This Week in Startups - Best of This Week in Startups: Week of August 17th, 2020

Episode Date: August 22, 2020

E1097 featuring Skift's Rafat Ali: https://rb.gy/qn0zyz E1098 featuring Cockroach Labs' Spencer Kimball: https://rb.gy/ls6z3e E1099 featuring Basecamp's Jason Fried: https://rb.gy/b3kye1 Follow Jason: https://linktr.ee/calacanis

I'm really excited to have Rapheth Ali, who went on to be CEO of two companies that he started himself after working for me for a brief time. Raffet is now the CEO and founder of a product called Skift. Let's talk about travel. I am hearing that things like Uber and extended stay hotels in certain regions are now getting back to 60, 70%. Is that a correct statistic? So extended stay, which is longer-term hotels, right? Yeah.

They were doing, they have been doing well throughout the pandemic, which is people using that as a longer-term stay, whether people moving out of cities and staying in these hotels for a while or people just wanted to get out of their house. So extended stay, in fact, they're the only hotel extended stay in America. Yeah. is the only public hotel company that has posted profits through these pandemics.

And so... Because they have kitchens, right? I mean, if you have a kitchen, you don't have to go out. That's why I love staying at those. And I like, you know, people are like, oh, are you staying at the four seasons? I'm like, I like a place that has...

I like a kitchen. I like to make my coffee in the morning. For that reason, Airbnb, which a lot of people were writing off at the start of this pandemic, and people are done with short-term rentals. Nobody wants to stay in another house because of the cleanliness, et cetera.

Guess what? We are here today, August 10th, we're recording. Story today that they're looking to file their IPO in the next month. So they must have had a huge rebound. They must. So, like, probably one of the biggest comeback stories of this pandemic, business stories of this pandemic will be Airbnb if it happens. I mean, it may still not happen because IPOs are very dependent on where the markets are at,

you know, that week. And so people traveling locally, obviously that's what everybody is doing. They're not traveling international. And people wanting to stay in houses that they can either control the space themselves or clean it themselves. That's why short-term rentals outside of major cities, like the prices on Airbnb, today if you go, you'd be surprised that it's the highest I've ever seen for houses or places just because there's so much demand. Obviously, it's a summer too. so this is peak season for that perspective.

But it's expensive. And it looks like, I think Brian, the CEO said maybe last week that their July was the highest July month that they've ever had in terms of the bookings. So it's an incredible story. So I think the tailwinds they have are, Americans can't go to Europe this summer

because we've been banned. I think Americans are allowed in Mexico, Turkey, and Turkey. Like we're not allowed. And we're not allowed. out anywhere? No, not in Europe anywhere. I think there's a, there's potentially one, one country in Europe that you can go through. I think that there's that. But you can go to Caribbean islands and you can go to Mexico. Really, that's it. Right. So people are basically driving somewhere. Yeah. Let's talk about if it's, so just, oh, to wrap up on Airbnb, Airbnb, Airbnb

public has what impact on the entire travel industry? How do, are they demolishing the hotel business or just inducing more people to take longer vacations and more people to take vacations? Well, so in general, before this pandemic, the, the hotel industry was also booming. It's not like Airbnb was booming, yes, before this pandemic, but also hotel industry is booming. So net net, there were more people. There was more demand.

and you and I traveling have different personas when we travel for business or when we travel for with family. So I would book a hotel for a quick business trip but I would always book

an Airbnb for family just because we have kids in the uniform space. And so I think that behavior and we're traveling more compared to certainly 10 years ago that you and I were traveling. So I think net net the market

has increased and it lifted all tides, or the boat lifted all ties, whatever their phrase is. Rising tide lifts all boats. All boats. And so now where demand has contracted dramatically, now people will be choosing. Obviously, people are not traveling for business, most of the people, I mean, except for essential. So I think business travel is going to be affected in many cases permanently. Okay, hold on a second.

What is the permanent impact on business travel? is it that now that everybody has a home studio and has proven they can do certain things over Zoom that they are going to not have to go do the sales call in person? What's actually happening with business travel? Yeah, we did a story last week that said, the headline was, is the single business trip travel over? That's not the example. But the point was that if you're going to make us a trip for a single meeting,

those types of business, those types of trips are probably. probably gone. You want to collect enough meetings, whether or on a conference or something, when conferences come back and be able to do that. A lot of the things that we thought were not possible doing on video are not possible for us to close deals, for us to do sales, for us to be doing conferences over video as well. So I would expect a permanent potentially 10 to 20% demand going out of the market permanently. In fact, I'm not the only one saying that. Delta CEO has said an earnings call that he expects business travel to be permanently impacted. And so I think that will be very, very interesting.

From an opportunity on your side of the world perspective, what will fill that gap? And it's the virtual tech that you will be investing in, and investors like you'll be investing in, that will create the future. Today's guest, Spencer Kimball, is the CEO and co-founder of Cockroach Labs. I want to talk about the paradigm shifts that are coming. And, you know, like I'm talking big stuff. So it seems to me, you know, serverless is one of those paradigm shifting technologies. Quantum computing is one that's often cited. Power and power consumption.

And then CPUs generally, storage is sometimes a blocker. When you look at things that could shift paradigms, you know, in the next 50 years, and now we're now going to sort of go from the midterm to the long term here. What are the paradigm shifts that, you know, our kids and their kids will be looking at when it comes to computing? Well, one big one that's going to happen in the next several years that you didn't mention would be 5G. I do think that it's rare to get latency significant improvements in latency. That happens very infrequently in computing. And I think that there's, you know, the real-time experience is something that most people just haven't really imagined what's possible.

Okay, so let's stop for a second and explain latency as it currently stands now when I'm using my cable modem or my 4G phone LTE versus what it would look like there. And then what that experience would open up of extremely low latency. What would we be talking about here? So when you really think about latency, for most applications, obviously high frequency trading and some gaming is different, but mostly what you want to do is get under 100 milliseconds. That 100 milliseconds is kind of like, I guess the U.S. Department of Defense figured this out. This is the command and control system limit threshold. If it's under 100 milliseconds, it feels instantaneous to a human being. Got it.

If it's over 100 milliseconds, you've noticed the lag. And so for certain things like... Which is a 10th of a second for people to understand, correct? Exactly. at 10 to a second. So it's not, it doesn't seem like much, but it's an eternity in computer world. But like, you know, the reality is that when you, everyone on their mobile phone right now hits buttons and they are, they find it extremely normal to wait a second or more for something to come back. Right. And, and what, what could happen is, you know, 5G is very much an enabling technology

because it's basically going to ensure that, you know, for all of the users out there that have 5G, you're able to get on the backbone within, say, you know, around 10 milliseconds, 10 to 20 milliseconds. And that's, you know, that's kind of true with LTE right now, but it's not, it's not very consistent. But the combination of 5G and also startup companies and bigger companies, you know, anyone that has a service, they have to actually co-locate the application servers and the data next to the customer.

That's why when I was talking about this horizon where you squint at it and you say, here's what serverless could be. I'm talking about, scaling globally. And really what that means is giving global customers a local experience, which means that you need the 5G so they can get close, they can get on the backbone quickly. But then you need to make sure that the application and the data

is stored close to the customers. So you can't have an Australian user hopping across to Virginia. And that is going to be like a really big paradigm shift when you can actually easily democratize the ability of even a startup to create a global application data architecture so that they can give customers wherever they show up. Let's say they show up in Brazil. You don't really know when you're a startup

or Tokyo or something like that. You want to give all of those customers a wonderful sort of first-class user experience. And I think getting everything under 100 milliseconds in your application is going to enable a lot of what feels very fundamentally different in terms of how applications behave. Like imagine when you're sending a tweet out

or you're typing something. Right now you might get some little... Yeah, a little spinning wheel of dev, little dot-da-dot, ellipsis, whatever. So and so is typing. Yeah. Exactly. And what you could do instead is really create a vibrancy

through real-time interaction with the larger community. Right. That's going to change how things feel. You'll feel this connection. Rich right now, you know, there's like this... Everyone spends so much time you just walk out on the street. I mean, less than COVID times, but everyone's sitting there glued to their phone. We're spending hours a day, like through this interface into these virtual worlds,

but it's very slow. So the interface is like this incredible lag, which doesn't feel so bad compared to writing a letter or, you know, sending an email even. It feels quite real time compared to that. But it could feel more like real life. And I think that's going to be a, that's going to usher in a lot of new use cases, a lot of change and a lot of opportunity fundamentally. I'm really excited about our next guest.

Jason Freed is with us. You know him as the co-founder along with my good friend, David Hanmeyer Hansen, who's had two amazing episodes of this podcast over the years. We've had great discussions, and they co-founded Basecamp together back in, I think, 99. And they have a new product that just came out called Hay.com. That's taking the interwebs by storm. I've been trying to have Jason on the pot. I don't know, we've been talking about this for five or six years in the making.

Explain to people who don't understand the beef you had with Apple, how it went down and what your position was and what their position was. Yeah. So there's a lot to it. So first off, we released or we followed all the unwritten rules. So the unwritten rules basically are if you have a software as a service product, which is what hay is and you allow signups on the web, well, you're not allowed. to say sign up on the web on the iOS app or or subscribe or have any billing information or

mention money in any possible way in the app if you don't want to pay Apple 30% which we don't this is what we do with Basecamp this is what Salesforce does this is what everyone does you just Spotify all of them right almost all of them yeah yeah almost all of them you don't mention these things because this is the unwritten rule as long as you don't mention that Apple's been cool with it in the past so that's what we did with hey we did the same thing we've done with Basecamp has been the app store for eight years, never a problem. We submit the app, version 1.0 to the app store. Apple approves it.

So we're in the app store. Wonderful. We're all happy. We're thrilled. Then we release 1.02 to the app store, which is a bug fix update. And they reject us. They reject us on the grounds that we basically owe them 30% of our revenues because we are a paid product.

And you have to offer, if you have a paid product, you have to offer in at payments, Apple's payment system within the apps to a lot of people to support. subscribe, which was news to us because we followed all the unwritten rules. Everyone else followed. And we never had that experience with base camp. So we thought there must have been a problem. And so we filed an appeal, basically. And then they came down saying, no, no, we're right.

We as an Apple. We're right. You owe us 30%. Or and or if you don't, you know, if you don't comply, we might kick you out of the app store essentially, like completely out. Even though we already approved your 1.0, we might just kick you out. Right. And so that's an existential threat.

I mean, if you're not in the app store and you have an email product, like you're in trouble, you're done, right? Well, also because the Apple consumer are the vanguard, they are the early adopters, and let's face it, they are, they pay. They pay. And anybody who's had an app in Android gets, you know, three times the downloads in Android and one third the revenue or something in that ballpark. Yes. So we had to be there. And so, you know, then, you know, so we filed this appeal. They rejected us. And then we kind of went to the press, which is what Apple says you shouldn't do. They have a whole thing. No, they do not like that. Don't go to the press. Yeah. So, but you know, like here we are. We're a small independent company. We have a lot of followers. We have a lot of fans. The product was doing so, like the launch of hay was unlike anything we've ever launched before. The enthusiasm was off the charts. And here we are unable to bring simple bug fixes to our customers. That's a problem. We're. We're not. We're not able to bring simple bug fixes to our customers. That's a problem. We're. We're We don't like that.

That's not fair to anybody. So we kind of go to the press and tell the story and it blows up in a big way, huge way. David's leading this charge because David's great on Twitter. He's particularly good at mixing it up as the ratings from this podcast prove and as our Twitter followers will agree. Yeah, if you have a sweeps week kind of thing, like you want David on the show. Always, always. Get him off of the sweeps week. So anyway, so David took to Twitter and I took to Twitter, but David,

really took to Twitter. And we made some noise because this is just flat out unfair. First of all, it's monopolistic. Second of all, it's inconsistent. And here's the thing. We're fortunate. Now, we have Basecamp. We already have a business that's functioning, right? If we launched Hay, we didn't have Basecamp, we put two years into this product. And we're following the unwritten rules that Apple has. And it seems like it's totally cool. And we put this thing out in the app store. And Apple kills it. Like, we could be out of business instantly, literally. It just feels like bullying. It's unfair and it's lame. And it's impossible for a small business owner especially, an app maker, an individual, to know what's coming from Apple if they change the rules, if the rules are selective based on who you are, based on unwritten rules, based on back office dealings.

It's just like it's impossible. It's just impossible and unfair. And so we went public with this notion and it got a lot of coverage and a lot of discussion. This happened to be a week before WWDC, which was not planned, but it turned out to really, I think, turn up the heat on Apple on this. Yeah, and, you know, it's a different era now. And you and I have both as underdogs coming up in the industry, you know, around the same time, we both realized you always fight up. And it is a great marketing strategy. And in fact, in your book, Rework, the great money quote is, having an enemy gives you a great story to tell customers too.

Taking a stand always stands out. People get stoked by conflict. They take sides. Passions are ignited. and that's a good way to get people to take notice. So a cynical person might say you knew this was coming and set it up? Yes or no? Well, a cynical person might say that, but absolutely not.

I mean, there's no way to... You didn't know if they would do that. I had no clue. In fact, they approved 1.0. If our plan was to have them approve 1.0 and then reject the future versions, which had no changes that were material to payment, that would be like David says, playing 4D chess, basically. We put this in the app store.

We wanted none of this controversy. This was a shitty two weeks for us. I mean, it was brutal. It sucks because you can't make basic fixes. And everybody knows when you hit scale, you get the first 10,000, 20,000 people. Things are going to pop up. What's great about the moment today, though, is five or 10 years ago, you know, Apple wasn't under the scrutiny of the government. Antitrust wasn't such a big concern.

And anybody like I did with Google, when I was complaining about their panda update and the way they treated us at Mahalo or other folks where they would change the SEO rules specifically to kill Yelp and have Google Local above it, I had no way. And people were like, let it go, Jason.

You're being difficult and stop beating up Mac cuts and da-da-da-da. But today, if I was in that fight, you know, you've got congressmen, senators, and the EU taking action. And, you know, the scale of Google and Apple are so huge right now that they're held to a different standard where, you know, I don't think they particularly want to pick a fight with you and David because it's just not worth it to just extract. If you become a $100 million of your business, that $30 million is not worth them losing control of the app store, which is the possibility. Do you think we'll see Apple lose and have to accept?

third-party app stores or those kind of things on their platform? I don't think that's going to happen. It could, but here's the thing that's frustrating, I think, about it. A couple things. First of all, the 30% is, of course, what everyone's eager to talk about because it's money and the thing. It's an easy thing to talk about. But we're really frustrated at me, and I wrote like a letter about this, which I

post on our site, was that we have a multi-platform business. And what's happened over the last 10 years is multi-platform businesses, have sprung up. Like eight years ago or whenever they introduced, well, they introduced the App Store 10 years ago, but in app payments as a more relatively nuanced, newer thing. Businesses have changed. We're not just an app maker. We don't just make an app. We make a service. Our service is available on the web, on Android, on Windows, on the Mac, on Linux. We have to support our customers in different places and we have to do it the same way. What's really frustrating to me as a business owner about the app store for getting the 30% just for a moment is that I can't take care of my customers the

same way. For example, a lot of people don't know this. If you send your customers through the in-app payment system through Apple, you can't help them with billing issues. You can't help them with refunds. You can't help them with hardship discounts. You can't give them away for free. You can't do a whole bunch of things because Apple controls that whole process. Right. And if a customer has a problem, you have to say, go ask Apple. And you know what that ends up being? Sometimes it's three to five-day response time. While we have one-hour response time. If you even get a response. We have invested heavily in amazing customers. Usually get responses from us within an hour.

And so for me to say like, hey, all you iOS users, I can't provide a great level of customer service, which we've invested in for 20 years building. Yeah. And back-end systems that we've built to make this so simple for people. Like, we can't help you. It's such a terrible experience for the user. And Apple loves to say that the in-at payment system is beneficial for the user. And yes, the individual process of maybe buying the thing is nice.

No friction. That's great. Yeah. No friction. and your privacy. I don't know if you saw now where you can log in with your email,

but they don't give the email to the person. I love that. It's wonderful. There's some wonderful aspects to it. Yeah, so wonderful aspects, but there's more to it, right?

There's more to it. It's very nuanced. Payment is just the smallest little detail, truly, about really taking care of a customer. And if a customer's paying me $100 a year, they expect me to help them.

And for me to say, I can't, that's wrong. So I think what's going to happen is, and I understand how this happens. It's like there's new businesses, there's new business models, there's new platforms, there's new stuff that's changing. Apple's a big, huge company with a big entrenched, you know, setup. And it's going to take a while for them, I think, to adjust ultimately to the reality on the

ground that not every business runs only Apple stuff. And once they realize that, I know, I'm sure they know it now, but it takes a lot of energy to move a big, massive object like Apple. They will probably ultimately allow people to choose their payment processors to maybe one the things I'd love to see happen is sort of a decoupling of the charges. So let's say we have 30 percent. This is an idea. I don't know where this goes, but here's an idea, right? 30 percent is their number. Well, how do they attribute the 30? Where's the 30 percent come from? What Apple typically, because look, credit card charging is between 1.8 and 2.8 percent, basically. That's how much a charge.

Let's call it 3 percent, round it up. Fine. Three percent, right? Okay. So what's the balance? Well, distribution. I don't need distribution. I have my own distribution. Marketing, discovery. I, I, I, I, I get how if you're a brand new app maker, you don't have a business, you don't need that. You might need that. I don't need that at all. I can send all my customers. So for me, I'd be happy to pay 3% to Apple, perhaps,

to process cards if that was a choice. I'd also be happy to pay, perhaps, for the process of reviewing an app that we submit. I wish they would do that. Why don't they allow you to pay $100 or $500, something to minimis to get your app reviewed? This waiting and waiting is ridiculous. And I think they do that specifically.

to have power over you. And this is the Google technique as well, which is if we make this process opaque, the more opaque we make it, the less you can complain on CNBC like David was doing because they're just like, oh no, it's in process.