The Prof G Pod with Scott Galloway - Rethinking Corporate Valuations — With Daniel McCarthy

Episode Date: October 7, 2021

Daniel McCarthy, a professor of marketing at Emory University, joins Scott to discuss his research on customer-based corporate valuations, as well as the current state of public disclosures, which he argues is a total mess. Follow Daniel on Twitter, @d_mccar.  Scott opens with his thoughts on Facebook’s mendacious business practices, and why he believes the company is on its last leg. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Episode 106. 106, the atomic number for cyborgium 106 the text-based emergency number in australia australia in 2020 kicked off the year with a billion animals a real tragedy dying in their wildfires who would have known this would be the feel-good story of 2020 what do I say to 2020 and 2021? Go, go, go! Welcome to the 106th episode of The Prop G-Pod. In today's episode, we're joined by Daniel McCarthy, an assistant professor of marketing at Emory University's Goizeta School of Business. He specializes in the application of statistical methodology to contemporary marketing problems.

Well, that's a mouthful, Daniel. We wanted to speak with Professor McCarthy after he dropped a great Twitter thread in response to our No Mercy, No Malice newsletter post about the firm Aspiration and its deceptive valuation. We discussed Professor McCarthy's research on customer-based corporate valuations as well as the current state of public disclosures, which he argues is a total mess. I love this stuff. He described it perfectly. I'm also like him, a birdwatcher of S1s. By the way, most interesting ones recently, Rent the Runway, who I love. I love the founders. Unfortunately, it's a shitty business, and that thing makes no fucking sense. Sorry. Wanted them to win. Rooting for them. It's not working. And then Allbirds, which is trying to be like Warby Parker, except it's not.

It's a shittier business with a shittier CAC. And also, as Professor McCarthy will disclose, not making the requisite disclosures. In the latest round, what's going on here? What should we talk about? What should we talk about? Query me this. What's in talk about? What should we talk about? Query me this. What's in the news? I know.

That mendacious fuck called Facebook. I think the company is about to live its ninth and final life. I've been predicting that for a long time. The rumors, according to Scott Galloway, of Facebook's death have been greatly exaggerated. In the latest round of Facebook's notorious splashes in the headlines, Frances Haugen revealed herself on CBS's 60 Minutes as the whistleblower

who led to the Wall Street Journal's investigation into the company. By the way, if you like podcasts and you like the Wall Street Journal, or if you don't like podcasts

and you don't like the Wall Street Journal, you should listen to this series from the Wall Street Journal, the podcast and the investigative reporting they've done around Facebook.

It's been really interesting. Haugen, a former product manager on Facebook's civic integrity team, handed over internal documents that revealed how the company explicitly knows that its products, one, amplify harmful content, two, let certain elite famous people get away with behavior

that would normally result in sanctions, three, depress teen girls. Well, thanks for that. And four, allow for drug cartels and human traffickers to operate. Where have they crossed the line? In my view, it's depressing teen girls. There's just a special place in hell for people who wallpaper over damage done to kids. I think Mark Zuckerberg is the tobacco company and Sheryl Sandberg is Joe

Campbell trying to make it cuter for young people. Prostituting personal tragedy. Yeah, I said it. Prostituting personal tragedy to try and soften the damage or the perception of damage. And then their most recent individual who is trashing his reputation for $30 to $50 million a year, Nick Clegg, who says, we are not responsible for the January 6th insurrection. Yeah, no shit. We're not saying you're responsible. We're saying you're a big part of the problem that has made our discourse more coarse,

that has made truth no longer a thing, that the algorithms are basically totally engineered to confirmation bias, such that if you are worried about the vaccines, we will absolutely continue to feed you information that convince you that, yes, there are microchips from Bill Gates in the vaccine. Or if you believe that, oh, I don't know,

I should be thinner as a 15-year-old girl that is 5'4 and 95 pounds. Yeah, we'll confirm you should be thinner. Two-thirds, get this, two-thirds of extremist groups joined by people on Facebook, the algorithm suggested those groups. And then they, get this, two-thirds of extremist groups joined by people on Facebook, the algorithm suggested those groups. And then they retreat to this, well, there's problems. There's always going to be problems.

It's never going to be perfect. Mark Zuckerberg testified in front of Congress that the research that just came out was inconclusive. But what he saw was that there's actually a lot of very positive things about social media. Well, you know what, Mark? You are lying to Congress. You are lying to Congress, which as far as I know, is a criminal offense. Furthermore, the whistleblower Haugen explained how Facebook misled investors and the public about its role in violent extremism in wake of the 2020 election and the January 6th insurrection. I thought what was also interesting was that they decided to dampen the controls that decrease misinformation.

So in sum, the Zuck and Sheryl have their hands on a dial that can turn up the misinformation and rage or turn it down. And guess what? They keep turning it clockwise because the bottom line is, and this is a terrible thing about our species, but it's true and Facebook has figured it down. And guess what? They keep turning it clockwise because the bottom line is, and this is a terrible thing about our species, but it's true and Facebook has figured it out.

Polarization is profitable. And so they will pick profits over, over decreasing the damage, showing any sort of citizenship, any sort of goodwill, any sort of concern. And what's happened here? A lot of good people at Facebook are starting to drop the dime on one another. They're starting to turn on each other. Just as the Democratic Party likes to eat its own, we're seeing that at Facebook. All right,

so what's next? For one, we might see a lot more people from inside the company revealing data that's worthy of the SEC and the FTC, and maybe, who knows, maybe, I don't know, the FBI since the start of the SEC's whistleblower program in 2011. The agency has doled out more than $1 billion in awards to 207 whistleblowers. In 2021's fiscal year alone, the awards have reached more than $500 million. What does this mean? It means there's now an incentive to apply for whistleblower status because the subsequent fines, you get a share of that. I think it's like 10 to 20%. In other words, Nick Clegg, it makes sense for him to stay there and lie. And that's what he's doing. He is lying such that he can continue to clock $30 to $50 million a year. But the vast majority of people there, one, don't make $30 to $50 million and two,

have kids. Moreover, we're seeing the odds of deterrence do its thing. What is the odds of deterrence? Simple, simple. The probability you'll get caught times the penalty of getting caught has to be greater, has to be greater than the potential or the expected or the normalized upside. Otherwise, we would need to be in a police state, right? You might talk yourself into thinking, well, the world is unfair. I'm going to rob a bank. Chances are you'll get caught. Chances are you'll go to prison. It's not worth the expected upside. What is the expected upside for big tech in this economy with regulatory overrun and a series of flaccid, neutered, spineless, sackless leadership in DC? Well, let's add the GDP of Germany to our market capitalization, which translates to a lot of new homes in Brooklyn and Marin and a lot of Teslas, and what is the probability we're going to get caught?

100%. Everyone knows our bullshit, but there's no penalty. Or the penalties are 7 to 11 weeks of free cash flow that we delay for 3 to 5 years when we overwhelm the FTC and the DOJ who have not seen their budgets increase at a fraction of the escalation of budgets we provide to our lawyers who basically get in the way. I remember being in Senator Michael Bennett's office with two of his legislative aides and he said, what would you do? I'm like, well, enforce identity, remove key components of section 230. And you saw them turn pale. And they said, do you realize that's inviting? That's like a whistle call for hundreds of lawyers to begin coming after you. And it was just so obvious.

These are good people trying to do the right thing. But it was just so obvious at that moment, I realized, oh my God, our government is outgunned. Nothing changes here. Nothing changes, in my view, until there is a perp walk. And I wonder, I wonder if they have poked the wrong bear. Specifically, Mothers Against Drunk Driving, the Mothers Against Drunk Driving organization was created back in the 80s after a 13-year-old girl was killed by a drunk driver who happened to be a three-time repeat offender just out of jail. Prior to Mothers Against Drunk Driving, half of all traffic deaths were tied to drunk drivers. Think about that, half drunk drivers. MADS efforts were so incredibly effective that by 1982, President Ronald Reagan created the Presidential Commission

on Drunk Driving, which improved state educational, legislative, and enforcement programs and helped raise the minimum drinking age to 21. They did it really in an interesting way. They basically convinced the government to withhold funding

for federal highways from states that didn't raise their legal drinking age. So what could we see here? We could see something along the lines of MAMS. And that is my name or my acronym for Mothers Against Mark and Cheryl. As more and more reports come out about how much this company is negatively impacting children. Think about this. Anybody whose child suffers from some sort of eating disorder, it is literally like watching your kid, the most valuable thing in your life, kill themselves slowly and there's nothing you can do.

Imagine that horror and then imagine that this company that claims to be a positive for society is increasing the likelihood that these young women and these girls are going to find more and more content that validates that behavior, that encourages that behavior. One in eight young girls in Britain cited Instagram as a catalyst for their suicidal thoughts. This is just, what's the word for this? Depraved. This is just depraved. And we keep talking about all the reasons around why these innovators are doing their best or they must do better. For God's sakes, fucking enough already. Enough already.

President Biden, the DOJ, the FBI, the SEC, for God's sakes, do your goddamn jobs. Do your jobs. What do we need here? Simple. We need a perp walk. Stay with us. We'll be right back for a conversation with Professor Daniel McCarthy. 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 Client Group, Inc. and 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. Here's our conversation with Daniel McCarthy, an assistant professor of marketing at Emory University's Goyzeta School of Business. Professor McCarthy, where does this podcast find you? Down south in Atlanta. So let's bust right into it. Professor, can you break down what a customer-based corporate valuation is

and why you think it's a more it's a superior way to forecast revenue? Yeah, customer-based corporate valuation to me is just an accounting identity where we take into account the fact that all your revenue has to come from customers. Those customers had to have been acquired and retained and placed some number of orders. And so instead of kind of just looking at sales in a vacuum, we just kind of build up a series of models that get us to revenue by forecasting what our future adoption is going to be, how long will customers stay, the number of orders they place, and then how much they spend. And instead of doing some sort of customer lifetime value multiple thing, which is what had been fairly popular within marketing before the work that we did, what we instead said

was, hey, look, people in finance, they've been doing valuation for decades. And this kind of cash flow analysis is very standard. So instead of trying to come up with our own homebrewed valuation method, let's just sit our revenue forecasts on top of a traditional financial valuation model, whether it's DCF or multiples, and just drive it off of that. And basically that has worked out really well. I think we can forecast revenue more accurately, but in many examples, especially with the sort of companies that have been going public these days, it allows us to really better understand whether there's a

path to profitability if the company is able to continue to maintain the sort of economics that they have historically and be able to acquire more customers at that level of economics. So you've also written that the kind of the current gestalt in the corporate world is growth at all costs. And you've called that way of thinking dangerous, or there's some externalities here. Say more? Yeah, I think there could be an incentive. And I think this is partially being trained because of kind of the story that they've been sold and the incentives that are in place because of the venture money that they received and what they're rewarded with in terms of valuation in future rounds. But a lot of the incentives that these companies have is

basically just grow as quickly as you can. And you don't necessarily need to figure out the whole profitability thing right now. We'll figure it out sometime down the line. But a lot of what this work has shown is ultimately what really matters is whether you're profitable on a variable basis. And that doesn't necessarily mean that you're profitable today. It just means that when you acquire that next customer, you're making some money, that you're actually earning more in business and profits from that business than you'd spent to acquire the customer in the first place. And I think that's the piece that could be hard to get right and that maybe these companies need to figure out a little bit earlier. It's not to say

that companies need to find a way to be profitable when they're spring chickens, when they're really, really young. It's instead to say they need to have that enough repeat business coming in and to not pay up the nose on paid media and things like that. So the economics are right side up and they have the ability to grow into profitability at some point in the future. So I've always thought kind of the source of truth in a board meeting is I would always talk to the CFO afterwards. And there's just some very basic questions, like what are the gross margins, right? If we have negative gross margins, there's a real problem. When you're pets.com and you're selling a $50 bag of dog food for 30 bucks to try and show top-line revenue growth, you know, Houston, we have a big problem. And then there's, okay, how do we account for EBITDA?

What kind of investments are we making to have those transactions, even if they've got positive gross margins? Can you give us what are kind of the two or three metrics you look at to try and do shorthand on whether this is a viable business? Yeah, I think if I had to pick a few, one would be, you know, how much are you spending to acquire customers? So CAC, customer acquisition costs as defined by what goes into that number. Walk us through what are the inputs there. It should be the amount that you spend on customer acquisition relative to the number of customers you acquired.

And is that just marketing? What does that include? What goes into that quote-unquote cost number? It should be everything that drives acquisition. So ultimately, acquisition marketing would be one of them. But for software as a service companies, if you're giving hardware away either for free or at some sort of substantial discount, companies like Toast correctly put that into their CAC as well. So actually, I would agree with that. Anything about subsidized onboarding expense for new customers, well, it's not marketing, but every time you bring in a new customer, you got to spend that money. So I would put that into acquisition expense as well, because it's being spent upfront and typically doesn't repeat, or if it repeats, it repeats at a substantially lower amount in the future. So to me, that's the litmus test is, do I need

to spend this money every time I bring customers in? And if the answer is yes, then it should be included, even if it's not necessarily a marketing expense. Okay. So we're looking at CAC and we want to see CAC go down as hopefully the company scales, gets awareness, product gets a good word of mouth. We'd like to see CAC headed down. I'm finding that CAC is going up because across many of the sectors I deal in, deal in online education, where effectively there's so much money being raised in the venture markets, that money ends up on Facebook or Google, which drives everyone's CAC up. What are the trends you're seeing around customer acquisition?

Yeah, I tend to see the same thing. I'd say that the big area of exception is probably with extremely networked businesses. If you're a platform or a marketplace, then growth itself is creating utility for people on both sides of the platform. And so you may have looked at a platform like Uber or Lyft in the early days and said, you know, well, this isn't really for me because it's going to take 20 minutes for a driver to come here or something like that. But once the network gets bigger, then suddenly it becomes all that more enticing, both for the riders and the drivers. So just empirically, we've seen CAC moving down, not necessarily a whole lot, but some

at some businesses like that. As you move outside of heavily networked businesses, I think we see exactly the same thing. That in general, in the early days, a lot of the business, a lot of the new adoptions that are coming in are through organic and through word of mouth or referral. And as you start raising those venture rounds and you start really trying to drive growth, you kind of have to move into these more scaled marketing channels like Facebook and Google, and they're just more expensive. And you have this, I think, second dynamic that if someone hasn't been acquired for a while, like the fact that they haven't is telling you something. You have to push a bit harder to get up through the door, that's going to cause your CAC to move up. So in general,

there's a lot of things that just tend to push CAC upwards over time, which is why I think it's extremely relevant to keep track of, even if a company's not that old, because you probably want to assume that if anything, it's going to be getting worse. So I've actually found you on Twitter, and you had put out a thread in response to our newsletter post on aspirations or the firm aspirations, what we felt were deceptive valuations, where you explained how the company is participating in what is the, quote, financial equivalent of medical malpractice. I immediately noticed that. And so I began, you know, I said, who is this guy? And I found that you're co-authoring research with my colleague, Aswath Damodaran, and I'm like, okay, this guy obviously knows his stuff. Can you share what your takeaways were looking at Aspiration, the firm, and how it was reporting its profitability and customer acquisition? Yeah, it's a great question. That's kind of what I keyed in on.

So obviously everything that you had correctly said about adjusted EBITDA, I looked at that and said, damn. That's really bad. No pun intended. Right. But then I saw that LTV to CAC chart, and I just was astounded. I almost felt nauseous. Yeah, because holding inside everything about CAC, which I wouldn't be surprised if they're understating it, the LTV to CAC figures that they provided were extremely optimistic. So they basically implied

marketing return on investments at between 700 and 1100%. And just empirically, most companies that are doing a pretty good job are more like 200%. So warning bells. I looked down into the footnote and they basically laid out, thankfully, the assumptions that kind of drove that number. And one of them was basically that their retention is assumed to be astoundingly good. So they had no financials at all, but they said, you know what? We're going to assume 5.6% annual churn in the first year and then 2.6% churn every single year after that. So lower churn than Netflix or Amazon Prime.

So you're more likely to hold on to your aspiration debit card. You're more likely to cancel Netflix or Amazon Prime than stop using your aspirations debit card. That's exactly right. More likely to hold on to them than your Peloton bike. And so their own calculation worked out to something like an average customer lifetime of 18 years. And that's just way longer than almost any other company I've ever done any work on. Coming up after the break. We just had Warby Parker and Allbirds drop their prospectuses, both digitally native vertical brands, both selling through direct channels and through stores, both disclosed contribution profit.

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In your most recent research with Aswath, you write that the typical profile for the kinds of companies that go public and the kinds of investors they attract has shifted. Tell us more about the biggest disruptions that you see changing the initial public offering ecosystem. Yeah, a lot more of the companies today, they kind of follow a similar playbook that they're growing really quickly, but a growing proportion of them are not profitable. Right.

But actually, they might be as old or actually even older than the median company from 10, 20 years ago. So it's not that they're super young companies per se, but more just that they have not been focusing on generating any sort of profitability yet. And so one of the big questions then is, how can we disclose the right data to better understand that type of company, especially when we take into account the fact that a lot of the people who are now participating in company IPOs are retail investors with the advent of Robinhood. That's just a different set of disclosures than what would have been appropriate 20 years ago. And so basically the sort of recommendations

that we were giving were really tailored to that sort of environment that they're in right now. And I mean, I think it's now 70% of companies going public are unprofitable or something crazy number. And the last time it was anything resembling that, it was in, of course, 1999. And if companies are older and yet still not profitable, you know, the dog wagging the tail here is the markets. It seems to me that companies and management strategies just kind of go where the money is. And it seems like the markets,

kind of based on Amazon and Netflix, I would argue, have said, we want growth. And profit, okay, that'll eventually come as long as you keep growing. And the market is listening almost to a fault. Isn't it the end of the day the market said, let's replace profits with vision and growth? I think it's definitely the case that investors will give a pass to a lot more companies that are making no money today. And I think a lot of the work that I've been doing has been to really kind of triage those money losing companies into these are companies that are just going to continue losing money

and there's not really as much of a hope for future profits versus those where at least they're getting enough incremental repeat business that if they can keep it up for a while longer, there is actually value there. Yeah. You've also argued that IPO-related disclosures have become more bloated and less informative. Walk us through why you think that is and how we can fix it. Yeah, it's the lawyers. So yeah, if you take the example of Apple and Microsoft, huge companies at the time that they were IPOing, but you know how long their prospectuses were?

It was about 70 pages for both of them. If you go to like Uber and Airbnb right now, it's like 300, 350 pages. And they have these really, really long risk profile sections where they talk through every possible thing that could drive them out of business. And sure, I guess they need to have it in there to cover their ass, but ultimately, are we learning anything from that? Probably not. And if you're a professional investor, I think you have the ability to sort your way through all the garbage, to find the nuggets of all the little diamonds that are hidden in there. But especially if you're a retail investor, are you really going to wade through 350 pages?

Probably not. And even if you are, you're probably not going to be able to really parse a lot of the cherry pick disclosures that they've put in there to kind of sell themselves in the best possible light. And thinking about remedies, could the SEC, for example, establish a set of accounting standards and also nomenclature? We need you to report EBITDA this way. We need gross margins to be this formula. And also basically prohibit community-based EBITDA. No, that's a no-no. You can't have that in an S-1 or EBITDA. Could they do that? It feels to me like there needs to be actually some regulation around nomenclature. I couldn't agree more. That's one of the big things that we're trying to work to establish.

I think that for some measures, it's easier than others. But even for the ones where it's a little bit difficult, I think having very clear guidance as to what the spirit of the disclosure is supposed to be, and then requiring the companies to provide more basis for how they're going about the calculation, that is definitely something that they can do. We just had this example come up. This will sound like a quibble, but contribution margin, well, that's important. We need to know of that revenue, how much is flowing through into variable profit. And we just had Warby Parker and Allbirds drop their prospectuses, both digitally native vertical brands, both selling through direct channels and through stores, both disclosed contribution profit, but Warby Parker deducted

store-related expenses and Allbirds didn't. And the question is, well, okay, you know, as the business grows, as you bring in more customers, you're probably gonna need more stores. Your store-related expenses are probably gonna go up. You know, it's just kind of, it makes it non-comparable and highly confusing to do the sort of adjustments that we need to actually be able to compare companies like that. So Warby is doing it correctly and Allbirds, which in my view is, doesn't have the same points of differentiation, is not doing it correctly.

You're saying that they're excluding things to inflate contribution margin that they should be including. I think so. So, and just along those lines, I was watching, I love Warby Parker.

I buy a ton of their stuff. But then I look at the valuation of $6 billion, and I think I just have a difficult time justifying that valuation as a multiple of revenues, a multiple of profits. It just strikes me as just this consensual hallucination between the markets and what is a really nice brand. And by the way, I love Warby Parker. I just don't think it should be worth, I don't know, what is it? It's like 20 times, it's trading at what social media platforms

used to trade at. I know. It just seems just crazy town. You are sort of, I think it'd be almost like a phlebotomist or somebody who takes blood from a company and examines and says, okay, high cholesterol levels, or I don't know what the right analogy is, but can you talk to me about a couple

companies that you think, okay, their customer acquisition costs, which is sort of your domain, are so strong. In other words, they're able to acquire customers because of the differentiation of the product or how efficient their market is at a really good number, which is a good forward-looking indicator for the company and the stock, and then cite some other public companies where you say they are playing kind of slide of hand with their customer acquisition reporting, and it's a negative forward-looking indicator. Can you give us any examples of companies that you like based on these metrics you look at and other firms you're worried about? Yeah, one that we like, actually, you mentioned Warby Parker. They actually do a pretty good job of bringing in customers and not spending up the nose for it. And so actually, I feel exactly the same way that you do about them, that we did this deep, deep analysis on them through my company, Theta Equity Partners.

And we basically concluded that the fundamentals are pretty strong there. They're making a lot of money when they acquire users. They spend about 55 bucks to acquire customers, higher than what they disclosed because they had an issue with how they defined CAC. But even at $55 CAC, they're still making money off the very first purchase on a contribution margin basis. They get all their money back on day one. They get a bunch of repeat business in future years.

I'm a customer of theirs too, as is my brother and my wife. So yeah, we're all big fans. And you can see it in their repeat purchase figures that year after year, they get about 25% of what people initially spent when they were first acquired up to four years out without really any sign of slowdown, which is, that's really quite nice. So they're able to bring in customers cheaply. They're able to monetize them well over time. And even when you take a pretty conservative stance on contribution margin, they're making

good money on those sales. So that's really healthy. Does it justify a $6 billion valuation? No, in my opinion. But is there a real underlying value there? Most definitely, yeah, I would say yes. The flip side would be companies like... I had done this... The work that really kind of got me started in this category was on Blue Apron. And I think they were a perfect example of a company that they were doing a pretty good job of managing their CAC back in the early days. But then in the run-up to the IPO, I think they really felt compelled to show growth measures that they thought would win them a higher valuation in the IPO.

And basically what ended up happening was marketing spend went through the roof, acquisitions went up, but not that much. And so CAC just went up like crazy. It went from like 50 bucks to like 130 bucks. And they went upside down. And some of those issues I think could have been avoided if they had a more steady as she goes approach to managing their growth. Have you looked at any of the OTT,

the streaming guys at their customer acquisition and what it says about their offerings? It's a great question. I have not. My understanding is they don't disclose a whole lot about their CAC. So a lot of the data that we'll see on social media, it's typically coming through alternative data firms. And so, for one, there's concerns about just how representative that data is. But I'm not aware of the major OTT players ever actually disclosing what their CAC is. And if you go to companies like Netflix, it's so sad. They used to actually disclose customer churn. Now they don't even disclose that. So we really are flying completely blind in terms of SEC disclosures. Flying completely blind. I think that kind of summarizes the market right now. Daniel McCarthy is an assistant professor of marketing at Emory

University's Goizeta School of Business, who specializes in the application of statistical methodology to contemporary marketing problems. In 2015, he co-founded Zodiac, a consumer-focused data analytics firm that was acquired by Nike three years later. He then co-founded Theta Equity Partners to make customer-based company valuation more accessible to firms. His research has been featured in the Harvard Business Review,

the Wall Street Journal, Fortune, and The Economist. One of his research specialties is customer-based corporate valuation, valuing contractual and non-contractual companies from the bottoms up by valuing their customers. Professor McCarthy is actively pursuing research in data privacy, digital marketing, and other applied statistical topics related to inference and prediction. He joins us from his home in Atlanta. Professor McCarthy, thanks so much for this. Keep up the good work. I really appreciate you having me on.

Odds are of happiness. So this is great news that brings me joy and reward. The University of California has announced that over the next decade, or actually the next eight years pretty much, they're going to add 20,000 seats for students by 2030, the equivalent of a new campus to help meet surging demand. Cecilia Estolano and UC President Michael V. Drake emphasized that UC must increase numbers of graduates, undergraduates, faculty, and staff without sacrificing its teaching and research quality. This is, it's wonderful. Overdue, but it's still wonderful. And there's a narrative out there that's really dangerous. And the narrative is, oh, you don't need college, and that college sucks. And granted, we need to have more on-ramps to middle-class life with apprenticeship programs. I get it. I think a lot of this is frustration, though.

And it's frustration that your kid does everything right and doesn't get into a good school and ends up at a second-tier school paying hundreds of thousands of dollars. And then can't get a good job but is stuck with a lot of debt. I think people are rightfully really angry at the education industrial complex that has become drunk on luxury, drunk on exclusivity. And I think some great immunities are kicking in. First, Forbes announced that it was going to start incorporating the percentage of kids with Pell Grants at a university as a means or an input into the ranking. And that's wonderful because it basically says a university's role in society is to lift people up. That's the whole fucking point. And, of course, Berkeley shot to number one.

And the rankings are unfairly and dangerously important because kids pick brands. But that's a good sign. I mean, essentially, college has become the domain for two cohorts, the children of rich people who have tutoring, who have friends. I get calls from all the time. Nudge here, nudge here, get their kid in who's a great kid, but there are other great kids not getting in because their parents don't have rich friends who are connected at these universities. And then the second cohort is freakishly remarkable people who peak at 17. A lot of us don't peak at 17, and that's okay. That's okay. UCLA used to be about getting, they said that if you had over a 3.1, if you were in the top third of your class,

you were guaranteed admission to a UC. That is no longer true. We need to return to that. This is wonderful. We need hundreds of thousands of new seats across the University of Florida, University of Texas, Michigan, University of North Carolina, fantastic system. This is the upward lubricant. This is the needed churn in our society. This is America. When we say to young men and women raised by middle-income and lower-income people that if you're good at what you do and you want to go to college, you're going to get your shot. You're going to get your shot. So I am here speaking to you today because of the generosity and vision of the regents of the University of California

and taxpayers in California. And I'm just very happy and very thankful that the good people who are on the board of the University of California regents or the regents of the University of California have said we need to return to our roots and make America about acceptance, not just exceptionalism. This is a wonderful move. Thank you, University of California. Thank you, California taxpayers.

Our producers are Caroline Shagrin 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 Profity Pod from the Vox Media Podcast Network. We will catch you on Thursday. Support for the show comes from Alex Partners. Did you know that almost 90% of executives see potential for growth from digital disruption, with 37% seeing significant or extremely high positive impact on revenue growth? In Alex Partners 2024 Digital Disruption Report, you can learn the best path to turning that Thank you. technology industry insights available at www.alexpartners.com slash Vox. That's www.alexpartners.com slash V-O-X. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters. Support for this podcast comes from Klaviyo.

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