept that we buy the whole company was a cultural norm. Like it was a societal moray in that because Google need, like, if you're a startup company, you need like an HR person, right? You need like a person that does payroll. Like you need like, there's all these company specific functions. Google does not need. They don't need all the support staff. They don't need the person at the front desk. They don't like it. It's the employees that are sort of lowest on the total poll that all companies need to function, but don't differentiate the company in any sort of way. That if you think about it from a

big tech perspective, those are the people that get laid off, right? And which are painful and get bad press and all that sort of thing. And if you're a big tech company, it's like, can I get just the engineers and just the people with the ideas? That's way better. And I don't need to get a regulatory sort of investigation. Right. There's not a six month waiting period.

Even if the merger or acquisition isn't blocked, just from a time standpoint, it's more efficient to do it this way. Absolutely. Everything about this is better for big tech. And the worry concern that I have is we broke it and it's done. It's not coming back. There's no reason for a big 10 company to do a full scale acquisition unless, ironically enough, it actually does raise anti-competitive concerns because it's a really successful company that, you know, you're worth paying top dollar for.

But what I'm concerned about is the companies, you know, you know, WinSurf has a business, I think 80 million in recurring revenue or something along those lines. It feels like they were getting beat pretty comprehensively by cursory. in sort of the independent environment. Again, I don't, I don't know. But like just generally speaking, I think people underappreciate the extent to which startups were de-risk in the valley,

not just from a money perspective, but from an employment perspective. And in the long run for the ecosystem as a whole, there's so many things that for everyone in the short term, it's bad. Like for tech, buying a, for a big tech company,

buying a whole company, has a lot of waste associated with it, but because that was the silk and value expectation of how you did it, they did it. And no one complained about it. Exactly. Well, and it incentivizes people to found startups and people to innovate,

and most of those startups end up failing. Some of them are subsumed by big tech, but it has fueled innovation in the valley for 40 years now. And so if that model is on... I know, but I want to be super critical here. The word, the thing I'm not, worried about is the people spurred to innovate and the startup founders. I mean, there's some concern there. The concern I have is with the rank and file employees who are not the ones with

the ideas. And it's not that the problem is if you're the person that wants to innovate, you need those sorts of people. Yeah, you need to hire people. You need the non-innovative people. That's what's in jeopardy here. Yeah. Right. Exactly. So, yeah, I think it's a real bummer. I'm sad about it. I also think that it's over. If I'm a big tech company, I see no reason to do a full-scale company acquisition ever again. I can pay a lower price and get all the best employees, not have to worry about layoffs. To your point, it can happen right away. And I think it's, I think it's done. I think that regulators killed the Silicon Valley model. And I think it's dead. Oh, boy. Well, we can move to Joseph, who addressed his email specifically to me. He said,

said, Dear Andrew and not Ben, because you own this one, great. In a shocking twist worthy of M. Knight Shamalan, there have been unforeseen consequences for the law-stretching antitrust zeal, Lena Khan, pioneered during the Biden administration. Instead of a predictable acquisition environment for investors, management and employees, acquisitions are now made via convoluted backroom aqua-hires and technology license. See, scale AI, character AI, inflection AI. Now, Open AI's windsurf acquisition has fallen through. Some founders are getting hired at Google.

Some investors are getting paid out. And a whole lot of regular employees are getting left with worthless equity in a gutted carcass of a startup. Huzzah! We beat big tech! Is this really the point of antitrust? It feels like government fought the last war, in time to hopelessly botch the next one.

So this email is amusing to me now because it really captures the feisty tone that was pervasive on tech Twitter last weekend. So thank you so much, Joseph. He followed up and said, actually, I wrote that after a couple of margaritas at a night. We encourage this. We encourage margarita field emails. Exactly. Maybe everyone should have two or three.

margaritas before they write in. Yeah, we're going to have a checkbox. Like, how many drinks have you consume? The more likely this is red. Oh, boy. Look, you and the emailers have appointed me as the spokesman for antitrust enforcers, which is a position I may have embraced like in the first year hosting this podcast. My own thinking has evolved a lot since those Halcyon days, those first six to nine months. What I would say to Joseph is that, to your point earlier, what I've learned about Silicon Valley and the landscape that incentivizes not only startup founders and startup employees, but also venture investors, I now fully agree with Ben's argument that protecting these sorts of exits is really important if you care about protecting the model that has historically led to a ton of

innovation in this industry. The only thing that I would add is that it's a harder problem than it seems and calibrating the right kind of ecosystem isn't, I mean, like, there are still plenty of deals that are problematic and do foreclose future competition. The Facebook acquisition of Instagram is still a problem. Right. And even like to take an example from a couple years ago, like Adobe buying Figma. was held up by regulators in the EU and the UK,

and the DOJ was apparently investigating it as well. Ultimately, they had to abandon the deal. Now Figma is going to IPO. That's a positive outcome for the future of design software. It'll be a positive outcome for Figma employees in the end, although I can't imagine being a Figma employee while that acquisition was being held up. But it's worked out, and it wouldn't have gone that direction

without regulatory scrutiny. So I don't know that there is a one-size-fits-all solution for how this should go. But I think I agree with Joseph's sentiment that there should have been more discretion than there was under Lena Con and the FTC during the Biden administration. But I don't think we can just abandon regulatory scrutiny entirely. No, I think I buy in large, large agree. I would just a couple points. in sort of defense of your position,

Odin, Andrew. One, you could make the case that the Facebook, Instagram acquisition was so injurious to competition that that alone outweighs like all the other issues. I don't agree, but I think that is an argument that could be made. If we just stop one. And to be fair, like that's exactly what I would have argued

in the first 12 months hosting this podcast. I said, look, the bad ones are so bad that something close to a per se ban isn't the worst thing in the world because at the end of the day, it's going to promote competition over the long term. But at that point, I wasn't as conscious of how much harm you could do to the innovation side of things and the incentives on that side. Right. So, yeah, I think we're on the same page there. The other thing is Winicon gets most of the blame, and appropriately so.

this conference happened when Trump was president. So there is definitely a bipartisan aspect to this, you know, some of the more populous wing of the MAGA movement. You know, J.D. Vance has been very supportive of Lina Khan in that sort of angle.

So this is more, it was, again, I think it was Winnikon dramatically accelerated it and this idea that to your point about this six month wait, by the way, the way aquilers used to work is, it was a month. No one is like, of course we're not going to investigate this. So they closed quickly. There wasn't a time penalty for doing an acquisition.

To your point, the idea, no, we're going to look at every single acquisition. Even if you approved every single acquisition, you're now imposing a huge cost in like making this kind of unviable. In a lot of cases, these startups aren't going to last for six months, right? So like the idea we're going to investigate every single one is itself bad. But it had, it was a bipartisan thing. I think just an overall lack of understanding, to your point, about what has made Silicon Valley unique. And I think the other bit that you sort of got at is, and this is what makes this really hard. It is definitely, if I were to characterize how my position has changed,

is my job professionally is to look at all these sorts of things. I've been thinking about tech and the business side of tech for three decades now or however long it's been, actually more than that, I think, which is wild to think about. So to someone like me, it was immediately, obvious the Facebook acquisition of Instagram was bad. And I agree with you, the Adobe Figma one is a good example. That one kind of stunk from the beginning. It wasn't clear how this wasn't anti-competitive.

Even if they didn't directly, well, Adobe did kill their competing product like immediately. But even then, the route for Figma to build competitive products was super clear. And it's a good example of, yeah, that's actually, I think, regulatory intervention was appropriate. We're at a better place sort of afterwards. I think the challenge is for someone like me and for you as you're immersed in tech, it becomes clear that any one-size-fit-all solution is bad and you should have judgment and pick and choose the right outcomes. But you and I are not the regulators.

And I think what happens with a lot of politics is actually the choice is a binary one. It's like people who complain about the political candidates. It's like, well, I'm not going to vote because they're both terrible. It's like the way it works is you have a binary choice and you pick one. And I think that actually applies to a lot of politics. So the question actually isn't can we make very sophisticated decisions about distinguishing between Facebook buying Instagram and Adobe buying Figma and all these little acquisitions? or is it do we want to blanket allow small-scale acquisitions or blanket ban small-scale acquisitions? That's the actual choice in front of us.

And I think that this is where I've shifted significantly on this point. I used to be the guy saying, no, in trying to draw very narrow guidelines saying, oh, do this here, do this, don't do this. Do this, but not that. Right. And appreciating the reality of politics, which is you're choosing the least bad option. And I would rather blanket allow than blanket bang. Yeah, well, and I think that is a reasonable argument when you look at the logistics of how any of the enforcement would work going forward.

The other thing that I do wonder about in the wake of the last 12 months of some of the more notable aqua hires, whether it's inflection or now Windsor. But they're not aquilizers because there's no acquisition happening. Well, that's true. You did a new word for it. Just hiring. This is just good old fashioned hiring. But I mean, I wonder how much of this is unique to this exact moment in AI where suddenly there are these talent wars. We've been talking about the talent wars, right?

Yeah. And a handful of brilliant researchers and founders are just literally more valuable to these companies than the fledgling startups that they founded. And so I don't know. The character I won is actually a really interesting example in this regard. So character I was founded by the guy who invented the transformer, which is at the core of LOMs. And the reality is, and I think character I started out training their own models and to be in there like to be these, you know, entities that you talk to, before you on must decide to just like go all the way with the wifus. Oh yeah. There is, it became actually, I think, pretty clear that you're not going to keep up as a startup with the foundation model companies.

if you're building a company, it should be built around the models that other people are investing in. At that point, it didn't make sense for the founder of Character AI to be at Character AI. He should have been back at Google

or back at Open AI or one of the foundation model companies. And it was actually, in that case, it made sense, we're not going to do deep research anymore. We're not going to do deep learning. We're not going to train our own models. We're going to build a product

on top of foundation models. models, which means the people in our company, it would have been actually a waste of resources and talent for, I think his name is Noam, to be stuck at Character AI. It's actually better for everyone that he's back at Google because he's doing what he's good at. And so there is some subtlety to your point about this point in time. It wasn't clear for the first few years of AI. Was it going to be widely dispersed to lots of people doing models or there'd be a few foundation models? It seems pretty clear. There's going to be a few foundation models and people will build on top of them.

and given that some reorganization kind of makes a little bit of sense. So maybe we'll come through this and it'll all be fine. You know, maybe all these companies were actually malformed to begin with because they didn't understand the structure of the industry. That's possible. I am worried it's just such a better deal for big tech to just hire these people. And not only that.

I mean, look, the Silicon Valley model has been an aberration relative to the way the rest of the world does business or has done business. That's why it's called it first, do no harm. You have this amazing thing. If you don't understand it, be careful what's you, be careful you're messing with it. Yeah, it's not directly analogous to the end of high trust societies, the way we've talked about in the past.

I think it's very obvious. There was a social convention that appears to be on the way out. Noam Shazir. The funny thing is, I knew it was, I knew for sure it was Nome. I thought it was Shizier, but I didn't want to get it wrong. I had it right in my head. I actually had it. Nome Shazir, founder of character guy,

inventor of the transformer. now back at Google. There you go. Well, hello, Noam, if you're out there listening, Arvin says, I read Ben's Tuesday follow-up on the cognition acquisition of windsurf, or at least what remains of windsurf after the Google deal. I don't think Ben explicitly addressed whether this follow-up reduces the stinkiness of these kinds of deals. If this becomes the new norm with the investors, where founders and early employees get the big payout, and remaining employees get sucked up by and other startup, can the tech startup ecosystem still be healthy? After all, there can still be big economic incentives for the entrepreneurial types to start companies and join early stage

startups. The main difference is that not everyone is guaranteed that big tech job after the acquisition. Is that so bad? What do you think? Because what I'm reading into that email is a new framework that might be possible where it accelerates. consolidation among startups while some of the founders are taken care of by big tech. Is that a dream within reach? Well, I think you just quoted my Streckery Update, so I'm glad you got that from the email. Okay, good. So real circular.

Influencing the influencers here. So my follow-up, I accept that the old model's dead. Like, that's just one of the, like, I think it's going to take a while for people to come to grips with it. Yeah. My view is just sort of looking forward. It's very hard to see this. entire thing was governed by social convention.

That social convention was broken by regulators gave big tech an out to no longer abide by this convention, right? And it is funny. And I think people that there's somebody that are upset about me blaming regulators, they're like, big tech wants to do this. But that's missing the sort of guardrail that did exist, which was social mores.

And there's really hard. Right. And so I think the old model's dead. So by my next update, I'm like, I mourned it on Monday. And by Tuesday, I've moved on. So given the fact that it's dead, what might look like going forward, this did end up in an interesting position, which is certain talent goes to Google. Cognition makes a product called Devin. I think it's probably Devin's a little aggressive in being an agent that does everything.

I think there's real value in having an IDE like WinSurf does where you're getting data and it's more of a gradual move to an agent world where you start helping developers. You get more data. You do more and more for the developers. and then you end up in a Devon-like world. So I think there's a bit where these companies make sense together. You have, WinServe does have existing customers. And the people that we're building Devin are in the same broad adjacent space as the people

who were building WinServe. And by the way, there's a lot of situations where actually some startups are pretty complimentary, would be better off together. Right. And they never end up together because either one dies or X, Y, Z, you know, whatever it might happen. And so if we, you could definitely spin a case. that actually we're getting pushed to

an more compelling model that actually makes startups more viable as a category precisely because they'll be forced together sooner and consolidate sooner and combined forces sooner. We'll see. I think it's a reasonable thing to be hopeful for. The old model was pretty good. So I'm not just going to be better.

You're just searching for silver linings here as the social conventions erode in Silicon Valley. I think that's what I enjoyed about your take on Tuesday. It's dead. I don't think, I think, like, yes, there will still be

company acquisitions, et cetera, but I just think the guardrails that prevented this sort of thing are gone. Even if regulators back off, they were not going to investigate. It doesn't matter. If you're a big tech company,

why do you want to acquire the whole company? This is actually, this is much better, much cleaner, much easier. Don't have to like deal with all the rigumor role of acquiring a company. It's just a new hire,

which is very trivial. So, but yeah, maybe there'll be some outcome. And things change, things develop, things, this is the critique I have, and I trust people, things aren't static. Like stuff changes and responds. And I think this was a good outcome. We'll see what happens with this new combined company. Hopefully it's a model of interesting ways to build startups going forward.

But there's going to be a lot of proof points to show that it's better. Yeah. Well, and you get being right points in the interim. here, unfortunately, mournful being right points because you did foresee a lot of what has shaken out over the last couple of years. The thing about big tech companies, as someone who is still a member of the antitrust enforcement movement, big tech companies tend to be pretty adaptive. And so they've quickly adapted to the new environment here. Very frustrating. We have to be pretty honest that the net outcome here is benefit for big tech companies and screwing the little

guy. Like it just, it's, there's no real, I think, debate otherwise. There's no world with this is like, I guess you could say in the very long run it's worse for big tech because there's less spurs for innovations and startups they can acquire. But that's like a 10 year, 15 year roadmap thing, which if people and I trust were worried about 10 years, 15 years, they relax a lot because it turns out that stuff changes very rapidly. Well, if there were no regulatory enforcement, would Meta have just tried to buy OpenAI and chat GPT two years ago? And would that be sort of the alternate doomsday scenario? Well, people have agency in these decisions. They tried to buy Snapchat. Snap said no. Big mistake by Snap. But the Instagram could have said no. You know, there's people do have agency. And I think that

that can sort of be forgotten here. If you were an open AI, would you sell? Absolutely not. You're looking at one of the great, like, no way. Sam Altman is not going to work for Mark Zuckerberg when he has the potential to build a multi-trillion dollar company. That's not going to happen. He wants to rule the universe.

Absolutely. The only reason I thought of that is because we have this next email from Vikesh. He says, Andrew and Ben, something doesn't quite sit right with me about Ben's Chesterton fence take on Open AI. And this is in reference to your art. on Monday or your update on Monday. What if Sam Altman and Elon Musk did not tear down the Chesterton fence of setting up a normal corporation with a normal cap table governed by normal profit incentives? Would Ilya still have joined that company? Would Dario have bothered to accept

the mission? Would the rest of the Church of AI true believers at OpenAI have been tempted away but from more mundane but lucrative roles. And if OpenAI did not get all these true believers to explore this space and ultimately launch ChatGPT, would we still be waiting for the penny to drop at Google about what products could be built from their transformer innovation? It's clear that OpenAI's convoluted corporate structure made them lose out on the windsurf deal, no arguments there. But if Altman and Musk did not mess with what works,

and corporate structures, could humanity have lost doubt from not appreciating the power of transformers and large language models? If we believe that large language models will be a good thing for humanity, should we ultimately be grateful that Altman and Musk pursued a utopian idea like a non-profit tech company? A wonderful Zag from Vikesh there. Do you have any thoughts? No, I think it's a very plausible argument. And I've always a screlius. that to why opening eye is how it is. Like that you need some sort of advantage. We have less compute than Google.

We're going to pay less than Google. We have everything less. Why should researchers come work for us? Let's protect the future of humanity together. That's right. That's right. It's interesting in retrospect, looking back on that.

And this is, I think, a point that John made on dithering. That was kind of an aha moment for me. Mm-hmm. So that was sort of like the stated reason. I was super cynical of the deal immediately, or when opening I was formed in 2015, I wrote an update saying, spare me the sort of utopian ideals.

There is a world where, because Sam Altman was ahead of Y Combinator then, Y Combinator is threatened by, you know, Google, Tesla is threatened by Google. Like they, you know, they're forming this to benefit their, it was a very cynical sort of take

and sort of skeptical. I think in retrospect there's a mistake in conflating Altman's motivation and Musk's motivations. I think the, oh, this is a clever way to hire researchers when we don't have the resources of Google. That's, I think that's more Altman style, right? And so, like, that's a reason to do, did he really believe in the nonprofit mission or was this a way to sort of get out the ground? He's always been interested in AI and suddenly got all the best employees through one simple trick of doing the scobloon and structure, and the whole tie-in between Open AI and Y ComaMeter generally was always sort of a tenuous one.

Y Combinator is a startup accelerator, which startups are we talking about, et cetera. I might have been right about the Musk motivation, which is, if you see this with Musk, suddenly SpaceX is investing in XAI, you know, real corporate governance win right there, just in general. But there is a bit where Tesla in particular, you can. clearly see having leading AI is good for Musk's other companies. And so I think my cynicism in retrospect was appropriate for the Musk angle, who also was paying for the whole thing.

So he had the biggest driver, whereas I would ascribe Vikesh's angle, maybe more to Altman, who, by the way, needed money and Musk was providing it. So he was also incentivized to go along with this angle. So I'm going to absolve Altman a little bit in this deal. Well, Sam's perspective and strategic incentives still sound pretty cynical relative to the stated mission put forward by opening. For sure. Look, it's a citizen. It's a series of cynicism.

Yeah. That's right. I'd just say my specific 2015 critique, I think actually held up pretty well for Musk and his companies. Yeah. And is being seen in what he's doing with XAI and his companies. That's perfectly in line with my critique of the deal in 2015, which is pretty cynical. This is a sort of a cost center that's going to benefit the other companies. That seems to be what's happening with XAI in many respects.

Right. I think for Altman, it was a, oh, here's a shortcut that I can get the people that I want. You know, without. So it's still very cynical, but not, I think I mentioned that. I don't know. No one cares about me cataloging what I wrote or did not write. Well, I can't wait to go back and reread your take in 2015. We've got to find that.

if we do we'll put it in the show notes for sure someone's not reading trajectory takes closely and I like do it all the time oh wow okay it's busted here live on a podcast no there's a good I was on like a podcast with Ezra Kline like a decade ago or something

when he first started his podcast and he was you know had to scruff around for people that just be willing to do a podcast you know as opposed to being you know Mr. New York Times or whatever it might be but we had one of the things that's stuck in my mind from that podcast was we had just a general discussion about being bloggers and writing. And one of the important things you learn is no one remembers anything.

Like he told this anecdote about someone emailed him or someone maybe tweeted him about, oh, what a great article. And then I think the next day, like he reposted the link. And the same person responded saying, oh, that's a really good insight, great article. They totally forgot not only had they read it the day before, they'd already. complimented him on it the day before. And this is totally the case. And so it's something I try to avoid just more shamelessly repeat takes that I've had because no one remembers it, even though I feel bad about it.

No one really gives a shit about me distinguishing. Oh, a sentence one in paragraph three was correct, but sentence two and paragraph four. But it's a real challenge because I personally am obviously obsessed with it. So I think about it all the time. So sorry when it spills over to the podcast. Well, listen, thank you so much for sharing. your neuroses with me and the audience every week. We have come to love it. I have come to love it. And I love Vikesh's email because the core of the email comes down to whether you think the best

AI researchers in the world and the best AI product people in the world were all so crazy that they only ever would have innovated and pushed forward at a company that was wrapped in the utopian ideology that Sam was selling. Arguably, open. company AI's formation actually set a very bad precedent also broke a social more. That was my point of the judgment fence. You didn't do a for profit or a not for profit in Silicon Valley before. But now we have like all these wacky companies with wacky mission statements that are not necessarily governed by the profit incentive. I think governing the more powerful the technology, the more I want to govern by the profit incentive.

That is a limiting factor. governed by something rational. Absolutely. That's right. Instead of like, oh, we promise we're going to do our best. That's our idea of life. That's right. Yeah, exactly.

Well, to keep it moving, I'd like to wish a belated, happy content independence day to you, Ben, to everyone out there in the audience. Cloudflare declared July 1st this month. Content Independence Day. And I'll read for the New York Times for a little bit more about what they're doing. Cloudflare, the Times writes, a tech company that helps websites secure and. and manage their internet traffic, said on Tuesday that it had rolled out a new permission-based setting that allows customers to automatically block artificial intelligence companies from collecting their digital data, a move that has implications for publishers and the race to build AI.

With Cloudflare's new setting, websites can block by default online bots that scrape their data, requiring the website owner to grant access for a bot to collect the content, the company said. in the past, those whom Cloudflare did not flag as a hacker or malicious actor could get through to a website to gather its information. We're changing the rules of the internet across all of Cloudflare, said Matthew Prince, the chief executive of the company. If you're a robot, now you have to go on the toll road in order to get the content of all these publishers. Cloudflare is making the change to protect original content on the internet, Mr. Prince said. if AI companies freely use data from various websites without permission or payment, people will be discouraged from creating new digital content, he said.

So, Ben, for any Norby's in the audience, can you give us a cliff notes on what Cloudfair is and why they have the ability to institute a change like this? And then secondarily, but more importantly, what do you think about what they're trying to do protecting websites from being crawled for AI training. Start there and then we can talk through the paper crawl model separately. Well, I do have a little bit of a bone to pick with this content Independence Day thing, which is tied to regular Independence Day, which always occurs during the trajectory summer break. Yep.

This was, did we talk about this on the podcast previously? I think maybe not. I had sworn I wrote about this a year ago when they first made it trivial to block sort of AI AI trackers. And I searched and searched and read through all my July post from last year. I couldn't find it. I think it was one of those things where it happened during summer break. I talked about it a lot with people.

And then I didn't write about it. You wrote a mental article or recorded an unpublished podcast on last year's cloud flare changes. I'm glad you wrote about it this week because we had gotten a lot of messages about it over break. and there was not a natural place to address it. So let's talk through it now. Yeah. So Cloudflare, what is Cloudflare? Cloudflare is unique in that they're a cloud service,

but they don't have like a central data center, like an AWS or an Azure. They don't have central data centers over the world. They're mostly co-located with ISPs. So they build this sort of like, they're all on the edge. So the edge of the internet is like your phone or your computer is the ultimate edge device. Like the next bit of interaction with your phone is a human

finger, right? Yeah. The packets stop at the screen. And so the closer you are to that, the more on the edge you are, as opposed to being like a hyperscale or that's at the core, like the center of the internet. And that's just sort of broadly speaking. Cloudflare operates at the edge. They have all these servers. So I, if you have like Spectrum,

like internet, in Spectrum's server room or whatever here in Madison is probably a Cloudflare server. And what they can do by being on the edge is they have all this sort of excess traffic capability because they're already sort of on the edge. And so they can absorb a lot of traffic. Like, for example, this is where they got a lot of penetration, distributed denial of service attacks, where you have a gazillion websites that are all directed, say, atstrategory.com. Now, I personally don't use Cloudflare, but if you got a sort of attack, then they can just absorb all that with their excess sort of capacity. and then normal people can still reach sort of Structory.com as normal.

It keeps those hackers from being able to just take websites down on a whim. Is that right? That's right. And part of this is, and so the natural counterpart of this is being a content delivery network where so you're listening to this podcast, we're not, we don't have one server giving you the podcast or even one website giving you if you go to struttery.com. That's actually cashed locally close to you so that you can just download. it super easily and we're not paying a fortune in bandwidth fees and trying to upload it from,

you know, Virginia or wherever, you know, it's hosted at. So content delivery network's very standard sort of thing. It's how you scale website. It's how, you know, Streckery could have no one on it or could have a million people on it. It's fine because it's actually the web page is distributed out to the edge and deliver it. And so this was the natural original business model for Cloudflare where they got a ton of traction by offering this protection for websites. You could sign up for free. and then they can monetize and they have the content delivery network. And it was a real win-win

from an ISP perspective. Why would you let CloudFle there? Well, they're providing some security benefits, but also they have to pay like transit fees when stuff's being passed back and forth. If all that stuff just hosted to them right there, it actually makes their operations

simpler, more secure, cheaper, all those sorts of things. There's a real sort of win-win situation. Over time, CloudFleer has, because they have this interesting, architecture, they've come up with all sorts of new products, whether it be sort of like VPN type products or they've gotten into some cloud hosting sorts of things. And like a world of if countries start really enforcing data has to be local, right? That's tough for like an Amazon

or something like that because they're used to like the internet's the whole market, right? Qualfer is like, that's fine. We have like local servers all over the place. Like we're highly distributed and it's very trivial. It's just a software problem for us. Let us solve that. Yeah. Yeah, so there's, you know, it's an interesting business. I've written about them a couple of in-depth articles in 2021 that I think, you know, certainly still hold true. We can link those in the show notes. But the long and short of it is by sort of flipping where they're located,

instead of being in the center, being at the edge, they could do a lot of stuff for quote unquote free that was good for their business, was a win-win for ISPs and for customers, and get a ton of traction. Like the idea that me as an individual website owner can have the best, possible protection for denial of service attack for free. Sure, I'll sign up for that. Why not? It was just sort of implicit in the way they were structured. And so the net result is a huge number of websites have Cloudflare as a layer above them. Right. It's sort of the middle layer between users and the servers, like the ISP. Right. Exactly. Exactly. For the purpose of this

discussion, that's exactly right. That's exactly right. That's what matters. And so a year ago, they're like, it's not right that these AI crawlers are going up. out there and taking everyone's content and not compensating them, we should make it easy for folks. Yes, you can go into your robots. Dot text file and specify, open eye, don't crawl me, Anthropic, don't crawl me, whatever it might be. But number one, most people don't do that or don't want to do that or don't know how to

or have no idea how to do it. Yeah. And number two, Roberts, Robots. Text is an honor system. It's like you, you, the crawler has to decide to follow it. They can just ignore it and still serve your site. And so Cloudflare is like. like we can solve this.

This is a year ago. We can, one, I think they called it literally like the big easy button or something like that, where you press it and you don't have to edit robots. dot tax and all this sort of thing. You're just going to block these crawlers. Yep. And number two, we can actually enforce the block because we sit at this layer, everything passes through.

It's not reliant on the honor system where they read the robots. Like, okay, we got you. You don't want us to crawl. We won't crawl. And there was a bit of a controversy in, I think it was spring 2024, about perplexity violating robots. Where they were crawling sites anyway, even though they said not to. And people were justifiably upset at that.

It kind of ties to our startup thing. It's like that's a social moray that governs the web that you're violating. And I think the defense of perplexity was, well, Google gets everything. where do you want a competitor for Google or not? Right. And Google gets everything because Google has to index every website that appears in Google search results. Well, so Google respects robots. Not text.

You can put on your website and you can say Google, don't crawl me. Right. Then you're not in Google. Then you don't really have a website. That's right. Whereas perplexity, if you cut off perplexity, that's a small user base doesn't matter anyway. Right.

And so you're actually creating the conditions. for Google to be eternally dominant because no one can afford to cut them off. They can afford to cut everyone else off. And this was my critique of Cloudflare's big easy button a year ago, which is at the end of the day, all you're doing is helping Google. Now, Google, this is a super important technical distinction. Google has, it's technically one bot, but it's classified as two bots. Okay. Bot number one is called Google bot.

And you can put your OS dot text, you can tell Google about what to do. Surf your site, don't surf your site. They also have one called Google Extended. Google Extended is capturing information for Gemini specifically and for its training. So you can opt out of your website being included in the training for Gemini going forward. Of course, it's not going to give you back what they scraped previously. But you can exclude Gemini. The key thing, however, is that according to Google, things like AI search overview,

or AI mode, all the stuff that's under the search umbrella, they're like, that's governed by the Google bot policies. That's a search product. So what that means is you can block Google extended. You're not actually stopping the collection of your data for AI because Google bot is still collecting and using it for AI. And so my critique concern about this is you're actually just favoring Google because no one can afford to cut off Google. and you're making it trivial to cut off everyone else. And then they sort of doubled down this year and are like,

actually, instead of you having to go press that big button, that button we're turning it on for everyone and you have to voluntarily go in and turn it off. And that's a big, big shift. I mean, the idea that you now have to affirmatively opt in to being crawled. And the numbers that I've seen are about 20% of the internet and the internet's

websites are, working with Cloudflare. So, I mean, yeah, I don't know whether this is a good thing because of the concerns about ultimately deepening Google's moat at the expense of anyone else who might theoretically compete with Google in the future here. So this is actually, I really enjoyed thinking and writing about this article because I was just, I just, you know, it's level the critique at, you know, the political, what's the word dilettante?

There's something along those lines. Dilettantes? Like, deletons, oh, that person, I don't like that. This person is not going to vote for everyone. It's all corrupt. It's all terrible. Like, we have a friend that you know exactly what I'm. Yeah, he's listening.

He knows exactly who he is. That's right. Very frustrating to talk about this way. You have to make a choice. You have to make a choice. At the other day, it's sort of a binary choice. And this action by Cloudflare really forced me to face this head on. So I go back a year.

Again, I didn't write about it. This actually reaffirms the value of writing for me. I'll have an initial response, which a year ago, I didn't like this because the favoring Google angle. And this time, my initial response is to be very critical for the same reasons. It's even worse by default. And look at them exercising their power. Like, they're abusing their position in the stack.

That's sort of like my initial reaction. And when you write, you have to really sort of dig in and think through the implications of your position. And a few months ago, I wrote a piece about the agentic web and the original sin. And kind of like, people. that were mad about advertising the internet, I think missed the boat. The internet, when it was a human, sort of the human internet, I called it. Advertising was amazing. And it's really easy to see the downside. And really, there's so many upsides, though. All the explosion of content, all the sorts of things we can do, all for free because it's a win, win, win of you get all this free content. These services get to make more and more money without raising prices because the advertisers are paying for it. And by the way, advertisers get to reach customers. They never would have been able to reach otherwise. Again, I think, as I've argued, I think meta actually is the best manifestation of this, in part because, like, you're finding stuff through Instagram ads that you never would have found otherwise that is actually pretty great, right? People think about all the spammy ads on websites and they think about the worst parts of it.

But with everything, there's pluses or minuses. In general, I think the advertising-based web has been overall a big win. But the AI stuff is, we talk about AI with Google all the time. Like if you're just getting the answer, you're not clicking the link to an ad. And over time, if you're doing deep research, like the ads are immaterial. You're not going to be swayed by an ad, right? Like if you're an agent, like there's some aspect of them is appealing to your humanity. Like it's so there's all these problems going forward, but how do you actually monetize content and how do you incentivize the creation of valuable content that at the end of the day, the AI needs, right?

Like it needs like especially like current events and things that are happening to give sort of good answers. What's a new system that makes sense? And so I put forward, look, we need to move to some sort of. And I talked about like stable coins and monetize like being able to monetize content and creating like a new marketplace for content where super valuable stuff to AI can get compensated more. And you're creating incentives for people to do this instead of having to go to a scale AI and say, oh, go out and hire people to do this. If you can create a marketplace where people, individual actors are motivated to create because they can make money from it, that is going to scale way more. It's going to be broadly beneficial. And I painted this sort of beautiful picture of this future internet of a completely new incentive structure that works for agents and for AI being the primary customers of a website and all those sorts of things.

And that's basically the Cloudflare is trying to force to happen. Yeah. And so I had to sit down saying, wait. They're forcing you to put your money where your mouth is. Exactly. Exactly. I felt like such a hypocrite for my initial response, which was it's really easy as a commentator to point to what you want to happen and then be upset about the means by which it happens.

And the reality is things don't change without assertions of power because you're upsetting the current system as it is. This is an assertion of power by Cloudflare. It is from a certain perspective, an abuse of their position. Yeah. That's how things change. And if they're actually driving towards what I think is important and necessary and potentially very lucrative and beneficial to humanity, I have to be honest with myself and appreciate if you want to get to something different,

you're going to have to crack a few eggs in the process. And so ultimately that that's why it was actually... Let's get to that micro-transaction omelet, you know, on the other side. Exactly. So it was actually, I mean, I'm a sick-o, so I enjoy being tortured like this or self-torturing as I was writing this. But it was actually really interesting for me from a personal process perspective. Maybe it's good I didn't write about it a year ago,

because I would have had to, like, retract my argument on how this is bad. say, actually, no, this is right. So I think it's interesting. I think it's really intriguing. I think Cloudflare would push back that they're favoring Google. You know, I think they are. I kind of reject that pushback. But I think their hope is this will highlight Google's conflating search and AI.

And it was sort of a force action that Google will have to sort of split that up more neatly. But overall, it's really, it is really quite interesting. Yeah, well, and it's an interesting time for the internet because Matthew Prince in the blog post announcing content Independence Day wrote, the problem is whether you create content to sell ads, sell subscriptions, or just know that people value what you've created. An AI-driven web doesn't reward content creators the way the old search-driven web did. And that means the deal that Google made to take content in exchange for sending you traffic just doesn't. make sense anymore. And the second prong of the Cloudflare plan here is to, by default, make it so that every website that runs on Cloudflare is blocking AI crawlers. And yet, they're also announcing this pay per crawl offering here. Pertique says, Andrew and Ben, what are your thoughts about Cloudflare's pay per crawl offering? It seems like a great interim option while the copyright fair use cases get litigated and or law.

get legislated. And so what you would propose a couple months ago and what Cloudflare is proposing now is a model that would allow these websites to be crawled and then you get compensated with like three cents or whatever the number. No, much than that, to be clear, like, not very much money. And so. No, but it's all volume. The amount of like, I don't block any AI bots.

Yeah. The number of times, the history is, they're frank. out of control. They need, there is a bit. They need a little at least foot off. So the fractions of a cent could end up to something meaningful because that's what I'm a little fuzzy on. I mean, I, if this is technically feasible, I have no objection to what Cloudflare is trying to do. I'm less convinced of the idea that this would materially change the fortunes and future prospects of websites and creators online that used to be ad-supported.

I think that ship has sailed at this point, and I don't know that there's a new model that would salvage things for the future, but I'm hopeful that something like that would emerge, and I think this is a worthy attempt at least. Well, the problem for any individual website is, if I were to exclude trajectory from the crawlers, well, obviously, they'd be dumber.

But they're not going to feel the dumbness, right? They'd be so much dumber. Shed some tears for the other land. I was testing your level of how much you're spacing out on the podcast by trying to slip that one by you. It took you a couple seconds, but you did catch it. So it's like the latency is increasing, but you're still. There you go. So it's the collective action problem.

What Podflare is doing is acting as a collective negotiating committee for all publishers and saying, like, you might not feel the pain of anyone, but if you get all of them and, you know, there is a bit where the AI companies do. need this content. And the world of one-to-one negotiations, it doesn't scale to the long tail where some of the most interesting stuff is. And you do want to create this. It's good for the AI companies if there is an incentive structure over time to create compelling new content. They don't want to pay people to do this, right? The licensing deals are not sustainable if that's going to be the model for the next 40 years. Yeah. Right. So you, there is a real long-term benefit to everyone to creating this marketplace of content creation and this new sort of thing.

It's hard to get there when you're dealing with a bunch of disparate small actors who have no market power. So that's why it's interesting is Cloudflare is basically acting as a single entity standing in for 20% of the internet, which actually gives them real sort of leverage in this case. And just to mention the email from Pertique,

I think he's making the same mistake. A lot of people are in conflating this with copyright. Or it's speaking to why the whole copyright angle is totally wrong with search. The search tradeoff, right? Which, again, Google's, it's gotten less and less lucrative over time, but by and large, the tradeoff was Google's going to scrape your site. They're going to violate copyright by putting a snippet from your site in search results,

word for word copy, but that's going, you're going to click on it. Then you're going to go to that site and they can make money. what AI overviews is, the actual problem is that it's not violating copyright. The problem is that it's rewriting your content, summarizing it, it's derivative of your content, all the reasons why I think these copyright cases are losing both judges, the one that rule, that was very clear, Judge Alsup, that, oh, this is fair use. And Judge Gabri, I was like, I think, you know, oh, this is really bad, but I need specific detail. But I can't just ignore the lack of evidence here.

Yes. Both of them were like the output is clearly not violating copyright. It is clearly transformative content. And this speaks to how everyone on the copyright angle is totally missing the boat. The problem with AI search overviews is that it is transformative. And because it's transformative, you're getting a three-sentence summary and you have no need to click through the article. Whereas when Google was posting three sentences that were. an exact copy, that actually increased the likelihood you would click through the article.

Right. And so it does speak to why I think the whole copyright pursuit angle is a total mistake. It's totally misunderstanding what the threat is, what the issue is, why this is a problem for publishers. The actual problem is the transformative nature, which is why copyright law is not the right angle to sort of like protect publisher interests. Well, and I would say that the similarities between the conversation we had a week ago about copyright law and some of the considerations that inform that debate, we're talking about the future market of content, whether it's books or journalism or whatever these LLMs are

training on. And this is another case where the concern is rooted in the future economy of the internet. And that's where for me, I come back to like, the internet was at its best when people thought that the ad-supported ecosystem was going to scale. And VCs were funding websites all over the internet that were doing ambitious work. And those days are just over at this point because everybody realized there's a better way to serve ads than what they were doing in 2007 and 2008. and so I just don't know how robust any of this is actually going to be, no matter what model they come up with, but good luck to Cloudflare trying to make it work.

To your point, a model where like VC funding publishing is not, no, that's not what you want. You want a marketplace. You want a market where a situation. But we've had something like a marketplace for the last 10 years. And in terms of that, like there hasn't been enough money there to make it viable for most people. I mean, if you're not the New York Times, it feels pretty viable to me. I mean, well, if you're a subscription model is kind of a separate situation. No, the whole point,

though, is the description model. And when I started, you know, it was unique. There wasn't a substack is the point you need to figure out the right. It's a business model issue. The whole point of this thing is trying to create new business models, creating the conditions for a new business model to emerge. And ideally, if you want something that, is going to scale from small to large, it has to be a marketplace. It can't be sort of a top down imposition, but the bet here is via a top down in position. So I guess there's a little bit of conflation there.

But, but yeah, you can envision this world. You can envision a world where you're compensated in the more creative and unique and differentiated actually the more money you make because you get paid more by the AI crawlers or, you know, like, in one of the Cloudfare posts, I talk about like, imagine your deep research report, you give it a budget so it can go and pay more for like better resources and things along those lines. And there's lots of issues with that. It kind of gets into why I'm anti-microtransactions generally where upfront payment decisions for unknown. It's not guaranteed. Yeah.

Yeah. It's a little, it's a little iffy in the consumer psyche and things along those sorts of lines. But by and large, the general outline. And this is the case with lots of things. You can see how this could work. The question is how do you get from here to there? How do you get from the way things are to that future world? And yeah, got to break some eggs sometimes to do it.

Sure. I can envision that world. I don't necessarily envision that world if I'm sitting here today. But I do have the capacity to imagine that being possible at some point. One final question related to this. Eric says, I found an exchange on X with CEO Matthew Prince that touched on the concerns around deepening Google's mode. Mike Chong asked Matthew Prince, is it possible to block Google because they are also using AI generated content in search results now?

And Prince responded, Google will need to respect how content is licensed. That may involve splitting up their crawler. I'm optimistic they'll do that for the benefit of the ecosystem. otherwise we have a number of other ways to force them to, but hopefully it doesn't come to that. And Eric says, Ben, I'm curious what you make of this statement from Prince.

Does Google have any incentive to play nice here? Does Cloudflare have the leverage to quote unquote force Google if Google doesn't play ball? What do you think? I don't think Google has any incentive to play nice here. I think this is a huge advantage for them. Yeah. I think like so, and I know CloudFer would push back on this,

but I just, it's hard for me to see, you know, any way that this isn't. And this is where it does kill me to not have written about this a year ago. Because I think immediately this was my thought. This benefits Google before it sort of like became an obvious thing. See, I'm neuroses again. You just have to take my word for it. The theme today.

I love it. I have the text messages, okay? This is how Ben is spending his summer agonizing over things. He did write 10 years ago, thinks he should have written a year ago. It's so mad. ADL. Does CloudVry have the leverage to force Google? I mean, they could just block Google bot, but then that's hurting their websites because

they're not getting indexed by Google. So my guess is this is more of a regulatory thing, like regulators being tuned in to which bots are doing search results and are actually violating copyright, strictly speaking, because they're taking exact content versus which bots are summarizing sites and getting derivative content. that could be a distinction that's drawn. I also, by the way, for the record, part of the reason that this bugs me a tiny bit

is there's a little bit of Yelpification going on here where Yelp built this company through organic search results and then has basically been like a 12-year sort of like wine fest that they now have to pay to access those customers or get them to go to Yelp.com instead of just free being the top result in an app

and Google competed. That's terrible. Google can't compete with us. It's unfair. There is a bit from publishers in this. Like I, from the beginning, and I think there's a bit where because I'm in this space, I'm just way more critical of everyone else in this space. But like, you need to build a brand people go to, a destination site.

And if you're dependent on Google, that's a you problem. Right. And this is why I kind of look at the subscription business as an independent conversation, because I think people who are in that business and thriving have learned that lesson and internalize it. I know, but what right do you have? Like, why, why is it God's given right that you get a reader who doesn't know and care who you are? They just click the link in Google and you deserve to make money from that. And you get to dictate the financial terms and right. And you're going to tell Google how it's searched, you know, to go to regular,

is going to come in and protect your model that you can't be bothered to differentiate or do your own customer acquisition, which by the way, you know, distribution is free. There is like, so that, that is a, there's a little bit of an entitlement here. I deserve a Google link without any cost, right? Because that's kind of what the demand here. And it's all about perspective. Because I think people who started a website, they look at Google like it's a utility company and like it's a highway and Google looks at it like it's a business.

And so it's an entitlement because basically anybody who started a website in the last 20 years, Google has just been a fact of life and something that's always there. I think were you the one that sent me the tweet about how like millennial writers have the most twisted view of the world because they just they had the good fortune of coming of age and it's like this golden era.

That's what I'm referring to the VC money like 15 years ago. Yeah, exactly. And it's like it hasn't always been like that. And there's been a rude awakening for the last seven or eight years. Yeah. Sorry that business realities exist. Look like. Yeah.

Right. No, exactly. So I think this is one of my positions that drives people absolutely bonkers. One is me being loving Facebook ads. The other one is defending Google's right to look out for their own interests. Over there and your monopoly hat in the monocle, it's killing me. That's right. If Google wants to say, look, the price of you being in search is that we get to harvest your content for AI search overviews, why is that not their prerogative?

It's very easy. If you don't want Google to use your data for AISR's overviews, then block Google's bot. Oh, but then my business would die. Well, then that sounds like you need Google. You should accept their terms. Yeah, exactly. You know, just making everyone upset on this. No, but the reason I read that is because we were, we referenced top down impositions on Cloudflare's part earlier.

And I do think that there's going to be some top down imposition on Google's part if, in fact, Cloudflare tries to force. the issue in one way or another. But time will tell. Either way, I think it's worth a shot from Cloudflare's standpoint. And I wish them luck. We'll see how it all unfolds. So we've gone too far on Cloudflare and the acquisition ecosystem. We're just going to do a couple questions at the end here.

First, this is from Yi Wen. He says, Andrew and Ben, long time listener, love the show. Andrew, belated congrats on the arrival of your second child. My question is basically, how and why did you decide to have a second kid? Wow, talking about acquisitions. They was. What an acquisition, Rose has been. Context for this question is that I welcomed my first child to the world last year. And ever since then, I have noticed that most families seem to have two kids these days, if not more. I grew up in the one child policy era of China. and have no idea what I missed out on for not having siblings.

Now that I'm a parent, I wonder what my son would miss out on if he doesn't have a sibling. Do you have any thoughts? It's a great question. If I'm being completely honest, Ben, my answer is not particularly thoughtful. My wife wanted a second child. And by the time the topic was broached, it was about a year after our first son, Charles was born and I loved him so much that I figured, well, we can afford this and I absolutely love Charles. So why not just multiply all the experiences we're having with Charles and run it back?

And I got a couple weeks into Rose's life and I was like, man, it kind of sucks to start at the bottom of the totem pole again and do all this over again. But beyond the initial shock, and that experience, it's been really cool, and I think we'll only get cooler. You're somebody who's been raising two kids for quite some time. Do you have any takes for Yuen here?

Well, my take generally is, I think kids are amazing, and I really wish we had had more. Like, three, four, five, especially as it's approaching the end. It's like, this is so great. I love it. I think from a sibling perspective,

I've always had siblings, so I can't speak to the only child perspective. I do think there is a bit where my son and daughter are very close. And I know for the rest of their life they're going to be very close and they will always have each other. I think this ties into my general philosophy of parenting, which is I think most parents do too much and are too invested. And they have to be like the playmates for their kids and it involve them, be involved in every aspect of their life. and I think just in general, kids are, like, it kind of ties to the, like, old people trying to be, like, cool and, like, stay young forever, a point I've raised on here.

That's the next generation. You're their parent. You're not their friend. And by the way, if you want to be friends with them, you do that by being a good parent. And when they're adults, then you can be friends. Like, in the middle, there's, I see so many people try to be friends with their kids and reason with them and da-da-da-da.

And it just leads to, like, really bratty kids in general. and a lack of discipline. And by the way, they're probably going to, like, reject you and not like you and their adults, right? You'll have problems by the time you get to the point where a friendship actually makes sense. That's right. 30 years old.

Yeah. I actually just saw a tweet today. I think right when we were about to record, so I'm not even sure if I texted it to you, but something along the lines of someone to observe the difference to people who like having more kids and people who really struggle is the extent to which you care what your kid thinks when you tell them what to do. Like, a big part of raising kids is they,

don't have discipline, they don't have control, you're imposing that for them so that they can function and have a good life. And as they grow up and you're no longer there, they've developed their own discipline and their ability and to work hard and to control themselves. And I see so many parents who treat their kids like little adults and they try to reason with them. They try to make sure they're happy and all these sorts of things. And it's such a burden on the parent. It's total nonsense. And it's not what the kids need. With your children. It's really not fully developed. They need guidelines.

They need posts. And does that mean you're going to be a controlling force in their life forever? No, this is actually the way to make them free adults in the long run because they will develop over time the self-discipline and the self-governance and the executive function to operate in the world by modeling and learning from what you did for them. And I'm so critical of this entire generation of parents that is anti-discipline. I'm not, it's like,

again, just, it's so funny. You see kids that are just terrors. And then you see their parents interact with them. It's like, pretty easy to connect the top. And by the way,

these parents are super judgmental about like other, other folks and how they take care of their kids. And it's like, guess what? Your kid's going to be upset at you sometimes. Because if they had their way, they eat nothing but Oreos and stay up until two in the morning. Like,

The fact that you tell them no and they're upset, that doesn't mean you failed as a parent. That means you're actually doing your job. And preventing them to be brain dead and fat and diabetic by the time they're 17 years old. Right. Do you want them to make good decisions when they're older? You don't do that by convincing them as a four-year-old to make good decisions. You do that by habituating them to a good life. And a good life is one with executive function, with discipline, with self-control. And you instill that through the way you live and allow them to live when you have the power to impose that. And then they will grow up and they'll be independent adults, self-functioning, can govern themselves.

I don't tell my daughter what to do at all. She's 18 years old. She's out figuring stuff out. Of course, there's things that I disagree or wish she wouldn't do or whatever. But you know what? Like my chance to instill discipline in a way to view life was when she was zero to 15 or whatever it might be. And now it's out there. And by the way, I think me and my daughter are going to be very good friends.

Well, and in the interim, she's had your son for companionship and friendship. Yes, exactly. Thank you. You finished my. I got on my rent. I got on my soapbox. I forgot about the point. It's my job as host to keep us on the road here.

Her friend, her friend in the household is my son. And they can go in a corner and complain about dad and mom, which that's an important part of friendship. And God knows you earn it. And so I hope that they fail themselves to that corner. I do wonder there's an issue with, I wonder if single kids exacerbate this. Because then if this, if the single kid like feels bad and he wants to like complain, who does he go complain to?

Like if dad's being mean, then he and mom, that's a really dysfunctional sort of situation where dad mom are split and, you know, and kids playing one off or the other. I'm glad you mentioned that. I don't know if this fully occurred to me, but actually it probably is easier to have discipline. It's easier to not feel like you have to fill every moment of your kid's life when they have other kids there. And are they going to fight?

Are they getting along? Is it hard at the beginning? For sure. But I definitely think, number one, it's hard to articulate, particularly the older you get and the more successful you are, the extent to what kids are a motivation for you to keep working and keep doing things. It's not like there's a bit where you want to instilling your kids, intrinsic motivation. And so you start out when you're a kid, you have extrinsic motivation,

which your parents tell you what to do. Ideally, that habituates you to have good habits, executive function, all these things. So intrinsically, you go out and you work hard and you do well. But then you almost come full circle where you want to keep working and doing well and creating things because it's to benefit. It's for the good of your kids. And I think that's the way things are meant to function. I think you mentioned we could afford another kid. Everyone can afford another kid. You can figure it out.

That's the thing. I took the we can figure it out approach when we were considering the second kid. And also, it's funny, until you mentioned it, I forgot. But I had heard you say, man, I wish I had a third kid. And I thought to myself, well, if Ben wishes he had a third, I can definitely manage a second. I don't know whether we'll cross the third kid. bridge but at the same time i'm going to press her you into it i'm texting alice right now yeah exactly let's get it done in any event it is a good question and i love having my daughter particularly as the

months pass here and she comes alive it has been really really cool and i think watching her relationship with my son is going to be probably the coolest thing in my life for the next 15 or 20 years oh it's my favorite for sure like it is amazing um you know it's to say it's always easy and kids fight and sometimes siblings just end up not getting along. I do wonder how often the siblings not getting along is some sort of function of like the overall structural organization of the family like maybe not being what it should be, which I think, I actually think parents versus kids is a healthy dynamic. Like you think about it, you want your kids in the long run to, do you want them kissing up

to authority and trying to play people off each other or like standing in solidarity and like rebelling together, right? Like this whole drive to be friends with your. kids to be the rebel alliance and mom and dad are the empire. That's right. Over time, that is character building for those kids. Well, that's what actually lets them think for themselves. You are set up as a safe counterparty for them to rebel against, right?

And it's like a standard to set versus it's like the whole drinking thing, right? Do you want your kids to like be super strict? They've never had a drop of alcohol and then they go like me. that was me growing up. You go to the version of Wisconsin and you're on your hands and you're on your hands and these in the middle

Park Street picking your guts out, right? That's not the best way to do it. You want to like, there's a whole bit about the whole family structure should actually be preparing your kids for the real world.

In the real world, guess what? They don't have everyone catering to them all the time. They don't have everyone telling them they're perfect when they're not all the time. They don't have everyone

sitting down and reasoning with them all the time. Sometimes you're told stuff you don't like. Sometimes you're criticized and you don't like it. Sometimes you're told, No, and you don't like it.

Is it better to learn the coping skills out in the real world as a 25-year-old when you're competing against kids who are actually raised right? Or is it better to learn it as a five-year-old when, by the way, you don't know any better and mom and dad are like everything in your life. It's certainly easier to learn at five years old than 25 years old. And people are denying their kids this easy opportunity. Yeah. And so kids grow up having been catered to their whole life, being little brats, and they learn

the lesson in a much more painful and difficult way in their 20s if they ever learn it at all. Like all the, this whole concept is it's, it's not, it hurts the parents. Parents who complain about, I have no time. I'm so worn out, blah, blah, blah. Stop catering to your kids. Let them learn to be independent. Like, like people do too much. And in the long run, it actually, it's like you wasted all your good.

time with your kids with a bunch of five-year-olds. Wouldn't you rather instill great qualities and great adults and they come back? And then you sit down as adults and your friends and you have conversations and like with my daughter, you know, she'll late with you talk about politics and we talk about sports and all these sorts of things. It's like I'm talking to another adult. We text all the time. It's great.

Now I have a friend. I have a friend by virtue of not trying to artificially create a friend for the first 15 years of her life. There you go. Wonderful takes. Always love a good TikTok segment. So thank you, Yuen. And I'm also proud of my deft Star Wars analogy, which I would not have been able to pull off had I not watched Andor. Never really been much of a Star Wars guy. But that's neither here nor there. And have more kids, as I think the takeaway from all of this and discipline those kids early on in life so that you can reap the rewards later on. By discipline we're not saying like like like yeah just treat them at their kids. They're not your friend. Yeah. No, exactly.

And I think it's better. What you're laying out is better for the kids. It's also better for the parents over the first age and easier to be a parent. Yeah, exactly. Just like if you tell them to do something, they do it. There's not this endless negotiation and back and forth. You want to feel like you're really losing your mind. Try to negotiate with a two and a half year old, which is a mistake I occasionally make.

It's capable. I know. But in any. event. We've come too far to get to all the other mail we had. We'll roll that over to next week. Ben, go enjoy yourself for the rest of the week. Touch some grass this weekend. And we'll come back on the other side. Talk to you later.