The Prof G Pod with Scott Galloway - Office Hours: America’s Super App, Online Sports Betting, and Career Bubbles

Episode Date: January 31, 2022

Scott answers a question about why the U.S. is so behind China in developing a super app. He then shares his thoughts on whether the online sports betting industry is a good investment, and offers advice to someone who fears his booming career path may be unsustainable. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Welcome to the Prof G Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please visit officehours.profgmedia.com. Again, that's officehours.profgmedia.com. Again, that's officehours.profgmedia.com. First question. Hi, Prof G. This is Mary Catherine in California. And my question is about what you're saying is going to be the business word of the year, the super app. So I lived in China for most of the 2010s, and we all lived in WeChat. We sent messages to our friends, posted about our weekends, paid rent and utilities. We even booked travel all in WeChat. We sent messages to our friends, posted about our weekends, paid rent and utilities.

We even booked travel all in WeChat. And when I moved back to the U.S. in 2017, I was surprised that an app like this didn't exist for the U.S. market. Now fast forward four years and this is all I am reading about, the Super App. This technology is not new and a model like WeChat has existed for many years. I agree with most of your commentary on innovation in the U.S. versus China, though here I think we're kind of late to the party. So why do you think the super app craze is just now going mainstream here? I'm really interested to hear your thoughts. Thanks for taking the time.

Yeah, that's a great question, Mary Catherine. And we agree. So if you look at the super apps in China and in India, they're typically some of the most valuable companies in those regions. And whoever establishes sort of super app dominance in the U.S., that's the iron throne of market capitalization. That will probably be the most valuable company in the world. And unfortunately, it's probably going to come from one of the existing players. I'm not sure it's going to be a new person, but you could see a payments platform, a PayPal or even Jack's current company Block buying Twitter. And overnight, they kind of have social and payments. And boom, they're the closest thing that the U.S. has to a super app. Their stock goes crazy and they use that to go buy ride hailing or they use that to go get into some sort of social with Pinterest or what have you. And what's so powerful about a super app is when you establish super app dominance, people tend to spend 30, 50, 70 percent more time because they're very comfortable with an operating system.

I will endure a less quality app on iOS even if the Android app is better because I'm used to the operating system. So once you get used to one interface, it becomes very powerful and everyone is pursuing the same thing. They want to be the operating system for our digital lives. To a certain extent, the reason I think it hasn't happened in the US is that Google and Apple, who are dominant and control 99% of our operating system around mobile, have put their elbows out and purposely don't want a super app, unless it's them. Apple would rather have ride-hailing companies and social go into their app store, and they would rather just take a toll. Also, privacy laws in the U.S. limit how data can be shared between apps, making it more difficult to integrate programs into the ecosystem of a super app. In contrast, in China, WeChat started as a messaging app in around 2011, 2012, but added other services, including shopping, food delivery, ride hailing over time,

mostly through many programs that businesses developed to work within WeChat, to work within their operating system. And China is also a mobile-first country, and the internet there really just sort of skipped PCs and really took off after the advent of smartphones. China has about 1 billion internet users, or roughly 70% of its population, but 90% of Chinese users access the internet through mobile phones. The Chinese market also has less competition

as the country has blocked dominant US platforms, including Facebook, Google, Twitter, essentially any large American internet company that's data-driven. The Chinese have a pretty basic business model in that as they let them in long enough to steal their IP, and then they kick them out, prop up a local entrepreneur and capture all the value themselves. And I think it's a model that's worked for them. We look at it and say, well, that's wrong because it doesn't serve our interests. But has the Chinese way been better than the Italian way? The Italian way, they led in Google, they led in Facebook, their elections, their privacy, their newspapers, their middle class, all get the shit kicked out of them.

But yes, they're engaging in Western competition. So I would argue that when the Chinese look back on the decision to let these Western companies in just long enough to steal their IP, you know, that was probably the right move. And also, theft is the best business model in the world. We practice it through the, I think, mostly the 19th century with European manufacturing and textile technology. So, any company that's growing its GDP faster than 10% off a big base

is probably engaging in some sort of IP theft. Anyways, you're correct to point out that the super app is going to be the kind of big shiny ring. At the same time, Google and Apple kind of exist to stop the creation of a super app because it the same time, Google and Apple kind of exist to stop the creation of a super app because it doesn't play to their interests because they've chosen a different model. That's sort of the innovator's dilemma where someone comes around them and establishes it. I don't know. I think you're going to see a couple acquisitions and an attempt by one firm to say, hello, we're the super app and the largest market in the world. And thereby, at some point, we're going to be the most valuable company in the world. Thanks for the question.

Question number two. Hi, Scott. Dave here from the United Kingdom. I'd be really interested to get your perspective on the growing sports betting industry in the US and whether you think there is value in the space for the retail investor. More and more states are legalizing gambling, and the early signs are that partnerships between key players like DraftKings and FanDuel and the major leagues are going to be far more integrated into the core content of the sport. We're seeing things like the integration of odds into normal sports broadcasts and even sports betting-specific content

being produced by the likes of ESPN. I think that bodes well for the growth in the industry. And so I just wanted to see what you thought of the industry as a whole and whether you think there's any value in the space for retail investors listening to this pod. Thanks very much. I love the podcast and the newsletter. Thanks for everything you do. Dave from UK. Thanks for the thoughtful question. The online

gaming space or the online betting is an industry that I'm interested in, but I just don't know a lot about. And I have a negative impression of it. Let me be clear. I love gambling. I go to Vegas. I take a thousand bucks. I assume I'm going to lose it all. So it's consumption for me. I get free drinks. I try and get two or $300 back in Zacapa drinks. Hello, substance abuse. I put on a kilt, no joke. Great, great conversation starter at the craps table. Anyways, someone asked me last time I wore a kilt.

They're like, are you performing tonight? Like I was doing some sort of drum roll band or something. Anyway, I don't know much about online sports betting, although people are very excited about it. And a lot of stocks ran up dramatically. And a lot of them have come way back. DraftKings is an example of a company that's done really well. It was $2 billion in 2019, and it's about $19 billion now. Online betting recently became legal in New York, and according to Financial Times, the state expects to accrue $500 million a year in tax

revenue by 2025. So you're going to see more legalization because states are desperate for tax revenues. Goldman estimates that the online sports betting market could grow to about $40 billion in 2033, up from less than a billion currently. But I wonder from an investor standpoint if it's going to be a rough place to invest the next couple of years. Now, why is that? The reason why I think that valuations have probably gotten ahead of themselves and that the growth might not live up to the expectations is that this new class of online quote-unquote investing is effectively gambling. Does that mean it's not a great industry? No. Does that mean it's not a great industry? No. Does that mean it's not going to grow? No. But I would be worried about valuations. Some of the

stuff you've talked about that's been hit hard, I know Penn National Gaming is down about 50% or 70% from its highs just a year ago. Again, I just think it's like most technologies and that it'll be evolutionary, not revolutionary. And I think in this instance, the growth is not going to meet the expectations. I don't think the music is going to match the words here. Why? Because at the end of the day, Robin Hood is gambling and it scratches the same itch. By the way, some stats about gambling, and I know this because my mother was a docent at the Bellagio when she lived in Las Vegas and used to show other old people in Vegas around to see the art and the plumbing and what happened behind the scenes to make the Bellagio work. Gambling is a very serious addiction, and about 80 to 90 percent of people who suffer from gambling addiction are male.

There's something about the male brain that's drawn to it. It also has the highest suicide rate of any addiction, which really shocked me. Why? And it makes sense. When you're on opiates, when you're addicted to alcohol or heroin or whatever it is, other people notice that John doesn't look the same and isn't behaving the same. And people will usually intervene or you will intervene on yourself. Whereas a gambling addiction, you can get in so far, so fast, and no one around you has any idea that you just decide you're in too deep and you can't get out, and you feel like you only have one exit or one out. So this online gaming, online betting, and online trading, I think have morphed. I think they're both probably pretty good businesses,

but I think their valuations are going to come down. So just as online gaming has come down, Robinhood is now off, I think, about 70% or 80%. But thank you for the question. We have one quick break before our final question. Stay with us. The Capital Ideas Podcast now features a series hosted by Capital Group CEO, Mike Gitlin.

Through the words and experiences of investment professionals, you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea? Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. 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. Welcome back. Question number three. Hey, Prop G. This is Tyler Rogers calling from Crested Butte, Colorado. I bought my first house here a year ago after I left New York City's Chinatown after six years. My question is about bubbles and job markets.

I'm a freelance product designer. I design websites and apps for various companies, large and small. I started freelancing two years ago after I left WeWork during the big implosion. I had a great salary at WeWork, but in the past two years, my income has nearly tripled. Working from home means I have more flexibility than ever. There's seemingly unlimited work opportunities with increasingly oversized budget. If I'm being honest, it feels like I'm getting away with something.

Not in the imposter syndrome sense. I know I'm good at my craft, but I can't shake the feeling that I'm sitting squarely in the middle of a massive bubble. Well-funded companies will pay basically anything for good user experience and user interface design. Is this sustainable? Have you seen other careers in the past that had a huge demand and then burst? Do I need to prepare for a downturn or did I just get lucky falling into this career path? Tyler, that's a great question. And you are a lot more thoughtful than I was at your age. So typically it's human nature to take your greatest year of earnings, right? The year you made the most money and anchor off of that. And you think, well,

that's the natural state of the world. That's what I deserve. And anything below that is a disappointment. And what it sounds like is that you're more thoughtful when you realize oftentimes that's the anomaly. That no, you don't deserve, if you're a banker making a million dollars a year, that that's a big year and that may not happen again for a while. So let me back up. Just as VCs always used to ask, who's the technologist on the founding team? I think the new technology, the new secret sauce is in fact user interface or industrial design. When I think of Brian Chesky, when I think of Evan Spiegel at Airbnb and Snap,

respectively, they're designers. They're Stanford D. School and RISD. The ability to create a seamless swath between technology and human behavior and instinct and how we interact with technology is design, is UI, UX. And if you are good at this and you can take someone's vision for a product and how they want to communicate that product and figure out a way for people to interact with it using a small three by five screen known as an iPhone or an Android device, you are going to be in demand for a while. Will you be able to command the types of margins you have right now? Maybe not.

Will you be able to negotiate the types of fees and flexibility? Maybe not. The way you prep for the downturn is pretty basic. You save some money. If you want to scale the company, maybe take some of that money and reinvest it in hiring somebody, try and create an enterprise as opposed to just a practice. But you're smart. Recognize that you may be a baller now and you may be killing it, but take some of that money and start investing it in things where you don't have to work. Right now, you're selling your time. And what you want to do is sell a lot of your time when you can make a lot of money at it. So work your ass off right now, but try to take 20, 30, 40, Christ, if you're smart, 50% of that income and put it in tax

advantage investments or investments that will start paying you even when you're sleeping. That's the definition of rich, passive income that's greater than your burn. And then diversify out of that. Find other things, real estate stocks in Latin America or China or different things, such that you're not all in on what sounds like a technology-driven industry right now. Be very good to your clients. Develop loyalty. Even when you can charge them more, don't give them a fair price. Be really good to them. Establish a cadre of very loyal clients because at some point, they will again have the upper hand. The pendulum is never at the bottom.

It's either the client has all the momentum or the vendor has all the momentum or all the leverage. And over the last 30 years, the client has had all the leverage. Whoever was writing the check had all the leverage. There was a lot of vendors out there.

And now it's swung to the vendors. So I think that's a good thing. Take advantage of it, but live like a stoic. Spend less than you make so you can save money, diversify. Think about building an enterprise of a team of small people. And while it may not be champagne and cocaine, it's going to be disco for anyone who understands the intersection between technology and how we as humans interact with it. Thanks for the question, Tyler.

That's it for this episode. Again, if you'd like to submit a question, please submit a voice recording by visiting officehours.propgmedia.com. Our producers are Caroline Chagrin and Drew Burrows. Claire Miller is our assistant producer. If you like what you heard, please follow, download, and subscribe.

Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Thursday. You know, when the quacks are duck, when the quacks are ducking, what the fuck is wrong with me today? When the ducks are quacking, feed them. Support for this podcast comes from Klaviyo. You know that feeling when your favorite brand really gets you.

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