The a16z Show - a16z Podcast: Technological Trends, Capital, and Internet 'Disruption'

Episode Date: September 24, 2018

with Fred Wilson (@fredwilson) and Chris Dixon (@cdixon) There's all sorts of interesting tech trends happening right now, including AI, VR/AR, self-driving cars and drones (as well as interesting stuff happening in verticals like healthcare and finance) -- and there's a lot also happening in seemingly more "mature" tech revolutions, such as mobile and cloud. But where are we now, really, with these shifts... and how does that inform how we think about the next couple decades? And does a framework like Carlota Perez's -- as outlined in Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages and summarized by venture capitalist and longtime internet investor Fred Wilson (of Union Square Ventures) -- fully apply when it comes to software? Because, argues Chris Dixon (general partner on a16z crypto), software "has so much more plasticity, ability to adapt, ability to evolve" that unlike hardware, "the core itself will also dramatically change... not just the apps around it". The total economic value that will be unlocked with the software revolution, observes Wilson, should be orders of magnitude bigger than what we saw with manufacturing for sure. But just how much internet innovation is actually powering true disruption (i.e., is more than just a sustaining innovation, to use Clayton Christensen's terminology)? How do new business models change everything? Dixon and Wilson consider all this and more in this hallway-style episode of the a16z Podcast, where we recorded the two having a think-aloud conversation about everything from the history of the internet and startups, the evolution of capital and infrastructure, to the advent of crypto. How do they they both define "decentralized", what do they think of dApps, and where do NFTs and "crypto goods" come in?? One thing's for sure: It's the most interesting time they've both ever seen in over 30 years of internet work, life, and play. Please note that the a16z crypto fund is a separate legal entity managed by CNK Capital Management, L.L.C. (“CNK”), a registered investor advisor with the Securities and Exchange Commission. a16z crypto is legally independent and operationally separate from the Andreessen Horowitz family of fund and AH Capital Management, L.L.C. (“AHCM”).  In any case, the content provided here is for informational purposes only, and does NOT constitute an offer or solicitation to purchase any investment solution or a recommendation to buy or sell a security; nor it is to be taken as legal, business, investment, or tax advice. In fact, none of the information in this or other content on a16zcrypto.com should be relied on in any manner as advice. You should consult your own advisers as to legal, business, tax and other related matters concerning any investment. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everyone. Welcome to the A6 and Z podcast. I'm Sonal. We recently took the A6 and Z podcast on the road to New York City. And so today's episode features a fly-on-the-wall recording of a conversation between venture capitalist and longtime internet investor Fred Wilson of Union Square Ventures and A6NZ Crypto General Partner Chris Dixon. The two discuss everything from current tech trends like AI to seemingly more mature trends like mobile and cloud to the advent of crypto. And throughout the episode, they weave through past and present in internet history to reflect on where we are now really to where we may go next. Are we seeing disruption? Or is a lot of current innovation just a sustaining innovation to borrow from Clay Christensen's framework? Or how about Carlotta Perez's framework for tech revolution and financial capital? Does that fully apply to software? And what precisely is so unique about software itself? And how might that affect internet-native applications for things like crypto?

The two discuss all this and much more in this episode. episode of the A6 and C podcast. As a reminder, the content provided here is for informational purposes only and does not constitute an offer or solicitation to purchase any investment solution or a recommendation to buy or sell a security, nor is it to be taken as legal, business, investment, or tax advice. Please also see A6NZ Crypto.com slash disclosures for further information there. So 2018, you know, I don't know what it is now, 25 years into the modern, the main stream internet, some very large, some trillion dollar tech incumbents, very venture industry has grown dramatically. Tech seems more mainstream. Some people argue it's perhaps becoming mature.

Maybe it's like TV where there's like four TV channels and there's four big incumbents. There's all sorts of interesting stuff happening in like crypto and AI and new devices like virtual reality. in augmented reality and self-driving cars and drones. There's interesting stuff happening in verticals, like changes in health care and real estate and finance. So I guess a question I think about a lot, and I'm sure you do, is where are we now? And how does that inform how we think about the next decade, two decades?

So, you know, I think it's really important to have a framework. And as a lot of people who, you know, follow, me and USV know we're really big fans of Carlotta Perez. And if you look at the big technological shifts that have happened over the past 200, 300 years, what you see is that many of them last for kind of a century, right? Like automotive or more broadly speaking, industrial or manufacturing based businesses were kind of the technological revolution of the 20th century. And even though internet and tech kind of emerged very powerfully in the 80s and 90s, I think we might argue that internet and tech really is the technological revolution of the century we're in now.

And so if that's the case, it's 2018, we have 82 more years to go, and yet we're feeling like it's already a mature sector, right? We're looking at it's in Google, Amazon, Facebook, Apple, you know, they have these massive entrenched platforms and it's becoming really, really hard to compete with them. How could we have, you know, another 50, 60, 70 years to go? And I think, you know, going back to something that Mark Andreessen said, you know, in the original design of the Internet and the World Wide Web, you know, we didn't necessarily get it all right. And so what we have now in terms of like these entrenched platforms is maybe a function of what the spec was that we've been building on for the past 25 or 30 years. And if we could maybe broaden out what the protocols are to a point where, you know, we could have a much more open and level playing field, we might actually have a lot more ways to go.

So that's me speaking optimistically about where we are. Let me give you maybe even a more optimistic view, which is, so one thing I went with with Carlotta Perez, and I think it's a brilliant, you know, brilliant theory and explains a lot of history. But I wonder if software is different than hardware. And let me try to explain that. So you build a car, you know, 1900-ish, you build cars, you have Ford and GM, et cetera. They get better, but, you know, they don't dramatically.

They don't, fundamentally the car has stayed mostly the same. same, you know, obviously got better, but they're still the same basic function, same basic, you know, kind of design. And then all the action from, I don't know, 19, probably what, 30 to today move to kind of the quote-unquote app layer, right? It was interstate highway system and shopping centers and shopping centers and trucking systems and the sort of the quote apps of cars, right? And then TV, right?

So TV, you build the TV, you have the radio, you know, you build the physical infrastructure and then maybe you upgrade color or HD or something, but it's fundamentally fixed, right? It's fundamentally, like once you've built the core, it's fundamentally done, and then you just build around it, right? The internet, as you, as of course, know, is deliberately designed to be a very lightweight protocol where all of the intelligence lies at the nodes and the servers and our software base and can upgrade themselves.

And so I guess what I would say is, I wonder if software, because it's a It's fundamentally a software net. I mean, of course, at the bottom level, it's copper and other, you know, fiber and other things and radio waves. But the heart of it is software. And I just wonder if software has, my view, software has so many more degrees of freedom. It has so much more kind of plasticity, ability to adapt, ability to evolve, that maybe unlike the car and the TV, that the core itself will also dramatically change and not just the apps around it. So I think certainly. The total economic value that will be unlocked with the software revolution should be at least one, maybe two, maybe three orders or magnitude bigger than what we saw with manufacturing, automotive, you know, for the reasons you describe.

I just think that it's just, if everything, if we can get everything into software, then just imagine, like, what the possibilities are, right? It's the expressive power, the, it's the designs, a much richer design space. You can do so many. You can encode any kind of human process can be encoded in software. Yeah. I mean, even, you know, the greatest thing about Tesla is the over-the-air software upgrade. It's like literally get in the car and all of a sudden I got a new upgrade and there's, you know, new software all of a sudden. They actually fix, they actually fix, like, the braking and stuff, right?

They can fix anything. But I read today that they pushed an update to people who were, who have cars in the affected areas of Hurricane Florence. I don't know. But to make their batteries last longer, right? So that they could go long without charging. That's fucking amazing. Just think about that. Boom.

Imagine like Elon Musk woke up thinking he was going to do that and he just hits a button. Well, and it has implications. So I remember reading a book about Ford and the whole, you know, the big problem was they broke down all the time. And so the big innovation was service centers everywhere. And so, you know, this change in being able to update over the air also changes, for example, the service model. And therefore, the kind of almost, you know, the industry structure potentially. I mean, the car is, that car is still not a piece of software, right? But there's more software in that car than all the cars that I've been driving for my entire life.

And so we'll get more and more of what we interface with in business and our personal life, whatever, that's going to be software as opposed to hardware. And I just think that that makes the total available market of this technological shift way, way, way larger. I think we're in a moment in time where it feels like there's not a lot of innovation. And, you know, I will admit that, you know, the past maybe four or five... Well, when you say innovation or disruption? Disruption, maybe is a better word. Yeah, because I think there's a lot of innovation, right? I mean, there's great stuff happening in AI and self-driving cars and...

Right, but a lot of that's accruing to... AI is a really good example, right? So, you know, if you look at the big tech companies, I don't think that they were disrupted very much by the shift from web to mobile, and I don't think they're going to be disrupted very much by the attention. adoption of AI power software. It may further entrench their monopolies because of the data, the fact that you're differentiating AI through data and they're most likely to have most data. I forget where I read this.

This data is now four or five years old. But if you look at the top 100 mobile apps and you look at what the top hundred websites were before the iPhone came out, it's not a very different list, right? So, you know, those companies, Facebook, I think, is the perfect example of this, saw that the mobile phone and mobile apps could potentially disrupt them, they pivoted their focus to get there, and they got there. And the net of it is that they're in a stronger position than ever. So I don't think, you know, that a lot of the innovation is currently powering a lot of disruption. One thing that mobile did, you know, you take the ride hailing as an example, it did enable new behaviors,

which allowed for startup opportunities that, Right. I mean, so it did, you know, ever, I think of it as every new computing platform has new capabilities. Right. And generally, startups will exploit the uniquely new capabilities and incumbents may or may not successfully port over to the platform. In the case of mobile, they did. But it also, you know, so you had the intimacy of the camera allowed for Snapchat. But even that, you know, I've always thought that the Maps layer could commoditize the entire ride sharing business. Hasn't, right? Like Uber and Lyft and a bunch of other companies, a bunch of companies in Asia, dominate that business. But I don't understand why the map on your phone, whether it's an iPhone or an Android phone, isn't the ride-sharing application. And then all of these ride-sharing networks are just... Maybe what Google wants to do longer term.

I wouldn't think with their self-driving car effort in their maps. You've got to use Google Maps. You've got a button and get a car, right? Like, why doesn't that happen today? I don't get it. I mean, I don't understand why the map interface hasn't become the default interface for dispatch of anything, whether it's a scooter or a car or a bike or whatever. Maybe it's just like it's going to take some time. Maybe that stuff doesn't happen overnight.

But that's where I want to do the dispatch. So even that, I think, you know, the mobile OS has had the opportunity to suck that functionality in. And that is one thing that's going on a lot right now is. that the functionality is getting sucked more and more into the operating systems and the proprietary apps that these big companies have built on top of those operating systems. And so that's what, so when you say there isn't a lot of innovation, what you, I think what we're to clarify, there's a lot of clever, you know, inventions happening. There's AI, I think if it is like AI, new computing platforms, crypto, et cetera. But there's a lot of that happening, but a lot of it feels sustaining. is like Clay Christensen would say, not disruptive, right?

So it will reinforce the current industry structure, not change it. I think that's right. But yet, you know, and this is why we're so interested at crypto, I think crypto is the one innovation out there that feels highly disruptive because it's a real change in business model. It's not just a technological change. It's a fundamental change in business model. You're not monetizing with ads.

You're not monetizing with subscriptions. You're monetizing with the underlying token. you're monetizing with the underlying token. It's just, it's like orthogonal to all of them. So mobile wasn't, mobile when Sunset was sustaining, the internet was disruptive. So in some ways, crypto like the internet is the first kind of potentially major disruptive wave. Is that your view? Yeah.

I mean, I think what Google did is that they made advertising the business model for applications, right? Like my mail and my, you know, my browsing and my browsing and, you know, my browsing and, you know, my searching is all supported by advertising. Like Microsoft would have made me pay for that, right? They would have said, you're going to pay for Explorer or you're going to pay for Outlook. And that's how we're going to monetize it. Google comes along and says, no, that's an ad product. And so that's what's disruptive is like that's just everything changes when you change the business model.

It's like all of a sudden, you know, your strengths become your weaknesses. And that's what allows a lot of new entrants to come in. It's funny because I talk to people now who I think weren't around during the early internet. And a lot of people will say, I hear it a lot that, well, the internet came along and, you know, by 94 had all these killer apps. And it was incredibly, you know, I think one fun exercise is to go watch movies from the 90s as a way does it kind of go back and look at it. And first of all, the interesting thing, right, the internet just doesn't exist. There's no mobile phones. Every once in a while, someone will, like, it's like this ritual.

They'll say, I'm going to go online. And like the very phrase, like, go online, right? Kind of is this kind of archaic phrase that is from that era, right? And it's, and then like there's beeping and there's this and that. And then there's like, you've got mail and they get on and they do this thing and then they get off. And like it's this thing and it's this thing you do for 10 minutes. But it almost stays. If you actually watch movies in the 90s, like the internet, even that doesn't happen, right?

Except for like hackers or a couple of like specialty movies or something, right? And it was essentially, you know, I mean, it was like literally waiting for an image to load. And like innovations at the time were things like having the image. load in a less annoying way because it was that slow. Like I remember listening to what we would now call podcasts over dial-up in 97, 98. A friend of mine, Josh Harris, had this company called Sudo. And he was making basically audio and video. Wasn't it kind of like Justin TV, like he was filming his life?

Yeah, yeah, yeah. He was just 15 years too early. But he had all the right ideas. And, you know. All the ideas that happened now, web vans, Instagram. Like, they all, all of them, I had this game, this board game. I still have it somewhere. It was called Dot Bomb.

Right. And it was like making fun of all the terrible ideas. I blogged about this ones. And it was like this joke game about all the stupid ideas in the 90s. And it's literally like every unicorn like hot company today. It was like internet money, you know, grocery delivery. Well, you know, you and I are friendly with an entrepreneur here in New York, New York name a D. Seidman.

A D. Seidman had YouTube in like 99. It just like it didn't make any sense in 99. Like, you know, it means broadband. You needed the infrastructure, right? Like, I mean, I think it was 2000, well, was YouTube 2005, I think. Spice. That was kind of the moment when broadband really tipped and you could plausibly have, right? I mean, and the model of ways the internet didn't, wasn't a real thing, I think, until you had broadband.

I also think we needed, I think, I think the two big moves that that made YouTube successful, whereas all the people who tried YouTube before YouTube were, were broadband. That's like 80 to 90 percent of it. and also social sharing. It's the idea that you could take a YouTube video and embed it on your MySpace page or even just send somebody like a URL and boom, they hit it and they could watch something. Like the idea that everybody was going to go somewhere

to watch something with social and social sharing, it blew that idea up. Now all of a sudden, the embeddable YouTube player, like that was genius. Yeah, before that, it was like heavy.com and these things. They were really like, there's a whole concept before that was destination

and that was a business model. Part of it was a business model, innovation to your earlier point, right? Because the thought was you need to get eyeballs on your stickiness, these concepts, which prevented people from encouraging wide distribution. Like the whole idea of embed, like one school of thought would have been letting people embed YouTube. Well, how do you make money? How do you do this? Right. But that was one of the very insightful things that YouTube creators did. Right. But broadband, I think, you know, was the main thing. But everybody had had that opportunity. Right. Everybody,

who was trying to do YouTube at that time was benefiting from broadband. So there were a couple things that YouTube did that others didn't do. And I think the embeddable player was maybe the move that differentiated them from everybody else. And just maybe the timing.

Plus, they had a lot of venture capital money behind them so they could spend money. Sometimes that's the key difference. Yeah. I think I was reading this history. I think it was Vimeo and a few of the competitors and they had just a whole different set of financial constraints and also, frankly, the view towards copyright

I think YouTube took a more laissez-faire view. Right. But that ultimately caused them to have to sell to Google. Because they concluded that they couldn't continue to play the game that way, which was the right way to play the game as an independent company. They needed somebody who could fight the content owners. Okay, so going back to what's happening today then, right? So kind of the big, I mean, I think there's multiple layers here, right?

So there's kind of the big core tech trends. I don't know if you agree, but I think it's kind of AI, kind of a proliferation of new, kind of computing devices. I still think cloud. I think cloud is still, I mean, cloud's like a 10-year-old story. But I still think cloud is driving a lot of innovation. Like, still think. Cloud infrastructure or apps?

So SaaS or? I'm thinking of infrastructure. It's pretty amazing how having the fresh code base, having the fresh attitude, the different perspective. You can just, you can kind of type them. If you could build on Stripe versus you couldn't build on Stripe. You know, like, that was a big difference. Like, that whole pain.

Just the whole modern thing in the developer experience, I think the whole concept of like developer experience, like really thinking through, you know, I think you didn't, obviously you were investor in Twilio. Right. One of their big focuses was kind of the time to help time to delight or something or time to hello world of just like immediately getting in there. Like the idea of introducing text messaging into your app, like people are like, what's the big deal about having to be able to text natively from an app? But you think about it and like so many little things, but they're big things. but their big things are enabled by an app being able to text you, like with a two-factor code or your cars arriving or whatever. Like, to do that before Twilio was like hard.

And now it's like five lines of code. And where, but where, how do you think about, so in that, in the cloud infrastructure world, you have AWS, Azure, Google Cloud. That I think is game over mostly. Like maybe there's somebody who's going to come out from left field. Game over in the sense of incumbents are winning, AWS has won it or? I think in comments, I think Google's going to take some share. I feel like

what Google's doing is going top down into that market. They're going to some of AWS's biggest customers and they're saying, you know, we've got some better tech. Maybe they do, maybe they don't. We'll do it for less and we'll care about you where they don't. They're taking share. But I think it could be like Amazon has 60% of the market, Google has 30% of the market and Microsoft has 10% of the market. I think it's going to be a three-player game in that business. And that's good. I think the thing I hear from Google is the challenge is it's just that the sort of the high touch concierge enterprise kind of model, which those companies, you know, the whatever, the city banks of the world expect is just not something they're used to. Although they have now they have Diane Green and that, I think they a lot of.

So maybe Microsoft will get there, you know? I've heard, I mean, the data I've heard is Microsoft has been making more progress because they're used to, because exactly that is, I mean, Microsoft fundamentally is an enterprise company today, right? And they're very, very good at sort of, you know, servicing these large corporate clients. And then they also have these, as I understand it, these sort of like they tie everything together. It's effectively a new kind of bundling, right? You already have office. You have all this other stuff. But there's a second kind of enterprise customer.

There's the truly legacy enterprise customers who are, I think you're right. It's a very high touch, white glove kind of thing. Then there's the new enterprise companies, the Spotify's of the world, right? Like, Spotify is going to either be on Amazon, Google, or Microsoft. But Spotify might not be high touch. They may just want really good infrastructure. And they may care that, for example, Google seems to have an advantage on their TPUs, their AI chips, for example, all the kind of bells and whistles and fancy technology they have, which, of course, they will have. I think winning the hearts and minds of developers is really hard when you've got an incumbent.

And it's like the standard. Like every developer knows how to build on AWS. So if you're starting a company, where are you going to build it on? You're probably building on AWS. 90% of the companies, maybe 95% of the companies we back are built on AWS. But once you're an established company and you can think about maybe moving from one to another, I do think. I think that there'll be three players in that market. So how do startups fit in then to cloud?

Well, I think they're a big beneficiary as a cloud infrastructure. Okay. So you're building on top. And you're able to take what was CAPX and move it to OPEX and worry. you can focus on what you want to focus. Focus on music playing. That's a story, by the way,

that's a story that's been playing out for a better part of 10 years. What I'm saying is I think there's still some legs to that. Like you were saying, what are the big drivers? It's AI.

It's AR and VR. It's crypto. And then we were talking about a few other things that I think are still playing out. And one of the things that's still playing out is cloud.

I think there's still some legs there. Well, I think also on the app side. I mean, SaaS, I mean, I think we live in this world

where we think everything is, you know, is SaaS-based. And the data I see, it's something, it's like sub 10% of corporate applications today are still, you know, it's unbelievable low. Right. I mean, it's still, people are still using, you know, I don't know, you go to the, whatever, you go to the United Desk and they've got like a DOS interface. You go here and they've got windows. You know, I mean, the government hack was like cobal, you know, like.

And so, and a lot of it's more modern, but it's still like it's windows. It's whatever. It's not, you know, we live in this kind of world where we think everything is SaaS delivered. And so, you know, you see these really interesting things happening where, like, vertical SaaS is an interesting trend, right? Where you see this, you know, whatever, massage parlors need their own billing and reservation system or something. And it turns out that's a big market. And those people previously wouldn't really have software. I kind of think of it almost like people have this view that, like, AI is going to come take the jobs.

But they have this kind of anthropomorphic idea that it's going to be like the Jetsons, like this robot is going to come in. and move over, I'm going to type and do it. But what actually, the way that the jobs are actually taken is a much subtler thing, which is these new software applications, just, you know, whatever, your new payroll system, your new payroll SaaS app, just suddenly you don't need as many people in your payroll department, right? And it's a much subtler thing. And it's not a one-to-one transition. And it's not a literal thing of like, kind of like Elon Musk, AI comes in and like replaces your payroll department.

And it's just like more and more just kind of incremental software comes in and just makes everyone more efficient, which takes jobs. Now, I think also will create many jobs. They'll just be, it's just always harder to envision the jobs that are created than it is to envision the jobs that are destroyed. What you're talking about right now, I think, is where a lot of the action is in startups and venture capital right now. If I look at where a lot of the dollars are being invested, where a lot of the value creation is happening, where a lot of the bigger companies are getting built, it is sort of in that enterprise SaaS area. I think consumer has gotten harder because of some of the things we've been talking about before, but I don't think that enterprise SaaS has gotten harder. And so in a way, I think for we've thought for the past four or five years, it's more of a grinded out execution, operational, not super sexy style of startup and style of investing that has been winning the day.

And the things that were kind of happening in the latter part of the last decade where you had like a Facebook come out of nowhere or Twitter come out of nowhere or YouTube come out of nowhere where VCs were making 100 times their money on these huge big consumer breakouts. We see those, but not as many. Yeah. I mean, the great thing about SaaS, right, is the business, once you have those customers and they like your software, they stick with you. So it's like an annuity, right? It's a very high margin annuity. It's a challenge to get those customers, and you have to get, there's a lot of detailed kind of sales and marketing execution to go reach efficiently.

I mean, that's kind of the trick in a lot of those companies. How do you efficiently reach the massage parlor or the whatever, the small business, payrolls, you know, a person needs payroll. Yeah, the founders all complain to me. They're like every venture capital meeting I take, they want to know KAC over LTV. They want to know our metrics driven. They're like they want to know our sales power. want to know like, you know.

Yeah. And I was like, because honestly, that's what separates the winners and the losers in that world. And in that world, there's almost always five credit, or three to two to five credible competitors too, right? So it's like a cage match. It's like, you know, it's not like you're some weird, you know, controversial. But they're also not winner take all markets.

Right. So the, it's probably still a power law distribution in the outcomes, but maybe it's not as severe. Maybe it's not, maybe the winner's not 10 times. bigger than number two, who's then 10 times bigger than number three, which you can see in consumer, but maybe in enterprise, it's the winners three times bigger than the next biggest one, who's then three times bigger than next biggest one. And if it's a business that can support, you know, billions of dollars of market value, that could be two or three companies that could be

pretty big winners for the founders and for the VCs who back them. So let's maybe talk a little about the changing capital market world. So the venture world has changed a lot. There's new ways to fund startups, including crowdfunding, which you've been really involved with. There's the ICOs and the kind of the crypto stuff that's kind of emerging. There's a lot more venture capital.

There's a lot more stages of it. There are these mega funds. You know, I guess what, you know, how have you seen the industry change over time? And well, I think about that. The first thing I would say is what you said is that I think there's more capital available for founders today than there's ever been. And I think that's a good thing. You know, a lot of people in the venture business or the people who give us the money, you know, think there's too much money.

And maybe yes, but the reality is like what's good for founders is good for the venture business. I just kind of believe that as like a fundamental truth. So there's a lot of money out there. The traditional angel seed, early stage VC, then growth VC market, I think the explosion of capital is probably more in the later stage, you know, with the soft banks and Sequoia going out and raising however many billions they raised and so on and so forth. And I think that if anything, there might have been a slight contraction in seed and Angel and early stage money in the past few years.

But I think that what's interesting about crypto, so first of all, you know, there's a lot of people who went and, you know, used tokens or just a crypto business plan or a business model to go tap into like a lot of new money that was showing up in the world of crypto. And I think that that may, you know, certainly in 2017 and even now,

there's a lot of that money sloshing around. But I think what we're really seeing, and I'm an optimist here, and I'm hopeful about this, is that we're seeing a new capital market being built. We're seeing a new way of raising capital that's global from the ground up, that's not subject to these, I think, antiquated laws around who can invest in startups and who can't invest in startups. And just unleashing the startup capital markets, to be global and anyone can play is great. It's a huge innovation, right? And I understand there's people out there saying there's going to be scams and, you know, people are going to invest and

lose all their money. And I get all that and I realize that that's not all good. But in general, I think that making it possible for everybody to invest in these, you know, high growth opportunities is good. And I think it's good for founders that the capital markets for what they're doing are going to continue to grow. I mean, the fact that today you have to be literally a millionaire to invest in startups, right, to be an credit investor. If you actually participate in an ICO, it's very complex, right? You need to download, like, a wallet.

You have to, like, put in a long hexadecimal address. I don't, I mean, and I have pretty, pretty sure that almost all the people that participate in those things were technical people that were into crypto. I mean, the vast majority were. And those are people like, and I just said, like, anecdotally around Silicon Valley, These were like programmers who were very sophisticated, who understood exactly what the technology was, who were not maybe not accredited investors, and who felt like now they finally found a market where like they understood the product. Right. I mean, they were customers of the product.

They were literally protocols built for developers and they would use it. And they could participate in this. And the idea that, you know, a non-technical wealthy person is able to invest in that. But this programmer who really deeply understands the protocol is not just seems strange, right? Very strange. And wrong. The other thing is, you know, if you were an early user of Facebook, you might have said to yourself, oh, my God, this thing's going to be huge, right?

It was, so let's say that was 2003 or 2004 or 2005, whenever that was. When did Facebook go public? 11, 12? Right? So it was like seven years before you could eventually become a shareholder on Facebook. But if you're an early user of Bitcoin, you had Bitcoin day one, right? So like what's great about crypto is that I think it allows the early adopters to not only be users, but also participate financially if they want to. If they want to hold on to their Bitcoin and go along for the ride, they can do that.

And that's why I think this token business model is so exciting is that in a way it kind of takes the world of investing and the world of using and combines them. And like there was this, I read this blog post last week about like there's two parts of crypto. There's the money part of crypto and there's the utility part of crypto. Tech and money, I think. Yeah, tech and money, right. And like the money people are like Bitcoin maximalists and they're really focused on hard money. And the tech people are Ethereum maximalists and they're focused on, you know, DAP platforms and smart contracts and all that. I don't buy that at all.

That to me is, I mean, I'm not arguing that that's what the world is today. I think that, I think that is Eric Tornberg who wrote it and I thought it was very insightful about where we are in crypto right now. But I reject that idea. And I think what's powerful about crypto is that they're the same thing. That using and investing are the same thing. And you don't have to be a user to be an investor. And you don't have to be an investor to be a user. But if you want to be, you can be both.

And it's just as easy to be, like, it's just easy to be both, right? And that I think, it's just not right, particularly for a lot of these businesses where the user is the product, right? Facebook users made Facebook. Twitter's users made Twitter. You know, YouTube users made YouTube, right? It's just not right that the people who make the product have no participation in the value of appreciation. And beyond that, right, to me, to me, one of the great tragedies in the history of the technology industry is that what happens in, there's a sort of life cycle of every network, right?

But I use the network in a very broad sense. I think Windows is a network, right? So it's a network between developers and users, right? And there's a life cycle, right? And they start off. And at the beginning, there's sort of this, you know, the network, the platform, wants to attract everybody and they play very well. And so they, you know, they provide tools for this third-party software developers.

Facebook early on says, hey, media companies come work with us. You know, they're solicitous. And then over time, you know, that you hit the kind of growth peak and everyone, it's a party and everyone's having a good time. And like, you know, if you're growing 100% year every year, you know, you don't worry too much about stuff. And then eventually the top of the S curve comes, right? And then it becomes, that's when things get ugly. And that's when, and it's not, and I don't blame any of the management of these companies or the boards.

I think it's just the logic of the business model. The logic of the business model is sort of, it forces them at that point when things start to slow. Like Google, like Google search. Like if you look at mobile, like, it's hard now. You get all sponsored links on mobile. They just keep adding more sponsored links. You have Yelp going up in front of Congress and doing it. Like when it's the growth period, hey, great, we'll have two, one, one little ad at the top.

And like, you know, but over it's, when the pie's growing, no one's fighting over the piece of the pie. When the pie stops growing, people start fighting over the piece of the pie. And then what happens is these networks have these kind of internal battles, right? And those are the most vicious battles. Like, that's the funny thing about tech. I think that, like, people outside of tech don't. So traditionally in economics, people think of substitutes as the competitors, right? So the hamburger and the hot dog are the competitors.

Whereas in tech, actually, the hot dog. and the hot dog bun are the ones that have the most vicious fights. Microsoft Netscape, you know, Facebook Zinga, like Twitter and the Twitter apps or whatever, right? Because like with Twitter, it just feels kind of tragic to me that you had this giant developer ecosystem that was trying to make the protocol proliferate. And they could have worked together in concert. And it could have been a much bigger and more impactful platform. But the logic of the business model, the ad-based business model, said, we need to control the experience.

We need to control where the ads appear. we need to like, et cetera, et cetera. Again, not placing blame on anybody. It's the logic of that model, right? Well, look, I mean, you know, I did live through that period, and I was on the board of the company during that time. And I very much wanted to see an open platform. I mean, if you read the blog post that I wrote when we invested in Twitter, it's still on USB.com. I wrote about the API and the open ecosystem and all the stuff that was getting built on top of Twitter.

That's what I wanted Twitter to be. but we had an advertising attention-based business model. And the truth of the matter was, there were other people who were out there running around buying up third-party Twitter clients. And inside Twitter, we saw that. And we're like, we can't have that, right? We can't let somebody go get half of our user base by acquiring all these third-party clients and then taking them onto a new network.

And then we've just lost half of our users, right? particularly when we have a attention-based business model, right? If Bitcoin and tokens had existed in 2005 instead of 2009, I think it's very possible that Twitter could have adopted a token-based business model, left the protocol open, Twitter could have been the protocol, and the third-party clients could have been the clients on top of the protocol, and it could have worked beautifully. And, like, part of me just wishes that we could have done that.

and then we could have seen how powerful this new business model is. We're going to see it. Eventually we're going to see it. Someone's going to do it. And we're going to be like, holy fucking shit. Well, and the thing you'll have is instead of the fighting, right, you'll have this beautiful alignment between the core protocol, all of the third-party developers, all of the users. And by the way, the other thing you didn't mention when you mentioned the Bitcoin users, not only do those users own Bitcoin and participate in it. They also probably, by the way, disproportionately have Twitter followers, Reddit Karma, hacker news, cred, whatever that's called. Google Juice, right? And they're out there like talking about it and marketing it. And so you

have this army of users, miners, developers, core protocol developers, all fully aligned. Right. And all, and by the way, and control and probably very powerful, relatively speaking, on the most important marketing medium of the, you know, the internet. And it's just a very powerful combination. I think that's very, by the way, I think that's a wonderful thing. I think that's very scary to a lot of the people whose jobs it is to regulate and protect the capital markets because they're looking at that and they're saying there's all these people who own a lot of this thing and they're out there promoting the shit out of it, right? The truth of the matter is, though, most of these people are not pumping and dumping. The truth of the matter is mostly

people are true believers, right, who have held all the way through. Once my money gets into the crypto ecosystem, it's going to stay in the crypto ecosystem. It might, I'm definitely going to be playing around on all these networks and using them and staking and doing all this incredibly cool shit that you can do. But that wealth that I took out of Fiat and put into crypto back in 11, 12, 1340,

it's not going back that way. Let me try this out. I have this theory, see what you think of this theory. I have this theory that we are in the middle of a transition period where the digital world is becoming more important to the point. But we're in a transition period in the sense that we still, it's even in our,

we still, we still think of the, the, the, the, the, the, the,

the, the, the, the, and, and, and, and, and you see this, by the way, in all the critiques of Bitcoin, for example, oh, like,

in the end, a lot of, like, the, you know, traditional economists critiquing it, it boils down to, oh, it's this, it's fake money. It's, it's, it's digital,

therefore it's fake, right? And, like, for example, like, to think that gold, which, you know, has whatever, besides out of dental and speaker wires and it has no real utility, like to think that that has some kind of like ontological, like higher status

than a digital good is, I think, evidence of this sort of offline bias, right? And like, and I think you hear it, by the way, I notice is whenever people use the language, e-sports, right? Notice e-commerce. Like when you have to preface, the online one is the one with the modifier, right?

Right. Right. And so at some point, by the way, these things will flip and it'll be like, that's commerce and then there's offline commerce, right? that the predecessors to Bitcoin were called e-money. Yeah.

And there were a lot of predecessors. And whenever you have a modifier on the thing, you know that people think it's subordinate. Right. But eventually it'll flip and it'll be like Amazon is commerce and Walmart is, oh, yeah, it's like, you know, meat space or offline commerce or IRL commerce or whatever they're going to call it. So I think we're in this transition period. And it's funny, too, because, like, you know, Fortnite made $300 million last month on dance moves, right?

E-modes. Right. And so digital goods have become a massive industry, for example, in video games. and and and there's digital resources, domain names, you know, I've always bought, I've, I've been a long-time collector of domain names. I'm like, look, it's a little piece of the internet. Like, of course it's going to be valuable. And I've always wanted them and I hold on to them. And, and that's a multi-hundred million. I've never sold any of those either, by the way. I never sell a domain, you know? I feel like, it's all, I mean, it's the internet, you own a piece of the internet.

It's like owning, it's like owning real estate around Central Park or something. In a way, this is like religion, right? Like, it's like, you know, I would never, ever sell a domain. I might swap a domain. Like if you said, you know, hey, I've got, you know, ABCD and I said, well, I got, you know, we might swap it. Oh, yeah. Never, never sell it for dollars. So I think that we're in this transition period where we're still kind of like anchored on this sort of thing of like, well, it's not real. Right.

But it's going to be obvious 10 to 20 years from now, especially as like the newer generation kind of grows up. And just, of course, like, of course an E mode is worth more than a, you know, offline equivalent or whatever. And that it's going to be, and these words are going to, and the language is going to change with it and just the whole kind of way of thinking. about it and there's not going to be this weird thing like oh it's digital it's not as right right you just what I'm saying though like and I think like e-sports is a great like the other thing I think about it's like a lot of like I remember a lot of times in the history of tech like mobile 2011 or 12 it felt like mobile was definitely growing but I don't think at least for me until like maybe 2012 I didn't realize it had actually replaced desktop there was a moment at which it was sort of like wait a second this isn't just like a big thing this is this is the

thing right you know what I mean and and you realize now in retrospect that we thought we were in kind of this period, but we're actually in this hockey stick. Right. Right. And I think that sort of, I believe, one of my theories is we're in this, like, so take e-sports as an example, I think we're in this hockey stick right now with e-sports, like video games, it's just going to be obvious that, like, it's going to seem, I mean, I think it's always great that people play physical sports.

I'm not anti-but. But, you know, it'll be like horseback riding, vinyl records, like, you know, a whole bunch of other kind of. I think, I think this is where what geeks call NFTs, non-fungible tokens, you called, I think you just call them digital goods. Crypto goods. Crypto goods. I think the innovation here is that these digital assets can be scarce, can be one of a kind.

The reality is, like, we've never had the ability to make a digital good non-replicable, right? And that's, I think, what, you know, has held back a lot of the business models around digital goods is just like if you had an MP3, you could give it to a million people. If you had an MPEG, you could give it to a million people. So I was explaining this to somebody last week who's trying to figure out, you know, crypto. And I said, you know, think about all of the digital goods that you earn in a video game, right? And you spend, you know, you're obsessed about this video game for like six months and you collect all these incredible video, but they're stuck in the game. Like imagine if you could take them out of the game and you could put them in your wallet or think about just like your bank account right and then another game comes along and you

could literally take them to another game and this person who I was talking to who was a skeptic like a fucking skeptic like you wouldn't believe he's like holy shit my 12 year old would just be all over that like that's that's like you have just given my 12 year old his like nirvana I said but but that's what we're doing here like that is that's where we're going I think I think games will be the first to adopt this stuff because they, uh, they just tend to be very kind of fast cycle time experimental. But also, no, no, it's not just that. It's also who's playing them. It's a, you mean the kids, the kids that are sort of more open to new tech. Yeah, they, like, them, like, tell a kid to download, like, an Ethereum wallet that has NFT capability and, and move their games

out of Fortnite into their coin-based wallet or, like, that's not going to get in the way. But I think the other thing with NFTs that excites me is, I feel like this should be a wonderful time in history for creative people with 4 billion smartphones and the ability to just sit down and write something and create a piece of music and from a business model perspective it hasn't been and to one of the things that's really exciting to me

with the NFTs is if you let's take music as an example right so mostly like selling the song itself has become a not great business model and so a lot of musicians have moved to they go to where the scarcity is right and the scarcity is offline and so it's shows and merchandising and so one of the really

exciting things to me about NFTs is the idea that you can reintroduce digital scarcity and have whatever exclusive album art exclusive whatever maybe this is to me it seems like a very promising new business model not just for games but for writers for musicians for you know whatever you know filmmakers video makers um it reintroducing scarcity allowing kind of business model innovation um i mean game well the cool the cool thing is it it it doesn't have to be um that there's only one of them, it could be that there's a million of them, or in the case of Bitcoin, 21 million. We still haven't mined all the Bitcoin, and we're nine years into it now, right?

So, like, imagine if you made a song, I just came up with, I think, a pretty cool idea. Imagine if you made a song, and there was 21 million listens to it, and you had to mine the listens, right? Like, but it was going to take maybe five or ten years to mine all those listens. You know, actually, you get 21 million listens pretty quickly on the most popular songs. But, like, imagine if there was some mechanism of releasing a piece of art or a piece of music that felt more like mining Bitcoin than it did. You could never do scarcity. There was no way to ever do that. I mean, they tried with DRM and things like this, but this is always a...

But the point I'm trying to make is, like, I don't think necessarily for the artist the move is super tight scarcity. I think the move might be pretty loose scarcity, but still some scarcity. And the only thing that's cool that's happened with Bitcoin is the value has risen over time. And I know that's come down recently, but it's mostly risen over time as we've started to mine more and more of it. So we've never seen, well, you have seen that a little bit in art. Like certainly physical art, that's what you do see. But, you know, I don't have a crystal ball view of how this is all going to go down. But I definitely think that the move is not.

Like, one of the things I learned really, like, almost like painfully. was that when we first started investing in the internet in 94, 95, 96, what we were doing was dumb. We were just basically investing in things that had existed in the offline world that were getting moved onto the internet. Like, okay, so let's invest in an online newspaper. Let's invest in an online store.

Let's invest, you know, like, but that's actually not the move. The movies, you've got to find the native thing that needs to happen now that you have this thing. It's funny, every form of media, you go back and you look at the early movies and they were plays. Right.

And they were trying to film to play. And then later on, they're like, oh, we can do a close-up. We can do an establishing shot. We can do this. We can do that. And they just develop a new grammar. And then there's sort of the, there's like the movie native movies or something. Right.

I think it's a very common pattern throughout. So I think with digital goods, with music, with film, with art, like, I think. It will be some cryptonative thing. It's not to make, I don't think it's to make like a limited edition piece of your art, like, that there's going to be ten of these. I think it's something that's more like the way Bitcoin has happened, where it gets mined over time, released by engaging. Something you could never have done before as opposed to a direct kind of whatever, just

like porting over some concept from the non-crypto world. That's why I don't love when when entrepreneurs, founders come to us and they're like, we're going to take mortgage-backed securities and put them on the blockchain, or we're going to take, like, they're really, a lot of people are interested in taking things that exist in the physical world or the existing financial world and putting them on a distributed to ledger. I mean, I think that that's, like, I think there is some incremental value to doing that. But what I'm much more excited about is people creating brand new things de novo from scratch on these crypto networks that never existed off the crypto networks, couldn't have existed off the

crypto networks, and always will live on the crypto networks. Like, to me, that just seems like a 10x or 100x better idea. Yeah, like Dow's is a good example. So it's like autonomous organizations, right? this concept, which is now, it kind of fell a little bit to disrepute because of this thing called the Dow, which was kind of mismanaged. It's unfortunate that they named themselves after the big idea. But this idea that you can, I mean, to me, it still blows my mind that you just look at any of these interesting solidity contracts. And it's just, it's code running on the internet. No one can, you know, once the developers have shipped it out and taken off all of the like, you know, the, you know, the controlling kind of code. It's just literally a code that exists out.

It's autonomous code. And it's got to sort of, it's its own little organization, right? And these things will get more and more sophisticated. And this is something they could never exist before, right? Like Numeri is one that you guys are involved in, for example. People think that Numeri is a hedge fund powered by a crowdsource network of data scientists. And it is. But I actually think if you really try to understand what Richard's doing, I think he's playing around with staking.

Staking is a really powerful idea. I mean, it's existed forever. I mean, if you read Talib's new book, it's really all about skin in the game. It's about staking. But I think that we're going to see a lot of really innovative things being done with staking because I think crypto tokens make staking super easy to do. And there are, like, I think Richard's idea is that if I can get data scientists to stake their models, to put skin in the game against their models.

I'm going to get much better models than if they just throw them up against the wall. So I just think we're going to see a lot of innovation around staking, around governance, you know, on-chain governance. Is that going to work? I don't know. I think, like, part of me says it'll never work,

and part of me is like, I hope it does work. Obviously, we're both excited about crypto. How long, and then there's all these great ideas floating around, but it's early. You know, how long do you think? it'll take to play out to sort of, I mean, it'll obviously hopefully take many decades, but like when will we start to see meaningful applications used by people beyond the kind of crypto enthusiasts?

I think that we've got to fix, it's the broadband issue, we've got to figure out how to get crypto networks that are truly secure and decentralized that can handle much higher transaction processing speeds than what we have today. It's, I think it's, to me, it's a, it's, think of the crypto network as a computer. Right. And the computer has different design criteria. It's very different than traditional computers to network, right? But, but in, you know, the consensus mechanism, et cetera, makes this abstraction.

It's a computer on top. And you need trust. You need developer experience. You need scalability. And, yeah, it's like we're internet pre-bodband. We're mobile phone, pre-Iphone. Exactly. Like, remember when, like, remember when the people were building like, what were the

called, was it was like WAP or something? There was like some standard for building applications on. I had this poor friend who was like into mobile from like the 90s. And I think he like gave up in 2006. It's like it's never going to happen. That's what we are. We have not had our iPhone moment in crypto. Yeah.

And like that's what I'm waiting for. And you know, it doesn't have to be totally decentralized. There's this whole narrative around like, you know, where on the decentralized curve is enough. I just think, like, decentralized means that nobody controls the network. And that's kind of, to me, fundamental. To me, it means trust. And it goes along with nobody control. Like, you trust the network.

I trust that if I have this NFT, I really have it. Right. And no one can take it away. No single person can take it away. No bad system engineering can take it away. What's the quote, like, power corrupts, absolute power, absolutely corrupts, or whatever it is? But, like, you just said, like, when Facebook realizes that they've got the keys at the castle, you're going to start to extract rents.

Like, it's just, it's just, it's what happens. So that's why decentralization is so important. And so I think you got to, we got to have a crypto network or two or three or four, 10, who knows, that is truly decentralized, truly secure, and can process transactions at the speeds at least of like an ATM network or something, you know. We don't have that yet. Yeah. So that we need that. And then, and then it happens over.

So whenever that happens and then hopefully we have the five to 10 year kind of immediate explosion of apps the way you did with the Internet and mobile and then a long tail of kind of further innovation. Definitely. That's what I see. And that's why largely we're not investing in a lot of DAPs. I mean, we are playing around with NFTs and games for all the reasons you raised. I just think that's the first place that we might see it. If you go back and look at the history of infrastructure, sometimes it's the apps that demand the infrastructure. And then the infrastructure gets there because the apps demand it. So games, in a way, games might make it such that we get the crypto network we need, right? What's a good historical example where the app demanded? I think actually, by the way, games have driven, for example, games have driven GPUs. So just like that market is one where the gamers have been.

endlessly hungry for more polygons. And that created this kind of, you know, invidia and this whole industry around it, which then had these interesting, you know, then, of course, spun out the deep learning movement, right? Well, I mean, it may be a good example. Like, a lot of interesting core infrastructure came out of Netscape, right?

Why did Nescape have to build it? Because it didn't exist. So we... Right. But if you go all the way back to, like, where we started, I think we are maybe in the most interesting time I've ever seen in my 30-year career, but it's not at the surface, right? It's like under the water.

And you're not getting rewarded very much as an investor for being, you know, super bullish. Last year was great. Like, everybody wanted to own crypto, but I think that was kind of like a wave, and it's certainly come and gone. I don't think you're getting rewarded a lot for that, and you are getting rewarded a lot more for, you know, the more operational execution-oriented stuff like Enterprise SaaS and things like that.

But I think what's super interesting is the stuff that's going to start bubbling up, and that's where my head's at. Awesome. All right. Thank you.