The a16z Show - a16z Podcast: Tech's Biggest Ideas and How They Take Hold -- With Marc Andreessen and Dan Siroker

Starting point is 00:00:00 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. For more details, please see A16Z.com slash disclosures. Welcome to the A16Z podcast. I'm Michael Copeland. Google, eBay, even the web itself. In the beginning, all of these things appeared as point products. interesting in their way, but small. Of course, in the end, they weren't. There is this swallow the red pill moment that happens, Mark Andreessen says, where you realize something really, really big is going to happen. Optimization, the relentless improvement of everything,

Starting point is 00:00:48 is another one of those ideas. At first it's like, okay, you can make these websites a little better, mobile apps a little better, and do this, and conversion rates and so forth. And then you realize, wait a minute, like, you can make everything a little bit better. Basically, everything in the world can be made better. And so everything, like everything, every experience consumers have can be made a little bit better. Every experience that people have in the workplace can be made a little bit better. Every experience people have when they're traveling can be made a little bit better.

Starting point is 00:01:14 And you make everything a little bit better kind of all the time and basically the entire world gets better. In this segment of the podcast, Mark joins Optimizely CEO Dan Soroker for a conversation that covers a huge swath of what's most exciting in tech today. the spread of optimization tools, privacy trends, artificial intelligence, virtual reality, Bitcoin, and killer robots. It's all in there. There's going to be all kinds of things in the world 50 years from now that today we think of as weird and strange that we're going to just take for granted. And we're going to be, you know, us and our kids and grandkids are going to be thrilled that we have them. All that in this segment of the A16Z podcast and why Donald Trump's hair could use some AB testing. Dan Serroker gets things going.

Starting point is 00:01:57 You know, we here are all big believers in optimization. This is Opticon. And we'd love to hear, you know, we'd love to hear from you, you know, what do you like about optimization? In particular, why you invested in Optimizely. Yeah. So we invested in Optimizely, how long ago, not 18 months, 24 months? A couple years ago. Yeah, about that.

Starting point is 00:02:16 Yeah. So there's really two big reasons for it. And I'll just, I'll brag on Dan and his colleagues, which is we're in a people business. And we back amazing people. And amazing people attract amazing people. And so the team that optimizes is built and this event and the enthusiasm, you know, and here and everything just, you know, speaks just, you know, volumes about, about how exciting I think this company is. And then the other part is the idea. And we have this sort of theory.

Starting point is 00:02:42 There are these ideas, you know, there are a lot of ideas that, like, seem like really big ideas at first. And then sometimes they work and sometimes they don't. And then there are these very special ideas where they kind of start out looking, you know, they kind of start out looking like a point product or a point thing. and then there's kind of this swallow the red pill moment that happens or you kind of like realize, oh my God, like something really, really big is going to happen here and you kind of come out the other side going like this is going to be one of the really big things. And, you know, in the history of our industry, like I would say Google was one of those, was one of those where it's like, you know, at first it's like a lot of people's reaction to Google early on

Starting point is 00:03:14 was like I searched the Internet, like is there anything on the Internet? Like, what am I going to get? Is it all just cat photos? And then it turns out right now it's like all the world's information and you can answer any question any time for free. eBay was one of those, right? In the very beginning, it was like, you know, pest dispensers and beanie babies, and it's like, I don't know how many people are going to want those things.

Starting point is 00:03:33 And then it turned out to be the world marketplace for everything. And so what we basically figured out, or what we believe is optimizely is one of those ideas and optimization is one of those ideas, which is at first, it's like, okay, you can make these websites a little better, mobile apps a little better and do this and conversion rates and so forth. And then you realize, wait a minute, like you can make everything a little bit better, right?

Starting point is 00:03:51 basically everything in the world can be made better. And so everything, like everything, every experience consumers have can be made a little bit better. Every experience that people have in the workplace can be made a little bit better. Every experience people have when they're traveling can be made a little bit better. And you make everything a little bit better kind of all the time and basically the entire world gets better. And so if you can, you know, if you can take, you guys see this in your day jobs, is you take, you know, 1% or 2% or 3% out of this activity that, you know, 10 million people do. And like that turns out to be a lot of time, right?

Starting point is 00:04:22 Or you make the experience a little bit better here and a little bit better there. And then you magnify it out across, you know, all these users, all these, all these clicks, all these points of engagement. And everything gets better. And so I think this is this is a company that may have, you know, kind of the most leverage maybe of all the companies who've invested in, which is it's sort of an opportunity to make the whole world better. Thank you. Sure. I like when you said, every experience can be made a little bit better. And we do believe we've built a platform that can help this group do that for the,

Starting point is 00:04:49 their customers. And today we launched personalization, our second product. And in that, there is a obvious transition to using more data about an individual in a way that might be infringing on some of their privacy. And I'd love to hear

Starting point is 00:05:05 your thoughts on how this group, our customers, can, at the same time, give a better experience, a little bit better experience, but at the same time respect their customers' privacy. Yeah. So privacy is one of those topics that's become a hot topic in the world. And it kind of, I got to admit, it kind of snuck up on me, kind of by surprise, because I grew up in the rural Midwest.

Starting point is 00:05:25 I grew up in rural Wisconsin. And I would say in an environment of almost total privacy, which is like nobody had any idea who I was. And nobody cared. And, you know, very little connectivity. And a lot of people here are old enough to remember the days of, you know, it's like, okay, I want to watch TV. Okay, there are three channels to pick from. You know, there's no, like, micro-targeting of, like, video content.

Starting point is 00:05:46 It's like, you're going to watch what's on ABC that night. And so, you know, when you deal with institutions, you're dealing with the government or you're dealing with banks or something, it's this sort of impersonal interaction where they don't know much about you and it frankly comes across because they don't care that much about you. And so, you know, I've always just had kind of the default view that if you, if businesses in particular know more about their customers, they can provide a better kind of experience. And then you look at these things, you know, there's a lot of, you know, kind of drama around like, you know, privacy of your Google searches or privacy of your Facebook

Starting point is 00:06:18 graph or whatever. But as a user, you know, there's a lot of, you know, there's a lot of user, it's great, right? The utility from making the trade and basically contributing personal information, the utility you get as a user is just absolutely enormous, absolutely tremendous. And so I think, you know, the dominant thing that's happening is the idea of privacy basically gets redefined, right? And it gets redefined from kind of maybe old ideas that maybe nobody knew much about anybody to, you know, new ideas in which maybe the world becomes significantly better because there's more transparency. And so, you know, I think this debate's going to play out. I don't think there's a single answer to this.

Starting point is 00:06:50 I do think that sometimes privacy advocates kind of stereotype this thing as if the world's going to be kind of abstractly better if there's more privacy. I think in reality there's always this privacy utility tradeoff. And then I think what happens is younger people, and you see this in all the usage data, younger people, younger consumers coming up, just have a different view of privacy, right? And so, you know, of course, like everywhere I go and everything I do, I take photos and I put them on Instagram. Like, to not do that, you know, I'd be making myself a social pariah. right? Why would I choose to not participate in this?

Starting point is 00:07:20 You know, of course I'm going to use Foursquare to be able to like navigate through as I go around a city. So, you know, and maybe, you know, I want all my friends to be able to see where I am so that we can have more meetings when we happen to be in the same area. And so I think there's a generational thing that's starting to play out where I think new generations of people have new expectations of the benefits of being connected as opposed to the benefits of being private. Yeah. So if the younger generation has a different view of privacy, if you had to forecast five, ten years or twenty years down the line, is privacy? dead? Is the concept of privacy antiquated? Yeah, so I don't think so. My friends, you know, Scott McNeely, you know, like famously years ago kind of, you know, got headlines. He said, you know, privacy's over. You know, privacy is

Starting point is 00:07:57 dead, get over it. I don't really believe that. And I think you also see this when you, when you spend time with young people, which is, I think we just need, we need to give people control. And you think we need to get people control over what they share and what they don't. By the way, I think the flip side of privacy, right, the flip side to sort of privacy to things opening up. The flip side is we have these technologies, especially encryption, we have technologies to be able to keep information safe and secure. Arguably, one of the big problems of our time is that those technologies actually aren't being used. There was actually a, this very fascinating kind of hack security breach that happened to the government about two weeks ago,

Starting point is 00:08:33 came out, it turned out this government agency called the Office of Personal Management. They basically have all of the employment files for all federal government employees, including, and this is the scary part, they have all of the federal top secret clearance background checks, which is basically hundreds of pages for everybody who's ever worked for like the military or intelligence agency where they've got like all the dirty secrets, like everything they've ever done in their life that would be embarrassing. The government finds out about this as part of the clearance process. And somebody broke into these servers and stole the personnel files for 4 million Americans. And the head of the agency testified before

Starting point is 00:09:09 Congress yesterday. It was asked. you know, why didn't you encrypt all this information? And she said, well, you need to understand, you know, these are 30-year-old computers running COBOL. You know, they don't make encryption software for COBOL. Like, you know, the old systems literally cannot support encryption. Whereas with modern computers, whether it's your smartphone or whether it's the server in your business, you can actually encrypt everything.

Starting point is 00:09:30 Like, you can actually keep everything under very tight control. And so I think there's going to be this, I think there's going to be sort of opportunities of both sides, opportunities to trade privacy for convenience and utility, but also opportunities to use technologies like encryption to be able to take other things and make them more secure and more private. And so I think it'll actually, there will be advances happening on both sides. Yeah. So it sounds security is a key part of this question around privacy. Yeah, I think people just need, people need to be in control. People need to be able to make the decision and make it in a conscious way. That's great. So another thing I said this morning was

Starting point is 00:10:02 that we believe that our job is to build a technology that does what it's good at. Statistical inference, number crunching. The group here, this, their job is to do what they're great at. And it comes down to basically asking the right questions and their creativity. So as we think about that, we think of that as a symbiosis, that we do what we're good at, they do what they're great at, and that's what turns into great experiences. But if you think further down the line, if you think about the advances in artificial intelligence, is that going to be true forever?

Starting point is 00:10:32 Is there going to be a moment where everyone in this room is replaced by a computer? Including us. Including us. Yes. There was a venture capital firm in Hong Kong. They got headlines recently. appointed an artificial intelligence to their investment committee. And so we got a whole rush of calls from reporters saying,

Starting point is 00:10:46 are you guys going out of business? You're going to be replaced by robots? And at least so far, we're okay in case anybody's worried. So I think the whole, it's actually really kind of interesting. There's this whole debate now around AI and about, you know, this sort of prospect. In fact, some fairly prominent people, including Bill Gates and Stephen Hawking, have been kind of going out basically saying it's time to start getting scared of the robots

Starting point is 00:11:09 coming to first take your jobs. I guess, eat your children. And it's sort of this very dark kind of, you know, science fiction movies. It's Terminator and it's, you know, Terminator, I guess, you know, Terminator, Transformers, depending on how old you are. You know, it's kind of this very dark vision of like we're building these machines and then at some point they're going to turn on us and kind of artificial intelligence is at the core of that.

Starting point is 00:11:31 Well, let me start by saying, like, I don't actually know, like I fund advanced technology companies for a living. I have not yet found the company that can build like the killer robot. if I did we'd probably fund it and so I would say we're frustrated more than anything else that we can't actually find the people that know how to... Step two, killer robots.

Starting point is 00:11:50 Okay. Yes. Step three question mark, step four profit. So I think it's just, I frankly think it's just sort of a broad-based misunderstanding of the technology. What we do, what we all do, what we all do here,

Starting point is 00:12:08 and what we all do in Silicon Valley is we build tools. Like, fundamentally what we do is we build tools, and we build tools that people use. And, you know, there was a time, and the tools always are scary when they first come out, right? And so, like, you know, the car, there's these really interesting history is, like, the car was really scary when it first came out. And, in fact, the car was so terrifying when it first came out.

Starting point is 00:12:27 People got so freaked out by the idea, like, this mechanical beast, you know, sort of a mechanical horse that would be kind of, like, rampaging through towns and running people over because cars at that point were going, like, 15 miles an hour, and that was really fast. and so there were actually these laws passed at the time it was like 120 years ago now these laws passed at the time called red flag laws and basically it was the only people who could have cars were rich people because you'd be driving your car you'd be out for a ride in your motor car

Starting point is 00:12:50 motor dash car was what they called it and then you'd of course have to have your mechanic in the front seat with you because the car would break down every two or three miles and then you'd have to have a third person who would walk 100 yards in front of the car with a red flag waving the red flag warning people that the car was coming. In fact, another part of the panic at that point around it was in Pennsylvania they passed a law.

Starting point is 00:13:12 They were worried that the cars were going to traumatize all the horses. And so they passed a law that said if you were driving along in a car and you saw a horse coming, you had to get out of the car, disassemble the car, and hide all the parts behind the nearest bush. And then the horse would go by, and then you could put your car back together and get back on the road. So these new technologies kind of always seem scary. And then what you realize is they help people. Like, they help people. They help people do their jobs.

Starting point is 00:13:37 They help people make better decisions. They help people get work done. They help people do things that were never possible before. And then you start thinking about all these different examples. And, I mean, it's obvious if you're a cop, like, your best friend, if you're a cop now, or sort of work in the military, your best friend is like the bomb disarming robot. And, like, what a great idea that you can, like, actually send the robot to disarm the bomb instead of having to do it. Another example of what's called AI, sort of neural networks, expert systems,

Starting point is 00:14:03 that's getting very exciting as medical diagnosis. And so in the medical profession, there's this big debate right now, right? Doctors have always, you know, doctors diagnose. You go and you see the doctor and he looks at the scans and you're she and, you know, they make the diagnosis. There are software systems now, expert systems that through algorithms can make diagnoses. They can analyze the scans and everything and they can tell you. And in all the studies that have been done in the last like 20 years, the expert systems make better diagnoses than human doctors. And in fact, there's these tests that they do where human doctors actually, the same doctor, given the same doctor,

Starting point is 00:14:34 given the same information, six months later, we'll often make a different diagnosis. Because humans are subjective, and it's all interpretation, it's all this stuff. And so the question I always ask is, if you're going to go to the doctor, right, and you've got these opinions about, like, people are better than machines and you don't want AI to do everything, if you're going to go to the doctor and you might have something

Starting point is 00:14:50 serious, and you know intellectually that the machine is going to do a 30% better job of diagnosing, you're probably going to want the machine to do the diagnosis. And so I think we just, we all vote with our feet on this stuff, which is we build tools, tools make life better, tools make people more productive in business, tools make life better for consumers. And I'm an extreme optimist on this.

Starting point is 00:15:10 I think we just make better and better tools all the time. And the tools help us as humans magnify our abilities. They don't take away from what we can do. They help us do more than we could possibly do before. And I think that's what's been happening, and I think that's what's going to continue to happen. But if I find the killer robot startup, I'll let you know. Okay. All right.

Starting point is 00:15:29 Yeah. You said that obviously when new technologies come out, they can be scary. like the car, and there's often this broad-based misunderstanding of that technology. One of those technologies where that may be true today is Bitcoin and cryptocurrencies more broadly. And I've heard there's been discussion of it being similar to the way that the internet

Starting point is 00:15:50 was talked about when it started, and you were there, you started the internet, and I wanted to know if what the world feels like now with regard to Bitcoin is how it felt back when you started Netscape. And if you could also help this audience maybe be a little bit less scared of this technology. Yeah, yeah. So Bitcoin is a classic example of this.

Starting point is 00:16:09 And so if you read the press about Bitcoin, like the entire thing is a disaster, right? So it's, you know, by definition, like it's only for terrorists or criminals and for bad people. And, you know, along the way, it's gonna like, you know, make the, you know, just gonna run the, basically put the entire banking system into the ground and it's gonna, like,

Starting point is 00:16:24 revoke national currencies and countries are gonna collapse. And it's like, it's just all absolutely horrible. And then there's the reality of what it actually is. And so what Bitcoin actually is it's a new technology it's actually very analogous to the internet it's a new technology that basically makes it possible for people to do to business online with each other in an environment with lots of hackers and lots of threats but be able to do business with each other in a way that

Starting point is 00:16:47 establishes and maintains trust and a lot of that has to do with a lot of that it's not just financial transactions but financial transactions are at the heart of that right and so how do you send economic value how do you send money from person to person in a sort of internet way, which is still a challenge these days. And then for that matter, other kinds of digital assets. And so, you know, digital keys, digital contracts, digital signatures, digital stocks, bonds, insurance agreements, like all kinds of digital assets can basically, Bitcoin is basically a platform to be able to exchange those in a trusted way online. And, you know, this is an extremely

Starting point is 00:17:24 powerful idea. Like this idea is very powerful. The technology is very powerful. And this will be a big deal. What's interesting in the reaction to it is that, that the way that basically people think about it in the U.S., for example, is they look at it and they're like, well, why would I use Bitcoin if I could do like a credit card transaction, like, you know, with Visa, or why would I use Bitcoin instead of using U.S. dollars because we have this currency U.S. dollars that works pretty well, or why would I use Bitcoin instead of a bank, you know, like J.P. Morgan Chase. And so we kind of compare this new thing to these things that we already have. What I've been interesting about that is that, you know, technology now,

Starting point is 00:17:57 right, smartphones, the Internet is getting to everybody in the world. And so, and so, and so, Basically, you live in a world where basically a lot of people now around the world are getting smartphones before they have even running water or electricity. And all throughout Africa, Southeast Asia, Latin America, and all these places, there's this amazing adoption of this new technology. And when it comes to financial services, in most of the world, people don't have stable currencies, right? If you live in Argentina or Venezuela, you don't have the same view that you trust your local currency the way that we trust the dollar, right? In fact, quite the opposite. You probably have hyperinflation, you have capital controls. you probably don't have a payment system the way that we have working here,

Starting point is 00:18:36 and you probably don't have a banking system that works the way that we do. And in fact, the big challenge for a lot of people around the world is how do they ever store value? Like, how do they ever actually keep value and not have it get stolen off from under them or have it get inflated away from them? Or how do they ever do business without middlemen, you know, stealing money in the process? There's this great story in Afghanistan. There's a huge problem with, you know, Afghanistan is trying to tilt up a national police force. and there's this huge problem of they were paying,

Starting point is 00:19:02 there's no like modern banking system or like payment system in Afghanistan, and so they were paying police officers for cash, but the problem was right, the cash was getting embezzled by the commanders, right, along the way. And so the cops were only making like half of what they should make because people were stealing the money along the way, and they started doing mobile payments to be able to pay the cops,

Starting point is 00:19:18 and all of a sudden the cops were actually getting 100% of their paycheck for the first time. And so in most of the world, we don't have the kinds of systems, you know, that we're used to having here. And so there's a very, very, very, big opportunity to use these new technologies. Those include Bitcoin and those include smartphones to really up-level the capabilities

Starting point is 00:19:35 that people have in many countries. And I think that's a big part of how Bitcoin will play out. Yeah. Well, another thing that may cause some fear in this room is disruption. And, you know, we're fortunate to have some of the world's largest enterprises here. And I think oftentimes they'll see how fast industries can transform. If you look at Lyft and Uber, you'll see that happening to the cab industry. And maybe one day they'll be discharging.

Starting point is 00:19:59 disrupted by driverless cars, unless they do that themselves. I'd love to know your perspective on what you think is going to be disrupted next. And by that prediction, which jobs are going to disappear and which jobs are going to flourish? Yeah, so disruption has a branding problem. It has this scary name. And the reason it has this scary name is because the idea of disruption was invented by this guy, Clay Christensen, who's a professor at Harvard. And so, you know, he's a guy who comes out with a new idea.

Starting point is 00:20:26 And, you know, if he gave it, you know, if he gave it like a pedestrian name, Like the name I would give it is creation, and I'll explain why in a second. But if he gives it like a pedestrian or optimistic-sounding name, nobody would have paid attention. And so he gives it a big scary name and everybody gets all spooked and then pays attention, and it sells a lot of books and gets people to wrap their heads around it. But as a consequence, like it sounds like, you know, disruption, it sounds like it must be bad. If you read his book is called The Innovator's Dilemma, where he describes this, which remains one of the best business books ever written.

Starting point is 00:20:53 If you read the book, what he basically describes is a very positive process. And the positive process of disruption is new consumer choice, new options available to consumers that were not available before. And then the sort of definition of disruption is a new choice, a new form of product that's available to customers who previously never had access to anything like it. And in fact, often a product that's cheaper, right? And so the classic example is a disruption. Their personal computer disrupted the mainframe, right? Once upon a time, there were only thousands of computers of the world. Then the personal computer came along, and all of a sudden there are millions of computers

Starting point is 00:21:31 of the world, and all of a sudden, instead of a computer costing a million dollars, all of a sudden, a computer costs a thousand dollars. And so everybody here who has a personal computer today is a beneficiary of that disruption process. The people who ran the mainframe companies didn't think this was a good idea. They were not in favor of this. But the people who read the PC companies knew that they were on the right side because they were giving consumers something that we had never had access to before. Smartphones are now disrupting PCs, right?

Starting point is 00:21:57 And so if you go ask the PC guys, what do they think about smartphones? They're not fans. If you ask consumers who have access to smartphones, who never, you know, a smartphone in the developing world now costs like 100 bucks or 50 bucks. You know, a lot of people in the world are getting the first computer they're ever going to own as a smartphone because they could never afford a PC. And so it's the same thing. The smartphone companies are disrupting the PC companies, but in the process delivering computers to a lot of people for the first time. And so this is the progress. the progress, this is how we make progress. And one of the things I like to point out is that

Starting point is 00:22:28 basically everything that we have in our lives that we like and enjoy, it's a product or a service, is the result of disruption, right? It's like, you know, washing machines disrupted, you know, people hand washing dishes. You know, clothes, washer, dryers disrupted people hand washing clothes. You know, cars disrupted horses. The horses, the good news of the horses, they never complained. But, you know, everybody today who drives a car, like there is another world in which had the car not disrupted the horse, you know, we would, you know, we would be spending a lot more time on horses. And so everything positive we have in the world that we like today is the result of this process. And I think that's, I think this process will continue to play out. I think there's

Starting point is 00:23:05 going to be all kinds of things in the world 50 years from now that today we think of as weird and strange that we're going to just take for granted and we're going to be, you know, us and our kids and grandkids are going to be thrilled that we have them. The other thing in the economics, and this gets to the whole thing on job loss, because disruption in the moment looks like it causes jobs to go away because the, because the, you know, it causes jobs to go away, because the old thing is not as needed anymore, and so therefore the jobs must go away. The thing that disruption does that is routinely happens,

Starting point is 00:23:30 and it's kind of a surprise every time, is disruption lowers prices, right? And so the economic consequence of a lower price, like if I used to have to pay $1,000, pay $100, because it's the smartphone, what happens is that frees up all that extra money, right? And so, you know, in that case, in that example, it frees up $900.

Starting point is 00:23:50 And it's $900 that I would have had to spend, on a PC, but now I've saved because I buy the $100 smartphone instead. That $900 still get spent, right? It doesn't just get like, it doesn't evaporate and it doesn't just get put in a bank account. That money gets spent. And that money gets spent on new things, right? And then from a consumer standpoint, you're better off because now you can afford more things for the same $1,000. From an economy standpoint, more jobs get created by the unleashing of the saved money than get destroyed by the effects on the legacy industries, which, by the way, is why we all are sitting here today with jobs.

Starting point is 00:24:25 You know, the United States has, you know, the United States 200 years ago, there were a couple million total jobs. The United States today, after 200 years of disruption, you know, there are 150 million jobs. The process of economic growth is the process of money being unlocked to be able to do new things. And I actually think this is a process that's running really, really well right now. I think it's actually running in a very positive way. So let's zoom out from disruption of a particular industry and talk more broadly around. technological revolutions. And you referred to a great book here by Carlita Perez,

Starting point is 00:24:58 The Technological Revolutions and Financial Capital, where she talks about the phases of great surges in technology essentially, and there's the installation phase and the deployment period. And it's a very related sort of topic to whether we're in a bubble or not, which is probably a common question you get. So I'd love for you to comment on your perspective

Starting point is 00:25:17 on technological revolutions and what that means for us today. Sure. So one of the things that I find is it's always really hard for any of us to kind of evaluate the times in which we live, right? Because it's also heated. Like it also feels so intense and so serious and so in the moment. And so to really understand kind of big picture of changes that are happening, I find it's very useful to try to understand history and try to understand how things have played out in the past. And it's not that the analogies are exact, but, you know, there are patterns. Like people are people and there are patterns and how things happen.

Starting point is 00:25:47 And so the book that Dan's referring to is probably my favorite book that I recommend most often. And it's got a kind of a, not a lot of people have read it because it's got one of those titles that kind of scares people off. I've read it. It's called Technological Revolutions and Financial Capital. You know, if it were published today, it would be called like Zoom or something like that. But, or disrupt with an exclamation point. But it's got one of those titles. And then the author is a very interesting woman, Carlotta Perez, who's a now famous economist from Venezuela.

Starting point is 00:26:15 One of the reasons I find her interesting is because if you're an economist from Venezuela, like you have really thought about economic issues because Venezuela's not you know Venezuela's had issues and so she's extremely sharp and extremely sophisticated and then the other great thing about this book is she wrote this book I think about 25 years ago and so the book predates the internet the modern internet and so it doesn't have any kind of flavoring from kind of our recent events it really is a historical look and what she does is she looks back over 200 years of technology 200 years of technological change and she looks at the really big things right so she looks at like steam power and she looks at the

Starting point is 00:26:50 automobile, and she looks at electricity, and she looks at radio and television, you know, these really, really, you know, steel, these really big technological advances from the past that had huge impacts in their time, railroads, another big one like this. And she basically shows this pattern that emerges over time. And so the pattern kind of works like this, which is big technology shifts are generational shifts, generational, which is to say like literally over 25 years, and literally from one generation of people to the next generation of people. And she says the reason is because basically the really big technologies affect how people live. And so they challenge all the assumptions around how everything is done.

Starting point is 00:27:29 And often people who are already adults at the time the new technology comes out have a hard time wrapping their heads around what the implications are going to be. But then kids just consider it to be obvious. It's just like, you know, it's like if any of you have kids today, it's like, obviously I'm going to spend eight hours a day in Minecraft. Like, why would you not? You know, and all the parents are like, I don't know what the hell he's doing. And like literally that apply, you see that apply kind of, that kind of, that kind of, that kind of, effect over and over again. And so it's the adoption of technology kind of follows this 25-year cycle. In the beginning, they seem weird and scary. And then 25 years later, they seem

Starting point is 00:27:58 completely normal and integrated at every part of our life, which is why we're all driving cars and why we're all, you know, using electricity and everything today without even thinking about it. And then what she does is she compares the rate of improvement of technology with how financial markets deal with the change. And what she does basically is she shows it. It's this S-curve every single time, where it's basically, In the beginning of a new technology, there's a huge rush of enthusiasm for the technology. And everybody gets excited and the stock market goes crazy. And stocks get bid way up for all the new tech companies.

Starting point is 00:28:29 But then there's this disappointment, period. There's this crisis. There's this disappointment. And the disappointment is basically people get too excited. And so in the disappointment phase, people all of a sudden realize, okay, this stuff may be a big deal someday, but it's not ready yet. And so these new things don't actually work yet. And then there's a crash. Right?

Starting point is 00:28:46 And then the crash is very, very big and very traumatizing, and, you know, stocks crash and companies go bankrupt and all kinds of horrible things happen. And then you go through this phase where basically everybody just writes off the new technology and everybody says it's not going to matter ever because everybody's now bitter and disappointed. But that's precisely the period in which the technology actually starts to work. Right. And then at some point, 10 years later, the financial markets kind of wake up. They kind of come out of their coma and they kind of go, oh, that thing that we thought was a complete failure, right? Actually, now it actually works. And then all of a sudden the tech stocks go back up because people realize that this stuff is actually going to happen.

Starting point is 00:29:19 And so she literally shows that for railroads and she shows that for electricity and she shows that for all these things. All of us in the room, we hear that story. And of course, we think dot-com crash, right? We think like internet, you know, bubble in the 1990s, we think dot-com crash. You know, we think the sort of nuclear winner for tech between kind of 2000 and 2010 when most people thought the internet was, you know, was dead. And then what's happening today, which is now there's a generation of companies, including big public companies like Google. Google and Facebook, but also new companies that people are getting all excited about.

Starting point is 00:29:48 And so if you read this book and you view it through that lens, the sort of claims that we're in a bubble today make total sense. People are traumatized by the fact that the last time it looked like this stuff was going to work, it all didn't work, and it crashed. And so we're all psychically scarred. But now this stuff is actually working, right? And consumers actually are on the internet. They're using it all the time.

Starting point is 00:30:08 E-commerce is exploding. Online media is exploding. All these things are actually working. and now investors are starting to get excited again, but reflexively we feel like it can't possibly be real because it wasn't real last time. And what she would say is it actually is real this time. Yeah, and your firm just published an amazing report

Starting point is 00:30:25 on the history of funding. I love for you to summarize the findings for the audience. Yeah, so there's this thing, right? So the thing is happening right now out here is there are these new companies. And, you know, the headline named companies in Uber and Lyft and Airbnb and all these new companies. And there's this new term, which we're not a huge fan of, but there's a term of a unicorn, which is basically,

Starting point is 00:30:42 a private tech company that is valued at more than a billion dollars. And so there's this kind of been this wave of press basically saying there are all these new tech companies that are now worth more than a billion dollars as private companies. And basically it must all be a bubble, right? These companies must all be hot air. This must be 1999 all over again because last time people got excited about this kind of thing. It didn't end well. And so people are getting excited again and it's not going to end well.

Starting point is 00:31:07 And so there must be a bubble. And in particular what people point to is, you know, you have these companies, they're not public companies. It's like Apple's a public company, Google's a public company. Everybody can see their financials, and you can decide what they're worth or what they're not worth, but like their stocks and they trade, you know, like public stocks. Whereas all these private companies, Uber,

Starting point is 00:31:24 I mean, you hear reports about what their numbers are, but like who really knows, and these investors who are investing in them like me, must be stupid, because why would you ever think these companies are ever going to be worth anything? And so that leads to this kind of presumption that there must be a bubble. We put out a deck that you can find on our website,

Starting point is 00:31:40 on our website, A16Z.com, We put out a deck, and we basically come at the question for another angle, which is we look at funding flows, and so we look at the flow of money into tech, and then we look at outcomes in terms of how many new companies are there and how valuable are they in total, kind of as a proxy to try to get a sense of, like, is the world gone crazy or is actually are things relatively more normal than people think? And the two huge observations that we make are as follows. One is these so-called unicorns are all companies,

Starting point is 00:32:12 a lot of these public companies, by the way, optimizes these about, you know, is going to be, is, is, if this were in 1994 and we were sitting here, we would probably be getting ready to take optimizely public, right? Like, optimize these, like, at a stage where you could actually, in the old days, you could take a company public, and in the old days, Uber would be public today, and Lyft would be public, and Airbnb would be public, and all these companies would be public. But what's happened is, it's not just taking a lot longer to take companies public. And so companies are staying private a lot longer, and so you've got these late-stage financing rounds that are happening, that are basically substitutes for IPOs.

Starting point is 00:32:42 But in our deck, we basically show if you adjust for the IPOs that aren't happening and the companies are staying private, it's basically, it's almost a flat amount of money actually flowing into tech. And then the other thing we point out is if you add up all, there's like 59 U.S. tech companies that are private and are worth more than a billion dollars. If you add them all up, they're worth about one Facebook, right? And so in totality, they're worth about one Facebook. And I mean, I'm involved in Facebook, and I'm a huge fan of Facebook,

Starting point is 00:33:07 and Facebook should be a very valuable company. But, you know, Facebook versus 59 other companies, all of which are growing super fast. By the way, all the unicorns are worth about half of Microsoft, and all the unicorns are worth about a third of Apple. Right? And so you just, you know, at some point you ask the question, which is, would you rather own half of Microsoft or a third of Apple, or would you rather own 59 new companies that are building the future? And you could argue and debate that either way, but it's not crazy, right? There's nothing inherently kind of nutty about that idea.

Starting point is 00:33:37 And so we think there's a fair amount of evidence, and this goes again right back. to the theory of the book, because she would find this very unsurprising, which is many of the, and by the way, not all these new companies are going to work. Like some of them are going to, I always like to say private tech companies failing. It's not a sign of venture capital not working. It's just a sign of venture capital. Like, you know, not all these companies work. And so it's not going to be 100% success, but the new companies in general as a set are going to do

Starting point is 00:34:02 incredibly well. They are doing incredibly well, and they are going to do incredibly well. And I think against that, it's actually quite hard to actually see a bubble. Yeah. Well, it's a great argument why these companies, it's not nutty to think they'll do well. One concept that some people do think is nutty is virtual reality. I'm a big fan of reality. Why should I care about virtual reality? There's a great line, somebody used online a while ago. He said, I went outside once. The visuals are amazing, but the plot and character sucked.

Starting point is 00:34:36 So this is one of those things. This is one of those things. So, of course, virtual reality is this idea. Literally, it's this idea you put on these goggles. You put on this headset. And there's these screens, and it's got 3D graphics. And basically the headset, it actually tricks your kind of unconscious mind into believing that you're somewhere else.

Starting point is 00:34:57 And this is one of those things. If you go on YouTube, you can actually see videos of people trying these products. The leading product is a company we invest in called Oculus. and just go on YouTube and search on Oculus and you'll get all these videos and you'll watch people trying this thing on for the first time and it's bizarre when you see people doing it because it's just like it seems so weird

Starting point is 00:35:14 it's like they put on these goggles and then all of a sudden they like freak out right and it's like the two most like common reactions they either start laughing hysterically or they start crying right and it's but from the outside it's like what on earth could possibly be provoking that kind of an emotional reaction and the reason why it seems so strange

Starting point is 00:35:31 is because we've grown up our whole lives like we go see this new movie Jurassic World and it's got the dinosaurs and we play all these call of duty and it's like being in a combat zone and all these things. But we see all these simulated experiences on screens at a distance and our sort of lizard brain basically knows that it's not real. And so, you know, you don't actually get scared when the dinosaur comes at you in the Jurassic Park movie. With VR, what it does is it basically takes over your nervous system effectively. And so it basically tricks your brain into like basically thinking that you're there. Now, intellectually, you know you're not. But like

Starting point is 00:36:01 the lizard brain part of your nervous system, basically is like, that is an actual dinosaur and he's actually coming right at me. And so, and people start laughing because they just get in, you know, you're getting these environments where you're floating through the clouds, or these demos that you'll try when you try these products for the first time. There's these demos. There's one where literally you're standing, like, it's New York City and you're standing on the top of the skyscraper.

Starting point is 00:36:22 And like, you look down and it's like the city and like you're just literally, like you're about to literally physically collapse like on the floor, like watching this thing because you get this kind of overwhelming feeling that you're about to fall off the skyscraper. And so it's this really amazing new technology. I'd encourage everybody to try it when you get a chance. And then it gets exactly the reaction that you said, which is people are like, well, wait a minute, what about the real world? Like, you know, okay, fine, you can go hang out with dinosaurs

Starting point is 00:36:45 or on the top of skyscrapers or float through the clouds. What's wrong with the real world? And this is one where I basically take a pretty strong position on this, which is if you like the real world, fair enough. And, you know, if you happen to live in a nice place and you've got lots of nice friends and the weather's nice and all the rest of it, and there's a lot of fun things to do. Fair enough, most people in the world

Starting point is 00:37:06 don't live in places like that. Like, you know, where I grew up, like, none of that was true. And so, you know, if you live in a place where you don't happen to have a great research university nearby, but if you could go into a virtual world and if you could go, you know, if you could go into basically the equivalent of a Stanford classroom and take a class

Starting point is 00:37:23 from one of the world's great professors, just as if you were there in person, for a lot of people, that would be amazing. If you like sports, but you can't afford to get, your favorite team is playing, and, you know, ticket, you know, ringside seats or, you know, courtside seats at a basketball game are going to cost you more money than you're going to make in a year. But you really want to experience a basketball game.

Starting point is 00:37:43 Like, they will be able to project the basketball game into VR in a way where it's going to be like you're sitting right there on the side of the court. And basically for every single kind of human experience, there's going to be these new options that people are going to have with this technology that they've never had before. And I think it's going to be amazing. I think a lot of people's lives are going to be made a lot better. So we've talked about artificial intelligence, Bitcoin, virtual reality. Can you give some practical advice to the people in this room who are going to go back to their businesses that are likely not doing any of those three things, but might be able to think about these technologies in their day to day or in making their business better? Yeah, yeah.

Starting point is 00:38:17 So, you know, the optimistic note that I would say is that, you know, these things are coming. And, you know, there's a whole bunch of other things like this that are coming. And the optimistic thing I would say is it goes back to what we've been talking about throughout this whole thing, which is instinctively, and by the way, I find myself doing this just as much as anybody else. It's instinctively it's like, okay, I was okay with, I'm on board with smartphones, the internet, and I got all that. But this new thing is weird, right? I don't know. This VR thing is, you know, he's crazy. And so the optimistic thing I would say is we have the ability as we think about these things to kind of have open minds.

Starting point is 00:38:50 And they kind of say, okay, what we always like to say is the question is not whether it will work. the question is if it does work, how important will it be? And we all have the ability to have an open mind like that and to basically be able to think in those terms. And it's hard to do. Most people don't do that because new ideas seem strange. But we have the ability to think about new ideas and we have the ability in our businesses to think and say, okay, you know, if you're in the car business, like what would a car dealership in virtual reality be? And it might be the most spectacular car dealership of all time. And it might make all the existing car dealership seem irrelevant. And so if you're a car company, that might make sense to explore or whatever those

Starting point is 00:39:24 ideas are. So the optimistic note is these technologies are going to be available for people to use, and I think it's worth thinking creatively. You know, the cautionary note is also, you know, goes back to this book, which is they don't all happen overnight. And so, and this is directly in line obviously with what optimously does, which is experiments are a really good idea. You know, it's easy for me to sit up here and say that this stuff is going to sweep the world in the next 12 months. It may take, it may happen fast, it may happen slow. And so being able to run experiments, being able to trial things, being able to, you know, make small bets instead of making large bets and be able to learn as you go, I think is incredibly important. Yeah. Well, we've

Starting point is 00:40:02 talked a lot about the future. Let's talk about this year and next year. We are in a presidential election cycle, and the origin of our company came out of the work in the 2008 Obama campaign, where we were trying to use data to help the campaign make better decisions. We were lucky to have both Obama and Romney use our platform in 2012. And I'd love to hear that. hear your take on data in campaigning and where you see huge opportunities in this upcoming cycle for the campaigns to really maybe lead the way when it comes to data-driven decision-making. Do you have all 2,000 Republican candidates on the platform this year? I wouldn't be surprised if they've decided to use our platform, but I won't comment on

Starting point is 00:40:41 specifics. Donald Trump? Well, I'm not sure. We'll see. He can test different hairstyles. So, politics, and Dan knows more about this. Dan's forgotten more about this than I know, but politics is this fascinating thing, right? So 2008, so 2008, it was a big part of the story, right? 2008 was Obama got the jump on the Republicans. I think, you know, on a whole bunch of fronts, but I guess fundraising was maybe the really big breakthrough in 2008. Online fundraising turned out to be a huge thing. And then the Republicans thought they had this all figured out for 2012.

Starting point is 00:41:15 And in 2012, the Democrats made another huge advance with this kind of the on the ground. they're on the ground work and there were all these articles written about the democratic system worked incredibly well in the Republican system that actually didn't work on that day for, you know, to get out the vote efforts. And so politics, politics is a, and in that context, it's not surprised

Starting point is 00:41:34 that optimally kind of came out of this kind of superheated kind of political thing. Politics, the politicians are political campaigns that are a great test bed for a lot of these new ideas. And this has been true historically, right? You know, TV, you know, there's these great, you know, stories, you know, from the old days of, you know, TV became important kind of in 1960 with the Kennedy Nixon debates, right,

Starting point is 00:41:53 which was kind of the first time that voters actually saw candidates like on TV as opposed to hearing them through radio. And all of a sudden, you know, how a candidate looked and whether they looked like they were, you know, shifty and sweaty or calm, cool and collected, actually mattered for the first time. And so, I would say new technology kind of always gets trialed in these political environments. But the political environments are always one-offs, right? They're always like, because you see, you see this, you see this, which is, you know, the campaign, and you're seeing this this time, the Republican campaign, the Democratic campaign, they're going to put together these technology teams for 2016. They're going to do all these

Starting point is 00:42:26 new things. And it's entirely with one goal, right, which is to win the election, right? And it's so important to win the election that they'll do anything that they think gives them an edge to winning the election. And then the experiments will either work or they won't work, and then the teams will disband, right? And then the people will literally all leave. And so, and then four years later, it's an entirely new group of people, which means it's also an entirely new group of ideas. And so it goes back to earlier discussion. It's like the political campaigns are actually quick to jump on the new ideas because it's a new group of younger people kind of every single time.

Starting point is 00:42:55 And so it's this very, very interesting test bed. And I think, you know, for example, a lot of what is now happening with crowdfunding and Kickstarter and crowd tilt and all these things is kind of, in a lot of ways, sort of derivations of what happened in 2008 with the Obama campaign. A lot of things now that involve, you know, location-based social networking services, you know, are getting now inspired by what happened with the Obama campaign in 2012.

Starting point is 00:43:17 And so I would expect a tremendous amount of experimentation in these campaigns. I think there will be lessons to be learned this time for sure, regardless of who wins. And it's going to be a test bed. The one that I'm waiting for that hasn't happened yet, actually this is interesting, it has happened, it just hasn't happened here. The one that I'm waiting for is the first social networking election, right? And so fundraising or get out the vote, the kinds of things that people have done so far with this technology applied to campaigns, has had to do with kind of running campaigns the traditional way. but like most of the advertising has still been TV advertising.

Starting point is 00:43:49 I think there is going to be, I think there's going to be an election in which the entire thing is going to pivot on social networks, and it's going to turn out that the candidate that most effectively used Facebook and Pinterest and Twitter and all these things is the one who wins. Actually, this has happened. Both India and Indonesia in the last election,

Starting point is 00:44:05 the winning candidates credit their wins to the social networking platforms. And the Indian election is really worth looking at because Modi, it turns out running for President India is a difficult job because India is gigantic. and there's like a billion and a half people. And so you can't even do the level of retail campaigning they do here in the U.S. And so his campaign made an incredibly effective use of social networks,

Starting point is 00:44:24 incredibly effective use of online communication and messaging. And he credits that with his victory. And I think that will happen here. I don't know whether that's in 2016 or in 2020, probably one or the other. So we have a few minutes left, and I want to end by talking about philanthropy, which is something I know you care a lot about. We had Optimizely launched optimizely.org last year at Opticon, and through that have been able to really help nonprofits enable them to turn their data into action and through both helping them get improved fundraising and get more volunteers, but also advocacy and all the other causes they care about. I love to hear your perspective on not just philanthropy, but the role startups and businesses like ourselves can play in helping furthering those causes.

Starting point is 00:45:11 So this is a really personal topic for me. my wife is my wife is teaches philanthropy at Stanford so she and I have a very synergistic marriage where I make the money and she gives it away and she's very clear with me on my role in the partnership and so

Starting point is 00:45:30 this is a deeply personal thing I would say it's incredibly encouraging this new generation of corporate philanthropy this idea the companies have a role to play in philanthropy I think is a very encouraging idea You know, the model for so long was that companies exist, you know, and this remains true, but like companies exist to make money for their shareholders. And then, you know, business, a lot of business people in the old days, they would make a lot

Starting point is 00:45:53 of money in their business careers. Bill Gates is a great example of this. Make a lot of, basically focus on business for 30 years, make a lot of money, and then at some point you retire, and then you start giving the money away, right? And, you know, historically philanthropy actually has been primarily, you know, old people. It's actually an interesting problem. Like in medical research, it turns out that the diseases that affect old people, there's much more funding for the cure than diseases to affect young people because the medical research funding

Starting point is 00:46:16 comes from old people who have made a lot of money who have those problems and they don't care that much about things that affect 30-year-olds anymore. And so that's kind of been the model for a long time. But now you have these new leaders and Mark Benioff, you know, in tech, I think it's tremendous credit for this. Mark Zuckerberg, who I work with is doing a huge amount on this now and we'll be doing a lot more. There are other, you know, some people are very well-known, some people actually not well known, but are very active philanthropists in tech from a much earlier age. Pierre Omidyar is another guy who's been

Starting point is 00:46:46 very out front on this who founded eBay, who's been doing philanthropy basically from the very start. And then there is this movement among Silicon Valley startups to do the kind of thing that you're describing. So a lot of it's inspired by what Salesforce has done, which is this kind of the idea of the one-one-one-one program, right, 1% of equity, 1% of profits. Of product and 1% of our time.

Starting point is 00:47:05 We follow that model. Okay, right, exactly. And so I think it's tremendous. tremendously positive. There are people, so that's all the good. The argument I get in with people is there are people who are saying every company should do this, right? Every company should adopt the one-one-one model. Mark Benioff, who I think is a hero, actually wrote a book, basically talking about how to do this with every company. And so there are investors in the Valley now who are saying every company should do this, should be part of every company's mission to do this.

Starting point is 00:47:32 So that's where I differ a little bit. I think companies, I think companies should do what's right for each company. I think companies in their strategies and in how they hire and how they train and how they operate should do the things that are right for them. I think it's very dangerous in business to cookie cutter kind of approaches without really thinking things

Starting point is 00:47:50 through that are specific to each company. Because people are different and different kinds of people come together and different kinds of companies to do different things in business. And I think the same thing is true of philanthropy, which is I think there are many different ways to engage in philanthropy and the one-one-one approach is one of them, but I think there are also many

Starting point is 00:48:06 others. For example, there are some companies that have a much bigger focus on having their products get used by nonprofit organizations or by educational institutions for free. There are other companies where that isn't a relevant concept and they're much more focused in donating a percentage of profits. And so there's a variety of different models. And then I also think the old model of focusing on business and basically staying focused on business for, you know, a potentially long period of time and then eventually being able to make money through doing that and then be able to give that money away, I also think that's a a very good. I don't think there's anything wrong with that model at all. And so I think

Starting point is 00:48:40 this is an area where we should encourage, and we encourage this among our companies, is we don't dictate. We encourage experimentation and we encourage different approaches. And so I don't second guess anybody's approach on this. But just going back to the beginning, I think it's just tremendously good that this has become a topic that people are really talking about and thinking about and acting on. Great. Well, please join me in thanking Mark and Driesen for being here today. Thank you.

The a16z Show - a16z Podcast: Tech's Biggest Ideas and How They Take Hold -- With Marc Andreessen and Dan Siroker

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