The Prof G Pod with Scott Galloway - Capitalism Needs Empathy

Episode Date: December 3, 2020

Nick Molnar, the co-founder and CEO of Afterpay, joins Scott to discuss the company’s ‘buy now, take now, pay later’ business model, how millennials' spending habits are changing, and Nick’s experience as an entrepreneur. Nick also compares and contrasts running a startup in San Francisco vs. Sydney. (7:48) Scott opens with his thoughts on the acceleration of e-commerce.  This week’s Office Hours: Airbnb and tax regulations, deciding whether to get an M.B.A, and why experiential retail can’t save every retailer. (30:54) Algebra of Happiness: the vulnerability of capitalism. (41:24) Learn more about your ad choices. Visit podcastchoices.com/adchoices

Episode 38, the atomic number of strontium, also the brand name of the testosterone I'm on. Why am I on testosterone? Because I am ego testicle. Go, go, go! Welcome to the 38th episode of The Prop G Show. In today's episode, we speak with Nick Molnar, the co-founder and CEO of Afterpay, the Australian fintech company you've probably seen while online shopping. Nick is a serial entrepreneur with extensive experience in online retail, and Afterpay is arguably one of the fastest-growing fintech companies in the world.

We discuss the business model competition and Nick's experience as an entrepreneur. By the way, this company, $27 billion market cap, hit a low of $9 and is now up towards $100. Two words, first cuss, second ching. Okay, what's happening? Let's get back to the world of e-commerce. All of the numbers are coming in regarding Black Friday and Cyber Monday, which took place this past week. According to Adobe Analytics, consumers spent $9 billion on U.S. retail sites on Black Friday. That's up 22% from the record set in 2019 of $7.4 billion. Adobe Analytics also reported that consumers spent around $11 billion on Cyber Monday. That's up 15% year on year. Over in the land of Shopify or the land of Nice,

i.e. Canada, the company hit a record 2.5 billion in Black Friday sales globally. That's an increase of 75% from sales in 2019. What does all this mean? You already know what I'm about to say. COVID-19 is an accelerant. Online sales grew as much in eight weeks as they had in the decade before the pandemic. And of all the companies, which company seems to have been built for a pandemic? You guessed it, the Seattle behemoth, Amazon. Karen Weiss of the New York Times wrote a piece detailing how the company's hiring spree is equal to wartime-like hiring.

The e-commerce firm employs 1.2 million people. I think that's the second biggest employer in the world just behind Walmart, or substantially behind Walmart, I should say. And by the way, it took them 25 years to get to half a million employees and then just a year to get to a million, hiring about 1,400 people a day. What else is causing the acceleration of e-commerce? Your mobile device. Another key finding from Adobe is that shopping via smartphones has skyrocketed. $28 billion more than last year will be spent using smartphones, and 42% of online

shopping this holiday season will be done from a mobile. That's up 55%. I'm going back to Shopify, back to Shopify, back to Canada, back to the nice people. The company reported that mobile sales on Black Friday were 67% compared to 33% of sales made on a desktop. Think about that. Two-thirds on mobile, one-third on desktop. Mind blown. We've seen a few developments in the smartphone online shopping space. Instagram announced Shops back in May where users can browse a company's products and make purchases. More recently, just in the past few weeks, Instagram redesigned its homepage and replaced the Activity tab with Shops. Now, who owns Instagram? You guessed it, Facebook. Let's

see what's happening over there. The Wall Street Journal reported that Facebook is acquiring Customer, with a K, a customer relationship management startup for a billion dollars. This is an effort to improve customer support done through Facebook's messaging services like WhatsApp and Messenger. By the way, what did they also acquire for one billion? Instagram, which by most measures is probably worth about $100 billion, if not more. The company said more than 175 million people contact businesses using WhatsApp every day. That's right. That's right.

175 million people contacting businesses via WhatsApp. Facebook made this announcement despite the fact that the FTC, the Federal Trade Commission, is likely to sue the company for anti-competitive behavior with its acquisition of Instagram or because of its acquisition of Instagram and WhatsApp. Facebook's market cap is around $820 billion and has a history of dominating the space it occupies through acquisition. So what's going on here? How do we wrap this? How do we put a dog bow on this? How do we put a collar around this bitch we're calling e-commerce? What is going on here? The way to think about it, the way to break it down, the way to get the 411, the way to distill it down to,

I don't know, strontium, is to think about it through the lens of one word. We've been talking about acceleration. Okay. You can wrap your heads around the concept that we're pulling the future forward. Take every trend in your professional and your personal life, take the slope of that curve out 10 years and ask yourself, are you there now? And how would that impact your behavior and investments? The other key word that helps encapsulate our thinking, helps us figure out how to allocate our most precious capital out as our human capital, our time, dispersion. Simply put, if you think about mobile phones, what we've done is we have dispersed data. We've dispersed media. We have dispersed movies and content to our mobile phone and to a lesser extent to our TV screen vis-a-vis Netflix. We have dispersed retail to first our desktops and now our mobile to the fact that we've dispersed two-thirds of online retail to our mobile phones. First, it was dispersed from the store to maybe home

delivery or click and collect. Then it was dispersed to the desktop and now to mobile. What's next? Probably a form of AI where you don't even, it kind of skips all of that and just disperses right to a fulfillment center. What else is happening under the great dispersion? We are going to disperse, if you will, $3 trillion in healthcare. We're going to disperse $750 billion in education. Think about the biggest sectors in the world. And what we see through the pandemic is a level of centrifugal force that is taking the way we register and create value and shareholder value, and it's being spun out closer to the consumer or specifically, specifically,

we're taking value out in businesses and we're dispersing them to the home. Whether it's someone showing up at my house every Thursday morning and putting a cotton swab in my nose in my kitchen, or the fact that I'm about to see Wonder Woman 1984 on December 21st as it's been dispersed from the movie theater to HBO Max. Think about your business. Think about the traditional channels of distribution. Think about the traditional channels and venues where that value is recognized, and then spin the center such that the centrifugal force takes the value add of your core business, of your core product, and spins it closer to the ultimate end user, dispersion. Stay with us. We'll be right back for a conversation with Nick Molnar from

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customer support. Ready, set, grow. Go to ConstantContact.ca and start your free trial today. Go to ConstantContact.ca for your free trial. ConstantContact.ca. Welcome back. Here's our conversation with Nick Molnar, the co-founder and CEO of Afterpay. Nick, where does this podcast find you? I am in Sydney, Australia, right near Bondi Beach at the moment. Oh, gosh. Sucks to be you. Congratulations on your good judgment and being the CEO and founder of a company that has a $27 billion market capitalization. If I'm reading this correctly, it's gone from $8 a share to about $95 in the last 12 months. So anyways, very good to be Nick. Let's kick it out. What is Afterpay? What is the service it provides? Yeah, so Afterpay allows primarily the next generation of consumers, preference being

the millennial and Gen Z cohort that has found a very deep love for our service. For round numbers, if you're buying a product for $100, the customer pays four payments of $25 every two weeks. We pay the retailer the next day, and then we assume all of the risk. Really stemmed as a result of the 2008 financial crisis, which was the start of the millennial cohort preferring to spend their own money, preferring to spend money on a debit card over a credit card. And the pandemic has very much accelerated that debit preference.

But in broad strokes, that's what Afterpay is about. Okay. So someone goes up to a cash register and the retailer says, you have the opportunity to pay with Afterpay, or are they already signed up? A bit of both. So, you know, the lion's share of our transactions now that take place with new retailers will be existing after pay customers. So, you know, in the last couple of weeks, we've gone live with Gap Inc, Lululemon, UGG, Adidas, et cetera. And they'd be very much north of 50% new to file customers that we can drive to these retail partners. So, you know, we're providing the retailer a tool to serve this next generation that's spending money differently. But we're also becoming a key source of marketing and new customer acquisition for these partners. If you look at many of the public similar webs or

otherwise, we would be the biggest referrer of traffic to the vast majority of our retail partners now. So there's always an argument over who has the power and who gets custody of the consumer data. So when people make purchases at a Lululemon, if they're a first-time user and they go onto the Afterpay platform? Do both parties share the data? Does one party have restrictions over accessing the data? Explain to me the dynamics between the two entities, Afterpay and the retailer. Yeah, so both parties share the data from the perspective of using you know, using the example of Lululemon, Lululemon get the exact same information that they would normally get when they make a transaction.

And most importantly, even when a customer goes to our Apple website to start their shopping journey, the transaction is still taking place on lululemon.com. So we're driving traffic out to those retail partners and, you partners and the relationship sits then between the retailer and that consumer. You tapped into something in terms of behavioral change. You don't just build a $27 billion fintech company by doing something a little bit better. What has changed about, what did you recognize in terms of consumer behavior that was changing among this core target that

other fintech companies or credit card companies hadn't figured out? Yeah. I mean, look, it was a really interesting journey. And I think my upbringing also kind of led me to this position in a way. So I sold the most jewelry online out of my bedroom at university. My family was in jewelry. I then was fortunate to grow up during the 2008 financial crisis and saw this trend where millennials just said, you know what? Like, I want to spend my own money. I want to spend money on a debit card, not a credit card. And when you think about why that's the case, if 100% of people pay back a credit card on time, the industry simply doesn't work. It doesn't exist. Incentives are completely misaligned. So saw this trend unfolding, but it was never very prominent in the overall market because disposable income earned by millennials was still relatively small.

Now that's starting to obviously get bigger. In five years' time, millennials will earn half of all disposable income in the economy. And as such, we're moving from a credit economy to a debit economy. 90% of AfterBase customers use a debit card, not a credit card. If you look at Visa's latest numbers in May, credit card spend was down negative 21% year-on-year growth, but debit card spend was up positive 12% year-on-year growth. This is a systemic change now beyond the millennial and Gen Z cohort, moving from a credit economy to a debit economy. And to be able to build a brand that can, as a result of the core product

you offer, say to that consumer, that next generation consumer, like, I get you. I understand your preferences. And I'm always there to be a win-win for you and to be in your favor. You know, that's been called a way we've built the brand. I think this viral customer unlock that's taken place. The mechanism is a debit card. The money comes right out of the account, but to a certain extent, it's not credit, it's a payment plan. While the payment comes out of there directly out of their bank account, they're saying, but give me four weeks and four payments to pay this back.

Is that accurate? Yeah, exactly. So our customers will use a debit card because they want the transaction to be linked into their existing bank balance. They're buying to smooth out their cash flow. They're aligning it to their pay cycle. But to be able to do that in a way where the moment someone goes late on one installment payment, we disable their account. We say you can't keep shopping. You know, on the reverse, the moment someone goes late on a credit card, their incentive is to keep you outstanding for as long as possible.

So our incentives have been the opposite, you know, which led us, you know, we built a loyalty program called Pulse that rewards responsible spending. The more consecutive payments you make on time, the more loyalty you unlock. So when you have a set of principles that are truly built on a win-win, that aren't the credit-driven economy principles, they're the debit-driven economy principles that's built on frequency, repeat purchase rates, that high velocity transaction that builds that relationship. We're just lucky that we have different motivations and drivers of our business that allow us to make those types of decisions. Well, to a certain extent, you've said that the customer is the retailer, not the late payer, right? The retailer gets a construct where it increases

their basket size, which they're willing to give you a portion of that increased basket size. It sounds like they like having a new customer. And I can see the network effect. It's all becoming clear now. And I wish this had become clear about, I don't know, $25 billion in market capitalization increase ago, but you now have 40 million people on the platform. How many people on the platform? About 11 million people. Sorry, congratulations, 40 cents. You heard it here first.

I'm projecting 40. That's going to be a pretty fat house on Bondi. Anyways, and then you can go to bigger and bigger retailers and say, I can push some portion of that 11 million people to you on this platform. Is that kind of the new business proposal is I'm going to send an email saying Home Depot is now on after pay. Is that kind of the new business process? If you look at our home market in Australia, where we started four or five years ago, we now process 15% of all online retail in Australia. And that is largely the blueprint that gives the market and also a lot of our retail partners the context of where we are today and where we're going. But in Australia, we're the second largest traffic driver for the vast majority of our retail partners behind Google. Customers are coming to our app or afterpay.com to start shopping.

So then to be able to translate that to the North American market, to Canada, UK, soon to be Europe and build a real global platform that stands for the next generation, you know, can be a source of traffic to unlock that consumer. It's top of mind for every retailer, you know, not just because they want to increase conversion rates and average order value, but, you know, they're kind of looking down the barrel of saying in 10 years time, millennial and Gen Z will be 48% of all retail spend in the economy, but it's a fraction of my current customer base. So if I don't unlock that customer today and say, I, you know, I deeply understand you, you have all these influencer brands that are building, you know, big, big businesses in these

niche categories, but now, you know now taking mass away from a lot of the retail market. And the traditional retail is leaning into this hard right now. So, all right. So what is it about, you think this generation doesn't want credit, they're more comfortable with installment payments, but they don't, is it they don't like, because to a certain extent, it is a form, I know you don't like the word credit, but it is a form of credit. You're saying, okay, pay over time. You pay us

back at some other point, but we're imposing the charges on the retailer, not on you. So I guess it's a transfer, if you will, of expense, which is, but you think there's a different mindset. Say more about that. If I just look back nine months, the pandemic started to unfold. I wish I could say it was my foresight, Scott, that brought me to Australia, but my wife was four months pregnant and we said, you know what, let's be near family. And the stock price went from $40 to $8. But there are a whole lot of structural shifts that are being spoken about. There's this offline to online shift that's being spoken about. There's home learning. There's a range that have been widely articulated. But what I'm the most surprised about is that this

fundamental shift from credit to debit is shift you know, shift from the credit economy to the debit economy is the most under talked about element. You know, that this is a structural shift that might take 10 years to play out because it's directly correlated with disposable income growth. And as people earn more money and their careers develop, they become a greater source of income and spend in the economy. But the shifts now are no longer just a millennial or Gen Z thing. This is the world saying, you know, I want to be more responsible. Traditional credit products are not in my favor. Their incentive is for me to be outstanding for as long as possible rather than to pay back on time as quickly as possible.

And, you know, it's that dynamic that has put us in what is a really privileged position. And it's up to us to now build that relationship and go from here. But there's a fundamental change right now unfolding across the whole world. So let's talk about that privileged position, which always attracts competitors. You've got a $27 billion market cap, you're growing. You've established this relationship with 11 million consumers who are not only valuable, but increasingly valuable to corporations and retailers, etc. What are the moats around your business? Is it technology? Is it the relationship with the consumer? Is it you're sort of this Peloton kind of meets Zoom, meets Netflix kind of hip younger brand.

When you think about the moats you're building around your business, what are they? Yeah. I mean, look, there's a couple of different components that are unique to our business. So firstly, we have a really strong, deep relationship with the retailer. And that is about providing them a payment product, but that is also about how can we be core to their marketing strategy? How can we be a customer acquisition channel? I mean, arguably, if we charge an affiliate fee for the leads that we drive our retail partners, we'd actually make more money than our payment processing costs. So it's about how you build an all-encompassing value proposition to that retailer. But on the other side, the most logical competitors,

and we saw this in the early days in Australia, we're now seeing this start to unfold in North America, just at a bigger scale. These are credit-driven products, businesses that started life as a finance company where their incentives are fundamentally different, and they're making a lot of income from revolving credit books. Who is that? Is that Square? Is that PayPal? Who is that? Who are the ones? Yeah. I mean, if you look at both of those examples, their products in our world have always been credit-led solutions. They've always been APR interest-bearing led products. And it's very difficult, particularly for the next generation that wants something that's truly in their favor to be credit on one side

and not credit on another side. So you've kind of got this hybrid world where you have competitors trying to produce an afterpay like product as a customer acquisition channel to cross sell them credit because that's the high margin solution. And, you know, that, that, that I think is where people that did start life doing credit checks, hitting people, like hitting people's credit file. They just create a very different relationship with the customer and their existing business models make it difficult to, in a pure way, come into our market.

So let's talk a little bit about Nick. So you are an entrepreneur. You're sort of, you started ice.com. I remember that. That was Diamonds and Julia Online, right? Yeah. And then you did this. So how old were you when you started ice.com. I remember that. That was diamonds and jewelry online, right? Yeah. And then you did this. So how old were you when you started ice? I mean, that's been around a while,

hasn't it? Yeah. So I sold the most jewelry. I started by selling the most jewelry on eBay out of my bedroom in Australia. I then reached out to the guys at ice.com in North America and I launched them into Australia. So that kind of taught me online retail. And then to cut a really long story short, my neighbor at my parents' place approached me one day and he said, I don't mean to pry, but I see your light on every night. And the next day I see you take parcels to the post office with your mother. What do you do? And I think the mother being involved in the parcel delivery made him feel like I wasn't doing anything notorious. But, you know, that led us to talk about, you know, this shift.

But starting life as a retailer, you know, building DNA within the business that, you know, came from a retail background that wasn't out to build a finance business, I just think has been core to the path that we've taken and the track that we're on right now. And have you lived outside of Australia with ICE? Were you in the U.S.? Yeah, I mean, I was back and forward from the U.S. I'm normally in San Francisco. So if I wasn't having a second child, I've been in North America for a couple of years. And

as soon as my son is ready to fly, we'll be back over. Oh, Nick, Nick, you got to learn the first lesson of being a successful entrepreneur. You sacrifice all relationships. If you have healthy relationships, that means your stock's going down. So compare, how would you compare and contrast the business culture, the society? San Francisco is sort of the helm of the bobsled for innovation in the US, and they would argue in the world. And then Sydney, my sense is that's kind of Sydney and Melbourne are kind of where the rubber meets the road in innovation or tech, at least, in Australia. Compare and contrast the two.

Australians as a – the culture and society of Australia is definitely about giving things a go. So supporting the underdog, trusting in kind of new. And I just think that the embracing by retailers in Australia was a lot easier to unlock than what we did in the US. And, you know, if I look then into moving to San Francisco and building a team in San Francisco, you know, you've got to understand, like, we've never been in tech crunch. You know, like, we don't, that's not what our business is about. You know, we work with Women's Wear Daily and Business of Fashion. And, you know, we are where our retailers sit. And so, you know, we got to the, you know, tech epicenter of the world. And we had to find the people that were the right blend of

science and art. And retail is art. Why does someone buy a beauty kit or a pair of jeans? There's a lot of psychology that goes into that decision. So we hired slowly in San Francisco. And we've now a team of about 200 on the ground in SF within two and a half years of being there. But I'd like to think that we've built, you know, as much of a culture that is similar to what we have in Australia, in North America. But, you know, we're not, we've tried to steer away from, you know, standing for tech crunch, standing for we don't talk at ourselves really as like a fintech. We're sitting in different parts of the retail ecosystem that unlock this opportunity. And if you were going to start, if you were telling someone, if someone had affinity and

lifestyle being equal and someone was starting a company, would you think that the US or Australia is a better place to start a company? Well, I think there's a lot less competition and are more willing to embrace culture in Australia, but the economy is still small. I mean, Australia is 25 million people. So when I'm speaking to Australian entrepreneurs, it has to be about Australians going global to really create that opportunity. But the top 10 companies listed on Australia, on the Australian Stock Exchange, are the exact same top 10 companies that were there 30 years ago. It's banks, mining companies, property companies. And so that speaks to actually a lack of entrepreneurship, but it also speaks to the size of the market and how you have Atlassian, you have Canva,

you have some amazing Australian entrepreneurs now starting to go offshore. And when we first announced that we were going to go from Australia into the US, our stock went down. People, oh, here's another Australian organization trying to go global. And then when we landed in the US, it was kind of like, well, you weren't founded here. Can you succeed? And both those things were really interesting to go through and to unlock. And I always ask as a last question, advice to your younger self, but I'm going to ask it differently because your advice to your younger self would be do everything exactly the same. Advice to, what advice would you give to a 25-year-old, say just out of college, maybe first job they don't love, say they're at a venture capital firm and they think this isn't it for me. What advice would you give that young man or woman?

Look, there's a lot of young entrepreneurs that are in a job and have a side hustle. You read all these reports that say Gen Z has a side hustle. They're all about the side hustle. I think it's very difficult to have a side hustle. And it's very difficult to rip the bandaid off and to do something full-time but you have to draw the line where you say this is real and i have achieved you know product market fit and i have the confidence to give it a go and that sometimes feels far away and you always push you always delay it you've always got an excuse that now is not the right time well actually, actually, I need to see more of this to unfold before I have the confidence. And if there are more millennial and Gen Z entrepreneurs in the world, I think that's a very good thing. Nick Molinar is the co-founder and CEO of Afterpay, one of Australia's fastest growing fintech companies and arguably its most successful

export. I mean, what you've accomplished here at the age of 30 is sort of, it's not remarkable is the wrong word. It's really, really inspiring. Nick is a serial entrepreneur. He's got extensive experience in online retail. He's got two children under the age of two. He calls in from, or joins us, I should say today from Sydney, Australia. Nick, congratulations on all your success and stay safe. Thanks, Scott. We'll be right back. Hey, it's Scott Galloway. And on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you?

And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robison, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So tune into AI Basics, how and when to use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. Welcome back. Let's bust into Office Hours, the part of the show where we answer your questions

about the business world, big tech, higher education, whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officehours at section4.com. Question numero uno. Hey, Scott, this is Jonah from New York City. I know how much you love Airbnb, but I wanted to know what you thought about the laws many big cities are passing restricting the use of Airbnbs? How do you think this will affect the business, if at all? My other question is, do you think taxes will be significantly increased for Airbnb, similarly to how hotels have high taxes from local governments trying to capitalize on tourism in their city? And if so, what will be taxed, the hosts, the guests, or the company itself? Thanks, Jonah. That's a great question. So in sum, Airbnb is guilty of

the same blitzscaling and ignoring traditional norms around being a good corporate citizen, and that is they don't file for business licenses as Uber did in Argentina, although I do think Airbnb actually does that. But the hotel industry, which is obviously very threatened by Airbnb as they have to actually go out and borrow tens of millions of dollars to build a hotel versus the asset light model of Airbnb, is going after Airbnb and sees them as an existential threat as they should. And one of the areas they're attempting to attack them and say, look, this is bad for the world, is that they don't pay their fair share of taxes. Well, actually, some markets, I don't know if it's all, but Airbnb has, in fact, started paying similar taxes or taxes.

Now, whether it ultimately gets passed on to the end consumer, the renter, or the host, I don't know. But at the end of the day, Airbnb, I believe, should pay the same taxes a hotel pays. Unless there is some excuse around infrastructure, or perhaps you could make an excuse that they have already paid for that infrastructure vis-a-vis the taxes that the owner pays. That is the argument I would make if I were Airbnb. But I think ultimately, they should be subject to the same good behavior as any other organization and the same taxes that any other organization is paying. This reminds me of the evolution of Amazon and state sales tax. And Amazon would say we're located in D.C., we're headquartered there.

And if we don't have a distribution center or headquarters in New Mexico, we don't have to pay state taxes because we're not actually operating in New Mexico. We're just delivering things there. So if you're a New Mexico resident, you could order on Amazon and not pay state sales tax, which obviously gave Amazon an edge over local retailers that had operations in New Mexico. But over time, Amazon threw in the towel and said, okay, we're just going to start paying state sales taxes. And I think that's what's going to happen here. If you think about Airbnb and where they have come under fire, the argument is it goes from individual hosts who are leasing out their apartment to make some extra cabbage. And by the way, about 70% of Airbnb hosts or 70% of the 7 million properties listed on the platform are single properties. In other words, the whole institutional notion of Airbnb is a bit overstated.

About 30% is institutional, meaning that it's controlled or owned by someone or leased by someone who has more than one property. And the average age is somewhere in the 30s and it's a woman. And she's typically making a decent amount of money here. It's not like Uber where they're literally creating a permanent underclass and using software to create a payday loan against your car. Anyway, in exchange for flexibility, which some drivers like. But anyway, what you effectively have here with Airbnb is that people are saying, okay, taking housing stock off the market ultimately increases rents in that neighborhood. There's some to argue that if people were coming in and buying or leasing properties for the sole purposes of turning them into Airbnbs, that would decrease the supply, rents go up.

But what it's also doing is making it less expensive to travel. You can get a one-bedroom or a two-bedroom apartment in a nice area for a lot less than what it costs to rent a hotel. And perhaps you can take your kids with you. If you have a family, if you're married and you have two kids, two or three rooms, you start talking about serious, almost prohibitive costs to travel. So Airbnb has kind of unlocked travel for a lot of families, I would argue. So what's going on here? I would argue that it's really just a transfer of value, if you will, from renters who will likely in some regions have to pay more in rent because the housing stock is decreasing to travelers who don't have to pay as much or will have more options as a supply and the choice will go up creating greater competition. But net, net,

I think we're winners here. I think this is innovation. Thank you very much for the question, Jonah. Next question. Hey, Scott. Elliot from Manhattan Beach. Love the podcast. Keep up the great work. You mentioned in the past that going forward, we will see big tech partner with universities to help validate the higher price tag at the undergraduate level. How do you see the MBA landscape changing going forward? Moreover, given the cost of an MBA, you had started at Haas's MBA program today. Do you think it'd still be worth it? Thanks. Elliot, thanks for this. I get asked this a lot. So it's situational. Okay. So first thing you got to ask yourself is what are

your opportunity costs? In other words, what are you doing right now? When I applied to business school, I just left Morgan Stanley and I was living at home with my mom and not doing, what was I doing? Not a lot, not a lot. I wasn't doing a lot. So my opportunity costs were pretty low. If you're making $150,000 a year at a good company, you're at AT&T and they like you and you have senior level sponsorship and you're getting options and you can see a path to the next position, okay, that's high opportunity costs. If you're killing it somewhere, you may not want to leave. The primary value of an MBA, the primary value of an MBA is the certification or the additional bump you get in your currency

in the marketplace and the subsequent earnings you will register over the course of your lifetime. So there's a big difference between going to Wharton and going to Joey Bag of Donuts MBA program. So one, did you get into a top 20 program? Two, what is your opportunity cost? Three, do you really want to go back to business school? Do you love learning?

Do you like education? And then finally, finally, what is your financial situation? Three, do you really want to go back to business school? Do you love learning? Do you like education? And then finally, finally, what is your financial situation? If your parents are putting you through business school, if you have a full ride scholarship somewhere, then yeah, it's not a bad place to hang out. Two years goes fast. A lot of people, one of the things I wouldn't think about too much is, well, do I really want to spend two years doing it? 24 months is a blink of an eye, my brother,

a blink of an eye. So it's situational. The quality of the program, your opportunity costs, your financial situation, and what's happening at your current company. Thanks so much for the question. Next question. Hi, Scott. This is Matt in Madison, Wisconsin. If you ever find yourself in Madison after the coronavirus is over and want to enjoy one of the truly great college town experiences of all time, I would gladly buy you a pint on the Memorial Union Terrace. Anyway, on to my question, which is to ask, do you think that stores like Macy's and Nordstrom's, other high-end brick-and-mortar retailers, after the coronavirus is over, have an opportunity to market themselves

and position themselves as a fun place to shop. Shopping on Amazon is expedient, it is convenient, but it is not fun. And so I'm just curious if you think that as the coronavirus ends and people are aching to get out and do things, that that might be a great opportunity for them to expand their brand after a decade of getting beat up by Amazon and other online commerce companies. Thanks very much, Matt, from Wisconsin. By the way, by the way, I almost was very interested in the University of Wisconsin at Madison, but made the mistake of driving through there in February and thought, there's no fucking way I'm going here. It was freezing, Matt. It was freezing. See if you can get on that, or maybe we're getting on that with

all our carbon emissions and global warming. Anyway, anyway, by the way, I'm probably going there next summer. I was planning to go there in August for the CrossFit Games. I am an old man who does CrossFit, and I just invested, believe it or not, in CrossFit. And so I'm excited to go to the games in large part because I want to check out Madison. So by all means, I will likely not call you, but the thought is there, Matt. The thought is there. The gesture, the intention, the good intention. You should receive gestures with the intention that they are given. And my intention to call you, even though I won't, that intention is there. Anyway, I'm fairly bearish on Macy's and Nordstrom. I don't think

your concept is the right one, but you picked the wrong venues. There's basically two reasons people are going to still go to brick and mortar. They're not going to go for products. They're going to go for people. They're going to go for service. But here's the thing. The Macy's Beauty Counter used to be an experience, but now Sephora is a better experience. The place you got sunglasses and eyeglasses out of Nordstrom used to be a great experience. But you know what's better? What's better? Warby Parker. And it's easier. It's so much easier to do a surgical strike and go 20 feet into a specialty retail store in Soho than to navigate your way into Herald Square and spend 10 minutes to get to your destination.

I believe, I believe that millennials and Gen Z will not shop in any store long-term that has an escalator or you're incurring a 15 or 20 minute tax on your time to kind of get in and get out. Has anyone else been scarred by your mother losing you in Bullocks and Westwood or JCPenney's in Culver City?

I was, and trying to figure out what doors you came through to get to the parking lot. So I just don't think that format works for very much longer. I think they'll milk those companies. Macy's has a really interesting tourism business. Nordstrom are some of the best operators in retail. But I think saying it's going to be an opportunity in terms of experiential shopping, unless they come up with something really interesting, maybe they could have kind of instead of store and store, like pop-up and store kind of

applications like the Frose Mansion or the Museum of Ice Cream, but they're going to have to do something because that format is really challenged. And I don't know if it's fair to say or realistic to say that their experiential attributes are going to save them. But I will see you in Madison, my brother. Thanks again for your questions. Again, if you'd like to submit one, please email a voice recording to officehours at section4.com. Algebra of happiness. I don't believe capitalism is going to survive in the current format. I think our current approach to the novel coronavirus illuminates the vulnerability of capitalism, the greatest economic construct in history that has created more prosperity than any other construct in history is not offering progress prosperity than any other construct in history

is not offering progress. What do I mean by that? We've had incredible productivity at the employee level. We've had incredible shareholder gains. And we have wages that are flat. And we have wealth amongst two-thirds of Americans that has not increased because we figured out a way to crowd all of the wealth and all of the prosperity into not only the top third, but the top 10 and sometimes the top 1%. And what have we done? What have we figured out a way to do with this pandemic? We have figured out a way fiscally to play this pandemic like a goddamn Stradivarius violin and figure out a way to get wealthy people wealthier. The two biggest asset classes are residential real estate and stocks.

And guess what? They're both at record highs. And who owns 80 to 90% of that? Essentially, college-educated white people in the top 10%. So even when we have a pandemic, we find that we have figured out a way to reward the already powerful, the already rich. Do you think that's an accident? It's not an accident. What's happening here? Patriotism used to be sacrifice, not stimulus. Crises used to be seen as a time when we pulled together all under the flag, grabbed each other's hands and helped the neediest. World War II, right? We were looking for a technological solution. So we went about trying to find how to split the atom and end the war. But we didn't stop converting companies. We converted a Chrysler factory in Michigan from

producing cars to producing tanks. And that factory produced more tanks than the entire Third Reich produced during World War II. We planted victory gardens. We put 5,000 people in jail for avoiding the draft. That couldn't have been easy. It wasn't like everybody just said, sure. We demanded more of people. Now we're afraid to ask people to put on fucking masks. What has happened to us? Capitalism doesn't work if it doesn't sit on a pillar, if it doesn't sit on a foundation of empathy. What does that mean? It means wealthy people don't take stimulus. It means wealthy people don't apply for a PPP loan. It means all of us put on a mask. People in World

War II slowed down. They self-limited their driving speed because they heard that rubber was in short supply. My mother slept in a makeshift bomb shelter that was the London Tube, and they passed out gas masks in the shape of Disney characters such that they wouldn't be afraid to put them on. They couldn't even imagine somebody saying that they wouldn't put on a mask because it threatened their liberty or tyranny. If we don't grab each other's hand, if we don't show greater empathy, if we don't start protecting people, not companies, capitalism implodes. It collapses on itself. Capitalism is not an organic state. It's not an organic state. It has to sit on a pool of empathy. We

have to have progressive policies, meaning that the top 0.1% shouldn't pay a lower tax rate than the rest of us. If you're lucky enough to be in the 0.1%, what kind of humanity does that show when you tolerate a system? And let's be honest, the 0.1% elect probably 50% of the 100 senators. Money is just a transfer of wealth and time. And we've decided that we want to transfer time and work from our kids and grandkids, such that we can ensure that wealthy people do not pay their fair share of taxes. And we still issue reckless spending in the form of stimulus to a lot of people who, quite frankly, don't need it. See above greatest savings rates in history. When do we start caring more about each other?

When are we willing to say, yeah, I don't need stimulus. Yeah, I am going to wear a mask. Yeah, I am going to reach out to people I don't know and try and help. And they are out there, but we haven't institutionalized it. We've elected leaders that have decided that our sole goal as a nation is to turn the 1% into billionaires instead of giving the other 99% a chance to be in the 1%. What is empathy? First and foremost, it's taking care of yourself. You can't, you have to put on your oxygen mask first. You can't help other people. You then make sure your family and your friends are okay. You show generosity, you show grace,

you show forgiveness. And then the gangster move, the gangster move is you commit to helping, whether it's through time, treasure, or talent, people who you will never meet and who will never thank you. We will be judged by our creator, our friends, and society by the actions we took or didn't take during a crisis. We are in that crisis. How empathetic are we? How loving are we? Capitalism can't survive unless it sits on a base of empathy, regard, and a comity of man. And we have demonstrated very little. Our producers are Caroline Chagrin and Drew Burrows. If you like what you heard, please follow, download, and subscribe. Thanks for listening. We'll catch you next week with another episode of The Prof G Show from Section 4 and the Westwood One Podcast Network. you're 33 is that right i'm 30 yeah oh fuck you seriously man seriously that's awful

that is that's unforgivable oh my god if i had your hair your wealth and your accent i would be general consulate of the world i would would literally be running most of Southeast Asia by now. Anyway. Okay. So a lot of gray hair here, Scott. So yeah, cry me a river. gets you. Deliver that feeling to your customers every time. Klaviyo turns your customer data into real-time connections across AI-powered email, SMS, and more, making every moment count. Over 100,000 brands trust Klaviyo's unified data and marketing platform to build smarter digital

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