The Prof G Pod with Scott Galloway - Long on Humanity

Episode Date: April 9, 2020

Scott Galloway discusses education in a post-corona world. He also sits down with Tim Armstrong, Founder and CEO of the DTX company, to discuss technology, DTC winners and losers, and leadership during COVID-19. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Professors and graduate institutions across America are some of the most noble professionals, shepherding our next generation to a world that pursues truth, integrity, and a better tomorrow. No, we're not. We're a bunch of whores preying on the hopes and dreams of the middle class. DJ Griffin, play that funky music. Post COVID-19, nothing will ever be the same. Previous sense is bullshit. Things will probably be more the same. And that is things will just accelerate.

The future is going to happen. It's just going to happen faster. COVID-19 is more of an accelerant than it is a game changer. Let's talk a little bit about post-corona, as we will, in the next few episodes of Prop G. Let's talk about post-corona and higher education. First off, higher education, we like to position education as the great leveler. It's not. It's a caste system in the United States where we have decided a few remarkable kids rub Vaseline over the lens of a caste system. And that is we've decided that the best companies in the world recruited the best schools. Who do we let into the best schools? We let in the kids of rich people such that who gets to be the innovators moving forward and go to work for Amazon and Google and

capture the largest share of the spoils of a productive economy where wages haven't gone up, but incredible stakeholder and shareholder value has been created. Where does that trillions of dollars of incremental wealth go to? Bottom line, it goes to the children of rich people. And the primary vehicle for this caste system has been higher education. How do you know we're ready to be disrupted? Simple. the disruptability index is a function of your ability to increase prices faster than inflation without having any underlying increase in productivity of the product.

And that's what we have done in education. Compare us to technology, where every year processing power gets less expensive, the product gets better, and we charge less for it. And that is why software and technology continue to capture more of the economy every year. And in education, we've been able to raise our prices faster than inflation because we've largely preyed on the hopes and dreams of the middle class, promising them that if their kid gets certified by a world-class brand institution,

by the way, strongest brands in the world are not Apple and Amazon, they're MIT and the Bocconi and Oxford. No one gives $100 million to have a building named after them on the campus of Google, but they will do that at Harvard. These are the strongest brands in the world. But I digress. What does our primary value add? We don't educate as much as we certify. And that is the department in graduate institutions that are responsible for our onerous prices and our ability to raise prices faster than inflation is the admissions department, specifically the admissions department that turns away 90% of our applicants. I don't care how amazing Hermes is or that Birken bag. Even Hermes doesn't turn away 90% of their consumers.

They create an illusion of scarcity by occasionally telling someone they have to go on a waiting list, but there is no luxury brand that turns away 90% of consumers who want that Panerai watch, want that baton bag, want the new Gucci pair of loafers. We are the ultimate luxury brands. And unfortunately, academics have transitioned from being public servants to luxury brands. Why? Like everyone else, we want a house in the Hamptons. We want money. We want to drive a Lexus. So as a result, we have starched out all the surplus margin. The surplus margin was extraordinary when I was going to business school. My total tuition at the Haas School of Business, total tuition both years to get an MBA, $4,000.

So let's look at some ratios. Total tuition was $4,000 when I graduated from 1992 and got an offer from consulting firms. I interview really well. What a shocker. Despite getting mediocre grades, I had a lot of job offers. I was offered a job for about $100,000 in consulting. Take that times 4,000 tuition, and you have a ratio of 25 to 1. Now,

the average graduate of the Haas School garners $140,000 in salary, but their tuition is closer to $100,000. So the ratio has gone from 25 to 1 tuition to average starting salary to about 1.4. Let's talk about houses. My first house in Potrero Hill was $280,000. Times $100,000 or divided by $100,000 average starting salary out of business school in 1992. And you end up with a ratio of 2.8 to one price of housing to average salary.

Now let's look at it now. The average salary is $140,000. That's a lot of money, but the average home in the Bay Area now costs 1.4 million. So we've gone from a ratio of 2.8 to 10. If you see a theme here, which doesn't make any sense because our economy has mostly been deflationary over the last several decades, is that we have basically orchestrated an economy that, what is the word, fucks younger people. And that is we continue to facilitate a transfer of wealth to our wealthiest generation history, specifically seniors through this $1 trillion social service giveaway program called Social Security, where two-thirds of Social Security recipients don't

use it to alleviate poverty, but to upgrade from Carnival to Princess Cruises. But I digress. Younger people have to pay much higher health care, much higher housing, much higher prices for education, and their wages have not gone up. So we have affected, if you will, the greatest transfer of wealth in the history of mankind, essentially from the young and middle class to the old and wealthy in America. So back to education, back to graduate education. What might happen here? Corona might in fact be the spark that lights the disruption fire, if you will. Do you really think, do you really think that I'm going to be teaching, as I am scheduled to do, 170 kids in brand strategy, marketing, GB 2365, and KMC's building 260, which is a Greek theater style classroom.

Do you really think the 170 kids that have enrolled in this class for the fall, that we're going to let them show up and we're going to shove 170 kids elbow to elbow next to each other this August? Do you think that's really going to happen? It's not. What happens? I think there are very few of us watching Fox television at graduate institutions across America, and I think it's unlikely we're going to decide to reconvene in the fall without serious distancing. What does serious distancing mean? It means remote learning. What happens? What is the next stage of this disruption around distance learning? ridiculous how much little Johnny's third grade teacher is charging or that private school you send them to is charging for a series of substandard Zoom classes. Wait till you see the reaction we're going to get from students and parents when we send tuition bills for $68,000 to host a bunch of marginal Zoom classes on cost accounting from a guy who should have been put on an ice flow about 30 years ago. So what's going to happen? Universities and academics are still

going to want to make money. They're still going to want to sponsor research, and some will be able to. Now, how will they do that? They will be forced to lower the prices. The cartel will be broken. But what will happen? Universities, or what I call the 15 top 10 universities in business education, will be able to replace that reduction in average order value, if you will, because tuition will collapse, so the price will have to go down. But we'll be able to replace that reduction in average order value, if you will, because tuition will collapse or the price will have to go down, but we'll be able to dramatically expand or compensate for that decline in average order value through volumes, specifically technology-enabled volume where we still go to campus, but we don't go to campus as often. And MIT, with the help of Google and a bunch of new venture-backed SaaS startups, will say,

we're not going to welcome 3,500 students to campus in the fall. We're going to welcome 35,000. And that won't happen overnight, but it's going to happen a lot faster than we think. And we think universities will latch onto the deepest pocketed players in history who understand technology to dramatically, dramatically expand their enrollments such that they can maintain lower prices and still continue to pay their professors. You're going to see a massive increase in the compensation among the top 1%. Just as LeBron James and Serena Williams capture more compensation every year of the total pie, you're going to see the top 1%. Every university has five or six ringers that are

outstanding teachers. You're going to see them make three to five X what they're making now. Everyone else will make less. There'll be some administrators that will basically reshape themselves and reinvent themselves as product managers and interface between those tech companies and also make more money, but everyone else will make less. Second tier universities, if you're a Fordham, if you are a Pace University, you're going to get kicked in the nuts. And it's likely you not only won't reopen in the fall, but a lot of these universities just may not reopen, period, because the cartel will be busted. There'll be more demand-based pricing. There'll be more pricing that's a signal based on the quality.

And Boston College is not going to be able to charge the same tuition as MIT. You're going to see a lot of universities go away. You're going to see the best professors make a lot more money. You're going to see the best administrators make a lot more money. The other 90% make a lot less. We're going to see tremendous spoils aggregate to the tech companies that help enable a $10 trillion industry's transition to a digital age in the great dispersion. What's the net-net of this? What's the net-net? In my sophomore year at UCLA, I fell in love for the first time. I learned my limits. I joined crew, or actually I should say, I learned that my limits weren't in fact my limits after rowing for 2,000 meters and at 800 meters

feeling I was going to faint and realizing I could push myself a lot harder than I'd ever imagined. I realized I wouldn't be a doctor. I failed chemistry. I became less insecure about my insecurities, and that was I took intro to psychology. And I also developed resilience. I had my heart broken. All of these things were wonderful to take place or to have happen in a safe place. I'd like to think these things would have happened regardless, but nothing can match them happening in what is a safe and joyous environment, and that is the traditional liberal arts education or campus-based education. There is going to be less access for middle-class kids to that wonderful, joyous experience called the four-year campus-based liberal arts education. Traditional land-ground campuses will become like the Four Seasons.

They'll still be around. You'll know someone that stays there, but it'll mostly be the playground or where the rich stay and sleep, if you will. This will be great for big tech. What a shocker. This will be great for the top universities and the top administrators and academics or the top teachers. Everyone else will take likely a cut in compensation. We're going to see the populace more educated, but we're going to see less learning. We're going to see less humanity. more educated, but we're going to see less learning. We're going to see less humanity. And the campus-based college experience that many of us got to experience, that will become a luxury item. Big tech's impending march into higher education will bring more learning to more humans. It'll also erode our humanity. Support for this show comes from Constant Contact. You know what's not easy? Marketing.

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Go to ConstantContact.ca for your free trial. ConstantContact.ca Next up, our interview with Tim Armstrong. Tim's one of those kind of super uber impressive guys. He's sort of built out of or from central casting in terms of who would be the most senior salesperson at Google, where he was. He's tall, he's handsome, he's engaging, he's smart. He also has a lot of substance to him. He was an athlete in college. He's a very philanthropic minded person, husband, father of four kids. He's a very... Is it four or three kids? I don't know, we'll find out. Stay tuned. Anyway, see, this guy's out of central casting for who you would want to run the outward facing efforts of a large tech company. And he's also now in the world of venture. He started a company called DTX that operates and invests in

direct-to-consumer companies. In between those things, he was the CEO of Yahoo AOL and did a great job taking chicken shit and repackaging it as chicken salad and got it sold for what was a pretty good price from an asset AOL that went from $150 million to $1 billion. And he managed to get them sold, I think, for about $4 or $5 billion. Anyways, here's our interview with CEO and founder of DTX, Tim Armstrong. So disclosure, Tim Armstrong is an investor in Section 4. So first off, I should probably apologize, Tim, as it's evident I have no idea what I'm doing. I'm an investor in the jockey, not the horse. So we invested in you and we expect that you're going to make all the crazy moves you need to make to be successful as you always have.

Well, the dog is in the midst of falling off the horse, Tim. So you've been in the news. You said that kind of the crash or the decline in digital marketing spend will be greater than it was in 2008. Say more. Yeah. If you look at what happened in 2008, 2009, it was know a financial crash and i i think this aspect has three different components to it with covid 19 is there's a human aspect just like what humans are able to do and how they behave there's a market meaning marketplace and economy effect with jobs

and and you know marketing and those type of things and And then there's a financial aspect. And I think one thing, a lot of people are comparing this to 2008, 2009, but 2008, 2009, for the most part, was a very financially isolated event. This is an event that's affecting humans and the economy and jobs and marketing and product development and all the things around the economy.

So I expect this to be much, much deeper in terms of the impact. It may also be shorter if things get figured out quickly, but I would say it's a much broader impact than the 2008 financial crisis. Because you're saying the Googles and the Twitters and the Facebooks of the world, I think their usage is actually up dramatically, but their revenues, people obviously advertising or marketing is pretty easy to turn off the world. I think their usage is actually up dramatically, but their revenues, people, obviously advertising or marketing is pretty easy to turn off the tap. Do you think they end up ripping back stronger as when spend returns and they've consolidated share? Yeah, I think one of the, you know, things that will happen out of this crisis,

not just for sort of the FANG companies or Twitter, Snapchat. Well, first of all, I think those companies will come out of this much stronger because they're educating so many more consumers about their products and services. And that's a little bit of the unwritten story here, which is consumer education of digital services is probably fastest education period ever. So they're going to come out of it stronger, even if their revenue goes down. If you're a two to five year investor, you got to believe they're going to come out stronger. I think the other thing that's happening in corporate America more broadly is corporations tend to use these crisis moments to do all the cleanup work they probably should have been doing inside their companies before. So I think the really strong companies are probably going to

get leaner and meaner and come out of this. So you're going to have this emergence of the powerful getting more powerful. And then I think on the small company side, you'll have like the fleet of new companies coming out of this crisis, you know, that'll probably end up being the next big companies five or 10 years from now. But definitely the stronger are going to get stronger, I feel like. What are the areas that you think will emerge here? Any new areas you're looking at? You're an investor in the direct-to-consumer space. Anything you're excited about?

Yeah, one of the things we're really excited about is I think the direct-to-home and direct-to-consumer relationship economy is going to get much stronger. And I think, unfortunately, I think you and I share probably a similar viewpoint on this, which is our business is built around giving a new channel to consumers and brands without having to consumer, mainly because the offline erosion that's going to happen on the beachfront that was already happening during the digital shifting is going to happen much quicker. So if you take the average consumer, they probably during this time period will end up interacting with, buying with, using a service that they probably wouldn't have for a couple

of years from now, but they've been forced into this economy. So our mission statement as a company is direct to everything. And this is one of the only opportunities where you have the largest captive audience that's probably the most woke at this time period paying attention to things. And you have the least amount of marketing and least amount of messages getting to them. So we're big believers in the companies that play some level of offense as the human factor recovers. When the economy recovers, we expect direct-to-consumer to be stronger. There'll be a washout of some brands, but the companies that are really strong and really good will emerge out of this stronger. Any thoughts on how the crisis changes the kind of more general old media landscape or the streaming wars? Yeah, I think they're, you know, streaming is amazing. I think if you look at the new Nielsen numbers that just came out, you know,

basically streaming was up, you know, over 100% year over year, and it was up 50% in March five zero. And so I think, again, going back to this, educating people on content consumers on direct to consumer type, you know, programs, I think those businesses will do extremely well, the direct to consumer media businesses. I'm going to be super interested to see how Quibi, you know, does after their launch. What are your thoughts on Quibi? Your thumbs up, thumbs down? What do you think? Yeah, I mean, we, I spent a fair amount of time with Quibi over the last couple of years and Jeff Katzenberg, i'm a big fan of his um overall my my i think they'll be successful if they have a volume of content that they can keep up at a you know netflix youtube type you

know velocity level i think it's the type of property that um you know, velocity level. I think it's the type of property that, um, you know, would struggle if, if they can't keep the velocity up in terms of the amount of content and they've obviously built a lot of content. So I'm cautiously optimistic, but I also think it's one of those services that, um, unless they get forced distribution, if they're just going it on their own, you know, that's going to really require a massive velocity of successful content. And, you know, content is a fickle business. So I'm hopeful it'll do well, but I think the jury's still out. What do you think happens to the old media guys?

With an increase in streaming video, with consolidation of power among big tech that is now investing in traditional media, what happens to the Viacom's and the iHeartRadio? What happens to the traditional players? Do they just get crushed? Do they come out of this even more impaired? I was looking at Cumulus' stock the other day. It's off 60% or 70%. I imagine iHeartRadio has taken the same kind of beating. What happens to traditional media here? Yeah. I mean, I think the opposite of what you were just talking about earlier, Scott, about digital, like picking up a lot of usage and a lot of people using new services. You know, I think unfortunately for the further you get out of home and the further you get away from a mobile phone, those media types are really going to take

a beating in this marketplace. And the beatings two ways. One is fewer consumers are going to see their products and services and use them because of commute times gone, outdoors gone, those things. The second piece, though, that's probably more damaging, which people are talking a little bit about now, but the small business space and the local media space, even on a Facebook or Google, they're going to get hit by this, but it'll eventually come back to them. You know, the real question is if you have an untrackable media source and you're the furthest away from the consumer during this crisis, you know, coming back from this, my guess is you're not going to have 100% recovery from it. You might have a 50 or 70% recovery. But I think what is going to lead to long-term, Scott, is, you know, massive consolidation in the offline world. And it'll either be consolidated

by digital players, or you'll have massive consolidation from traditional people having to merge with each other and try to take cost efficiencies and those things. But that's going to be a very painful process, I think, in the next couple of years for those businesses. It feels like the radio guys are chapter 12, and that is they go into chapter again and go through another restructuring. What about the kind of tier two digital guys, the BuzzFeeds, the Voxes of the world? Do you think they come back? Do you think they get stronger, leaner, or are they roadkill here? I think that there's probably going to be a couple of them that really thrive and survive and move forward. And then there's going to be a couple of them that really thrive and survive and, you know, move forward.

And I think there's, you know, and then there's going to be a massive consolidation in tier two digital. So I think when you come out of this as a giant thesis across the board is the stronger are going to get stronger. The second tier players will end up either consolidating around themselves or get consolidated by the big digital people. And then the people who are truly kind of third tier, you know, weaker brands, weaker market, you know, I just think the venture capital, you know, piece, which is another thing, you know, that hasn't got kind of washed over, you were the first one, and I think really to see this, which is like the WeWork effect on the venture capital market, but then COVID came over on top of it. But my guess is underneath this, the venture capital dollars that were going to

tier three digital services and have been in there for a while, those dollars are going to leave. The tier two market's going to be under tremendous pressure from the financial backing to consolidate or sell to digital media players. So I think you're just going to see another massive wave of consolidation. And you were the CEO of a multi-billion dollar company. Talk a little bit about leadership and how different leaders are responding to the crisis. Yeah, I think one lesson was, you know, I had been at Google for a decade and then went to AOL. And, you know, when I left Google, I think the market cap was probably around $150 billion.

And when I went to AOL, AOL had gone from $150 billion down to $1 or $2 billion. So they were kind of polar. $150 to $1 or $2. Yeah. So they were kind of polar opposite assets. And Google was all about growth and figuring out how to grow faster and get more market share. AOL was a turnaround situation. And it was a turnaround in the financial crisis, you know, as well. So I think a couple of things that, you know, sort of stood out and things I tried, you know, first, you know, one of

the things I went around is I went around to visit leaders that I thought would give really good advice during a financial crisis and a turnaround. So I went to see people like Howard Schultz and Ken Chennault from American Express, David Stern, Jack Welch, a bunch of people like that during that time period. And essentially, they sort of gave similar advice, Ginni Rometty from IBM. Basically, they said, look, the bottom line is, if I boil down their feedback, you know, managers manage the known and leaders manage the unknown. And I think during this crisis, what you see is you see, you know, leaders who kind of run into the unknown, and then you see managers trying to manage, you know, the known. And I think my lesson during that AOL time period was there were a lot of things in a lot of days that we had no idea what the outcomes were going

to be. But basically, you just had to show up every day and keep stepping forward, stepping forward, stepping forward and making, you know, really tough decisions. And, you know, my one thing on this crisis right now, Scott, is one thing I'm seeing, which I'm kind of excited about on the other side of this crisis, is a lot of the young leaders from 25-year-olds to 35-year-olds, you know, they're getting amazing experience right now, but they don't realize it. And I think, you know, the managers are going to fall off to manager careers and the leaders will go into leader careers, you know, after this crisis. And I think that the real lesson is, I think Ernest Shackleton said, I think you got to take the feet of courage and put them into the stirrups of patience. You know, as a leader, you basically need a lot of courage and you also just need a lot of patience to get through this. And the leaders who do that are going to be really successful. What are you telling your portfolio companies in terms of what you expect

to play out over the next 12 or 24 months? Yeah. So we break it down to two categories, Scott. One category is people who are really affected by this crisis. And I think the advice we're giving them is, you know, pin January 1st, 2021 as the date you have to run a marathon between now and the end of December and get through that. And then on the other side of this, if you do that successfully, so basically, you know, pull your credit lines, mothball operations that don't matter, get down to the basic products, really reach out to your current customers, the customers you have strengthened today's really about efficiency, leanness, focus, and making sure that you use all your resources and areas the right way. The second type of company, which is the operating company we run is one of them, but there's other companies we

are invested in a company called Olive and June, which is basically seeking to do home manicures. And they have products that they built that are professional manicure. When you go to a manicurist that they've done for the home and they've done technology around it, they have different, unbelievable amount of colors, unbelievable amount of tools to help people do great manicures at home. That's the type of business we say to them, play offense. Like your business was built for an in-home direct to consumer model. And people want to do that, you know, right now. And so we've kind of separated our portfolio companies into two buckets. You know,

there's probably more companies in the bucket that need to get lean and mean and run a marathon to January 1st. But there's also a series of companies that, you know, actually can play offense here. And they have to get their mindset set of like, even though the world might be cratering around them, even though they might have situations in their own families, schools, all those other things, you know, you have to really think about this as a potential for market share gain while you're taking care of all the humans around you. So we kind of have those two buckets. So let's pivot for a second.

Talk about the crisis through the lens of a husband and a father. I know you have kids at college age or high school and some thinking about college, right? Yep. Yeah. I have a son who's going to Northeastern. He's a senior. I have a daughter who's a sophomore and a daughter in, you know, eighth grade. And I would say on the on the in my wife, Nancy, she's in the middle of doing a documentary on ADD and ADHD right now. So that's been a little bit disrupted during this. In the parenting realm, I think this is another kind of Shackleton moment, which is your family is basically frozen at home. And I think that from an interaction standpoint, I mean, I love it. I've spent more time with my kids and my family in the last few weeks than I have been able to do in a long time. And I've really appreciated it.

I think my teenagers probably appreciate it slightly less. But I hate you. That's, that's by the way, that's by 9am at the Galloway household. That's breakfast. Then it goes, it goes downhill from there. Yeah. By the way, Scott, it's funny because I think everybody in their homes is having the same experience. I mean, I, you know, I always like to say like 430 in the afternoon, it's kind of when everyone's been doing school and everyone's kind of restless and sort of everyone converges on the kitchen. And then at 430, there turns into this hour long period of time where everybody's not getting along. And, you know, I think it's taken a real amount of work for the family circle to work itself,

you know, through here. But I'll tell you one thing I've been trying to do with my kids a little bit is they've been listening in on work calls. And I've been discussing with them, you know, things that we're dealing with at work. And one thing that's interesting is they probably have more of a viewpoint on the work side of things. I'm sure your kids are seeing the same thing with you. And then I'm seeing more of the viewpoint I'm sure your kids are seeing the same thing with you. And, and then I'm seeing more of the viewpoint of like what the, what their personalities are. So I would just, in a, in a strange way, it's such a horrible situation externally, but I bet you from just getting to know your family and your kids, you know, I've probably gotten to know my kids 25,

I already knew them well, and I do tons of stuff with them, but I've gotten to know them probably 25% better just from, you know, their personalities. And I think, you know, there's some times where the kids actually step up and do different leadership things in our house to keep the family organized and going. And, you know, we're trying to keep everybody on the schedule, which is hard, but what are you doing at your house? Well, it's as if Iraqi insurgents took control of the house. It's, it's, I have a nine and a 12 year old and I would describe them as awful. Uh, it, I think the Galloway household is much less functional than the Armstrong household. You know, it's like, you're right. This is, we're going to look back on this, this, uh, this period is historic and you just hope that your kids and your family look back on it, you know, and positively or that it's a bonding moment.

But we're trying to get into rituals around doing certain things at certain times. We play certain games together at a certain time. Unfortunately, there's probably a little too much TV viewing, but that is that is what it is. But, yeah, I think it's a pretty, you know, if you're fortunate or blessed enough to have the resources to bring your family home and you don't live in cramped quarters, yeah, it can be, I don't want to call it, it's not a good thing, but good things will come from it. So just some quick predictions before we let you go. Where do you think, when you look at the economy, do you think it's a V or do you think it's a U? Do you think it's a chair? In 12 months, are we kind of back to sort of 90% of normal or is there such balance sheet and business destruction taking place here that this is going to be

several years? Any thoughts about if and when we come back from this? I think the financial markets will be more of a V and I don't think they're going to V all the way up, but I think there'll be a V 50% backup as soon as it looks like we're clearing through the human, you know, cycle. And, and, you know, one of the things I think if you're an investor right now, by the way, um, you know, there are great opportunities to invest in a lot of different companies and a lot of different spaces. Um, but that, you know, there are great opportunities to invest in a lot of different companies and a lot of different spaces. But that, you know, you have to bet that the market's going to go up by, you know, 50% from where it was, you know, shortly. And I think that will happen once people start seeing

it. I think the human recovery of this, you know, I would not be surprised if there's a second wave of this. And, you know, I think there's amazing work going on in the human recovery side. We're doing a big program with Mount Sinai right now. My whole team, all 30 people are basically working on Mount Sinai fundraising full time right now for the frontline workers. And I went to the Mount Sinai trustee board meeting yesterday for a little while, and I was just blown away by the work level getting done by Dr. Davis and his team there. And so I think the human recovery, when it comes back, will start to come back pretty quickly, even if there's a second wave

in the fall. I think humans are going to be tested and antibody tests and those type of things are going to happen. So I'm helpful there. I think the economy is going to be a little bit more of a U-shaped. And I think the main reason is, you know, a lot of the unemployment, you know, the unemployment effects are super, super, super deep. You know, you have a whole bunch of companies, you know, in our business, you know, we deal with everyone from Goldman Sachs to super small, you know, businesses. And a lot of the small businesses have shut down and they're at cold start, restarts. And I think that's gonna take a little while to get going.

So I think you're gonna have different curves for each of the financial markets, the human market and the economy. But I think the economy is gonna take the longest to come back. So last question, Tim, how have you changed? Is there anything, when you think about coming out of this, have you made any decisions like, I'm going to travel more, I'm going to double down on my business, I'm going to scale back,

I'm going to, how have you, has this changed you at all? And if so, how? Yeah, you know, Scott, I think it has changed me. And I think there's probably two aspects that have changed. One is, you know, I'm betting on humanity. And I think my lesson during, you know, 9-11, the dot-com crash, the 2008 crisis, turning AOL around, was I have a huge amount of faith and belief in humans. And I think while the world looks like it might tip over, you know, the wrong way, I've never been more blown away by the amount of leaders that are showing up across this country. And, you know, people look at China and they shut the China down and they managed it effectively. And people give China a lot of credit for that.

If you gave me a choice to have what China did versus the amount of innovation and ingenuity coming out of the United States for long-term changes. So I'm betting on humanity. And that's the reason I'm investing in the market. The market goes down by another 50%. I don't care because I think I'm a big believer in the American system and ingenuity. The second thing I've been spending time on during this break is spending a lot of time managing myself. Like I've been spending a lot of time just like in terms of from a leader perspective, like what are the things I bring to the table and what are the things I don't bring to the table? both for my kids and my company and the people that were involved in business-wise, is to basically transfer whatever knowledge I can directly to them. And so I would say, I have a personal mission statement, which is essentially find the world's most talented people

and give them a bigger stage. It's longer than that, but that's the mission statement I wrote down five or six years ago. And I've been kind of living that. And I think my gift back out of the situation is to basically find the most talented people I possibly can and try to help them as much as possible, transfer knowledge. So I'm actually being a tougher boss, I think now, and a tougher dad. And I heard John Maxwell, you know, basically say one time that, like, you know, if, if, if you're not being tough on people to help them develop, you're actually not being a leader. So in a weird way, one of the things I'm doing now is giving people both family, friends, and trying to take feedback myself, you know, more from a leadership perspective, that's one thing I've been fortunate enough to learn in the last 25 years. So I'm trying to transfer that and I'm

trying to manage myself better taking incoming feedback, you know, as well. So I'm looking for a 10 or 15% improvement on myself coming out of this. And I want to transfer a 10 or 15% improvement to other people coming out of this if I can, you know, and a lot of it's probably bad information, but I'm going to give it anyways. So 10 years from now, where do you want to be? Is it change at all? Is it the same thing or you don't know? You're still a relatively young man. Where do you want to be in 10 years? I'm really kind of set on really getting into the direct-to-consumer economy. And actually, my whole goal of doing that is to build an alternate channel outside of, you know, the current companies. I think the FANG companies are going to get stronger

during this, but I want an alternate. And I want, I want, I really, I really want to do, Scott, is dedicate, you know, my time and energy to helping people lock into the digital economy and own their own space. I think in a huge way, we're in like medieval times where, you know, basically a lot of the use on cell phones and those things are, you're basically working on a medieval farm, the digital economy for consumers to like own their data, own their experience, you know, own their home in digital. And I think right now, almost everybody in the world is, is renting, not owning in the digital economy. And that's something we've kind of dedicated ourselves to. And I could see that being a, you know, 10, 10 year plus mission that we're on. And I really like it a lot. I'm loving what we're doing and I love our team.

And so I'm right now, if you ask me 10 years from now, what I'd be doing is trying to give everybody a digital home and a digital connection that they own themselves. So Tim Armstrong is the founder and CEO of the DTX company, a product design and technology company focused on the direct to consumer economy. He was formerly the CEO of Oath, a subsidiary of Verizon Communications, also had roles at Google, and before that was a journalist of all things, and most importantly, is long on humanity. Tim Armstrong, thanks for joining us. Stay well. Thanks, Scott. Take it easy, brother.

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 Robeson, 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. All right, office hours. Ask us anything. El Mundo is our oyster of Preguntas here.

Griffin, roll the first question. Hey, Scott. Lucas from Germany here. Love your work and listen to every single episode of Pivot. Now to your own podcast. So congratulations on being so damn entertaining and insightful. This is my question. Only a couple of months ago, my co-founder and I started our first startup. OnePodWonder is a content marketing agency and we produce branded podcasts for corporates.

Things were going all right. We had our first customer, we got to revenue fast, but things are looking grim at the moment. An expectation of a recession, all companies I've contacted seem not inclined to spend money on marketing, let alone content marketing, anytime soon. What would be our best bet here? Wait it out? Contacting as many companies as possible? Dropping prices? Or pivot altogether? The latter feels like giving up. Any advice would help. Thank you and stay healthy. Lucas, great question. So what's an entrepreneur to do? We're talking really, it sounds like a kind of a right out of the gate startup. The first is, if you had

signs that this was working, I wouldn't pivot. I don't think you're going to pivot to anything better. The economy is essentially, I don't know if it's as bad in Germany, but the economy in the US is essentially shut down. And this isn't even an economic crisis, it's a health crisis. And until the health crisis passes, the economy is not going to open again. So any data you get around this is or is not working is somewhat irrelevant. As a small company, you need to recalibrate and take down your costs. And that is you have to figure out a way to get your cost structure such that you can live on to fight another day. In terms of content marketing, it sounds like podcasts are obviously structurally ascending. It seems like that's an interesting idea.

But first thing is you have to cut down to the core as such that you can get through this winter. And hopefully this winter is only four or eight weeks, not four or eight months, but it will end, but you've got to come out the other end. So it's triage. In retail, they say your first markdown is your best markdown, and that is get to a very low cost base. I think it's reasonable to call if you have a landlord, your landlord, and say, I need to suspend payments. I think it's reasonable to call if you have a landlord, your landlord, and say, I need to suspend payments. I think it's reasonable to tell people you're working with that you need to cut their hourly rate or their compensation. You need to get to the other end of this. And if you're working with smart people, maybe you give them equity instead of comp because obviously they're struggling too.

And just personally, you need to kind of pare down your own burn. So there's no easy solution here. I would say at this point, your data is incomplete, so pivoting doesn't make any sense. This is about hunkering down for the winter, and hopefully there'll still be a fast winter, and then you can do some serious analysis around whether or not your concept works or not. There's no secret sauce here. It's hunkering down, it's cutting to the bone, and it's hibernating until we get through this. If you're in the business of content, you take this time to produce a bunch of content, build the site, things you can do remotely. But the notion of trying to reach out to clients right now, everybody else is focused

on cutting costs. No one is really taking calls or doing business as far as I can tell right now, unless you offer some sort of remote kind of capability that enhances a company's abilities to cut costs. So again, hunker down for the winter. Thanks, Lucas. Best of luck to you in Germany. And please check in on the status of your startup. Hey, Scott. Big fan of the dog and the jungle cat. Wanted your thoughts on the effects COVID-19 will have on the healthcare system and the adoption of digital health technologies. We're seeing real time overwhelming of our hospital systems, and what worked before really won't work now or into the future. What are your predictions around the changes that will come in the digital health arena? And if you're a 25-year-old today, other than having luscious, amazing hair, how would you view this opportunity and what would you do? Thanks again. And to you, your family,

your staff, keep well and keep safe. Thoughtful question. So telehealth, effectively what we have here is that the two industries that are most ripe for disruption is measured by raising their prices faster than inflation, our education and healthcare. I don't think the trends are going to change as much as some of the previous crises where the economy is reshaped or our approach to the world is reshaped. So you asked about healthcare, 16 going on 17% of GDP, only one in five consumers, though, is happy with their healthcare. So you have arguably what is the most expensive product in the world and the least satisfied

consumer set, which obviously insteps disruptors or disruption. In terms of this crisis, dispersion seems to be the other kind of big trend in addition to acceleration. And that is, if you think about Amazon, Amazon took the store and dispersed it to our computers in our living rooms and even our fulfillment where we could get stuff dropped off on our porch within seven days, 48 hours, 48 minutes if you're using Amazon now. And you're going to see this dispersion across education and healthcare. Specifically, a huge point of friction and negative value-add has been the hospital or the doctor's office where an unfriendly person swivels back or slides back this bad plastic cover or curtain and tells you to fill out paperwork that you've filled out before. You then wait in an uncomfortable room,

the doctor comes in, and the value add is about eight minutes. 80% of the time could probably take place over an intelligent camera or even texting, possibly. So we're going to distribute. There's going to be a dispersion around health care. Now, who wins here? Who are the winners and losers? I think it's going to be similar to education, where you're going to see brands like Google partner with MIT or Microsoft and a Berkeley or an Apple and Bocconi. You get the idea. You're going to see some incredible brands in healthcare, whether it's the Mayo Clinic or NYU Langone, partner

with technology firms to help create that dispersion of value add. You can see an environment where Amazon, you come home one day and Amazon says, Dear Eric, would you like to hear more about Amazon Health? And part of Prime is you upgrade from $129 a year to $1,200 a year, but you get all your health care and they try and reduce costs by getting a dermatologist to diagnose your rash via Amazon Show and then immediately send the prescription to PillPack, which they also own, and try and reduce costs. And then the shitty businesses such as pediatrics, they just put pediatricians on their

platform and take a cut of those referrals. So I think big tech is going into healthcare, and the primary means of value creation is going to be, one, dispersion of the delivery of healthcare from hospitals and doctor's offices to the home or to your smart device. It's also going to be one dispersion of the delivery of health care from hospitals and doctor's offices to the home or to your smart device. It's also going to be everyone's focus on cost savings. I don't think it's going to go down from 16% of GDP. I think what it's going to do is take that mom who spends between 8 and 12 weeks of her life managing the care of her diabetic child and give her some time back so she can make

some more money or spend some more time with her family. I think the next trillionaire, if you will, or the first trillionaire will be an individual that builds a time machine in healthcare. And it's likely going to be Jeff Bezos. People think that Apple is best suited for healthcare because it's got such a clean, almost hospital-like brand in an aspirational way. I've always thought the data they collect off of their smart devices, specifically the Apple Watch, is overrated, although you hear interesting stories about people collapsing and 911 emergency services being notified. I just think Amazon has you surrounded from a healthcare standpoint. You can calibrate with Alexa. It knows your body mass index. It has your credit card. It can probably make estimates around the type of health from actuarial tables based on your zip code, your purchase patterns.

It knows if you're living with somebody, a spouse, which increases your life expectancy. It knows your body mass index. It just knows so much about you that you can imagine it could get involved in your diet. It could get more prescriptive. It could start playing offense with your health care and be proactive instead of reactive. So I think Amazon is going to be the fastest growing healthcare company in the world. What does that mean for a 25-year-old? Simple. Healthcare is going to be a fantastic place to work if you understand the intersection between technology and healthcare.

Some of the brightest people, the people that make the most money, they always say they're engineers in technology. They're not engineers as much as they are product people. I don't think Mark Zuckerberg or even Bill Gates were great engineers. They're great product people. They understand how technology translates to an offering, a service or a product that can scale from a consumer point of view or an enterprise point of view. So being 25 and trying to understand the industry of healthcare and understand how technology is going to turn certain products into time machines, saving people time, or create, get in the way of that massive or facilitate this unbelievable dispersion of 16% of our economy away from these points of friction, specifically hospitals and doctor's offices. But yeah, to be 25 and understand the intersection between healthcare and technology, gangster move, my man. So onward, healthcare and tech. Next question.

Hi, Scott. I haven't heard much about the imminent launch of HBO Max, despite the fact that HBO still has the best batting average in the industry in terms of quality. No offense to Netflix's quantity play. So I was wondering if you could comment on how you think that's going to turn out for Time Warner. Thanks. Auguste, first off, congratulations on the awesome name. Auguste, did you get played just on that name? Hi, what's your name? My name is Auguste. It sounds like you should have been born in Roman times or either killed a bunch of people or been killed, Auguste. Augusta? Augustus? I have a good friend named Augusta. Anyways, Auguste. So brand architecture as it relates to HBO Max could best be described as a total clusterfuck. There is HBO Now, there's HBO Go, there's HBO Now.

If anyone can tell me the difference between HBO Go and HBO Now, thanks very much. I have no idea. I just know they're both something to do with remote or your ability to stream on any device. And now there's HBO Max. It's the same price. So why wouldn't you just immediately have HBO Max? But there are all these logistical reasons for why this brand architecture is totally fucked up. And that is some people get HBO and HBO Max through different providers and they have trouble figuring out the pricing and the technology. But what we have here is a brand architecture nightmare. In addition to brand architecture, we have a brand positioning just enormous fuck up on the part of John Stankey, which is, in my

opinion, trashing one of the world's great brands. Now, some of this is affection because what's interesting about when you develop an affinity for a cultural reference or brand is it usually imprints on you between the ages of 12 and 19. If you're 17 and really into R.E.M. as I was, R.E.M. sticks with you the rest of your life. And HBO for me was one of those brands. I used to spend summers and Christmas with my father because I'm the son of my dad's second wife. He's on number four, but we think this one's going to stick. Not true. They just got divorced at 89. What a thrill. So HBO, I used to hang with my dad and we didn't have a lot in common, but he used to say every night, let's turn on HBO. And it just, I don't know, it just stuck with me. I have a lot of affection for HBO. They will be writing cases

for decades in business school about the magic that was the HBO culture, their ability to produce an Emmy for $75 million of average spend versus Amazon that is taking $400 million to produce every Emmy, whether it's Six Feet Under, The Sopranos. I mean, you're talking about Game of Thrones. You're talking about a group of people who have figured out a way to bring together talent and create magic on a regular basis. And their initial competitive advantage was they could swear and not have commercials. But over time, they developed just a culture of unbelievable creative productivity. To come in to John Stanky from AT&T, the former CTO of DirecTV, to come in and say, and this was his first all hands, that we need to scale this is like walking into the

Musee d'Orsay in Paris and screaming, we need to scale this. That just doesn't make any goddamn sense. And the idea that you're going to have all this gorgeous vertical content, original content next to the Big Bang Theory. I fucking hate the Big Bang Theory. Let me just put that out there. I don't know why. I just hate that show. I hate almost everything about it. Anyways, the fact that they're going to junk it up, the fact they're taking an Hermes store and putting Coach bags in there and then Brooklyn Messenger bags in there reflects a total lack of understanding across what it means to be a luxury brand. HBO used to be the best luxury brand in content, all vertical, high-end production, artisanship, a real appreciation, taking chances on content that kind of made no sense commercially. And now we've got the Big Bang Theory, and it's not

entirely clear the pricing, the brand architecture. So I think this is one of the big brand blenders of the last 10 years. It is, at the end of the day, what Stanky would say and HBO would say is, we're giving you a lot more content for the same price. But it's not entirely clear how the brands relate to each other. It's not entirely clear, in my view, or is entirely clear when you take Hermes and you turn it into Coach. That is just a terrible idea. But who sees opportunity here?

Who sees opportunity here, Augustus? Augustus, who sees opportunity here? Who sees opportunity here, Augustus? Augustus, who sees opportunity? It's not that bitch Caesar. It's Apple. Apple is coming in and doing their own vertical content, taking that artisanship, taking that luxury positioning away that HBO owned. And HBO is now going to try and compete on bulk. And's there with Bulk? Fucking Netflix and Amazon. Yeah, good luck, bitches. Good luck competing with those guys. So this is just stupid. I mean, this is just, I just get angry thinking about this. They didn't call the dog. They didn't call the dog. But from a brand architecture standpoint, from a brand positioning standpoint, this is one of the worst moves of the last decade. But this is, HBO is just a gift from God and Stanky and AT&T are taking that gift from God and just fucking urinating on it. I am, anyways, that's probably a little bit much,

a little too much, a little too much. Augustus, thanks for the question. We love your questions. Please submit them. Ask us anything to officehoursatsection4.com. Again, anything to officehoursatsection4.com. Again, that's officehoursatsection4.com. Get a free mug. Just kidding. Don't have mugs. No mugs. Algebra of happiness. We are spending a lot of time at home, and one of the things we're doing is I'm trying to introduce my two sons, nine and 12, to some of the movies I loved when I was their

age. Last night, we watched The Black Stallion, which I believe is a Francis Ford Coppola movie about a young boy who was stranded on an island with a horse. It's a wonderful movie. Terry Garr, Mickey Rooney, probably his finest role. I think he was nominated for supporting or best supporting actor. Also tonight, we're going to watch The Little Prince. And there's a wonderful line in the movie The Little Prince, and that is, what is essential is invisible to the eye. It also ends up that what is most dangerous is invisible to the eye. It also ends up that what is most dangerous is invisible to the eye. Corona or the novel coronavirus, COVID-19, is invisible and it is disrupting our life. It is changing

a lot of things. It is getting in the way of what are traditionally a bunch of wonderful ceremonies, funerals, not that they're wonderful, but they're important. I've heard about a Zoom funeral last week, a friend's father-in-law. And think about all the proms, graduations, and weddings that aren't going to happen this spring. They will happen again, but they've been put off or that they're just sort of passing by. So in my community, all the invites went out for Harrison's birthday party. We were supposed to come, no gifts, the address, the date, and then COVID-19 hit. And it no longer made sense to send a bunch of asymptomatic carriers to a party and then have

them return to their respective houses. So the parents were quick on their feet and pulled together a drive-by birthday party for Harrison. And check this out, every car lined up. They, the family, came out, the grandparents, the parents, and Harrison and his sibling, and both parked themselves on a corner of a street. And then they told the cars to approach from the south through the north and then slow down, at which point the kid, or your son or my son, would pop his head out of the sunroof. We would stop and we would play the Beatles song, Today Is Your Birthday, and wish Harrison a happy birthday as he and his family were sitting there on that corner. And as we were pulling up, I remember thinking how sad this is, how upsetting

it is that so many wonderful things in a kid's life are being canceled because of this pathogen. And I thought this was sort of lame and I don't know, I just didn't get it. And then we started to pull forward and I saw the kid in front of us pop his head out of their RAV4 and I saw Harrison. And Harrison just lit up. I mean, just lit up. One of those, you know how kids have those physical tics when they're so happy they can't control themselves? He immediately stood up out of his chair and looked like Iron Man about to fly into the stratosphere, clenching his fists, holding them down, putting his shoulders forward, almost just a reflex of physical reaction, kind of muscle memory of just sheer joy and excitement.

And then all the cars sort of clustered around, made a semicircle, almost like panzer tanks pulling up to the German embassy or the American embassy or whatever the right metaphor is, and playing that song and just seeing Harrison and his family so happy. So what is essential is naked to the human eye, as is this virus. The fortunate thing about this virus is that its mortality rate is really low, but its virulence is exceptional. And that is you can catch this virus just speaking to someone who is within six feet of you. So it's incredibly contagious. Its virulence is extraordinarily strong. At the same time,

the joy we feel for one another, the affection we feel for one another, our desire to communicate love, our desire to celebrate each other's achievements. Achievement can be felt in the agency of one, but love and joy are usually in the agency of others. And there was just so much joy in this. So we have a pathogen that dies or erodes, that goes extinct within six feet without a host or a carrier. But as a species, our joy, our affection, our creativity has a much greater distance, is much more communicable than six feet. Happy birthday, Harrison.

Our producers are Griffin Carlberg and Drew Burrows. If you like what you heard, please follow, download, and subscribe. Most successful launch in the history of Westwood One. Let's make it the most successful launch in the history of anything. Thank you for listening. We'll catch you next week with another episode of the Prop G Show from Section 4 in the Westwood One Podcast Network.