The a16z Show - Keith Rabois: Israel, OpenAI, Opendoor, and DOGE

Episode Date: October 16, 2025

From politics to technology to real estate, Keith Rabois has bold predictions for America’s next decade.In this conversation with Erik Torenberg, Keith breaks down why he believes the U.S. is entering a new economic expansion driven by AI, productivity, and sovereign technology. They discuss how AI could lift GDP growth to 5%, why sovereign AI projects are inevitable, and why America can “grow its way out” of debt.Keith also shares his takes on Trump’s second term, the decline of legacy institutions, OpenAI’s dominance, the future of Google and Microsoft, and how startups like Ramp and Opendoor are rewriting the rules of fintech and housing. Resources:Follow Keith on X: https://x.com/raboisFollow Alex on X: https://x.com/arampell Stay Updated: If you enjoyed this episode, be sure to like, subscribe, and share with your friends!Find a16z on X: https://x.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zListen to the a16z Podcast on Spotify: https://open.spotify.com/show/5bC65RDvs3oxnLyqqvkUYXListen to the a16z Podcast on Apple Podcasts: https://podcasts.apple.com/us/podcast/a16z-podcast/id842818711Follow our host: https://x.com/eriktorenbergPlease 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.  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.

ChatGBT becomes a monopoly. It is transforming how everybody, every normal person, basically does their work, funds their life. The thesis of AI is too important to the future of nations to allow an American company to dominate in certain regions, I think is going to prove to be true. I actually believe you can probably cut 50% of the federal government. What does the Commerce Department actually do?

People are like, where do you get your contrarian ideas? I was like, I read books. All the greatest thinking of all time is available to, Anybody. You just have to read. The U.S. government is shut down. Peace is breaking out in the Middle East, and AI continues to reshape global power. On this episode, I'm joined by Keith Rboy, managing partner at Coastal Ventures and A16Z general partner, Alex Rampel, to unpack how all these thesises connect.

We discussed whether a new Middle East is emerging, what it means for U.S. politics and Trump's second term, and where sovereign AI could redefine national competitiveness. From there, we zoom out to the economic impact. implications of AI and if it can really drive GDP growth without inflation. We also cover the fate of big tech incumbents, Google, Apple, Microsoft, meta, Amazon, and how AI threatens their moats. Lastly, we end on Keith's broader philosophy. Why he doesn't believe in experts, how to answer the right questions, and why sometimes it just takes one person reading the right books to change history. Let's get into it. Keith, welcome to the podcast. Pleasure to be with you. It's been a long time, excited to have you back. It's an exciting day to do it.

big day for the Middle East. I feel like this is something you've been predicting for a while. Actually, if you read Jared Kushner's autobiography, all you have to do is, he quotes the Saudi king, says, you're going to bring peace to the Middle East, and it turns out to be correct. It's pretty obvious, like, this would happen. If you went to visited Israel recently in the last six, nine months, you could feel the Teutonic plates shifting. It was just a question, what would be the trigger? And everybody's looking forward to the new Middle East. You're going to see lots of countries make peace explicitly with Israel, which is great. whether they join the Abraham Accords directly or indirectly,

it's all going to happen in the next six months. Is your view that Iran is neutralized, that this leads to some sort of durable, non-violent pact? Everybody off the record wanted Iran to be neutralized, and they were basically blocking any progress. People were scared, terrified, and now that they've been neutralized, I think the natural arc of human history is further be basically progress,

innovation, technology innovation, actually, in the Middle East driving piece, AI, data centers. You're going to see all of this. It's really an interesting and fascinating feature. Are you bullish on sovereign AI? You sort of think that you might invest in that type of? We have a KV. We invested in a sovereign AI company in Japan called Sakano.

The thesis of AI is too important to the future of nations to allow an American company to dominate in certain regions, I think is going to prove to be true. I think you still need a Marshall, the hard part, that's easy to say at a conceptual level, to implement that, though, you still need a martial, a critical density of talent of AI researchers. And there's not that many world-class AI researchers across the globe. I saw a public presentation by Jensen where he said there's 150 people on the planet

who could actually build a foundation of Waddle. He's probably more right than wrong. And so you still, if you're going to build one for Germany or Europe or Israel or wherever, you're still going to need a critical density of those 150 people to be able to compete at the country. cutting edge of frontier models. But I think most countries are going to try. Yeah. Before we get to tech, just to close the politics front,

do you think that this will end up defining Trump's legacy or what do you think his second term will be remembered for? Well, I was kind of thinking last night, you know, he's going to solve all the problems he inherited in the first two years. Like, if you think about immigration, basically solved, if you think about the Middle East on its way to being solved, he'll get Russia and Ukraine solved, I'm pretty sure. Tariffs are bringing down the debt.

The growth rate is going to accelerate. rate, we're going to have 4% or more growth all of next year. That will make the debt irrelevant. You can grow your way out of deficits. Interest rates still need to come down. The Federal Reserve has been obstinate. That'll eventually get fixed. He will replace Powell at some point.

Dustin's going to continue to be outstanding. So I think after the next year, it's going to be all upside. And why doesn't Powell want to reduce rates? What is the steel man for a way? Well, his argument, well, I don't know if he has a good argument. I think he has Trump derangement syndrome. He just hates Trump. That's why he artificially lowered rates to try to get Kamala elected.

It is indefensible cutting 50 basis points off in last fall. But he does see employment is running pretty hot. But the difference is with AI and productivity gains through technology, hot employment does not necessarily yield inflation. It's not just wage growth that's fueling GDP growth. And so I think you're seeing some of the substitution where productivity gains can be made. GDP can run four or five percent. without triggering inflation because you don't grow GDP just by paying humans more,

which is the historical precedent. And again, before a second, what's our sort of reflection post-Douge? What did we learn from that experiment? Well, actually, the funny thing is I was watching some political polls, and there's not that many pollsters that I find accurate, but there's a few. And until this week, Trump's height of his popularity was when Doge was out as best. The American people really do want to cut the size and scope of the federal government. You can see it.

Look at it. The government's officially shut down and Trump's fixing everything. It does suggest, like, why do we need the rest of the government? everything has been better the last two weeks. Can you name one thing in society across the globe that's got worse in the last two weeks with the government? Companies can't go public. This is the part. Yes, I agree.

But yeah, other than that, well, fortunately, my companies will be good enough to go public whenever they want. It will be eventually. But ramp can be public whenever it wants. It doesn't need like a timing move from manipulation. But fundamentally, they'll get fixed. But the government being shut down doesn't seem to be interfering with the rate of progress. I think maybe Americans wake up one day and say, wait, why do we need this size federal government? I actually believe you can probably cover.

but 50% of the federal government, ex-military easily. What does the Commerce Department actually do? Like literally, I mean, Howard does a lot of work. He's at the forefront of everything, like negotiating tariff deals. But like all the thousands of bureaucrats, why do we have a Department of Agriculture? This is actually an interesting question. Why do we actually have thousands of people?

Probably, I haven't looked at it recently, but probably 30,000 people work at the Department of Agriculture. What world does that make sense? And like even like the State Department, there's three or four thousand economic officers posted overseas. This is like back in the day when you'd count the ships, kind of an artifact of history where you count the ships showing up in a port and the report back to D.C., this economy is growing, Poland's growing,

the UK's not, where obviously you can just log into a Bloomberg terminal and track that probably more accurately. But if Elon couldn't do it to some degree, does it speak to the intractability of actually? Well, you need political will, but I think one of the things the last two weeks is showing, Trump's going to be more popular than ever. He's literally posting the highest popularity and approval rate of his career right now

and the government shut down. One of the reasons why there hasn't been political will is when you have sort of a diffuse benefit and concentrated, aggravated people, politicians, elected officials are afraid. So when you cut something, the people who like whatever that program is, they may only be 1% of the population,

but they're very loud and annoying. And the 99% of the people benefit are quiet, typically. But if you can convince people that, hey, we don't need all this stuff. And the 99% people are like, hey, why do we need all this stuff? Why am I paying all these taxes? Then the 1% you can safely ignore. And because the 1% have historically been channeling through the legacy media,

which is no longer relevant, you're going to need to find a new megaphone. Like whether New York Times, the Wall Street Journal of Wright's Summer Talk Piece, nobody on the Republican side cares anymore. We've learned that that stuff is just garbage, it's fake and irrelevant. And so if you're on the right side of history with the right evidence and the right ideas, you can just ignore the legacy media. Yeah, so I think it's going to be a lot easier to cut things.

Do you think Elon and Trump are going to make up in a material way that Elon is going to support the Republican Party? Oh, yeah, I think it's obvious. I mean, I think the Charlie Kirk funeral was like ceremonial. You must get back into politics and material. I don't know if he'll get back into politics, but he's not going to fund non-conservative parties. Like, I think that's dead. I put a stake in the ground in it on the all-end podcast.

I think after my comments, I think it was dead anyway. But I think now they've reconciled, which makes sense. ideologically, they mostly agree. I think the debate, the funny thing is the divorce was kind of weird in a sense of Elon's kind of a perfectionist of like, why can't you do this? Why can't you come more faster? And Trump was like the political realist in that case where he's like, I just don't have the votes in the Senate to do this.

And over time, I'll get there, but you've got to give me some rope and you've got to give the Secretary of Treasury some rope. And it was really not a fight about the idea, but a fight about the prioritization sequencing timing and Trump's a pretty astute politician. So I would trust his judgment on the timing. He's pretty aggressive and assertive. And if he doesn't think he can move that fast, he's probably more right than wrong. It also just feels like there's this question of do you grow your way out of something, you're going to cut your way out of something. And it's better to grow. And you have the greatest entrepreneur of all time. And you can quintuple, I mean, I'm making this up,

but imagine you can quintuple GDP with AI and everything else versus cut you say it even more, or whatever, right? The growth mentality for the greatest entrepreneur of all time probably makes more sense, but yeah, the growth mentality is almost surely right. The austerity mentality probably doesn't work, which is funny because, and ironic, as you point out, the greatest entrepreneur of all time should understand the concept of lift. Growth and lift are basically the same thing. And you need to create value in that growing GDP, sustainably, durably, is the way to solve America's problems. Austerity is like a temporary hack, and you're kind of holding everything together and making life painful. It's kind of like a startup trying to save its cash for the last 12 months,

but you're not achieving anything. But, Keith, what's your, what's your, mental model prediction of what AI will do to GDP. You know, Tyler Cohen is more conservative and expressing a mild step up. Some people are saying, oh, if we actually have AGI, it should be 10% or 20, like some. Well, I think you can run 4 to 6% durability without inflation, which is magic. So we used to do this. Like sometimes I tweet about like 4% growth and people are like, that's crazy. From 1950 to 2010, on average, in a normal decade, we had 4.6 years per decade of 4% growth or higher. So we used to do this all the time and expect it. And then we stop for a variety of reasons.

And if you grow that fast, A, incomes, real incomes grow, but B, if you have a debt, if you have a deficit, you can solve these problems without cutting essential services. And you can probably expand the influence of America across the globe. What, you know, what Howard Ludniks articulated to me is basically post-World War II, we sort of intentionally sabotaged our growth and harmonized it with, let's say, Europe, people rebuilding, and made an explicit trade-off to do that, and then just forgot that 50, 60, 70, 80, 90 years have gotten by,

and that makes no sense. America should be leading the world, and we should be dominating in technology. We should be dominating in growth, and that creates more and more influence, so it's profound in every way. Yeah. Let's get deeper just on the effects of AI in the economy. If scaling laws hold to some degree, do, you know, will it show up in the productivity statistics directly? You know, what does it do to wages? Yes, but you do have the, I do believe in the ball, you know, sort of the bottom will cost thing where like the limiting step is the most, the most difficult, most human things actually put a constraint on like AI growth or jobs going away. I think that is actually true. Like someone still needs to constrain.

all these power plants or data centers. And as long as there's manual electricians, as long as there's, maybe you don't need manual architects, but probably need manual plumbing for a while, manual electricians. I don't think robots are building the next data center, or at least not right away. And so that is going to be the constraint.

And so these jobs are not really going to go away. So if you read the bomb-old, you know, curse of the bomb-l stuff, I think we're not going to see radical disruption. We're just going to see the golden age that Trump talked about and is in our own dress. Yeah. We just had Sam Altman here last week on the podcast. I noticed. We were both investors.

I wore much more subtle shirt. Exactly. What is your mental model of Open AI as a company? What is it doing right now? How do you sort of see it going forward? Well, I think there's several things they're doing. Obviously, it's a phenomenal company. It's the most important company of the last decade.

I think chat CBT becomes a monopoly. It's the fastest growing consumer product of all time. It is transforming how everybody, every normal person basically does their work, funds their life. And so that product alone is a several trillion dollar company. Then they do all these other things. And some of them may pay commercial dividends. Some may pay societal dividends. But ChadGBT alone, there is no competition for it.

It's not like Anthropic or all these other companies have any competition for that. There are vertical applications where some foundational models or some geos where some foundational models may thrive. And AI may be important enough that even having a vertical application like coding or having a vertical geo application maybe worth tens of billions of dollars. But OpenAI is the few trillion dollar company.

What happens to Google? Good question. I know it doesn't show up in all their metrics. I know they're good at spinning. Like, hey, it's not having a fact on this and that. But if you just survey, you know, walk outside your office and just ask 10 people, like, how often you go to Google versus how often you use chatyp T.

And yes, maybe you grow both for a while. But I don't use Google for anything. Like, I can't remember the last time I used Google versus chat CIPT. Like, it's just so inferior. Yeah. I know you've thought about a lot about Google as well. I know their strategy.

So the strategy is going to be, at some point, they're going to try to take advantage of all this personal data from your Gmail, from your YouTube videos, you know, from all the different products they have, and then therefore make a much better personalized experience. And I think the tradition, the company being a conservative institution in a legacy sort of institution,

they've moved very slowly on that. But there is a lot of data there, and you could create a very powerful, personalized, assistant, sort of proactive product, and that's what they should build. The question is, can you get, can Chattip-T get enough of my prompts over enough period of time

that they're creating an equivalent data, about me that allows them to compete on the personalization basis. And the longer Google waits to ship something like this that's robust, the more time chat ChaptiPT has to develop, you know, sort of my personalized prompt history, which can inform the future. And then they can ship, you know, better products, personal assistance, devices. So there's a question around devices.

Does someone, do you need a device? Is AI driven by a new computing device? And who's going to build that? Obviously, open AI made an acquisition to try to get, down that path. Google's been terrible at devices historically. We'll see if they can get any better. But someone, you know, Apple is great at devices but bad

at AI. Someone is going to build a device where are we going to be using your iPhone as your personal computing device? Five years out? Maybe. 10 years out, almost surely not. Do you know what that device might be? I personally

am a fan of putting something in your ear. I think, first of all, I believe in the science fiction movie adoption of like, you look mission impossible. It's always in his ear. The glasses have done reasonably well, but I, you know, I had Lasix. I think most people who wear glasses try to get Lasix at some point. And so I think putting another device here all the time,

the bar on the value proposition goes up versus put something in your ear and might actually go down. There are people with like pendants and necklaces, which have some value. And you may have multiple, instead of having a phone, maybe you have something in your ear and something here, something here, depends on whether you. use cases, what the ideal form factor is.

There's issues around battery innovation, too. Like some of the stuff's really hard because you need power, constant power, depending on where something's located, it may be very difficult to power it or not. So I don't know how to do it, but if I had a vote, if I was running a company that's doing hardware, I tried the year first. Alex, any reactions to this either on the Google side or on the device side?

Yeah, I mean, I think on the Google side, I mean, you and I have talked about this a bunch. I don't think Google is going to get hit for a lot. long time on the monetization part, but I agree, like, all of the non-monetizing searches go away first. It's like, you know, how do I get here? What should I prepare for this interview? Like, all of these things that aren't commerce related, but like, where do I buy a, like, I want to buy a tennis racket right now. Like, that's Google until it isn't. Until it isn't. Until it isn't. Until you say, show me the best five tennis rackets for me. Oh, yeah, yeah, yeah.

Because, like, if you try that right now, top five racket choices for me on chat TBT versus Google search. Right. I think even already, now, Chow Chabitia would be better. Well, it's where it will really be better is, I kind of think it's like there's impulse buys, which won't really be hit by either, because that's just like, I'm looking at Instagram, I see something that I shouldn't buy anyway.

And then there's highly, highly considered purchases, like buying a house. We'll get to that later with the door and everything else. And then in the middle, this is something where I think AI eventually will do a phenomenal job, which is like, I want this skew, this tennis racket, buy it for me right now at the lowest price. You're not going to go through Google and, like,

look at coupons. Like, all that crap is going to go away. you will just go to chat GPT, or to your point, like, it's possible that the empire strikes back, but like the, all right, I already have my calendar, my Gmail, everything else, that personalization potentially makes it better, but the execute on this skew and buy it for me, if chat GPT gets that going, which I think is one of their top priorities,

then, like, that's going to really steal the monetization engine by, from Google. He's like, that's where they make all their money. I mean, but imagine a couple things. So, first of all, like the example, if you have Gmail, you probably can figure out, what tennis rackets approached just previously. I mean, if I'm on the real world, maybe not, but if I brought on my line in my receipts,

you know, they're going to be in my Gmail. But then the other hand, on Chad GBT, you know, I could say I'd prompt like, you know, I'm this ranked tennis player, better at forehand than backhand, blah, blah, blah, blah, blah, you know, etc. Which racket's best for me? And I can't even have fathom

how to do a Google search. That would be something like that. It's more of like Google has this like complete inventory. but I think that advantage will not hold for long, and I think the metrics that they're kind of faking right now is it's like what percentage of our users are using AI? And that's not using Gemini as a DAU. I'm sure of that.

It's just like they have like an AI summary, something, something in there, but they're losing all of the free in the freemium sense searches to chat GPT. So eventually that's going to catch up with them. Also, chatypti is fixing the first sin of the internet, which is they charge subscriptions. And so to some extent, you may not have to have to, rebuild an advertising model if your subscription revenue is excellent. Consumers are basically learning that they should pay for things that create value, which has always been true offline. Like,

there's almost nothing you consume offline except oxygen that you don't pay for. But online, the first generation of internet entrepreneurs assumed you how to make things free. They sort of equated the marginal cost reduction with the value reduction and there's just a massive mistake. And Chad CBT is now fixing that where people are going to pay for AI products directly. Whether it's $200 a month, $20 a month, or even $2,000 a month. And yet, at the same time, merchants will still pay for traffic. Yeah, so you can do a hybrid, but then you can offset some of Google's advantages if you're ready monetizing users through subscriptions successfully.

Let's talk more broadly about how incumbents are going to be affected. We just talked about Google. Ketam, can just get your thoughts when we look at the next five to 10 years out? Like, how do you know companies like Amazon, meta, Microsoft, how do you think they're going to handle? It's a great question. I don't know what Amazon's going to do. It has the selection and the delivery.

I mean, still there's a fulfillment. One way or the other, there's a fulfillment aspect, which has never been Google's strength. They've tried various initiatives, none of them work. It's never been, it's not going to be chaty-b-tee actually fulfilling, most likely. Well, that is on most of the gross profit is AWS. Yeah. So you have another issue, too, structurally, like maybe they don't even care

to some extent at some point. But I think the fulfillment's very real, and Amazon is excellent enough fulfillment, not that many people are, although e-commerce fulfillment is somewhat distinct from traditional fulfillment. So we'll see if there's room for innovation there, but they could hold on for a long time of being the reliable delivery mechanism. You get satisfying. You get a reasonable price and quality experience, and that's good enough. So maybe that sustains them for a bit. Microsoft, I don't know. I think, you know, people gave them a lot of credit up front

for either investing in AI, forging this relationship and partnership with Open AI. Before it was obvious that Open AI was going to transform all of our lives, society, industries, et cetera. But over the last two years, it's not clear that they have been able to preserve that advantage. And now, if you think about business applications, do you really think that Microsoft has an advantage in business applications?

not in LinkedIn, not in Word, probably not in Excel. They're holding on to Excel, but there's a lot of startups you've probably funded a few around here that are AI for Excel and things like that. Keynote or PowerPoint, I doubt they can hold on to that. Cloud revenue, sure, for the point about AWS or Google Cloud, but that's not really why Microsoft's valued the way they are. So I don't know what their advantage that's going to sustain through the AI wave is going to be.

Well, historically, it's always been a distribution advantage where they've just crushed everybody and it's like, you go back to Lotus 1, 2, 3 or whatever, pick your company and it's like they just have this dominant browsers.

They will just, they'll clone you, they'll crush you, and then we'll distribute the heck out of their shittier product. Or teams. Yeah. Teams is a perfect example. It's like Zoom had a higher market cap

than Ex-Up. Yeah, right? And then they like totally flipped after like COVID reversed. And Teams is just, but it's actually not because of Exxon, right? It's because of, it's not even because of COVID restrictions or interest rates.

But they're losing, but they started with, they started with an advantage in coding, co-pilot, etc. They're losing that. Yeah. Curser or cognition and maybe others. But it feels like developers are much more attuned to like, I want good software. if Office even has a future. Like, this is where, you know,

when people write stuff, I mean, obviously, Microsoft Word was the default way most humans have been writing stuff for like 20 years, although I grew up with WordPerfect, but for the point, yeah. But are people with the way, you know, AI writes, ChatGPT writes for you

and increasingly better and are there specialized versions of that? Do people draft documents in Word in three, four, five years? Probably not. Well, it's also like this classic disruption theory of like Microsoft Word has overshot the market

right? It's like there are 9 million features in Microsoft Word that I never use. Like do I need to make a table of content content generated from my book like no. And like to a certain extent like Google Talks like that was pillory when it came out because it's like oh it doesn't do the cable of content's generator or whatever. But like Microsoft Word has

overshot the market. But they do have the distribution which is which I think is the hardest part. But Chachibati is going to be on everybody's phone or device. And like so for example I was considering writing a book Everybody's always like, you should write books. So I was like, Chachipit, write me a book. And it's a pretty good sort of first job.

That book's not going to get written in a Microsoft word as far as I can know, if it's ever written. It's crazy to think that for a day, Sam Allman was conceivably going to join Microsoft. Yeah, for like 24 hours until Vinod and some other friends intervened a fair amount. I guess I asked that to ask, did Microsoft sort of drop the ball on their relationship with it? Could they have capitalized in a much bigger way? Was it just, I don't know, you know, the talent, there's a complexity around talent, like individual people. If there's only 150 people that could build research models successfully,

talent's going to have a lot of power. And if the talent doesn't want to work for Microsoft, there may not be economics there. I mean, Matt is trying this of, like, can you use economic leverage to force people to work there? You know, and we'll see what the results are. It's not a bad idea. Like, I actually think Mark's clever. He means more money than most. take the money and use it. It's like imagine you're competing in sports.

Mark doesn't really have a salary cap. So why not try to pay the highest salaries? Now, there are issues when you do that, and he's running into some of those, but it's a relatively coherent strategy for meta to try it. I just worry. I wonder, I shouldn't you say I worry, like the moral hazard of it's like, I mean, this is kind of what went wrong with like crypto 1.0, where it's like, I'm going to give you tons of money up front. And normally, the way that you build a startup is you build the startup, you work really hard, and then at the end, you get the Ferrari.

Yeah. And if you get the Ferrari first, will you still build the hard startup? And, like, the people that are in it for the love of the game, they will. They will. But then can you tell the difference? Can you discern the difference? In sports, it kind of works where you guarantee contracts in some sports. But maybe that's because there's such statistical measurements of people's performance.

And a lot of people who are in sports are just so dedicated, love of the game, whatever, but they're so passionate about what they do. They can't imagine doing anything else. But I think this could backfire, but it is a coherent strategy for a company that was losing AI race to try something different, leveraging that they make probably other, you know, the Apple could have done this, but so culturally foreign. Apple could have competed on dollars. They made more money than anybody else. Like their profits are greater than like Google's revenues or something. It's something like that.

I haven't done the math recently, but it's pretty comparable. But culturally, that just wouldn't work at Apple. And so it became a non-starter, but they're going to have to figure out something or they're going to be a realtor. relevant at some point too. Right. Once the device question comes into play. Yes. Well, that's what's saving Apple right now is the common, the vertical integration required

to build a device successfully is something that no other company, at least in the West, knows how to do. Because you do need software. You need hardware expertise. You also need, like, the ability to compete on batteries and chips. And, like, there's four or five different things. You have to be pretty excellent at. But someone will figure out a solution at some point.

Well, it feels like they're looking at it. Like, you know, every Samsung phone when it comes out has a better camera for like, you know, a week or a year or whatever than Apple. Or like, you know, now the Samsung fold in half, or it has all these advanced features that really aren't for the mainstream. And Apple has always been like, we're going to wait, we're going to make it better. But, like, they're not the first. No. And, like, AI strikes me as a little bit different than that because, number one, it's software. So it's not like we have to go get the world's greatest AI right now and put it in day zero.

And this whole, we're going to wait three years. I mean, it's just such a lost opportunity. I'm convinced that, like, traffic fatalities would go down in this country if Siri actually were. Right? Like, there are so many things where they could make it better, but they're treating it, I mean, at least from the outside in, like, oh, this is like, you know, Samsung has a 400 megapixel camera or something. We're going to wait on that one and not get it right. And, like, they just announced, like, you know, why doesn't Siri work? It's an embarrassment in 2025 when ChatGPT is, like, AGI. Like, I mean, maybe not by, like, current researchers, but, like, 10 years ago, we would have said this is AGI.

And like, Siri is just as bad as it was in 2015. It's just remarkable. Yeah. Just to close a loop on this, Keith, what's your perspective on meta's sort of durability or defensibility or strategy going from? Well, as I mentioned, I think the approach is interesting because when you want any strategy,

whether you're a venture capitalist or an entrepreneur, has to take advantage. You want to leverage the advantages you have and maximize those. And so cash is one that meta has. And so trying to leverage that smart, but they still need the ability to ship products. So for Google's weakness has always been they just don't ship products. Like they have ideas, they have researchers, they have lots of money flushing around. But when is the last time Google launched an interesting product?

Gmail was pretty good. Yeah, 2008. 2004. Yeah, actually, that's right. So, yeah. And then, you know, when did they do maps, like 2005? Something like that. When did Brett do maps?

Like, there was something like that. And then, you know, they acquired some things like YouTube, whatever, but like launched a coherent product. Now, actually, Waymo would in some ways count, but it's actually won't help with this problem as far as I can tell. But like a true sort of consumer product, I'm not sure they know how to do it. Right. That's Google. And the meta of the question is, how defensible is there the graph that they've built? Well, I don't think the graph is defensible.

I think there are other assets that are. I think the graph has kind of been weakened by, like TikTok has kind of shown that on social products, the graph may certainly is not indispensable to success and may even be a handicap. Axe as you've moved from people you follow to a for you feed, which is the default and probably how all of us engaged with X has also made the graph fairly irrelevant.

Well, there's a question people ask about SORA, which is, hey, if your friends can make as good content as professional content makers, which is a big if, but maybe you want the best of both worlds, which is you want the social and you want the highest quality stuff. Ideally, but also Reddit. Like Reddit's a $40 billion marketing company, no graph. Right.

So I think the graph was very valuable to be clear. I'm just not sure it's valuable in the future. Let's get into real estate. Let's get into Open Door. A lot, we recently like Kazan as well. Why did Open Door lose its way? What were the mistakes that were made? and let's talk about how we're going to think. Well, there was two.

One was predictable. Venoed actually warned Eric and me about this in 2015 that real estate has a cyclical nature to it. And you need to make sure that your cost structure will be acceptable when you hit the lows of that cycle. So he's basically get as many variable costs built into your company culture and as low fixed costs as possible. And then you don't care.

So real estate, residential real estate, real estate, people's intuition on this is very, very off. At the low market, like when people think real estate's dead, four million homes transact a year. High in the market is six. So you have four to six million transactions a year. You need to build your cost structure that you can be break even or not, you know, incredibly unprofitable at four million transactions a year. And Eric and me collectively did not do that from 2015, 2019. So when the Fed started raising interest rates and it actually did raise interest rates six times in a very compressed period of time, which is the fastest rate of interest rate hikes.

The company then went from five and a half million transactions a year as a market as a tam to four and immediately started burning money. An extreme example of this that clarifies my point, I think, is what happened to Airbnb COVID the first month. Airbnb is a wonderful business. One of the best network-effect businesses, maybe the best at all time. 13% kind of margin, take rate, whatever. and all of a sudden, COVID happens, and nobody's traveling anywhere.

Companies had a very bloated cost structure, too, but nobody noticed because they're minting money. Nobody travels. Guess what? All that GNA is pure burn, and they almost went bankrupt until they structured this very complicated deal with Silver Lake, which saved the company. Open door had that problem, but less excusable,

COVID is kind of these true black swans that you really don't have to typically build your business taking account for. In real estate, you should take account for the idea that this would happen. So anyway, basically that's what happened. Open norm. Then secondly, as Eric decided you don't want to be CEO anymore, the board for a variety of reasons promoted this completely mediocre CFO, which is almost always a bad idea, to be CEO. And she went from mediocre to like the worst CEO in the planet. So the company for three years did every possible

thing you could do wrong. It still survived barely, but like literally the dumbest possible thing, partnering with the agents, shutting down innovation, hiring people overseas, adopting DEI writ large, every possible mistake, stupid-ass capital markets decisions, underinvesting in what we call AVM automated valuation, every possible mistake. So the good news is you can get like 10x value just by unwinding those mistakes, which Kaz is definitely doing.

You know, even his first month, I think he'll get half of those unwound, maybe even more, like just in one month because, you know, faster. But it's just like literally the more you dig in, it's kind of like Biden. You know, trying to cover Biden. It's like if I just stopped doing every stupid thing that Biden did, like the world would be so much better. And like, I don't have to really do any innovation. I just have to stop doing stupid shit. The immigration borders, the perfect example.

Like literally on day one, he's just, we're going to stop, like, enticing people to come here. And all of a sudden, like, border crossings go from like here to here, like, in 24 hours. So, like, that's like open door. It's like basically border crossings. Like we had Biden running the company. about as competently. So what's your wish, you know, in our last episode with Kaz, Alex flushed out kind of his Amazon for Homes.

Yeah. He says, why he got so excited about, you know, leading our investment in the company. What's your, where are you excited? Well, here's my, I'll give you the top-down thesis, which I've shared publicly before, is in 2017, I had dinner with Yuri and Max Lovett, Tim. And Yuri asked this question. He's like, what's the largest market cap company on the planet in residential real estate? And I assume there must be something outside the United States,

and that's why I was asking the question. Turns out of the time, the answer was Zillow at 18 billion. And it's insane. The largest asset class, period, that of 30, we've basically been innovating in technology, consumer technology, you've called it 30 years, like 1995, I'd say, to now, 30 years, that in the largest asset class in the world for consumers, that the largest market cap company that would take advantage of any technology would be to $18 billion, makes absolutely no sense.

Like, that's, like, insane. So our goal is to reinvent the process of buying and selling on a home. And if you do that, you're going to be worth hundreds of billions of dollars. Now, it's difficult to do that successfully, completely reinventing the process of buying and selling a large asset. But it's not impossible. Things that, you know, eBay did back in 1995 to 2003 apply to homes. Carvana has mastered this applied to automotive, which for a normal American, there's actually, sometimes people are like, oh, there's nothing like in common between autos and homes.

But that's often very wealthy people who have like a $40 million home in Palo Alto or Atherden. And they drive, you know, if they drive at all, like 100K car or something like that, Tesla or something. Most Americans have a 5 to 10 ratio, more like 10 now, but like a reasonable ratio between the cost of the value of their car and their home. So you're only talking about an order magnitude difference. And I think that we should be as valuable. And some of the things we do are very comparable to what Carvana does. We actually have less competition than Carvana. Carvana actually has been incredibly successful,

given that there were very significant competitors that were innovative that they were competing with. But it's a plus or minus a $40 billion company. And if we just get the same multiples on what they do, will be worth tens of billions to $50 billion. That's like the base case. I want to segue to fintech. You guys are among two of the best FinTech investors and founders, operators in the world. What is the state of fintech in terms of where are we active looking for investments and how we think about it, Keith, when you start?

Well, I think there's lots of promising fintech companies. It's always been difficult. The reality is I personally have a view that to be successful as a fintech innovation, you want an underwriting advantage and a distribution advantage. If you have both, then you can build a really epic company. If you have one, you might be able to build a pretty solid company, a firm, which we were both involved in. had both underwriting, misprice, certain kinds of people were mispriced, we're going to figure out a different way to underwrite

based upon other things, and a very clever distribution hack that other people have now copied, but basically it was very innovative at the time. And that's why a firm's, you know, a $25 billion company was still upside. But I think there's a rare to find. If you find them, the world's still open for innovation.

And it's not like the world's incredibly efficient around financial services. We have some very successful ones that have been built over the last five years, They now need to infuse more AI, but they're not predicated on AI. And actually kind of like that because you can argue there's an AI overinvestment sort of cycle going on. And arguably one way to kind of create a portfolio that's not as sensitive to AI evaluations is financial services innovation, which still requires distribution and innovation around underwriting.

There's also this kind of question of like there's bits and atoms, like you mentioned, Valmals cost disease, right? It's like, you know, plumbing, healthcare, like all of these things that are so atom-centric, that will be atom-centric for a long time until we have sentient robots or something. Whereas every financial services product that I know of, except for, like, the delivery of physical gold ingots, like, it's all bits. So there probably is a fair amount of upside for AI, but you still have to get the distribution, which is really hard. Like, consumer fintech products are so hard because, like, all of the, I mean, right now, just all of the economic rent goes to Google or wherever you find it from.

But for the ones that unlock distribution, it's like, number one, you can bring down the variable cost that you were talking about with AI. And then number two, it's like there are, I think there are so many things right now in the world, this is kind of my view on AI,

where it's like cost is here, just for any object, any delivery of service, and value is here. So if you just keep value here, like you're not trying to change the value equation, but you can bring the cost down, now you've unlocked a new market

that just didn't exist before. Yeah. And it's almost hard to articulate what those are until you see. see them. But like, it's like, oh, yeah, like people wanted that. It's like, um, you know, Square was a quintessential example that. Yeah. Everybody thought there was no market for Square. Like, really smart people, like lots of very smart people that we both know. Because you couldn't really prove that everybody really wanted except like credit pay,

credit card based payments. And so you actually gave them real people the option to do it. It made it so simple, easy, intuitive that they didn't have to think about it. And then it's mass on market. Right. Or like, uh, it's funny, I'm the board of a company called Wise. And Wise has shown that, like, the market, this kind of makes sense in retrospect. But, like, the market for real-time delivery of cash is just so much bigger than the market for, like, you get it two days later. Yeah, well, Cash-Up. This is the monetization strategy beyond Cash-up. Cash-up makes money now.

The reason why is people will pay for instant, quote-unquote, delivery. This has always been true in financial services. By the way, this is the magic behind Paypal's revenue model. We basically created an instant debit, effectively an instant debit or ACH product. back before people knew those in that language, and then we just charge the fee for the instant receipt of the availability of the capital. It's like FedEx time.

Fed's to financial services, right? It's like, you know, Frederick Smith proved this with FedEx. Yeah, versus the UPS. You paid 32 cents versus $10. There's priority overnight. It's like some people need it before 10 a.m. And like it turns out that's true for like a large, like countably infinite number of things.

So, but I think it just in general for like FinTech, there probably are going to be a lot of other service. Like, the banks, I love something that you tweeted. I think it was your PIN tweet for a long time. It's like how to disrupt a market. Yeah. Like, pick something with very low NPS. And, like, you don't get better by delivering one particular service of that.

Right. It's like, oh, here's a camera that attaches to your phone. No, that nobody wants that. You want, like, the better fully integrated service. So you vertically integrate. And this was Open Door, right? You could just say, here's a better AVM, automated valuation model. Okay.

Like, if you really want to get the whole value, I mean, like, would you rather be, at the heart of it is like, would you rather be Amazon, which has a very low gross margin on products that they actually store and sell, or would you rather be eBay, which has amazing high gross margins, but is the shittiest service in the world.

Nobody wants to buy it from eBay, because you don't know if you're going to get the product on that. You don't know if Eric Torenberg is going to ship it to me. Like, you want to buy from Amazon, and Amazon is worth $2 trillion, and eBay is worth like $40 billion. So, like, obviously Amazon is better, but you would misjudge that based on the gross margin classification.

Like, oh, VC is only like doing high margin things. And, like, I think that's one of the things that I really respect about you. It's like, do something really hard. It doesn't matter what the gross margin profile is. It matters, like, how much gross profit are you generating? This is the worst thing. There's lots of bad things you learn as an MBA.

Like, wow, it's like, in the modulus, this is the worst one. It's like the gross margin, especially percentage. It's one of the reason why, A, Amazon is successful. Stripe, actually back of the day, took this model, and back before more people understood this and said, we only care about the sliver of contribution dollars, not like the percentages. And everybody else was like,

oh, you've got to worry about this margin or that margin percentage. It's just like, are we adding incremental layers of dollars, actual cash? And that actually works really well. Yeah. And so to the extent that VCs have soured on the, you're not, been not as excited about the category in the... Perfect. Just send

them all to us. Keep being soured. Financial Service, terrible innovation. It's a very small market. Nobody likes it. Well, this is the part that I was saying to. It's like, how many people like their bank? And like a lot of these companies actually work because of regulatory cap chip. Right? Like if it was very easy

for Keith and I to start a bank tomorrow, yes, distribution is very hard, right? And underwriting is very hard. I'm pretty confident, at least in your ability, and to a lesser extent, mine, like, we would be able to get, we could build a very valuable company, but it's so hard.

Like the regulatory overlay on these things is so high, and that's part of what makes it challenging because nobody likes chicks. Yeah. And there's a saying that I love, which you've heard me use a lot, which is the best companies have hostages, not customers.

And, like, all the financial services companies, all the incumbent financial services companies, they have hostages, they don't have customers. And it just, it turns out it's very, even if you build a better product, a 10 times better product, it's still, like, the distribution is very, very challenging, but this is what the killer entrepreneurs can do.

It's like you find, and this is why, like, you know, New Bank did this for Brazil. Like, in many cases, it's geo by geo, just because the regulatory overlay is so high versus you build a software product. Like Microsoft Excel is Microsoft Excel for the world. There's no, like, Portuguese version of Microsoft Excel that only is sold in Brazil and Portugal.

It's a great opportunity. It's one of the best investments that are made is a company in Europe called Trade Republic. It's actually better than New Bank on any metric, actually. But it could only be done in Europe. It's not easy to translate what they do and why it's successful here. Robin Hood's a poor comparison here, but is the closest. But so you have to kind of arbitrage the GO2. because it's because of the law and regulation.

There's things that are easier actually to do in Europe. There's a reason why Trade Republic's better than Robin Hood because in Europe actually it's more permissive certain things. And then there's things that are much easier to do here. And so you need someone who understands, like, how to create a product and value problem, given the constraints, and where are their gray zones and how does it translate to customer value?

And so that's very difficult. But there's a lot. There's a modern generation, a financial service innovation. It's a little under the radar. I mean, people definitely are paying attention around. So, you know, like high-profile company, but even a company in our portfolio that I've invested in many times called Avan, most people still don't really know about. It's a great company.

And other companies called Imprint, great company, still fairly under the radar competes with two public companies. Actually, we sort of helped seed fund it back in a firm back when they were starting the company. A firm did a corporate, you know, sort of investment. Cool. Well, and that's the thing. It's like, you know, software, like I'm very confident that all of the banks cannot build software. will not be able to build software, will not build software. What amuse Devon?

So that's their best shot. That's their best shot, but they can't realize, like, if it turns out that software is at the core of everything, if software is going to eat the world, like, why hasn't it eaten financial services? It has around the margin. It's like the cool thing for Ramp is like it's like a net new market where it was kind of like there was a shitty version

of some corporate card something something, but it's like that wasn't the software. That was a financial product. Yeah. Once you marry it to a software product, it's 10 times better. Like you have vertically integrated that. And the incumbents can't do this.

They're still like literally in COBOL often. And their ability to attract talent is just like zero. Yeah. That's why Devin is actually arguably over time a save for them because they won't need to attract talent. They can use software to compete with software. And the software can write COBOL. Yep.

Yeah. We'll take the conversation full circle. We were talking about real estate. A real estate expert solved the Middle East. What does it say about the nature of expertise that, you know, a guy who is a, a tycoon in real estate and private equity, but didn't have a ton of, you know, foreign policy expertise, you know, initially or a trained background in it could be more effective than, you know, trapped experts.

Well, at KV, you know, from Veneta on down, we don't believe in experts. You know, Vina has a whole speech about how no expert has ever created fundamental disruption in any field. You can argue that maybe in the last 90 years there's one or two exceptions, but the fact that you have to argue about the one or two exceptions suggests he's right. So, like, for example, I don't like experts. like hiring domain experts in the companies I work with is pretty much a non-starter.

At PayPal, we had, of the 254 employees, we had in Mountain View when we went public, two, maybe three, had any expertise in financial services. At Square, if you included me, which is, I'm certainly not a prototypical financial services guy, of the first 300 employees, maybe two, had any financial services experience. So it's a pretty common formulation.

Airbnb, I'm pretty sure Brian, and Nate and Joe did not have any hospitality experience. So I think if you're going to reinvent an industry, you don't want experts. So the same thing is true in politics. If you want to solve a problem that's been intractable, at least since World War II, arguably for hundreds of years, but at least a modern era, been intractable.

You probably don't want anybody who's got expertise in the Middle East. You know, as Jared was maligned for, he just read books, which is a great idea. Actually, I talk about this all the time. People are like, where do you get your contrary ideas? I was like, I read books. like there's actually all the greatest thinking of all time is available to anybody you just have to read and the more you read the sharper you are because what it what jared talks about and i think is the common

formulation and we definitely apply this at kv specifically explicitly is asking the right questions so what books prepare you to do is to ask questions so when jared went to the middle east and got dispatched the first time he actually asked the people who are influential and important in the middle east like what do you care about and why once you understand understand that, you can navigate and find solutions. And that's the same thing. We teach all of our investments at KV is, if you ask the right questions, you make the right investment decisions. So when people join the team at KV, we don't actually look at their output. Like, are the companies great? We look at the quality of their questions. Vinod is adamant about this,

been adamant about this for like 40 years. Just the quality of questions tells you everything you need to know. That's a good place to wrap. You can just do things. You can just read books. I'll give you book recommendations next time. Amazing. Perfect. Awesome. Thanks for having me. Thanks for listening to this episode of the A16Z podcast. If you like this episode, be sure to like, comment, subscribe,

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