The Prof G Pod with Scott Galloway - Office Hours: Apple’s Dependency on Wireless Carriers, Productivity, and the Buy Now, Pay Later Revolution

Episode Date: August 9, 2021

Scott answers a question about whether fintech disruptors like Klarna and Affirm have a responsibility to educate younger consumers on how to bank responsibly. He also shares his thoughts on how Apple can continue to vertically integrate, offers career advice to someone with a job opportunity in Berlin, and shares how he stays productive.  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 Prop 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 email a voice recording to officehours at propgmedia.com. Again, that's officehourspropgmedia.com. Again, that's officehoursatpropgmedia.com. First question, and by the way, I do not listen or see these questions before we get them, so it seems authentic. And I'm also saying that as an excuse if it sounds really lame what I say in response. Anyways, roll the first question. Hi, Scott. This is Elizabeth from Brooklyn. So I wanted to ask you about your thoughts on these fintech platforms like Klarna and Affirm. Do you think they pose a credible disruptive threat to financial giants

like PayPal, Visa or MasterCard? Or is it really more of the same considering that most people will still use a bank to make their payments? And with their branding about the simplification and accessibility when compared to traditional credit, do you think they have a responsibility to educate young consumers about how to bank responsibly? Thanks. Thanks so much for the question, Elizabeth,

from Brooklyn, where all the cool kids are. So true story, I live in Manhattan, and I think I've been to Brooklyn three times in 20 years. I just never go there. Also, I think I've been to the Upper West Side maybe five times. I just don't like to leave Soho. I don't like to leave. I don't like to go anywhere. I like to live my life basically in walking distance, except when I go home to Delray Beach, if that doesn't make any sense. Trust your instincts. Okay, what's going on here? So Square just agreed to buy Afterpay for $29 billion. That's the largest acquisition in the history of Australia, a huge bet on the shift away from traditional credit, especially among younger consumers. We interviewed the CEO of Afterpay, and he made an interesting

point that young people wanted to move from a credit economy to a debit economy where credit cards motivate you to just keep piling up debt, whereas debit is, okay, you can increase your spending power. And that's what's attractive to companies. I was on the board of Urban Outfitters and we used Afterpay. And the model is really compelling. You offer people at checkout a chance to immediately qualify for credit, which they might not otherwise, or immediately qualify for more spending power with afterpay, and then get up to, say, $1,000, and it increases the basket size, and they put the charges against the retailer who will pay happily 6% or 8% of the incremental spend that the consumer's comfortable taking. And then you pay it off

in installments. And if you don't pay it off, they shut it off. And it's not, well, we'll let you roll it and keep aggregating more and more debt. And it's really struck a chord with young people, both because I think that they feel left behind by some of the credit card companies in terms of access to credit. And it seems to have tapped into a younger consumer. And I've never fully understood this, to be honest. I always thought, okay, can't Visa do the same thing and just say, all right, folks, pay it off in four months if you want. But this has tapped into, they've really done this kind of jujitsu move of saying to retailers, this is a way to increase basket size by offering this debit or buying

capacity to an overlooked cohort. And again, it just strikes of how innovation starts. And that is a company goes after what is traditionally seen as an unprofitable pain in the ass market. In this case, younger people who didn't have access to traditional credit or weren't comfortable with it and begins kind of eating the corpus from the feet up. And then you wake up and this thing has got you, your entire torso is in its jaws. CB Insights reported that Americans spent between 20 and 25 billion using deferred payments in 2020. Transactions through these installment plans are projected to grow 10 to 15x by 2025, topping $1 trillion. That's serious cabbage. PayPal rolled out buy now, pay later feature called Pay in 4 last year. Apple is partnering with Goldman to release Apple Pay Later. So you have the big players getting into this. And it feels like it's kind of war of the worlds. I

imagine that some of the other installment payment guys or gals are probably wondering if they need a dance partner. And my guess is everybody's sort of sharpening their pencils and figuring, okay, are these standalone companies? Are they products or features of bigger companies? But fintech, which has produced more unicorns than any other sector in tech is just heating up crazily. And the valuations are insane, see above $29 billion. So what is their responsibility? I think it's real innovation here. I think it's incredibly interesting what they're doing. Responsibility to educate. That's a good question. My colleague, Aswath Damodaran, believes that the best regulation is life lessons. And that is you invest in a risky stock, you get hurt and you think, okay,

maybe I should take risk a little bit more seriously. Whereas Adam Alter, another colleague, and I kind of fall on the side of where Professor Alter is, says that in any emerging industry, there's a lack of regulation. And the general gestalt is, oh, don't regulate them. They're innovators and regulation is bad. And he said that they tried to do that in natural resources and fossil fuels. And ultimately you realize any sector, if it runs unfettered, has externalities. In terms of responsibilities, I think that FINRA and the SEC have a responsibility to come in and make sure people are making accurate and timely disclosures around the risks involved and ensuring that this income is taxable.

If Charles Schwab had a run like Robinhood run, and all of a sudden Charles Schwab said, you can't trade in GameStop, I can't imagine what would happen to him. But we look at our innovators and they're just allowed to get away with shit that others aren't allowed to get away with. So I think our regulators have a job to step in and say, okay, you have to be subject to standards, disclosure, same types of regulations as other fintech companies. But in terms of individuals, I would like to see more education at a primary and high school level. There are states now that are investing. I think it's Wisconsin. I think there's a huge problem when you replace

civics with computer science. You end up with Mark Zuckerberg. And I believe, and my next book is going to be called The Algebra of Wealth. I believe at a very young age, everyone should be forced to take a financial literacy course. And we need to teach our kids very early some basics around financial literacy and the difference between a stock and a bond and the power of compound interest and risk and the wonderful thing about asymmetric upside or risk-free return around diversification. I think this should literally be the new math, the new English, the new science, the new PE, whatever you want to call it, or in addition. So I'd like to think that in addition to applying the same type of regulation on the legacy PE, whatever you want to call it, or in addition. So I'd like to think that in addition to

applying the same type of regulation on the legacy players, we need to have more financial literacy inculcated into our primary schools. Thank you for the question, Elizabeth from Brooklyn, where all the cool cats live. The dog's not coming there though. I'm not coming there. Next question. Hey, Scott, the big dog, or as we would say in Ireland, on Madra Moore. My name is Brian. I'm calling in from Dublin. Apple have vertically integrated lots of their business from the retail temples, which you evangelize to their move away from Intel by producing their own chips.

And of course, there is the rumored search engine in the works. However, it seems to me that the majority of their product lines from iPhone to Mac rely on the availability of internet and Wi-Fi. In America, this is controlled by AT&T, Verizon and Comcast, among others. A $1,500 iPhone is no good if the Wi-Fi is shite. So is this reliance on external providers a vulnerability for Apple and other tech companies? If so, would they ever consider an acquisition in this space? Or is that too far from their capabilities to make it work?

Love to know your thoughts. Love the show. Keep up the good work. Roof, roof. Thanks, Brian from Dublin. By the way, I've got to get to Dublin. I love Scotland. I go to Glasgow and Edinburgh every few years and feel a real connection with it. True story, I'm going to, if I ever have another big hit, I am going to start buying shares of the Glasgow Rangers on the open market. And then I am going to buy that football team. And I will go to Glasgow and sit with the fans and people will love me. They will love me. And then they will say, oh, you know, Americans, I'm going to create a bridge between America

and the US with world-class Scottish football. Anyways, so look, I think verticalization, if you will, and that's really what you're talking about, is the gangster business strategy other than recurring revenue of the last two decades. And that is in 2002, Apple said, all right, we're going to take 7 billion out of broadcast advertising and forward integrate into stores. And they built 600 temples to the brand. And I think that has literally vaulted them into being the most profitable company in history. Why? Not because of the iPhone, which is an amazing product, but because of the margins that the iPhone gets. Essentially, the iPhone is a marvel. It's the most profitable product in the history of mankind that if it were a car, would have the margins of Ferrari

and the production volumes of Toyota. We've never seen that before. We've never seen the production volume leader also have the biggest margins. It's usually, oh, Budweiser, a less expensive beer, or Toyota, what have you. So what the iPhone has pulled off is extraordinary. I think it's because of their brand equity of Apple, and Apple's extraordinary brand equity has been a function of the vision to go into stores when everyone was getting out of them in 2002. They are further verticalizing. They're going deeper and deeper into their own chips, their own microprocessors. Obviously, they have their own handset. They are going vertical into content with Apple TV+. They are

obviously doing a good job in subscription. But yeah, I absolutely think that they will look for new ways. I haven't seen them go after or make any moves talking about AT&T or Verizon. I do think they are going after the broadcast guys, the cable bundle with Apple TV Plus. I think what they're doing is seeding, not seeding, they're usurping, if you will, the positioning that AT&T hugely screwed up by seeding. And that was a luxury positioning around original content that HBO had all to themselves. HBO was a luxury brand in streaming. It had a lower content budget, but only needed 60 or $70 million to get an Emmy, whereas

Amazon was spending $350 million for an Emmy because HBO had a... HBO was never about what it had on its network. It was about what it didn't have. And that is, there's a finer filter, a more... an incredible culture that resulted in a greater hit ratio of anything that came out on HBO. And as a result, similar to when you walk into a Chanel store and think, I would like anything in this store, HBO series got more trial because you think that, okay, whatever they're doing at HBO, there's a good chance I'm going to like it. So Apple has usurped that positioning, but to HBO's credit, if you look at Apple's programming, it's been a little bit of a thud.

I mean, they've thrown so much money out of it. They spent $5 or $6 billion on original content. We got The Morning Show. I thought Greyhound was great with Tom Hanks, but I'm a World War II fanatic. Ted Lasso is really cute, but that's not going to build a network. Although he's very charming. He's very charming. Jason Sudeikis, very charming. Cute show. Anyway, they are absolutely going vertical. And I've always thought Netflix, Achilles heel was the fact that they didn't control their distribution. And if you look at the most successful companies over the last 20 years, they kind of have all thing where most of them have one thing in common, and that is they not only produce the content, they manage their distribution. I don't see them going after the phone guys. I think the steel in

the ground or the massive investments that AT&T is going to make in 5G, and John Stanky, to his credit, course corrected and said, I can't make the massive investments required in 5G and in streaming media, so I've got to spin or re-spin Time Warner. He couldn't do both. And he's doubled down on this amazing business called 5G and the telco business. So I don't think those guys are, unless there's some sort of new technology development and Facebook was talking about satellites and building, laying cable across the Atlantic. I don't know the status of that, but Apple is vertical. Control of the handset is hugely important. Control into the stores. So where other places they'll go vertical? Yeah, I don't see them in telco, but I think they will go vertical in, for example, a search engine.

I think they are going to have their own search and they're just increasingly going to control that stuff. And instead of taking a $6 billion check to be a distribution point for Google, they'll decide to take advantage of that. Obviously, their vertical distribution has paid off in spades in terms of their ability to control the app economy. So further verticalization, but I don't see it on the telco level. I do see it on the broadcast cable level though. I think Comcast is in a difficult position. Look for Comcast, a quarter of a trillion dollar market capitalization company run by very smart people, the Roberts family, to make a gangster big bold acquisition because Peacock just isn't getting it done. It's not getting it done. The bird is not flying. The bird does not soar.

We have one quick break before our final two questions. 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. 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. Welcome back. Question number three.

Hi, Scott. My name is Laura. Big fan of the show. I'll get right to my question. So I am 59 years old. I could use your help in evaluating a pivot that I'd like to make in my career. So I really personify the advice that you've given to your younger listeners about finding something that you love. For me, that's retail and to get really good at it and the

financial rewards will come, which they have. So I'm evaluating a couple of roles. The first is based in the US, high paying, very aligned with my skills, the safer of the choices, and financially puts the cherry on top of my retirement. The second is an e-commerce role based in Berlin, lower salary, big risk, but obviously big excitement and an exciting lifestyle change. So a little bit more about me. I have two grown kids. They're living their best lives at elite public institutions. So this decision is really all about me and what I would like out of my next chapter. I wish I knew the answer. I would love your objectivity and keep up the great work. Thank you.

I love this question, Laura. First off, you're not entirely accurate. I'm going to say I'm famous for I'm not really famous for anything, except being literally one inch away from being canceled forever. That's okay. I have people in my life who love me. I'm financially secure, so I can't take those risks. You can. Anyway, I think you should find something you don't hate, maybe even like, that you're good slash great at and that people will pay you for. I think that quote unquote finding your passion and going to what just sounds more interesting and more fun is a bit of a illusory trope or narrative promoted by people who are already rich. And I think in America, it is so important to have financial security that you want to be sober about where you can get financial security

such that you can then be a DJ on weekends or pursue your passion of cooking, whatever it might be. But I'm very boomerish around this stuff. Okay, so your decision. First off, congratulations on both your kids being at elite public schools. They're the best deal in the world. They were transformative for me and it reflects well, not only on your kids, but on you. So well done there.

In terms of your decision around what I'll call Berlin fun or spill the bills, retail, better job here in the US, I think it's situational. And the fulcrum of this decision is assume the Berlin job does not really work out, that the options, I imagine it's options or some sort of equity compensation does not pay off. And in six years, you're going to be 65, which isn't to say you're going to stop working, but you'll be five or six years from 70 and not want to be financially insecure. My father was raised in Depression-era Scotland. And I always say to him, well, dad, he didn't want to move into, we were looking at retirement facilities. And he took me to one that he'd already put a deposit on and it was so awful. I'm like, dad, you can't move in here. I'm not going to let you move in here.

And he said, and then we went to a nicer one. I said, this is the one we're going to move you into. And he's like, yeah, but it's $6,000 a month. I can't afford that. I'm like, dad, okay. We're in real trouble if you die, if you live to be 115. If you die before then, you're going to be fine. But his financial insecurity is so great that he just wouldn't do it. By the way, we solved the problem by me agreeing to pay, which is how we solve every problem. But you don't want to be a senior and financially insecure. And time goes so fast. So what is the fulcrum of the decision? Imagine it doesn't work out. Would you still be financially okay? Would you still be able to sleep a night and handle an illness, pay for your kid's stuff, take time off to take care of your grandkids and go on cruises and live the life you deserve as an older person. And if this potentially, if it doesn't work out, if it's going to put some financial strain or make that financial security less secure,

I'd hate to say this. I'd go for the cabbage and I'd go for the job that's higher paying. And I would really make an effort to bank a lot of that money and put it in low cost ETFs and create just a stronger financial base for you. If you already have that, and this is just a question of going from being financially secure to financially very secure, then yeah, by all means, head to Berlin. That sounds like an amazing experience. Laura from New York, I'm so curious what you decide to do. So I hope you'll weigh in and call us and leave a voice recording on what your decision is. And you also, one final moment,

you might want to use this as an opportunity to go back to both companies and to say to the company in Berlin, I'm 59, this is just a big risk for me and I need to de-risk some of it. Can you come up on current comp? And it's also an opportunity to potentially go back to the higher paying job and say, I have this amazing job in Berlin. Quite frankly, from a lifestyle standpoint, it just sounds better. Is there any

way you can match some of the lifestyle? I don't know if it's increased vacation or just increasing the money, but having two offers gives you a billion percent more leverage. And be nice, don't be threatening, but just be very transparent. I'm struggling with this decision. Say that to both, because it's the truth. The truth has a really nice ring to it.

And see if either will come up, such that the market will help you decide. Laura from New York, let us know what happens. Let us know what happens. Danka, baby. Question number four. Hi, Scott. My name is Eric, and I live in Hope Sound, Florida.

You seem like you're pretty effective and efficient during an average day to get the things done you need to get done. My question to you is could you walk us through a typical workday of yours? Do you start the day off by exercising or emails or making calls or something else? Or does it differ every day? Do you start off by doing more difficult tasks that take more brain power or start off with easier, more accomplishable tasks? As I've gotten older and now have kids and life seems to get more and more complicated, I've really been trying to keep my work personal and family life as organized as possible. And I write everything down in a series of to-do lists so I don't feel overwhelmed and I don't wake up in the middle of the night thinking I've got to do X, Y, or Z tomorrow or next week or I'm screwed. I'm guessing you've given this area of your life quite a bit of thought given the numerous jobs you have. So it would be great to hear how you

go about an average work day and if you could share any insights that you found helpful to manage your day-to-day life. Thanks a lot. Eric from Hobie Sound, Florida. It's a very thoughtful question and I think it's very situational. I think there are some, you know, there's so many books on productivity. My major productivity hack is greatness is in the agency of others. And that is, and people don't believe this, but it's true. I'm a fundamentally lazy person. I will almost always opt for the indulgence and short-term rewards of tonight. I will go out and I'm going to be with friends and I will get fucked up. I will drink a lot and that will make me less productive tomorrow. But I like alcohol. I'm

a better version of me. As Winston Churchill said, I've gotten more out of alcohol than it's gotten out of me. I'm a lazy, indulgent person. What I have had some skill at is building companies by attracting great partners, and that is great people to work with me and great vendors. And what I've always, I think, done a really good job of is attracting and retaining good people that quite frankly scale my talents. I am talented. I'm not a humble person. But what I try to do is find other people that can scale that talent and do everything that I can't do really well. I, any email that comes in or nine out of 10 emails that come in, and I get a shit ton of emails every day from all sorts of opportunities or people asking for stuff, I dish it to somebody else unless it is only something I can handle. So for me, it's a

big component is comparative advantage. And I also want to acknowledge you have to have money to do that, but I always have taken a very small salary, doled out the majority of the income, current income at least, that I've gotten to other people such that I could build a business and scale, quote unquote, my talents. In terms of my day, I think my day is unusual to most people. I am not a morning person and you have to decide what is your circadian rhythms and where are you most productive. I hate the mornings. I wake up nauseous. I mean, I just don't like it. And I hate eating breakfast, so I have to force myself. I usually wake up around 8 or 8.15. Every morning I say, this will be the morning I want to be the dad that I pretend to be and take my kids to school. I almost never do. I play with the dogs. I have some coffee. And then my trainer shows up at nine

and I work out pretty much every weekday and I work out pretty intensely. And I find that just puts me in a better headspace. I have struggled with what I'll call, I think it's body dysmorphia. I'm very insecure about my body. And I don't know why, I think it's because I was so painfully skinny growing up that I have this need to feel strong or, I don't know, have some muscle mass, or I just feel shitty about myself. In addition, just having that chemical release of norepinephrine or whatever it is, is kind of my antidepressant. If I don't work out two or three times a week, I start getting down on week, I start getting down on myself. I start getting down on other people. I start just generally feeling shitty. So every

morning for me usually involves some sort of quiet time with my dogs once my kids are out of the house, and then I work out. And I immediately break into from kind of 10 to 6, I'm highly scheduled because if I'm not scheduled, I will do nothing. I then like to kick off around 7, have dinner with my family, hang out with the kids. They go to bed around 9. And then my most productive hours, I think of myself as I'm a decent entrepreneur, a decent manager, a decent investor. Where I do think I excel is I think I have some skills around creativity. And late at night is when my creative juices start to flow. And I think I do my best work between the hours of 10 PM and 1 AM. It's quiet. It's just me and the dogs. I like to write. That's when I get my best writing done.

It's quiet. I get more brave at night. I feel like I'm more fearless and can write about my emotions. And I don't know if it's because I feel like the world isn't watching me, whatever it might be, but I do my best work at night. But that's me. And then I go to bed around 1 or 1.30.

I'm an absolute night person. I love just staying up really late. But it's different for everybody. So what are my takeaways? My takeaway, some people, it sounds like you're organized and you write things down. I don't make lists. I think they're great. I think they're a great way to do it. Supposedly a great technique in list making is you write down all of your to-dos and you prioritize them as one, two, and three. And then you go back and force every two to be a one or a three. And then you get back and force every two to be a one or a three,

and then you get rid of the threes and you just focus on the ones. Anyways, but I don't do that. I'm not that organized. I have other people organizing me for me. When I am on calls, my assistant calls me and says, are you on this call? Otherwise, I will miss it. I'm that absent minded. So it's situational. What are your strengths? Who do you need around you to help bring out your strengths? Can you afford to bring those people around you? Is it worth making the investment? But in general, what has worked for me is one, greatness is in the agency of others. Physical fitness creates a level of, I don't know, keeps me time of the day is when you hit your sweet spot, whether it's creativity or organization or what have you. But, yeah, I'm not sure my day is a good role model. Anyways, Eric, I'm sorry I'm not more. I hope you got something out of that.

I'm not sure I did. But it was a chance for me to talk about my favorite topic, me. That's all for this episode. Again, if you'd like to submit a question, please email a voice recording to officehoursatprofgmedia.com. Again, that's officehoursatprofgmedia.com. Our producers are Caroline Shagrin and Drew Burrows. Claire Miller is our assistant producer. One of the things I love about Claire is she's got an easy name.

Well done, Claire. Well done. If you'd 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'll catch you on Thursday. I'm eating this popsicle every night. I forget what it's called. It's like this almond toasted thing I get with coconut vanilla ice cream. It's dreamy. It's really lovely. It's just very nice, very soothing for me. Also, I'm typically on edibles when I eat a lot of them.

Edibles make me an edible machine. Everything becomes edible for me after edibles. Another talk show. What software do you use at work? The answer to that question is probably more complicated than you want it to be. The average U.S. company deploys more than 100 apps, and ideas about the work we do can be radically changed by the tools we use to do it. So what is enterprise software anyway?

What is productivity software? How will AI affect both? And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? In this three- We Begin, which delves into the multiple layers of relationships, mostly romantic. But in this special series, I focus on our relationships with our colleagues, business partners and managers. Listen in as I talk to co-workers facing their own challenges with one another and get the real work done. Tune into Housework, a special series from Where Should We Begin, sponsored by Klaviyo.