The Prof G Pod with Scott Galloway - Prof G Markets: Google’s Antitrust Trial, Birkenstock’s IPO, and Surge Pricing at the Pub

Episode Date: September 18, 2023

This week on Prof G Markets, Scott makes a case for breaking up Google. He then shares his excitement around Birkenstock going public, and discusses the merits of surge pricing across industries — even at the pub. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for this show comes from Constant Contact. If you struggle just to get your customers to notice you, Constant Contact has what you need to grab their attention. Constant Contact's award-winning marketing platform offers all the automation, integration, and reporting tools that get your marketing running seamlessly, all backed by their expert live customer support. It's time to get going and growing with Constant Contact today.

Ready, set, grow. Go to ConstantContact.ca and start your free trial today. Go to ConstantContact.ca for your free trial. ConstantContact.ca Support for PropG comes from NerdWallet. Starting your slash learn more to over 400 credit cards. Head over to nerdwallet.com forward slash learn more to find smarter credit cards, savings accounts, mortgage rates, and more. NerdWallet. Finance smarter. NerdWallet Compare Incorporated.

NMLS 1617539. This week's number 70. A Florida man crossing the Atlantic Ocean in a buoyant hamster wheel made it 70 miles off the coast of Georgia before the U.S. Coast Guard intercepted him. True story, hamsters were my favorite first pets. They live five days and don't require any food or water. Welcome to Prop G Markets. Today, we're discussing Google's antitrust case, Birkenstock's IPO, and surge pricing at the pub. Hmm, have not felt that. Here with the news is Prop G media analyst, Ed Elson.

Ed, what is going on? I'm well. Are you back in London? I'm back in the UK. When did you get back? I got back from Atlanta where I was with Chick-fil-A, super nice people. And I came back for the IMG offsite at Soho Farmhouse where a bunch of people in linear TV were still in consensual hallucination that they can grow those assets. God, Jesus Christ. Did you tell them that? Yeah, I said, here's the thing,

they can still be great assets, you can still make a lot of money, but stop treating it like a teenager and pumping it full of Botox and lying to your employees and investors that you're going to somehow stop the bleeding. If it's linear, it's in decline. The bright spot though, and that was one of the things that was so interesting about this gathering is sports. Linear for sports is a feature, not a bug. For everything else, it's a bug, right? I don't want to have to watch the Brady Bunch at 8 p.m. on a Friday night and I get distracted listening to Up, Up and Away and My Beautiful Balloon by the Fifth Dimension with my father and it's 8.35 and I freak out and start crying for hours because I realize I've missed the Brady Bunch. Anyways, childhood trauma, Ed. But you have, for sports, linear is a feature. My kids don't watch,

they'll watch highlights, but they're not going to DVR the Arsenal game and then, you know, watch it later. It's either live or it's Memorex, so to speak. They don't, and they'll endure the ads. But distinct to that, there was guys from Comcast and Disney, and they were all talking about, we still expect growth. And they talked about all their small victories. And it's like, Jesus, are you guys just lying to everybody or do you actually believe this shit? What do they say when you tell them that? They all took off in their helicopter, went back to their jets. You know, my guess is enjoy the helicopter because pretty soon someone from TikTok is going to be in a helicopter.

But anyways, I don't know how I got here. Take us to the headlines, Ed. Let's start with our weekly review of market vitals. The S&P 500 rose, the dollar was stable, and Bitcoin gained slightly. Shifting to the headlines. The Consumer Price Index showed inflation rose 3.7% in August. That's higher than July's reading of 3.2%. And that data will inform the Federal Reserve's next interest rate decision this week. ARM went public at $51 per share,

as we previewed last week, valuing the company at $54.5 billion. Within the first 30 minutes of trading though, shares popped more than 20% to above $61 per share. Tesla stock rose 10% in its largest single day increase since January. The rally came after a Morgan Stanley analyst wrote that revenue from the company's Dojo supercomputer could add $500 billion in value. That revenue would take Tesla above a $1 trillion valuation. Apple unveiled four new iPhone models and two new watches. The new phones are now compatible with a USB-C charging port instead of the old lightning port. That's to comply with new EU regulation that requires all smartphones to have USB-C ports by the end of 2024. The market's reaction was lackluster, with shares falling 2%. And finally, the United Auto Workers launched a limited strike against Ford, GM, and Stellantis.

The union is strategically targeting individual factories on a case-by-case basis rather than staging a full-blown walkout, but it plans to expand the strike if negotiations continue to stall. Scott, any thoughts on those headlines? First off, can you give us just the headline news on what the Dojo supercomputer is? It's a supercomputer that they're using. Well, thanks for that. We're off to a good start. Go ahead. Oh, come on. You can't shut me down. Can we get some more blinding insight from you? Go ahead. Sorry, go ahead. Okay, it's a very good, very powerful computer. And the point is that it has more processing power, supposedly enough to train all of the AI models

that you need for full self-driving. And I think the reason people are excited about it, the potential is that they could leverage that, leverage all of that processing power and service other AI companies. And essentially, Tesla would become the pick and shovel for anyone who's working on full self-driving. I just think it's amazing. I guess it will help any computer that help a computer process anything with a visual field.

So you can imagine all sorts of new AI for, you know, the Ring camera, right? That it could immediately recognize friend or foe, or it could know what level of security to, you know, it sounds like it'd just be amazing for TSA or anything that has a visual field, I guess it offers new levels of decision-making, right? But the market's reaction here is just staggering. I mean, added the value of BMW in one day? It's just crazy. People have described Tesla as a mediocre car with great software, and they describe the rest of the auto industry as great cars with mediocre software. And it just strikes me that you'd much rather be better at software than being a carmaker. It's just, that absolutely blows my mind. Inflation, my understanding is that most of that bump in inflation was because gas prices increased about 11%. Motor vehicle insurance, car repairs all remain pretty inflated. On a brighter note, rents increased 7.8% in August from a year earlier, but down from a peak of 8.8% earlier this year, and the slowest rate of increase since last fall.

Going on TikTok, I don't know if you've had this experience, but whenever I go on TikTok, it's basically a lesson in, according to all of TikTok, housing prices are going to just, and rents are just going to keep going up no matter what. That's the only text I get from you these days. Oh yeah, about housing prices? Like 10 links to TikToks talking about housing prices. I'm just freaked out about your generation, that if you look at the price of houses relative to incomes, basically home ownership has become a pipe dream for young people. I saw one stat that just

absolutely blew my mind. In 1980, the average age of a home buyer was 29, and now it's 47. And it used to be nobody paid cash, and now like one in three buyers are paying all cash. Basically, home ownership has become the playground of my generation, and Gen Z and millennials have been pretty much sequestered from any hope of owning a home. It just absolutely, anyway, it freaks me out. But arms IPO, I was shocked here. I thought, I didn't think it was going to get the kind of valuation it got. I thought that they would try and price it aggressively to try and to talk themselves into believing it was worth what it was in the private markets. But a great pop. We did predict earlier in the year that the IPO market was going to have

fresh life. And this is clearly, if they can raise this kind of capital and still have, I guess it was 12 times oversubscribed, That's a very positive forward-looking indicator. UAW auto strike, I think it will get settled. And there's a difference if you look at sort of the three big strikes, the Teamsters and UPS, got settled because the Teamsters had leverage, UPS is doing well, and there is no UPS if the drivers go on strike. Also, I think this strike gets settled. Their requests are fairly straightforward. We want more money. The auto industry, including even the domestic automakers,

are making money. And they're asking for 46% pay raises over four years. Ford offered 20%. So, you know, let's call it, they end up with probably high 20s, low 30s. This still works. These companies will still be profitable for GM. They all have decent EV offerings and they continue to make the most profitable automobiles in the world,

other than luxury automobiles, and that is trucks. And also, it's difficult for the CEOs to kind of say no here because someone pointed out that at these three companies, compensation has gone up on average 40%. So, it's going to be difficult for them to push back and say, no, we're not going to give you more than, you know, 20. And they've already offered them 20. And that's a decent pay bump. So I think this thing gets solved. Where in contrast, and this is a lesson in negotiation, you have the riders strike. One, they had no leverage. If the Teamsters at UPS and if the UAW

at the automobile manufacturers go on strike, consumers feel it immediately at the new car lot or their packages don't show up. Would you know? Would you, Ed Elson, who's a consumer of media

and who every advertiser and every cable company and every streamer wants, you're a key consumer because you're going into your mating years, which means you'll spend money on stupid high-margin things, so advertisers love you. Going into my mating years. Just slowly but surely, in a very awkward way, melting in, easing into the mating years. But would you know, would you know if you didn't know that there was a writer's strike? Has that had any impact on your quality or volume of your content consumption? No, absolutely none. My media time is spent on, you know, Instagram or TikTok. And then when I'm

watching Netflix, I'm watching, you know, old movies. I'm watching like Glenn, Gary, Glenn Ross right now. Like, yeah, I'm not like, I'm not consuming new, new content. I just feel as if our content cues are the depth of the mariana trench so and i don't think that many people miss jimmy kimmel or or colbert i don't think they care and what's interesting about the writer's strike is it's beginning to crack i don't know if you saw this but both drew barrymore and bill maher have said they're returning and they're going to return with they're basically you know busting or crossing the picket line and i think it's i think it's the first of many i think it's the beginning of the end of the strike and i think the riders union is just going to come out

of this deeply scarred as people realize that they're people running the union have their heads up their ass decided to strike when they had no leverage and make demands that the studios were never going to meet and they just totally underestimated they just they just read the chessboard terribly here apple all i heard was heard was they've got a different charging port, and I'll get one because, you know, that's how I roll, Ed. That's how I roll. But I'm least excited about this upgrade as I have been about any iPhone upgrade. It strikes me as really uninspiring here. And it's interesting.

Apple's sales of iPhones have either been flat or declined for a while, but they've done an amazing job moving to services. And everyone's saying, oh, no, the end of big tech because it went down 7%. You know, Jesus Christ, the stock has tripled in the last five years. What will be more interesting is kind of, I read an interesting stat, 20% or about one-fifth of their revenue comes from China, but four-fifths of their products come from China, are manufactured in China. So the sort of non-hot war or the non-shooting war that is the trade war that's emerging, Apple is right in the center of that. And what would really hurt both Apple and China is if they decided to, you know,

put additional restrictions on them manufacturing their supply chain there. So that's going to be interesting. We'll be right back after the break with a look at Google's antitrust case. 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. Hello, I'm Esther Perel, psychotherapist and host of the podcast, Where Should 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. We're back with Prof G Markets. Last week marked the beginning of the most significant antitrust trial in 25 years. The monopolist in question is Google. The U.S. et al. v. Google case alleges that Google has been engaging in anti-competitive behavior for years. The lawsuit hinges on one practice in particular. Since 2010, Google has paid companies such as Apple to make

their search engine the default option on mobile phones and computers. Per the prosecutors, these deals cost Google more than $10 billion every year. And they argue that without these agreements, Google would not have been able to maintain its 90% share of the internet search market. Mia spoke with Josef Weizmann, who is in Washington, covering this case for the sub-stack Big Tech on trial. He says Google's main defense so far is simply that no company has made a competitive enough product. That's the core of Google's defense. Like, people use us because we're the best. If we weren't the best, they could easily switch.

And I think they've said, if you want to switch your default search engine, all it takes is a few clicks. The government's response to that is, if people really use Google just because it's the best, why are you paying billions of dollars to Apple to be the default search engine? For that full interview, check out our YouTube channel, The Prof G Show.

So, Scott, you've been calling for stronger antitrust enforcement for years. It was the main message of your book, The Four. Is this the kind of enforcement you had in mind? America has a proud legacy of antitrust. And let's go through each of them or all of the stakeholders kind of one by one. First, there are shareholders. And if you look at the majority of breakups, whether it's self-imposed, eBay spending PayPal, or AT&T being broken up into, I think it was either seven or nine baby bells,

shareholders almost always win in a breakup. Because why? Because the markets and investors love pure place. And that is, should Google be in the business of autonomous? Should eBay be in the business of payments? Should Amazon be in the business of advertising or cloud? And when you have these conglomerates, what happens is investors are confused by them, have a difficult time sussing out the growth of YouTube versus Google Cloud, and they find the shittiest business or the least amazing business, and they assign that multiple to everything. So typically, breakups are accretive for shareholders. Shareholders win. Two, employees

of the company. They win because you have more companies vying or competing to rent their labor, more employers. Let's talk about the VC community. It wins because it's got more companies to fund. The corporations outside of those conglomerates or those monopolies win. Why? Because if there were two search engines, which there would be if you broke up, say you split, if you forced, one of the remedies was to force Alphabet to spin YouTube. Within six months, the good folks at YouTube and independent YouTube decide to start text-based search. Within six months of the spin of YouTube, an independent Google says we should start our own video-based search. And overnight, you have two competitors in each category. And what does that mean? It means in order to grab back market share, they each start lowering the prices and the tax that is search

and video search on corporate America goes down. In addition, more companies fill in different niches and the VC community thrives. There's more tax revenue because there's more companies and typically more renovation and more profits. What did we find in Bell Labs? AT&T said, if you break us up, we're not going to have Bell Labs. They're right. They closed down Bell Labs. And what do you know within Bell Labs were these technologies that never saw the light of day because AT&T didn't want to cannibalize their long distance business, which they had 80 or 90% share. And we got fiber optics and we got analytics and we got cell phone technology. So it unlocks innovation and the ecosystem wins.

Let's talk about the Commonwealth. The Commonwealth wins because P&G doesn't have to advertise with them because they're not a monopoly and decides to advertise with the video search platform that's figured out a way not to radicalize young men. So what do we have? Society wins. The Commonwealth wins. The tax base wins. Employees win. Shareholders win. The venture capital community wins. The only loser in these breakups are unfortunately the people in charge, and that is the founders who have dual-class shareholder structures who want to sit on the iron throne of all seven realms, not just Westeros. And Sergey and Larry, who control Alphabet, would rather control a bigger kingdom, even if it means they're only going to be worth $80 billion each, not $100 or $120. And it's the same with Zuckerberg, but effectively what you

have is the only stakeholder that loses is unfortunately the one in charge. So they massively spend on lobbyists. You literally can weaponize them with not that much money. And Google has learned from the sins of the father, Microsoft. They have spread money all over DC, and they also become much more likable. The biggest mistake at Microsoft was that Bill Gates is not likable, at least it wasn't in 1999. And I think that Susan Wojcicki, Sheryl Sandberg, and Sundar Pichai make tens of millions of dollars because they're outstanding managers, but they've made billions because they're very likable and are great heat shields for the mendacious fuckery that is their corporate parent. So I think that a breakup here would oxygenate the economy. I think it would be the equivalent of an enormous corporate tax cut.

And I think we need to stop looking at it through the lens of it's some sort of punishment. No, it's not. It's recognition that these companies have done an amazing job. And what happens when a company does an amazing job, it can raise so much cheap capital and gather so much data in this instance that it can pull away and other small companies can't get out of the crib. And also, we don't know what we're missing, Ed. We don't know. We weren't waiting for cell phones with AT&T. We don't know what would have been innovative. We don't know what products would have popped up if they had a chance of getting out of the cradle, which they don't with a dominant Google. In sum, the judge either decides, in my view, to break these guys up or some sort of consent decree, or we have the wrong laws. But it's gone on way too far.

These companies have blown by all traditional metrics of power, of monopoly-like margins relative to past industries that we've decided to go in and break up. So I'm excited again. I'm back on the antitrust meth. I think there's actually, I've had my heart broken here, Ed. I've had my heart broken, but I think that I'm hoping, I'm really hoping that Lena Kahn and Judge Amit Mehta finds for the DOJ and decides to break up Google. I think this is really important. But so, okay, so let's talk about

this breakup concept because, you know, you look at YouTube, it's generating $29 billion in revenue every year. That's, compare that to existing media groups like New York Times,

it makes $2 billion. Fox makes $14 billion. It actually makes more than PayPal every year, which brings in $27 billion in revenue. So agreed on all those points, the thing is, you look at this case, and it's not about breaking up Google. It's about the fact that Google pays

Apple $10 billion a year. So, I mean, do you really think that... I mean, the solution to this problem, it seems like isn't going to be, okay, let's go in and break up Google and break up big tech. The solution is, okay, let's tell Google you're not allowed to pay Apple $10 billion a year now.

Would that really change much? Here's the thing about antitrust. It's often not the remedy that changes behavior. It's the scrutiny. And what do we mean by that It's often not the remedy that changes behavior. It's the scrutiny. And what do we mean by that? Regardless if the remedy is just they have to stop these massive payments to other platforms to be the default search engine, it says, it will say to the marketplace and to other judges that there's precedent here that we think this company is engaging in monopoly

abuse. And it clears the way, I believe, for other guilty verdicts and other remedies. And it also sends a message to Google that they've got to stop this predatory monopoly like behavior. When Microsoft was found guilty of antitrust or monopoly abuse, and there was a judgment to break them up, it was eventually overturned. And so the question is, well, okay, then it didn't have any effect. Actually, it did because they had to sign a consent decree. And part of that consent decree was how they treated new companies and startups, that they weren't as predatory around performing infanticide on startups. And guess what happened? Because of that consent decree, a little search engine got out of the crib named Google. So it's just so kind of cynical and ironic that a company birthed by antitrust,

Google, is in the midst of this trial right now. Do you believe that that $10 billion payment is monopoly abuse? If you are the only one who has the capital to make your product the default, and as a result, you get more and more data and pull away such that no other company can compete with you. I think that is monopoly abuse, monopoly power, and results in a less healthy ecosystem. And I think we have to look at this not through the lens of, these are bad people and they've done anything wrong, or as punishment, but through the lens of, this is recognition that you're so successful and it becomes so powerful that you are this giant oak sucking up all the water and nutrients become so powerful that you are this giant oak sucking up all the water and nutrients for the forest around you and nothing else can get out

of the ground. And I think that's the case here. And I think that economic history is on my side that anytime... You've pushed back on me here and it really pisses me off, Ed, because I don't like your thoughtful questions. When... So let me push back on you and I'm not going to ask anything about the Dojo supercomputer. When has antitrust not worked? When let me push back on you, and I'm not going to ask anything about the Dojo supercomputer. When has antitrust not worked? When have we looked back on a breakup, whether it was steel, aluminum, AT&T, there have been a myriad of breakups.

When have we looked back and thought, you know what, we screwed up. We shouldn't have broken up that industry. We are batting a thousand around breakups. You're not going to like this statement, but it's different this time. Yeah, that's right. And the reason I say that is because the commodity here is data, and data isn't like any of the commodities that you just mentioned.

If you build up a monopoly on steel, the danger is that you'll start price gouging and raising prices excessively. But if you build up a monopoly on data, yes, you could technically do that. There's a potential for raising prices, but Google hasn't done that. But what it actually does is it just means you have a better product. You've got better results, you've got better advertising for the consumer, and that's what they've done. And then you look at, like, Google's, what it's done for the consumer, you know, the average click-through rate on a Google ad is 30% higher than on a Bing ad. And that's because they have more data and more reach. It's, you know, Google ads convert 50% better than an organic

search result. I have friends who run small businesses and, you know, one of them told me that his business changed overnight because he started running Google ads. It was just as simple as that. So I think the difference here is that you've got, you know, the scale is what makes Google a good product. And I don't think that the search market is going to change much. I think people are going to say, yeah, I'm going to opt with Google because it's the best product out there. Let's break that down. So let's assume that it makes sense. So similar to the power plants in Florida, Florida Power and Light says, justifiably, we don't need two coal-fired power plants. We don't need two grids. We need one. And they control 90% plus of power generation. There's a term for that.

It's called a utility. And if, in fact, you are right, and there's a benefit to that type of scale, we should have government officials in there looking transparently at how they price their products, what decisions they make to ensure the protection of the Commonwealth, what guardrails they put in place around election misinformation, around trafficking, all that sort of shit. So there has never been a case in my mind where the government has been overzealous and broken up companies. And we have blown by any kind of reasonable metric around power. And I think there's a lot of economic arguments that Alphabet has become an enormous toll booth

where everyone has to spend money on search, but it doesn't provide differentiation for anybody, which doesn't mean it's a tool. It means it's a tax. And a company like Neva that has incredible backers, incredible technology, can't even get out of the crib. Incredible backers yourself.

Very good, because I'm talking my own book. You're the backer. Yeah. I'll just end on this. I mean, agreed what you're saying. No, you don't, bitch. You're just saying that because I signed the front of your check. But to me, it's not good enough to say they're mean and they're too big.

And I think that you look at the cases that they've brought against them and the fact that the best thing that they've come up with is you pay $10 billion to these companies is evidence to me that, you know, these are sort of weak monopoly abuse claims. Well, let me ask you this then. Do you think the ecosystem, all stakeholders, government, taxes, startups, shareholders, the Commonwealth, youth that spends a great deal of time on these products, do you think those stakeholders as a whole would be better off or worse off if Google or Alphabet were broken up? I don't think that's the right question to ask. Well, I'm asking it, so try to

answer it. I think that it's a legal question, and you could say the world may be a better place. Okay, but hold on. Why do we have laws? Laws are made by elected representatives who are charged with preventing a tragedy of the commons. We're saying that the commonwealth, parents, investors, employees, and the parent, we're saying that pretty much everybody in American society and in the West would be better, better off, make more money, have more money in the retirement account, be less worried about their children.

Startups would have a better chance of succeeding. There'd be more return on investment to venture capitalists. There'd be a broader tax base if instead of having three or four of these companies, we had 11 or 12 to compete against each other. Generally speaking, competition results in wonderful things. And these markets are not competitive. How much do you really think Google has changed from a consumer standpoint over the last 10 years? Do you think there's been a lot of innovation there? No, but I use it every single day obsessively. So I don't have any complaints.

Yeah, and I use electricity every day. Yeah, okay. That's a good point. And it comes from only one source, and it's a monopoly, and they're regulated. So which is it? Should it be broken up? It's got a 92% share, or is it a utility, and it's worth it to have a natural monopoly? I don't buy this notion that it's just better.

Anyways, to be continued. We'll be right back after the break with a look at Birkenstocks IPO. from Indeed. If you need to hire, you may need Indeed. Indeed is a matching and hiring platform with over 350 million global monthly visitors, according to Indeed data, and a matching engine that helps you find quality candidates fast. Listeners of this show can get a $75 sponsored job credit to get your jobs more visibility at indeed.com slash podcast. Just go to Indeed.com slash podcast right now and say you heard about Indeed on this podcast. Indeed.com slash podcast. Terms and conditions apply. Need to hire? You need Indeed. Support for this podcast comes from Klaviyo. You know that feeling when your favorite brand

really gets you. Deliver that feeling to your customers every time. Klaviyo. You know that feeling when your favorite brand really gets you. Deliver that feeling to your customers every time. Klaviyo turns your customer data into real-time connections across AI-powered email, SMS, and more, making every moment count. Over 100,000 brands trust Klaviyo's unified data and marketing platform to build smarter digital relationships with their customers during Black Friday, Cyber Monday, and beyond. We'll see you next time. We're back with ProfgMarkets. German shoemaker Birkenstock filed for IPO last week. The company will list on the New York Stock Exchange under the ticker BIRK, and it's estimated that the company will garner a valuation of more than $7 billion. Birkenstock is majority owned by private equity

firm El Caterton, which is LVMH's investment arm, and it valued the company back in 2021 at roughly $5 billion. This is the second IPO for El Caterton's portfolio in just a few months. The firm is also an investor in beauty company Oddity Tech, which went public back in July and which Scott and I covered on our July 24th episode. Scott, here's another consumer IPO. Can we officially say the IPO market is back to life? I think so. Year on year, IPOs are up. Birkenstock's going to get a pop. I believe it'll be up somewhere between 20 and 40% on the first trade, or maybe even more. It's a global brand. It's got the product. It just continues to resonate. And this is pulse marketing. But where I live in Soho, there's a Birkenstock store. And on a regular basis on weekends, there's a 10 or 20 minute line to get into Birkenstock. I think these guys have done

such an outstanding job of keeping their brand and their product relevant. It has an incredible direct-to-consumer business, which means they don't have to pay monopoly prices from Google. And direct-to-consumer sales, get this, in the last four years have grown at an average of 42%. And then seven years ago, Birkenstock publicly quit Amazon, which I love, which the dog loves, in the U.S. due to counterfeit and unauthorized sales on its side. And why does Amazon continue to have counterfeits and unauthorized sales? Because they can, Ed. Why? Because see above their fucking monopoly.

Consumer loyalty. The average U.S. consumer, get this, the average U.S. consumer owns 3.6 pairs of Birkenstocks. It has an NPS of 55, meaning people just freaking love the product. Their revenues increased 29% year on year to 1.3 billion in 2022. They have 29% operating margins. Those things, what a shocker, don't cost a ton to make, 15% net income margin. And it's a global business. About half the revenues from the America is about a third from Europe, 10% from APAC. Now, granted, they're guilty of some of what I would call yoga babble. By the way, I'm credited in the Urban Dictionary with the term yoga babble.

I don't know if you know that. I do. They write, okay, following, open quote, we see ourselves as the oldest startup on earth. I think that's called the Catholic Church. And by the way, you want to talk about monopoly power so they can get away with doing really horrible things, Ed? See above the Catholic Church. And it says, okay, let me continue. We are serving a primal need of all human beings.

We are a footbed company selling the experience of walking as intended by nature. The functional nature of and growing usage occasions for Birkenstock products enable the universality of our brand, allowing us to serve every human regardless of geography, gender, age, and income. I don't think that's true, Birkenstock. I don't think anyone can afford your shoes. That shit, that like granola, like hippie thing is kind of, it's kind of expensive. I wonder what the average price point is on their shoe. Anyways, I think first trade this thing's up dramatically. And I think to your original question, I think the IPO market is beginning to thaw. So short term, you think it works. But one question that I had is about moats. And that is,

you know, for a fashion or an apparel company like this, which specializes in a really unique product, which is this sort of granola crunchy hippie shoe, the only real moat that you have is the brand. And I think about comparable companies that recently IPO'd, and the best one I can think of is Allbirds, which IPO back in November 2021. And it's performed terribly. It's down 40% year to date. Since the IPO, it's down 94%. And, you know, the reality is the earnings didn't live up to the hype. So I feel like Birkenstock is in kind of a similar position, right? I mean, it's having this hot moment, the line is around the block. But how do you think about that from an investor perspective? And how should a company like Birkenstock be protecting themselves from that kind of fallout?

Should they be maybe diversifying their revenue streams or just, you know, focusing all their attention on enhancing the brand? How would you think about it if you were an operator at Birkenstock? I think comparing Birkenstock to Allbirds is like comparing Tom Petty to Milli Vanilli. I just don't think there's any comparison. Birkenstock has been part of the zeitgeist in American culture and progressive, for lack of a better term, boho, chica, hippie culture for 20 or 30 years. People love the product. It's been around forever. It's iconic. They do a good job with their stores. The company has a nice culture. They eat their own cooking. They basically stuck up the middle finger. They were one of the few that took on

Monopoly. And I want to say one, people have tremendous affection for this brand. I would bet their supply chain is really strong. It's a unique blend of sort of hip hippie. And that is what I mean is fashion as it's associated with that type of movement or that type of demographic usually isn't the type of fashion that wealthy people aspire to, right? Like tie dye just isn't in that vogue very long or bell bottom jeans. This product has universal appeal across a bunch of demographics. It's a truly global brand. I would bet that Birkenstock has name or brand recognition

across 50 to 80% of the West. I own a couple of pairs of Birkenstock. Everyone in my family wears Birkenstocks. It's just, this is, I have a difficult time other than maybe Nike thinking of a footwear company, maybe Adidas, that is this iconic, that owns the category. its category, open air sandals or whatever they want to call it, is more dominant than Nike. So, because Nike has several pretty formidable competitors, I think I'm taking the over-under on this one. This is going to be big. Will you buy shares? I'd love to buy shares. I don't know if I'll be able to get in. If I could get the CEO or someone at Elk Hatterton to give me allocation in the IPO, I would take this all day long. And not only that, I would hold this stock for three to five years. This is a company, I think this company, when I look at the fact that they're not selling that much in Asia,

I think it has all sorts of international growth opportunities. And when I see the line around the block and so, it says to me that there's opportunity to own more stores. So I am very bullish on Birkenstock. All right. Whoever's underwriting this, Prof G wants in. Call me. By the way, Elkatterton, Jesus Christ, as if LVMH didn't need more wins. Elkatterton is killing it. First oddity and now this. My gosh.

Good for them. The largest pub chain in Britain is adopting a controversial new business strategy, surge pricing. At 800 of Stonegate Group's 4,000 pubs, a pint of beer will now cost a different amount depending on when you come in. In the middle of the weekday, the price remains the same, but on weekends and evenings, it's about 20 pence more. This change has angered UK consumers who are already dealing with higher beer prices due to inflation. In 2019, the average pint in the UK cost £3.70. Today, that number is £4.58, a 24% increase. At the same time, the pub industry is struggling. In the past two decades, the number of pubs in the UK has fallen by a quarter, and COVID only made things worse. So Scott, we've gotten used to surge pricing in other industries like air travel, hotels, ride sharing. But do you

think surge pricing makes sense for pubs? 100%. There's surge pricing at Denny's. I go to Denny's before 5pm because, you know, I'm old to get the Grand Slam special for $2. 100%. There's surge pricing at Denny's. I go to Denny's before 5 p.m. because, you know, I'm old to get the Grand Slam special for $2.99. Actually, none of that is true. But surge pricing, of course. The time-based pricing, call it surge pricing.

I think of it as time-based pricing, right? If I fly on a Saturday versus a Friday or a Sunday, it's an entirely different price on an airline. If I go to the early show at movies, you know, I remember going to the movies in the early afternoon because it was three bucks instead of five bucks. So I think this makes a lot of sense. And the pub industry in the UK is really interesting because there are certain real estate that is zoned just for pubs. They take pubs very seriously here.

And you can buy a pub and think, wow, I'll pay, you know, a half a million pounds for this pub because just the real estate's worth more. And it's like, no, it's not because it has to be a pub. I go to Guy Ritchie's pub. It's called Lore of the Land

and they do an amazing job for brunch. Like they basically slaughter a lamb. Sounds like a pretty fancy pub. You play darts. By the way, I met the guy that owns the biggest darts league. Who would have thought that thing would work? That works. You know, the darts league and the darts championships, they like sell out Madison Square Garden.

Anyways. Yeah, they're epic. Yeah. Have you been? No, but I've talked about it with my mates a bunch of times. We'd all love to go. Really? Oh, yeah.

Well, that guy, well, I had dinner with him last night. He's a handsome guy. He has dark hair. He looks way too young to own a sports leg. If he's listening to this, bring us to darts, and we'll live blog it or whatever it is we do to become influencers. But anyways, the pubs in the UK are a big part of pub culture. And I think surge pricing, I think it makes all the sense in the world. It's everywhere.

And if you don't like it, there's something for everybody here. I think this makes all the sense. What about the fact that it's just, from a consumer perspective, deeply unpopular? So just as an example, AMC tried this, and then in July, they abandoned it because people were just so upset about it. And then Lyft obviously has surge pricing, but they're considering getting rid of it. And the CEO said, quote, riders hate it with a fiery passion. And the point being, they're just losing out on potential rides because people are so angry. Do you think it's possible that, you know, the psychological effects of just saying we have surge pricing could be, you know, more damaging to the business versus operating with the less efficient, non-dynamic, non-time-based business model.

Yeah, but the majority of new pricing schematics or new products fail, and then the company, if it doesn't work, then the pubs will move away from it. I'm gonna go out on a limb here and assume that we shouldn't take business cues from Lyft, other than it sucks to be the distant number two. I remember my dad and me and my sister and his third wife, was it number three or number four?

Linda, were you number three or number four? We don't know. Anyways, we used to go to some bad mall on like a Wednesday night, and it was two bucks instead of five bucks. Price discrimination works really well for a variety of people. So I'm down with it. Some interesting research is reading this research paper out of UPenn, which investigated surge pricing specifically for the ride-sharing industry. And they basically found

that when you account for the amount of time saved for the rider combined with the fact that the surge pricing allows you to set lower price points on average. There's an overall increase in welfare of 3.5% for the rider. You know, in some, it can benefit the consumer. But, you know, I was reading that and thinking, okay, that's great. But also ride sharing is a very different industry because it's so supply and demand sensitive. Like there's time sensitivity and the supply and demand can vary so dramatically depending on the time. Do you think that you can apply those same principles for, say, flights, ride-sharing hotels, where demand can become constrained so drastically we're talking about, there's variable pricing. I mean, if you book a hotel 30 days in advance, you get a lower price.

And if it's the variable pricing and pricing and yield dynamics, God, the airline industry, think about how variable the pricing is there. They manage to fill every plane. And I believe the lowest to the highest price or the lowest to the greatest price, there's like 700 or 800% difference. And if I type in, where am I going next? I'm going to the Bay Area. Your prices will change based on when you're searching and all kinds of stuff. And if it doesn't work, they'll adapt and they'll get rid of it. And if consumers throw up on it and don't like it, they'll stop it. This is capitalism at work, except if they're a monopoly and they abuse that power, Ed. Before we wrap up, let's listen to a prediction that you made exactly one year ago about TikTok. is that in the next 90 days, we either see a dramatic change in ownership, meaning a very

large investor. And when I say a change in ownership, I mean a change in ownership to an American entity where we see an outright acquisition. I think something that would solve all problems for TikTok would be if Microsoft acquired it. And there's so much money on the line here, and the heat is getting ratcheted up so quickly that I think the shareholders at ByteDance are going to say, OK, we're willing to cash in and make someone else the largest shareholder here in exchange for creating some distinction between the CCP and an unbelievable product. Because this company is probably worth $500 billion to $1 trillion right now. If that doesn't happen, if that doesn't happen, in my view, that reflects that the CCP is already having influence

on this company and not letting them pursue a sale. And I think you're going to see regulation. Did you bring that clip up because you're mad at me because I'm right about monopoly abuse? Is that what you're trying to do here? This is Claire. Get angry at Claire. I would argue that I'm kind of half pregnant here or half right. And that is the federal government has banned the use of TikTok from all employees of all federal agencies. That is the beginning of a ban. I mean, that's, the federal government is the largest employer in the nation. And so the largest employer in the nation has banned all of its employees from using any of ByteDance products. All right, let's take a look at the week ahead. We'll see the latest interest rate decision from Fed Chair Jerome Powell.

Economists are anticipating that the Fed will pause rate hikes this month, but another hike this year is still on the table. Scott, do you have any predictions for us? Birkenstock. Birkenstock is not all birds. This thing's going to get a pretty big pop here, Ed. You and I, you're going to take me out for a pub during surge pricing when this thing pops. This episode was produced by Claire Miller and engineered by Benjamin Spencer.

Our executive producers are Jason Stavers and Catherine Dillon. Mio Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prop G Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours, and we'll be back with a fresh take on markets every Monday. In kind reunion As the world turns And the dark lies in love Do you feel like your leads never lead anywhere? Thank you. So now, it's easier than ever to be a marketer. Get started at HubSpot.com slash marketers.

Support for this podcast comes from Anthropic. It's not always easy to harness the power and potential of AI. For all the talk around its revolutionary potential, a lot of AI systems feel like they're designed for specific tasks performed by a select few. Well, Claude, by Anthropic, is AI for everyone. The latest model, Claude 3.5 Sonnet, offers groundbreaking intelligence at an everyday price.

Claude's Sonnet can generate code, help with writing, and reason through hard problems better than any model before. You can discover how Claude can transform your business at anthropic.com slash Claude.