The Best One Yet - Airbnb’s investment in the WeWork for housing — Amazon’s JEDI business ethics — The Volker Rule

Episode Date: December 10, 2019

Yesterday we broke down why Airbnb shouldn’t acquire a competitor — now they just took the first step in acquiring another called Zeus. Amazon lost the $10B JEDI contract with the government, but its fight against the decision reveals what business ethics are all about. And former Fed Chair Paul Volker passed away, so we’re sharing his 2 biggest financial lessons.Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is snacks. Daily is Tuesday, December 10. We're coming at you live from my living room. We decided to record a moment. We got a company offsite layer today, so we didn't even head into the office. Still happen to make this the best snacks daily we've ever done.

Jack, can you get me a tea over there? Nick, why are you not even wearing socks? First story. I never wore socks on my eyes. All right. We're talking about the Jedi contract, which is the super secret cloud government contract that Amazon just lost. Lost it? They did.

But the Bezos has striked back. He filed the complaint. with the federal appeals court. Snackers, it's an opportunity for us to talk about the ethics of business, which is a very specific type of ethics. The second story, yesterday we covered hip camp, which is the Airbnb for camping and why Airbnb should not acquire hip camp. Now they've invested in another company. This is the dating approach to rivalries. Third and final story, Paul Volker is the former chairman of the Federal Reserve. He just passed away. So we're going to look at his two biggest legacies, aka financial lessons for millennials.

You should give a vocabre about this. It's a, it's a, it's a, It's a big deal, really good stuff. Now, Snackers, before we jump into all that, we've got to talk about the evolution that we're watching happen live in front of our eyes. If you want to know how American tech has evolved, just watch all those Apple product on this. Do you remember the one-inch-thick iPhone charger? That was like the Neanderthal of iPhone charges.

You could use it to, like, wedge open a car door. And there's still all those Bose speakers that only connect with one of those one-inch chargers. You've also got like the USB 3, the USB 3, the USB 3. the USBC, like a USBC 2 courts, there's so many USB courts. I can't stand when Best Buy is like which USB, I don't know. I just know it's a USB. I thought the U was for Universal.

So the latest charger that all the recent iPhones have is called the Lightning Port. It's actually the coolest name for a charger probably ever created. It's the tiniest little charger that you plug into your iPhone. But new reports from top analysts speculate that Apple's next iPhone, the iPhone 12, is going to have no lightning charger whatsoever.

You can't plug this thing in. They're differentiator for. for the most expensive iPhones to get you to splurge three rents worth for a single phone. It's going to be that there's no charging cord needed. And we know what you're wondering, Snackers. So how are you going to charge this thing without the old lightning cord? It turns out you're probably going to put this near a wireless charging situation. Apple wants to make wireless charging potentially the standard.

So you'll never have to plug in your iPhone for anything. We also know what you were thinking. How does this work? The answer is magic. I don't get how electricity is going to travel from this charger to. your phone through the air without harming human beings. Jack and I were trying to diagram this thing earlier. We assume you get electrocuted at some point.

Isn't this what lightning is? That's what lightning is. We think this is lightning. Yeah, so don't wear tinfoil on your head when you're charging your iPhone. The next question is, did we even want this and do we want this? Yeah, you know you're going to have to buy a whole bunch of new adapters. Your Bose speakers are going to be obsolete. Apple's like a trainer who's saying do a million pushups.

You're like, I'm just trying to like get my blood going for a warm up here. Apple, before you kill the lightning charger, do this. some research and figure out if humanity wants the lightning charger gone. And so on please explain how the black magic on this thing works. You're tuned in the snacks daily. We spoke to the lawyers and we got to get something legal out the way. The snacks about to hear ain't food. It's air candy.

They don't reflect the views of the robberhood family. It's all informational just so. We're not recommending any securities. It's not a research report or investment advice. Not an offer or sale of a security. Right. Snacks is digestible. Business news for you.

Robberhood Financial, LLC, member FINRA slash SIPC. For our first story, Amazon just issued a formal complaint. Amazon is appealing the Trump administration's $10 billion Jedi contract, which Amazon lost. Snackers, let's say you're not sitting in your car on the treadmill or whatever you're doing right now. Let's say that you're a nuclear warhead. And let's say you have some very sensitive and secret information about the pitch of the nose of your nuclear warhead. Right, you're a very reflective nuclear warhead. you've been looking in the mirror and you notice that your nose, the missile part, is like at a 38.2 degree angle.

Let's say you have a chaperone who is like the general of the U.S. Army. And he doesn't want anyone else knowing that your nuclear missile knows is 38.2 degrees. Well, that's some critical data. In fact, it's one little piece of data among a lot of data that the Defense Department knows and needs to protect and store. Yeah, I think you should require a password before opening up that PDF. That's definitely a two-key, like, turn-the-key situation before people. will know that. So the need for highly intense secure cloud computing, that leads us into this story. Right. The Defense Department, the Department of Defense. It's got a lot of people interacting with all

that data. They've got like 3.4 million users, essentially. There are 4 million devices that the Department of Defense has. Most of these we're assuming are like Blackberries, like clickly, clickly, click, click, click, click, like. And like old school Dell computers. Very charming. And they also have 1,700 data centers. So 3.4 million users, 4 million devices, 1,700. data centers and loads and loads of super sensitive PDF. So if you're the Department of Defense, you're thinking, okay, that data about the 38.2 degree nose of the nuclear warhead, we need to protect that somewhere. We need to keep it like, I don't know, maybe in the cloud.

So last year, the Department of Defense told the world that it has a job. It needs a little help here. It needs help. Hey, college seniors, what are you doing? We got something for you. It needs an offer from all the big tech companies on sweeping cloud computing service. for all of that data that we just talked to. And they were going to pay you $10 billion to manage all that data in the cloud for like 10 years.

Now, Microsoft won that contract, $10 billion over 10 years to handle all the Department of Defense's data. But here's the thing. Amazon Web Services didn't win, and they were kind of expected to win this. They very much were. So Jeff Bezos and Amazon announced yesterday that they are appealing the decision by the Department of Defense. They believe that President Trump sabotaged Amazon's bid because President Trump really doesn't like Washington Post, which is owned by Jeff Bezos. So now Amazon's gone to the courts and they're saying, hey, the Trump administration acted unlawfully. Can you do something here we kind of want in on this $10 billion contract?

It's basically like when Bill Belichick throws the red flag on the field and said, I want to instant replay this thing. Please overturn your decision and think about this. Did I mention on Bill Belichick? Don't laugh at the sweatshirt. All right. The legal crux here is whether you. Trump administration's decision was arbitrary and capricious. Because government actions, they must have some kind of rationale.

They can't just be based on like a personal beef situation. So, Microsoft won the Jedi contract and Amazon is appealing. But now let's talk about business ethics. So business ethics are fascinating because here's what they're not. Whether sexual harassment in the office is okay or not okay. Whether discrimination of customers based on race, gender, any other things is okay. Whether you should buy stock of your company based on insider and information or not. The answer was E, all of the above, none of those are okay, and those aren't

even business ethics. Those are just black and white. The answer is no clearly to all of those things because they're illegal. Ethical questions are about the shades of gray in between that probably are legal, but are they right or are they wrong? So, Jack, what's the takeaway for our buddies who are dealing with business ethics over at Amazon right? Should tech companies do business with clients that are at odds with their values? Snackers, this is the big fundamental question tech is facing right now and is going to be big in 2020. Exhibit A, Google. Google is thinking about launching a censored Google search for China. Google is a leader of information transparency. Should it let China block the search results that it doesn't want its civilians to see?

Should Amazon, whose employees aren't fans of drone strikes, let the government use its servers for drone strikes? Nick, should Peloton, which wants to target affluent women with its $2,000 spin bikes, should they make an ad that seems stereotypical in reinforcing of gender stereotypes? When they know that's their target demographics. Snackers, these are the big questions that define business ethics. They're legal, but it's not clear

whether they're right or wrong. It's great. For our second story, I gotta be honest, I'm exhausted after that first story. That was a heavy episode. Jack and I need to sit down and have a drink and talk to a therapist after that first story. I am icing my brain.

In the meantime, our second story, Airbnb, just in business. invested in the we work of corporate housing. It's called Zeus. This sounds like a heavy story, too. Snackers, it was a slow newsday yesterday, so we found these great stories. We hope you're ready for the ride. This was a punchline to a Silicon Valley joke. I'm applying for a job as a product manager at the Uber for Lifts, which meets Pinterest. So, Zeus Living provides corporate housing for extended stays, and it just raised $55 million. And here's how the business model works. It's actually pretty simple. They take homes that

rent out for $5,000, and then they rent them out. For $6,000. Sounds like a winning deal. You take the $6,000 and you subtract the $5,000, boom. That's the entire business of Zeus. It specializes, though, in corporate employees who are, like, living away from home for whatever. All right. So let's say you're Lauren.

And you've been working really hard on these toy lightsabers over at Disney, your employer, because you've got to make sure that the blue of the lightsaber looks really blue. And you need that sound. So you just relocated, though, from Disney World because job well done at Disney World in Orlando. It's great. Always sunny in Orlando. though, humid heat. But now Disneyland needs the same job done, so you're going to have to live in L.A.

for L.A. for L.A. You're adjusting, a lot of juice cleanses. It's a different life, different wardrobe. So before Zeus Living came around, Disney might put Lauren in some random Airbnb or some really boring corporate housing building. Instead, Zeus comes along, makes it super easy for Lauren to sign up and pick her own spot, and then she walks into an apartment unit that's, like, decked out with user experience. You got a brand new Helix mattress.

You have beautiful parachute down bedding. You got wood and metal to give you that industrial millennial chic ambiance that you want. It's inspired by Westtown, but it looks like a millennial exploded in the place. Lauren finds the spot on zoosliving.com that she loves. It's auto expense so that Disney pays for the whole thing. It comes clean. You're posting this thing on Instagram. You're bragging that Disney is great.

Yeah, someone's even cleaning it every week. So if you're Lauren, you get to brag about this to all your coworkers. If you're Disney, you get to pay less for putting up Lauren in a new spot in California where she's only going to wear black jeans. And if you're the property owner, you're getting paid. For making all of this possible, Zeus made $100 million in revenues last year, which is up 300% from the year before. They are managing this.

And if you're thinking this sounds a lot like WeWorks business model, it is. It's basically the same thing. Except for living, not working. Which is a distinction between Airbnb and Zeus. Airbnb does something similar. It's called Airbnb for work. But Airbnb is just a platform that takes a fee for being a middleman. Airbnb is the middleman. Zeus, though, is a landlord. It's actually managing the property.

Zeus signs long-term leases for properties. Then Zeusifies the whole thing with those millennial tastes we told you about. But they're on the hook for finding renters. Airbnb is the platform. Zeus is the manager. They're different even though they sound similar. So, Jack, what's the takeaway for our buddies over at Airbnb and Zeus? Airbnb is dating Zeus right now. It's not ready to pop the question and drop the A word. Snackers. We just mentioned how Airbnb has a competitor. It's called Airbnb. for work and it basically does like the same thing as Zeus. But by investing a few million dollars in ZUS, Airbnb gets to become friendly with a potential competitor for cheap. Right. So maybe it starts

promoting Zeus in its own feeds because it's like, hey, we want to like, you know, we've invested in Zeus. We want to see them succeed. Yeah, maybe Airbnb for work isn't for you, but Zeus is the better option. Airbnb can actually see how many people are clicking on that Zeus link. Right. So they're getting insights because, you know, they're friendly. They've invested in them. And then after like a year when they've collected enough data and figured out, is Zeus marriage material? Is it the right one? Then it could pop the A word and try to acquire Zeus. This is like before moving in, it's the key step and Airbnb is doing it.

Prudent relationship moved. But whether the government should allow Airbnb to acquire competitors like Zeus or like Hip Camp like we mentioned yesterday? Exactly. That's another story. For our third and final story, we want to talk about Paul Volker, who just passed away yesterday. This is kind of a snack-style obituary into a highly profound economic and financial leader. From a different era, we're bringing up his biggest lessons from history that, like,

dominated the 20th century. Our man, Paul Volcker, was born in 1927, great year, same year as my grandfather, in Cape May, New Jersey. Grew up during the Depression. Tough time. And he was 18 in 1945 when World War II ended. He worked his way up to become chairman of the Federal Reserve. of the United States, our central bank. And he had that position for eight years, and his two biggest policy lessons were actually dramatically different from each other. We're talking about like the 1980s here, people. So we're going to jump into both of them.

All right, lesson number one from Paul Volcker. Inflation used to be real, and inflation can be deadly. Okay, the late 1970s is when Volker took over the Fed. All right, there's like a lot of sideburns, John Travolta, a lot of dance moves, stuff like that. Saturday night fever and the Bee Gees were huge. but so was inflation. It was flaming hard.

It was the result of too much demand, not enough supply. When you have too much demand and not enough supply for the entire economy, your brain should be thinking imbalance on this one. You get something called inflation. And in 1979, the average price of everything in the American economy increased by 13%. Here's an aggressive and completely embellished analogy. You'll walk into the store to buy a 13 cent banana and find out it's $20. Yeah, there was some artistic liberty for this podcast.

Yeah, we rounded up aggressively. So as Federal Reserve chairman, Volker had to do something to stop inflation, and he jacked up interest rates to almost 20% to do that. That wasn't just like a little bit of math on the side to make things happen. That was putting a fire hose up to the fire that was inflation, scaring people with like $20 bananas. Thanks to that decisive move, though, it killed the inflation problem and like restored faith in the economy. Key lesson number one from our man, Paul Volker. Lesson number two, banks shouldn't be able to gamble with customers' money.

Snackers, if you listen to bank ads on TV, you always hear the really fast fine print at the very end, FDIC insured up to $250,000, blah, blah, blah, blah. That's actually a really big deal. It's key. You got to listen to that. Federal deposit insurance. It means if your bank, you know, totally Fs up and goes bankrupt, your money is okay. The federal government will guarantee it up to $250,000. So banks with a government backstop like this, they probably shouldn't be gambling.

With the money, you've left in your, like, nice little checking and savings account to just sit there. Think about it. You got money sitting in your checking account. Should your bank, which knows your money's just sitting there, should it be able to take it and, like, buy Netflix shares to try to make money? No, it probably shouldn't be doing that. That would be kind of aggressive. And that's why Paul Volker advocated for a ban on proprietary trading, which is what that would be. Right.

That would be when banks use customers' money to make money themselves in, like, wild things. And so he helped Congress pass the Volker rule. great name, not surprising, kind of ended up with his name. Back in 2010, after the financial crisis. Exactly. So, Jack, what's the takeaway for our buddy? Paul Volker. One of Paul Volker's lessons is irrelevant to us as millennials.

The other is hugely profound. Okay, so the lack of the Volker rule before the financial crisis kind of helped lead to the financial crisis. Right. And that led to the government having to bail out the big banks. And it also led to a giant recession, which made it tough to get jobs. That's why that Volker rule that prevents banks from doing some fun side trading on their own with your checking and savings money is so important. And that's why it's so relevant to us that it has to be there.

But the other Volker lesson on inflation pretty much isn't relevant that anymore. We have had 10 years where inflation has been pretty much non-existed. It's been zero since the financial crisis. There's this new economic situation where inflation just isn't there. So Volker's like main lesson has lost some relevance. Because there is an inflation right now. that's why you're seeing one or two or three percent interest rates. Not 19 percent like Paul Varcker did in 1979.

Jack, can you whip up the takeaways for us over there? Amazon is appealing the government's Jedi decision, which went to Microsoft. Whether Amazon ends up working on the project or not is an ethical choice Bezos has to make. Airbnb just invested in a competitor that's specializing in corporate housing. Consider this at first date. Don't rule out Airbnb eventually acquiring zoos popping the question in the future of the big A word. Paul Volker just passed away, and he's left us with two big policy lessons. Inflation can be dangerous, and banks shouldn't gamble with your money, basically. Now, time for our snack fact of the day.

We've got a return snacker on this one, Jack. Haley from Dallas, Texas. Haley! We love your snack facts. This one was good. Haley just pointed out that Nutella, the delicious toast spread, made in Italy. arguably are not a breakfast, debatable. Oh, it's definitely a breakfast.

Definitely. Nutella was invented during World War II. because Italy at the time was so, like, tightly resourced. It had to ration chocolate. So it ended up mixing in hazelnuts just to, like, save the chocolate. One of the few times in history that, like, watering something down resulted in a better product. They diluted the chocolate with hazelnut, and they got Nutella. Let me put a little water in this grape juice.

Oh, wait, now it's rosé. I remember studying abroad in Italy and being like, there was a little too much nut in a little bit of everything. Snackers, thank you for snacking with us today. tomorrow's pod is coming back better than ever. It'll be a T-Boy. It's going to be a T-Boy. This is Jack. I own stock of Amazon and Options of Peloton. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood Markets Inc. or any of its subsidiaries or affiliates. The podcast is for informational purposes only, is not intended to serve as a recommendation

to buy or sell any security and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the basis of any investment decision. Robin Hood Financial LLC member FINRA SIPC.