This Week in Startups - Youtube vs. Netflix, Google’s $230B run rate + Next Unicorns: OpenSea’s Devin Finzer on NFTs | E1255

Episode Date: July 28, 2021

Jason breaks down Google's earnings and compares Netflix & Youtube (3:22). Then, in our Next Unicorns series, Devin Finzer (27:01), the Co-Founder and CEO of OpenSea (an NFT marketplace) joins to discuss the innovations that helped NFTs take off (37:58), the future of collectibles & more.

Welcome back to the next Unicorn series. Yes, this is the series we do every year at this weekend startups where we pick 10 companies, we think, will be the unicorns of tomorrow companies that will go public and that will change the world. Today we have Devin Finzer on the program. He's the co-founder and CEO of OpenC, S-EA, like OpenC's OpenC. It's an NFT marketplace. And, you know, you've heard me have a lot of concerns about crypto.

NFTs is actually a place. people collecting things and the providence of art or collectibles being available and anybody being able to trade them on an open platform, this seems to me like one of the most brilliant executions of a real idea in the crypto space. And imagine if they weren't just trading cards, what if you could take a character from one video game or a sword or a weapon from Fortnite and bring it to Call of Duty? That's the incredible vision and future of NFTs that Devin and I talk about today on the show. And we've had three great seasons of the next unicorns. You can go to this week in startups.com slash unicorns to see all 23 companies we've done now, yeah, including

today's. We had divvy homes on the program in the first of this series. Brilliant idea. You can rent a home in order to buy it. You go buy the home with divy as your partner and you pay rent, but some of it goes towards buying it. And if the home increases in value, you still get to keep it. It's a great idea. Flock safety, controversial ideas. license plate readers for civilians to put on their street outside their home or for towns, and it makes crime go down dramatically because a lot of the people who are committing crimes, especially robberies, are doing it as part of organized crime and gangs. It's not overwhelmingly an issue of, you know, inequity or wealth disparity.

These are gangs who are doing coordinated attacks and it's the same license plates over and over. so we had an incredible discussion on episode 1249. But first, we're going to talk about Google's exceptional quarter. They printed money and YouTube, I believe in and of itself is a trillion-dollar company sitting inside Google. I'm going to explain today and we'll debate. Would you rather own YouTube or Netflix? Which is the better business and why based on competition, growth, and the quality of their revenues?

Stay tuned for tomorrow's show. I'm going to break down Microsoft's and Apple's earnings. Stick with us. Season 3. of the next unicorns is brought to you by LinkedIn Jobs. A business is only as strong as its people, and every hire matters. Post your first job free at LinkedIn.com slash unicorn. Drata.

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In our first story, Google had a massive earnings beat for Q2 2021 yesterday, and YouTube grew revenue, almost 100% year-over-year-over-year growth is just extraordinary for a large business. Let's break down how YouTube compares to Netflix, two seemingly very different businesses, but who line up kind of interestingly. So just to give you some background, you know that Alphabet is the parent company of Google. They named it Alphabet. so that every letter of the alphabet could be a different unit. Cynically, what most people think is they created alphabet

so that there would be no way for Larry and Sergei to get dragged to Washington, D.C. or to the EU and face all kinds of different regulatory organizations. They wanted it to be a conglomerant, a holding company, and put somebody in charge of it. And so now poor Sundar has to contract in front of Congress. That's a cynical take that, I mean, everybody kind of knows is the truth, is that the founders wanted to be lower profile and mission

accomplished. You see Zuck getting dragged all over the world and you see Bezos is now longer in the top spot. This is now the new technique for founders to put somebody else in the driver's seat and maybe they get to not take as many arrows or be annoyed by being dragged around the world like Zuckerberg has been to face the music. So total Q2 revenue. $61.8 billion, up 62% year over year. Now, just let that sink in, you know, we've talked a lot about how in startups we're looking for startups that grow 20% a month and that are growing 3x year over year. That's kind of when these things are starting out what you're looking for.

When you hit scale and you've got tens of billions of dollars in revenue, understand that 62% growth on tens of billions of dollars is a ton of revenue. So much so, the first half revenue is $117,17 billion. And if you just double that, you know, you're getting to over $230 billion. And obviously, it's going to keep growing. So this is a footprint of revenue unlike anything we've seen, you know, prior to, with the exception of Apple and Microsoft and Amazon. The net income was $18.5 billion.

That's the profit. That's what they put in their bank account. And that's up 2.6x year over year. In other words, they were massively profitable. So at this pace, they will put $73 billion into their bank account this year. That is a lot of cash. With that money, they could buy Coinbase just with one year's profits. They could buy Airbnb, Uber, DoorDash, any number of assets, right?

But in this country now, we have been putting the cabosh on M&A and looking at these companies that are getting so big with a little bit of a tighter amount of scrutiny. And this is in the face of China, anchoring their own companies, reversing them going public, pulling their apps out of the app store, forcing high-profile founders not to maybe give up their seat voluntarily, but maybe putting a gun to their head, and who knows, quite literally, perhaps,

to get them to neuter their own companies. It's crazy when you think about it. So YouTube is a major driver here, but Google search business and their third-party ad network is what Google is. Google is an ad business at its core. That's how they make their money, and their ad revenue was 50 of that $61 billion. Now, remember, Q2 of 2020 was really hard hit by COVID, and advertising dollars did dry up for a little bit. People paused their ad buys.

Everybody, if you remember, just a year ago in a couple of months, people were in a full-scale panic. What would happen to the economy? A lot got frozen during that time. So the year of a year growth could be a little inflated here. But retail was by far the largest contributor to the company's ad growth, according to their chief business officer, Philip Schindler, on Tuesday's earning call. Google's Cloud is becoming, you know, almost 10% of their revenue, 4.6 billion. That's really interesting.

So Google's Cloud computing platform, which goes up against Amazon Web Services. And they've also cut their losses for Google Cloud by 840 million year over year. They lost $1.4 billion in Q2 of last year. And this quarter, they only lost $591 million. When you say losses, another way to frame that in your mind is investment. So they've been investing, trying to catch up to Amazon Web Services and compete in cloud computing, also with Microsoft's Azure. Those are the top three players.

And so you see them investing in that business, and it's apparently paying off. Despite all this, the most impressive business in Q2 was YouTube. Their ad revenue was $7 billion up 83% year over year. And this doesn't include subscription revenue, which Alphabet doesn't disclose for YouTube for some reason, but they are disclosing YouTube's revenue separately, which they didn't do for a long time. And when you look at it, it's pretty close to the $7 billion is pretty close to Netflix's Q2 revenue, which was $7.3 billion. I think it's great for us to look at these two businesses. Netflix has 10 times less users than YouTube. They only have 210 million subscribers compared to YouTube's 2 billion plus users who use the service every month.

So one is 10% of the size of the other. They both have the same revenue. And the revenue comes from different places. So if you look at where the content comes from, what is the product? Well, Netflix spends billions on premium content every year. We know that. And they have to develop their own IP now because other IP holders are pulling their content off the platform.

Remember, Netflix had all those Marvel deals for Daredevil and Punisher and all that kind of stuff. That all got pulled, right? And all those series are now on Disneyland. Disney Plus. Netflix spent close to 12 billion on content in 2020, and they're going to spend 17 billion in 2021, according to variety. YouTube has billions of users, obviously, and it's generally user-generated content or professional-generated content, but it's an open platform. YouTube is not a gatekeeper. Anybody can upload anything they want to YouTube, and they do, right?

Podcasts, YouTube creators, how-to articles. But YouTube paid $30 billion to creators from 2018 through 2020 and that was from the 2021 yearly priority letter from Susan Wojecki, who I'd love to have on the program, by the way. We should invite Susan to come on the program again. So if you look at the content business, one person has to spend a god, awful amount of money. The other one just gives a percentage. It's kind of a jump ball there. It's two different things. I wouldn't give the edge to either company. You know, one of them owns 100% of the IP in most cases. That's Netflix. And in YouTube's case, they don't own this IP. You know, anybody can take their content off or stop publishing it there like we saw

Joe Rogan do. So you might even give the edge to Netflix if they happen to figure out how to create a franchise like Star Wars or Marvel in the future, which they might. They might be able to do that. Orange is the new black is probably not it, but there might be others. So if you look at the strength of the revenue and the quality of that revenue, well, Netflix has subscription revenue and that is usually more. predictable than ad-based revenue. However, Netflix did have a number of users unsubscribe or

not renew in the last quarter. They lost about 400,000 folks. So YouTube's revenue could be fickle because advertising does go up and down based on the economy. However, when you hit scale, you have to ask yourself, who's the competitor here, right? Who's the competitor to YouTube, a massively global business that has never existed before? And I, would actually, even though subscription revenue is delightful and predictable, I'd actually give the edge to YouTube here because I don't think they have a contemporary. There is no business out there that can reach as many people as quickly with video than YouTube. So if you're a TV advertiser and you want to reach 100 million people, 500 million people, is there a network that can

do that today? Can NBC do that? No. Can Disney do that? No. There is not a network who can do that, except for YouTube. You know, even the Super Bowl is, you know, maybe a hundred million people might see your ad. You know, it's like once a year. That's kind of peak television buy. The peak buy for YouTube could be global and a billion people, two billion people. I don't know if anybody's ever done an ad buy, but that would be something I would love to see is what's the largest single ad buy in the history of YouTube versus television?

And I'm sure the largest ad buys would be for a season of some hit show on TV. maybe somebody buys out, you know, the Olympics and the Super Bowl from NBC or whoever. If anybody knows that, the largest ad buys, I would love to hear about that. You can mention us and we'll do it in another news show. In today's startup landscape, committing to security and compliance is vital for growth. And proof of your company's security posture has never been more important. As you scale, you might start to receive more SOC to requests from customers. And that's where DRADA comes in.

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So they'll be, you know, you can be sure everybody on the planet will have access to YouTube very quickly. Not only will everybody have access to it, everybody with the exception of authoritarian communist countries is pretty close to having access to it. And when Starlink and other low Earth orbit satellites come out from SpaceX and other places, you're going to see dramatically the number of broadband subscribers over a decade is just going to, boom, we'll have another billion broadband subscribers. And that's going to be a wave that none of us anticipated.

And that wave is going to be super, super impactful because these are folks who maybe haven't even had stable electricity running water and all of a sudden they're going to have high-speed internet. And then they're going to be able to see YouTube videos. I know this sounds really quaint or optimistic, but I'm an optimist. And imagine you're in a village, you know, in Africa or in South America or just somewhere on the globe where the internet hasn't gotten to yet. Could even be Middle America, could be rural Australia.

And now you have access to all this education material and you can work from home. And you learn how to do design and you put your ads up on Fiver and you get some customers in the developed world and the developing world is now transacted. acting with the developed world through a broadband internet and they're acquiring skills. I mean, this is extraordinary. Netflix obviously has to localize content for each market. And if they do a series, you know, is a series that comes out of Israel going to play in Japan? Is it Japanese series going to play for Irish, you know, audience?

You know, sometimes you have those moments, but it's not that often. A lot of times you have to localize the shows and you have your own version of homeland, you know, which was a show from Israel, then plays in the, United States, it's not efficient in the way YouTube is. If YouTube, if there's a video from Gordon Ramsey on how to make the perfect omelet, that plays globally. So I give, again, YouTube the edge. And if you look at competition, well, you know, you have maybe Twitch owned by Amazon taking a piece of YouTube, but nobody has put proper competitor to YouTube. And that is really an opportunity. I don't understand why Facebook hasn't been able to buy Vimeo or any other video platform and really try to make a competitor.

It's really kind of sad that nobody's been able to go up against YouTube. I guess TikTok to a certain extent is getting a lot of creator videos, and I'm seeing how to videos. TikTok feels like the only real, viable, global video competitor to YouTube, and we'll see if we're allowed to even have that in the United States, because there's a possibility that China might say, you know what, we're not letting these companies get so big anymore. Maybe we won't even let TikTok in the United States. Forget about us banning them. At this point, it might be more likely that China bans TikTok in the United States. Disney Plus has been a massive competitor, massive headwind to Netflix,

and you have Amazon Prime video. And HBO Max is getting really good. I'm watching two new shows over there, White Lotus, and I just did the first episode of, and I've been watching Hacks. And I have to say, you know, on top of I may destroy you, I think was the other series from last year. That was fantastic. HBO Max is putting up some good content,

like really good content. I don't know about Peacock or Paramount Plus. I think that's not for me. But between HBO Max, Amazon Prime, and Disney Plus, Netflix has a massive amount of competitors, not even thinking of Apple TV, which once in a while comes up with a good show like Ted Lasso. So, again, the edge to YouTube.

There is nothing like it out there. And you have to wonder if YouTube will spin out. I think if you, YouTube was its own independent company doing $7 billion a quarter, you know, doing $30 billion a year. I think it would go for 30 to 50 times top line revenue. I know that sounds crazy, but at that growth rate, as an independent company, people would make that bet $30 times $30,900 billion.

I think YouTube is a trillion dollar company as a standalone company. I know that sounds crazy. I know people are going to say, I'm nuts. But just think about it. If YouTube was its own business and they could go everywhere. gaming and programming, and they already have YouTube music. I mean, there is no limit to what they could do with that franchise. When you have two billion people using your product every month, just think about the businesses you can start right off of it. It is incredible to think about that.

They could, if they did a crowdfunding, they could go to a director like Quentin Tarantino, who, by the way, has been on a road show. He was on Brett Easton Ellis's podcast. He was just on Brian Compliments. I haven't listened to that yet, and he was on Joe Rogans. And I listened to two of those, Brady Sinellis' conversation, which is behind a paywall, but it was phenomenal. And Joe Rogans, which is phenomenal. But, you know, Quentin Tarantino, kind of a hard director to back, right? You needed to have somebody to back that kind of director. Imagine YouTube just said to their users, Quentin Tarantino is coming out with a new film.

We want to put up $250 million to back his next film. And they go to their two billion users and say, would you like to buy for 20 bucks the right to be a producer on this film? and you know, you can have your name in the credits or something or just, hey, you know, we're going to crowd fund it. You can pre-buy it for $20. I think they would get $100 million out of the gate, out of the gate. And YouTube hasn't even been doing those experiments because their ad business is so strong. So congratulations to YouTube.

We've got to get Susan with Jackie on the program. I mean, I've talked to her before. I've met her. Come on the program. I mean, let's talk about how amazing all this is. In our continuing coverage about tech coming back to work and the pandemic eventually ending, which we're all hoping for. frustrated about this Delta variant. My God, we could have had everybody back to work. We could

have been opening up society and some percentage of you have opted out of getting the vaccine and have opted to get the Delta variant. There's new information out there for you. The Delta variant is massively more, massively, massively, massively more contagious. You're not going to avoid getting COVID if you're not vaccinated in all likelihood. You're either going to get vaccinated and maybe get a light case of the Delta variant, or you're definitely going to get Delta variant. That seems to be the case here. Please, please.

If you're hearing my voice, just think about, do you want to have this argument about lockdowns and arguments about masks for the next year or the next six months? All we have to do is get another 10% of the people hearing my voice, maybe 20% depending on the neighborhood or the town you live in? If just another 10, 20% of y'all who have been holding out,

get the vaccine, this is going to end, and we can have party. and go to Vegas and go to concerts again and go to sporting arenas. Who the heck wants to be in a perpetual state of arguing over lockdowns and masks and Karen's fighting about masks or no mess? I don't care if you didn't take the vaccine before. I'm just asking you right now if you're an anti-vaxxer or you've been avoiding it. Just look at the new data and just take some fresh eyes and investigate it because now

there's a billion people on the planet who've gotten these vaccines. If there was a problem with them, I think we would know by now, don't you think? And do you think the risk of the Delta variant, which is highly contagious and spreading like wildfire? What if that was spreading like wildfire and it was three times as lethal? Well, that's a possibility, right? These things mutate. So take this as a public service announcement. And let's talk about going back to work.

Because this now, the Delta variant has given everybody who doesn't want to go back to work or anybody who doesn't want to go back and be a teacher the ability to say, you know what, I don't feel safe. I don't want to go back to work. Well, you know what? Now this is escalating. People are going to be asked to wear vaccine buttons to prove they're vaccinated. They're going to start asking for vaccine cards when you go to restaurants and movie theaters

and sporting events like they did at the Knicks game when I watched my Nix go to the first round of the playoffs for the first decade. They're going to be, you're basically by not getting the vaccine and by extending this, we're just going to create even more chaos in society. And here we go. Sundar Pichai told employees in a note Wednesday that the Mountain View, California-based company would begin requiring anyone on its U.S. campuses to be vaccinated in the coming weeks. He said Google will expand that requirement to other countries in future months. Google is planning on returning to work in mid-October. They were going to do September. And he mentioned on Twitter and Google expects employees back in the office

three days a week on average. So you're going to be required if you're working in certain jobs, if you're going to certain sporting events, you're going to be required to get this vaccine. And so I think maybe take a look into it, take a deep look. And these companies, I think, are benefiting from work from home. So I don't think work from home is going away. I think it's going to be a very flexible environment for the next couple of years. And Google has joined Morgan Stanley, United Airlines, BlackRock, and other companies who have either banned unvaccinated employees from their offices or required them to be vaccinated.

And that's by courts at work. We spoke about vaccine passports and private companies requiring vaccines and order to return back to work on all in episode 40 and 41. And people were complaining about those two episodes. Hey, we're talking about this too much. Well, you know, if you're in business or you're covering the markets and or you're in politics, like, we need to end this pandemic and get it down to under 100 debts a day, under 10,000 cases a day. And guess what?

We were at that level a month ago. In the beginning of July, we were below, you know, I think we're 11,000 cases on average 30 days ago. Now we're back up to 50. We were at like some days, 150 people dying in the United States. Who knows how many of them were dying with COVID as opposed to dying from COVID. Who knows how many of them were, you know, end of life. So they weren't dying with the majority of their life ahead of them. They might have died a couple of years earlier, obviously still tragic.

But we had this thing beat, folks. And now we're going to have to get into a war with our employees and getting on planes and with each other. Are you masked? Are you Vax? Let's stop this annoying thing and move back to solving bigger problems in the world, like global warming. And making sure everybody has a great education and health care for everybody. please reconsider if you have put off getting a vaccine or the second shot, because the second shot, I understand, is critical. What's going to happen to unvaccinated employees? Well,

in tech, we need employees, and if you're unvaccinated, you're going to be working from home. If you're an exceptional employee, that's great. But if you don't come to the office in a company, that's a hybrid company, I do think if you're not in the office with the locus of power and the top executives, you're probably going to be throttling your career advancement and not intentionally. It's just going to be harder to advance. It doesn't mean you won't advance. But you can imagine if you're sitting next to Zuckerberg or you're sitting next to Bezos or whoever the new CEO of Amazon is,

you know, you're going to go further. If you're on the campus, you're just going to go further, faster. And with less effort, it's going to just be easier to go further in your career because you'll have built those relationships. And when a new opportunity comes up, is the new opportunity, think about a manager or a CEO of a big company, new opportunity comes out. We're going to do AR glasses, VR glasses, VR glasses. We're starting a car division in Apple.

Are they going to give it to somebody who's working from, you know, some lake, Lake Cuomo or something? You know, this person's on the Amalfi Coast on a different time zone. You're not putting that person in charge of it. Great, that person gets to live on the Amalfi Coast. Amazing. But they're not going to get to advance their career and have the most interesting work. So if you care about the most interesting work in the world and you want to be near the

the locus power and you don't want to have to get COVID and you want to stop arguing people and you want to go to sporting events and have musicians go on tour again. And we get to go to concerts. Oh, my Lord. Broadway show. Let's just all get vaccinated. Not all of us. Just 10% more. Please do it. Please reconsider. Okay. Let's get on to the interview. Too many small business owners are busier than ever. It is crazy out there. Things are growing like gangbusters. But since they're focused on managing and growing their businesses, they can't always spend the time they need to on recruiting the most important

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game changer, that unicorn that will change everything at your company. And boy, is it amazing. You know in that feeling when you find somebody who's a really great contributor, well, you can have that feeling right now because every week, nearly 40 million job seekers visit LinkedIn. Post your first job for free at LinkedIn.com slash unicorn. That's right. You're very first job is free. LinkedIn.com slash unicorn. You know that's by unicorn. That's LinkedIn.com slash unicorn to post your first job for free terms and conditions apply because they're giving you something for free. Okay, everybody, as you know, I've been critical of cryptocurrency over the years. I've been thrilled by Bitcoin and some projects, but I've also been concerned about ICOs and speculation, manipulation.

but there was one area that I always thought was after a store of value and money transfer the most compelling use case for cryptocurrencies. The one case where I thought a blockchain, an immutable blockchain, was more than just buzzwords, and that was NFTs, non-fundable tokens. The ability to craft something digitally

and own it and have it be one of one or one of a hundred or whatever denomination you're going to create is a brilliant idea. And that idea has captured people's imagination. And we've been talking about a lot on the program. And we're very lucky today to have Devin Finser on the program. He is with OpenC.

If you're in the NFT space, you know it because it's a marketplace for NFTs. Welcome to the program, Devin. Thank you so much for having me. Long time fan. Oh, thanks, pal. I appreciate that. I get that a lot now. Somebody tell me a founder I invested it, in fact,

was like, this is a dream come true for me to have you as an investor. I was like, oh, that's great. And he's like, I've been watching you since high school. I was like, what? It's like, yeah, high school we would watch this week in startups and then in college. I'm like, oh, wow, you've been watching for seven or eight years. I get it. You're 24 years old. The show has been around for 11 years. It's turning into the press. But thank you. Yeah, for me, it's been, I think, right after college, I started listening to it. Oh, that's great. Were you an entrepreneur back then? Well, I worked at Pinterest.

It was my first job after college. What did? I did just as a software engineer on the growth team. And then after that, I started a company that was acquired by Credit Karma. So through that time, while I was kind of thinking of different ideas and ideating, I was listening to you regularly. Oh, thanks for that. Yeah, I mean, it's really interesting because I have these conversations with people on the show and then I meet them in person. And they act incredibly friendly to me.

And I'm like, because I already feel like we have a rapport and we're talking a little bit and shooting the shit before the show started. And I realized what it is is I've been in people's ears for a decade or five years talking to them on two X. And then you meet me in person and we start having this conversation. It's like, oh yeah, for some people, this is their 200th hour of having a conversation with me or being in a conversation because you're hearing me and another founder. And now it's a chance for people in high school to hear you on the program and be inspired. When did you first hear about non-fungible tokens and this concept? And what happened in your brain when you saw it? So late 2017, which is really when this whole space began, I was deep into crypto.

I was pretty set on doing something in the crypto space. It was just a matter of what, whether that was joining a company, starting a company. But I was going to all the meetups back when you could actually go to physical meetups, learning as much as I could about it. And then this project, CryptoKitties, which I believe you had on the show, Dapper Labs, hit sort of the mainstream tech scene and really, you know, kind of showed the world that there was other stuff to do in crypto outside of sort of pure financial or pure tech plays, but that this could be a more consumer mainstream audience type of technology.

So that's when I mean, that's when kind of the world heard of, heard of non-fungible tokens, and that's when I got interested in it. So, yeah, a while back now. What was your idea? You saw it happening, you see CryptoKitties, and you see this happening in a very open way. You must have had some aha moment to create your platform. Was your original idea to create non-fundable tokens or to create a marketplace? What was your original idea?

Pretty much the original idea was to create a marketplace. There was a moment when we were doing a completely different idea in crypto around sharing, Wi-Fi using cryptocurrency, but we quickly pivoted from that. And then there was a small moment where we just wanted to build a game on top of CryptoKitties. So one of the cool things about CryptoKitties was because you kind of owned them on the blockchain, you could go and build developers could build experiences that use your crypto kitties, but in different creative ways.

So someone built like a Kitty Hats application where you could accessorize your crypto kitties. And then this other team built a kitty racing thing. And they were all very early experiments, but that kind of led us to this idea of, well, you can have these things outside of the original application that they were born in. And so that maybe you could build a marketplace that allows you to trade all this stuff that exists outside of the game or the project, right? And that was kind of the aha moment where we're like, okay, that's kind of a cool new novel concept.

And then let's go and try and see if we can take it to market. And of course, it was such an early market that we had to, you know, kind of patiently grow with the space as new NFT started coming online. So it feels to me very much like the early days of the worldwide web where you got your internet connection and then maybe you had your email or you were in Usenet news groups and you had a news reader and then RSS came and you had web browsers, all these like disparate pieces in the experience. It feels that way a little bit right now in crypto. You have people who let you mint NFTs to create one. And then you have marketplaces like yours. And then you have, I guess, Roham's platform and what he's doing, a dapper and then also Topshop.

How does this all fit together? Do all the tokens allow you to be traded anywhere so nobody has a lock on the assets? That's right. I would say that inventory of the assets, the beautiful thing about it is that the inventory is shared, right? So you can, you know, create an item on some art platform, but then you can actually go and, you know, it's in your wallet and you own it so you can go and take it to OpenC and resell it, right? So some of our, some of the marketplaces that are more oriented towards art, people will actually go and, you know, flip those on OpenC or something like that, right?

And then gaming, it's similar, right? We haven't seen, you know, as you said, it's early days, But there's this cool idea where you could take an item from one game and actually bring it into another game pretty seamlessly, right? Because, again, it's all sort of connected to your wallet. And so users have the freedom to kind of do whatever they want with these things. And developers can really easily, you know, once they kind of get over the hump of learning how blockchains work, which is, of course, an area of development, they can like integrate these things. So, yeah, there's less of a sort of data moat around the NFTs. themselves. It's not like, you know, the NFTs that are minted through our platform, for

example, aren't proprietary to OpenC. They just happen to be created there. So it's a very, yeah. This was a very interesting concept because in fact, cryptocurrency, people forget the sort of dry run of cryptocurrency was mana and gold in games, specifically massively multiplayer online games. And people forget this. But Brock Pierce, who was you know, big into cryptocurrency now. He had started a company called the Internet Gaming Company or Internet Gaming Entertainment with Steve Bannon, I believe, the Trump's organizer.

And what their concept was, hey, people are playing World of Warcraft or whatever. We'll go into the game itself as a character. Take your plus 27 sword that's worth $800 that you spent a year, you know, building up your character or your sword or whatever you found. and then we'll go give it to somebody else, but we'll make sure on our website you have bought that item, which was completely against everybody's terms of service,

et cetera, but I think they did it out of China, if I remember correctly. It was some way they were getting around this currency selling, and it was kind of explained that those were like miles for, they weren't currency because they were like airline miles. They didn't really have an equivalent. And then, of course, Mark Pinkis did Zinga, and he had, you know, Zinga coins, etc.

So that was all this kind of interesting dry run. But is anybody doing that yet where in one game, Fortnite, you could take an asset, put it on the blockchain and trade it? Has that even come to pass yet? A little bit. So I would say that the most promising experiences there are, so there's all this digital art out there, right? There's like people minting this expensive crypto art. There's, you know, even some traditional artists starting to mint just pure digital art. And there's these virtual world projects.

One is called the Central Land, another one is called Cryptoboxels. And these virtual world projects let you bring that digital art in and make museums of it. So that's sort of this first instance, right, where you can, you know, you sort of have this equivalent of a physical environment to display your digital stuff. And suddenly it's like that digital stuff starts feeling a lot more real because you can kind of, you know, take it with you to these different places. So gaming, there's been a few. few experiments of like, you know, I think you could bring your CryptoKitties into like this

trading card game, like early stuff. But I think the, there's this really kind of interesting symbiosis with the digital art world and these virtual worlds that's going on. And that's where a lot of the kind of early activity is happening. It's not happening from like the, the more mainstream established games. It's more early startups that are more experimental. How much time and money do you spend integrating a bunch of different software products together at your company. Let me guess. Way too much time. Well, Odu is here to help. Odo is a suite of business apps that runs your entire company on one platform. They'll streamline your workflow by bringing all of that information together. Plus, Odu's integrations

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That's not a joke. That's $1,000. Just go to Odo.com slash twist to check it out. That's ODOO.com slash TWI-S-T. This was all kind of underground and wasn't really capturing many people's imagination. It was kind of on the fringes. But I think somewhere during the pandemic or slightly before the pandemic started, top shot the NBA's way in which people could buy NFTs of specific players

and their specific plays in games, if I'm correct, started trading. And, you know, CryptoKitties had kind of, I believe, deprecated a little bit. Oh, yeah. But this exploded over the last 18 months, I think. What's happened in the last 18 months? And then what's happening today with the sort of most recent crypto Bitcoin crash in terms of interest? Yeah. Well, I would say when the time period that I would point to where it's really exploded from a volume and sort of

mainstream awareness standpoint has really been from December to today. Got it. Yeah, that was when some of these really giant sales happened. I don't know if you saw the SNL skit on NFTs. And so suddenly, like, I would talk to, you know, people outside of tech and they would actually know what an NFT is at some high level, right? So I'd say that's sort of the period where things started blowing up. But to your point, I think things have been building up for the last four years, essentially.

So a lot of work has gone into the wallets that support NFTs, the marketplace like ourselves, that allow you to trade them, the experiences of these virtual world projects, artists starting to experiment, art platforms. So really, it's been the accumulation of a lot of things. And then really, like, January or February was when all of those things kind of came to culmination. And so, for example, for our marketplace, you know, if you look back to, until August of 2020, the transaction volume on our marketplace was about a million dollars per

month. And if you look to today, so far in July, we've done around $170 million in gross merchant. Wow, 170x year over year. That's growth I can get behind. Yeah, and that's, yeah, that's just this month in in July, right? Yeah, but a year over year. You're saying 12 months later, a hundred and 70x growth. Yeah, about 12 months later. Yeah, exactly. That is mind-blowing. And what are, what are the project? people are buying, and how do you make money?

Yeah, so to answer the second question, so we make money on a transaction fee, so every time something sells will take a percentage. How much is that? Is it variable? Do you do it by category? Two and a half percent. So it's like a credit card fee.

Yeah, essentially. Yeah. And the things that are, you know, we serve, we're sort of the most horizontal marketplace. So we serve everything from art to game, items. There's even some experiments with event tickets, domain names. So it's sort of across the board. The categories that are most popular right now are for sure art and collectibles are really interesting. So you mentioned NBA Topshot, but also trading cards from famous athletes

or even sort of more experimental like crypto art type projects. And then games are really big too. So trading card games where you can imagine like a Magic the Gathering or Pokemon cards can actually trade digitally. And then these virtual world projects are really interesting. But we're excited about kind of the diversity of projects increasing over time as more and more developers kind of come into the space and start experimenting with this. Tell me about domain names. What is that about? Are people taking actual dot com domain names like inside.com and then selling fractional ownership in them? or is this a new domain, you know, space that has been created just for this area? So it's both, but it's for the most part, it's the second one.

So imagine you, I don't know if you've set up your Ethereum wallet and have a little bit of crypto, but if you've ever sent crypto to someone, you typically have to copy and paste a big giant hexadecimal address, kind of like where, you know, when you had to enter an IP address to get to a website. And so these domain names allow you to send crypto or send NFTs to like Devon.eath or Jason.eath. Ah, right. I haven't set that up, right? So if somebody had a really good one, they could sell it on the marketplace. So somebody has Jason.eath and they could sell that to me. Probably. Yeah. Yeah. So like Amazon.eath was auctioned for like 50th way back when. So, you know, there's the squad. All right. Whoever's got Jason. Dot Eath. Come shake me down. I'll take it, I guess. I passed on jason.com because I was like, I got calicannis.com.

Like, do I really need jason.com? And they wanted like a half million dollars. I was like, I would give you $100,000 for it as a goof, but I don't think I need Jason.com, but thanks. And some developer board it. So congratulations to that developer. Talk to me about what's happened in the art world in relation to this. Because when Beeple decided to sell his every days for $69 million, and we had Medicoven

on this podcast episode 1200, if you want to go listen to that. I think that was back in March. Who handled that transaction? And then for people who are interested, how does the, how, what happens to that NFT if it were to get lost or the password is lost?

How does the providence of that NFT get managed because it was bought for $69 million? Yeah. Yeah, I don't know the full details of exactly how the transaction was handled. I think it was done through Christie's, right? And so I imagine they just sort of like, I think it was in crypto, correct, if I'm wrong.

And then I assume they sort of transferred it to the winner afterwards. It is an interesting question around like, what if your wallet gets lost, right? This is a problem that Bitcoin has where we always hear stories of that, yeah. Yeah, all these wallets hanging out there with tons of Bitcoin in them. Yeah, I mean, I think, you know, if it would be very interesting, if an extremely high value NFT kind of got sent to a wallet and then those private keys were lost. And, you know, essentially it would be the equivalent of kind of losing a piece of artwork,

except that everyone can still kind of see that the artwork is out there. So it's a little bit of a weird dynamic. Can anybody open up an NFT that somebody else has bought and put in their wallet? Is it freely viewable everywhere? Typically, yeah. Yeah. Yeah. Yeah.

Because the blockchain is fully, at least at the moment, the main blockchain is the power NFTs are fully public and transparent. Got it. So it's not like the person can buy this if, let's say, I don't know, are people trading songs or that kind of stuff yet? A little bit of music, but it is all, it's, yeah, it's more around sort of the collectible use case where you're like, okay, I own this, you know, kind of imagery and video associated with this sample of this song versus like no one else can listen to it or something like that, right? Because that would be interesting, you know, because I remember, I don't remember that Farmerbrough had bought an album by Wu-Tang?

He's like, I'm going to just burn it or nobody can listen to it. Nobody's ever heard it. And it's so dope. Oh, interesting. Paid millions of dollars for it. I was wondering if the business model, Schrelli, I think he's in jail. Yeah, I'm pretty sure he's in jail for a long time. So you could then say, I want to turn on the ability to see this experiences, et cetera.

It just was interesting as a business model. Has anybody done anything with downstream business models where, let's say, I bought this Beeple, and then Beeple gave me the right, or I bought this Picasso, or I bought this certain piece of art, but I got the right to then use it commercially or with some sort of smart contract. This is something I've always wondered about because owning an NFT, but having no additional licensing rights to it is like, okay, I can't. It's not really an investment other than the core asset appreciating. But if you could make T-shirts out of it or if it was a song and you could license it to people in the real world, well, then you'd have essentially what music licensing is. If people wanted to use this song in a, you know, this Rolling Stone song in a commercial, they could just buy a right to it and use it.

Has that started happening yet? Or is it, is anybody doing that? I haven't seen that yet, but there's no reason that you couldn't, right? you could just basically put in the contract, the stipulation that the purchase of this NFT gives you the right to do these things. So it's totally feasible, and I think it's only a matter of time, to be honest.

That to me seems like that would create something beyond just the speculation on, hey, the price might increase. Now, cameos become a really popular service. Has anybody started doing cameos in NFT form? Because I was also thinking about that. I was like, wouldn't that be kind of interesting? if you have this famous person, LeBron James, you know, wished somebody happy birthday and then it was, you know, on an NFT as opposed to just, you know, on your hard drive and could be lost or on a website or whatever.

I haven't seen the exact cameo use case, but similar things. So, for example, Rob Grunkowski released sort of these trading cards with his image on them, right? where, you know, basically it was like the equivalent of baseball cards or something like that, but it was, you know, just him doing it independently and then releasing it to the world. So I think people are being like, you know, there are probably been a few experiments where, you know, celebrities just kind of upload some, you know, gif of them doing something and then sell it. But I think people are trying to be a little more, you know, I guess a little more creative and a little more kind of ensuring that there's proper distribution that like people can participate at different levels of contribution. It's not just, you know, I think the sort of days of really

high value NFT sales have kind of passed to some extent. And now people are like, can we, can we bring fundamentals to this and ensure that the projects are doing something unique? And maybe there's kind of utility associated to owning the NFT as well. Yeah, that's what I was getting at is the utility of it. Is there some purpose to doing it? I like the idea of being in games. Yeah. Now, I'm curious,

you have an idea of everybody who's on your platform or do you just know the wallets? Because the transactions occurring, you have to settle money. So I would assume you have to know the customer or you don't. How does all that work?

Because I think what we're seeing right now is this great cleaning up of the crypto ecosystem or what would the word be? Legitimization of it and regulation and just a general trust being maturing would be a great word, I think. Yeah. And we're seeing that with like tether, maybe leading people to go, wow, this is really questionable. But then you have Jeremy Aller doing circle and, you know, maybe a different level of regulation.

Coinbase being public. And what's the one out of China or no location? Finance. Finance is like, you know, the crypto exchange with no home. home and then you have Coinbase, which is regulated, you know, as a public company with, you know, a lot of regulation. So, so how is, how do you deal with that because people are trading assets? So do you have to know who they are or is it just a Wild West out there? Yeah. So for, for us, we're a marketplace

on an exchange, right? And we're peer to peer and non-custodial. So that kind of separates us from the world of finance and Coinbase where they're literally holding people's assets and allowing them to trade with a centralized model. For us, we actually, it's actually a pretty interesting world that we're in where we facilitate transactions through a decentralized smart contract as opposed to OpenC ever taking hold of the asset itself. And so that allows us to, you know, let users interact with the site with their own wallet without having to like sign up for OpenC or anything like that.

Now, of course, we do things like we geo-block certain countries. and we also allow people to enter their information if they want to. But it puts us in a nice place where we're not trading things like cryptocurrencies. We're mainly training these kind of collectible use cases. If we expand, you know, beyond that, then, you know, there's sort of things that we have to think about in terms of. So if I find an NFT I want to buy on the site, it's a Top Shop one, I say I'm going to send, I want that. I have a wallet, you have a wallet, or I have a wallet and Jane has a wallet. but Jane owns the LeBron James Topshot NFT.

We decide how we want to transact Fiat, PayPal, Ethereum. It's actually all done through crypto. Yeah. And actually, interestingly enough, we don't support Topshot yet because they're on a different blockchain than Ethereum. We currently support Ethereum and a few other sort of Ethereum layer two chains. So how does that exactly work? I have an idea in my mind, but for people who are Neofiorember,

fights listening. Explain how the smart contract works and the transaction actually occurs without you being the custodian of the NFT for some period of time or the custodian of the crypto. Yeah. So essentially the way it works is, so you have this wallet. Most people use MetaMask, which is this Chrome extension wallet where you can hold Ethereum inside of it. But it's completely separate from OpenC.

It's not hosted by OpenC or part of OpenC. And then OpenC is sort of a portal into your wallet. So you connect your wallet to OpenC and then you can suddenly see all of your NFTs if you own any. If you want to list an NFT, you go to that item, you press sell. And then you do a, you actually do a transaction on the blockchain. So what a lot of people are starting to learn is that Ethereum is not just a place where you can like send Ethereum around.

It's actually a place where you can execute code in this. trusted environment. And so there's literally this, it's pretty crazy. There's literally this smart contract out there that the code that's written for that smart contract, you know, allows the user to give permission to trade an arbitrary NFT. And then in a blockchain transaction, suddenly the, if a buyer comes along and buys that NFT, the Ethereum is swapped to the seller and then the asset is swapped to the buyer.

and it never gets sort of held by anyone else. It's all just through this code. It's insane. And this is for people who don't understand, this is really revolutionary because there would usually be an escrow agent. Selling a home, selling art, the escrow agent would take on this responsibility for clearing a transaction. They would get ownership of the asset, the piece of art,

they'd verify it maybe. Then they would verify the money was in the bank account. And then they would release it to the end. other parties. Here, this is the decentralized nature of the technology. Decentralized would be the best way to describe this. Yeah, it's essentially like a decentralized program that can interact with users, assets and funds, right, negatively on the blockchain.

But since I don't have the NFT in my wallet, I can't post to this Ethereum smart contract to this blockchain that or with this code that I am willing to sell it. So there's no way to spoof it. Yeah. And the code of the smart contract is open source and audited. And so sort of all of the different exploits that you'd imagine have been relatively battle tested over time. Pretty amazing when you think about what is happening here. It's crazy. So what will this look like in five or 10 years if you're successful? Obviously, you've raised a ton of money, congratulations. Revenue is gone bonkers. You're making two and a half percent of almost $200 million with a company with, I'm guessing you have 50 or 150 people in the company at the

scale? We're still actually 30, so, but we're scaling up rapidly. Yeah. Doing $60 million a year in fees or something to that effect. It's unbelievable. Two million dollars in employee or something. Very rare to see that kind of revenue. What does this look like in 10 years, five or 10 years, if you succeed and you hit all your milestones. Yeah, I think it's, you know, to us, it's always been sort of the birth of a brand new kind of consumer internet, right? If you look at the last couple decades, it's been, the trend has been consolidation.

So Google, Facebook, these larger companies have really kind of become at the center of our online lives and the Wild West web pages, all those things, it's kind of dried up. And I think some people in tech, in consumer tech, and there's been a lot of excitement in SaaS and other areas, but consumer tech has felt like it, like there's some, there's got to be something beyond that. And I think this is, it really is the beginning of it. And it's really sort of intertwining economics and economies into sort of consumer, creator focused applications. So, you know, imagine sort of instead of an Instagram where you upload photos and primarily it's

Instagram monetizing that user behavior, users can directly sell an NFT to people who want to support them. And it's a much more participatory economy versus kind of what we have today on the sort of ads-based social networks. So it's unclear exactly what that's going to look like, right? You sound like me talking about the Internet in 96 or 97. I was literally on Charlie Rose trying to explain to people that it would be this kind of community thing. And I was describing social media, but it didn't exist yet.

And you're like, well, people are going to be able to be online and like these communities, people are going to be hanging out in them and talking about stuff and sharing. But, you know, it's not going to be in the real world. And people are like, what are you talking about? But, I mean, essentially, you're building all this infrastructure now. It's not built yet. It's super confusing. And it's, you know, not for.

civilians, let's say. It's not for lagrids, obviously. But at some point, when this infrastructure is built up enough, you'll be able to take out your wallet or your phone will have a wallet built into it, and you'll pull up some equivalent to Instagram, and it will find every photo, you know, on every blockchain and serve it up to you, and there'll be some algorithm that will be written, you know, in some smart way that you'll be able to pay for, and the algorithm will not exist from a company, it'll just be some code out there on a decentralized network. and it will put together magically with some algorithm that reads

the entire blockchain, finds every photo, and builds an Instagram for you. It's pretty crazy. You'd be following wallets. I mean, you think about it, like, you could actually build an Instagram and just say, here are the most popular wallets that own NFTs images,

whatever we call these objects, NFTs, obviously, and then presents them to you. It's really unbelievable. This is like the exciting part of crypto, right? Like, that gets lost in all the greed and the fud and the toxicity of... What's exciting to see is that a lot of the kind of jobs of the future are starting to emerge.

So, for example, these virtual worlds that I was talking about where you sort of have virtual land and you can build museums and things on top of it, you know, now there's sort of like the virtual real estate agent who go... We were actually looking to buy some land for open sea. And then like talk to someone and they were like, yeah, I can, you know, find you some good spots like in this district and you know I'll take this cut does that sound good like it was really and you know that guy is like doing that as part of his full-time thing now and and similarly we're seeing like people you know be able to pay back their student loans using the money that they've made

selling crypto art to collectors right so people are becoming full-time pure digital artists so it's like yeah it's it's it's going to be weird world I don't know exactly like what it will look like, but you can sort of see the semblance of things. I mean, William Gibson took a pretty good swing on it. I don't know if you've ever read Idoru and that whole Bridge series. Have you ever read that, William Gibson series? No. You'll get a treat out of this.

He's a really good writer. He wrote Iduru, All Tomorrow's Parties, and he wrote this stuff like in the, you know, late 90s, the early 2000s, and it was basically about dystopian, San Francisco, 30 years later, and everybody's living in VR headsets and virtual worlds. But they're going and buying digital kimono. to go to meetings and playing different avatars. You know, it's kind of like the Johnny Nemonic era of

cyberpunk. And that cyberpunk stuff is starting, to me, a lot of what I'm seeing is, the good stuff I'm seeing feels like the cyberpunk era. While I have you and you're in the crypto space, how do the people who are building legitimate businesses in crypto look at, you know, China, you know, cracking down on crypto and then maybe tether,

not having the assets they say they have or maybe having them? And this sort of seedy underbelly, you know, that you're distinctly not part of and trying to work against to get consumers into this while there's a bunch of grifters and anonymous people doing all kinds of chaotic stuff. How do you think about that? Yeah. I mean, I think, you know, every time there's money to be made in a new industry, that's kind of a natural piece of it. Right. And we saw that most saliently in 2017 with ICOs and, you know, people raising.

tons of money, you know, through these, that, you know, really no kind of legitimate project at the end of the tunnel. But, you know, I think on the other hand. Was there literally any legitimate one that emerged with a product in the real world? Filecoin? Yeah, Filecoin, you know, Tezos, ZeroX. So some of the, you know, some of the really big ones did emerge with products, but it was a very interesting dynamic where, you know, they had so much money and yet they were sort of these early stage products that maybe didn't have product market fit with like hundreds of millions. They haven't written a code.

It had a billion dollars. I mean, Eos had billions of dollars, right? Tezos had hundreds of millions, then billions of dollars. It was crazy. I think what we've seen as sort of the most successful projects are the ones that started like right after that. Right. So right after it was really easy to raise money, you know, tuning our own horn. But we started like, you know, right at that first bull market, dapper labs.

They, you know, they raised a good amount of money back then, but it was less than the ICOs. And just a lot of real entrepreneurs kind of came into the space and started building things. And now, you know, three or four years later, those are the projects that really found product market fit and are doing well. You know, there are definitely some that raise tons of money in ICOs that are starting to do interesting things. But I think it's a sort of testament to, you know, being sort of resource constrained actually can be a useful thing if you're trying to, if you're actually in a early stage project. Yeah, because you are based on, you're doing milestone-based funding.

So you have 18 months to produce enough that investors, new ones or your existing or some combination, want to fund the next stage of the company, or you were so successful in that 18 months in our milestone-based funding, you know, innovation here in Silicon Valley and tech, that you don't need any more money or you need a modest amount.

and that's a really beautiful thing. You give somebody all 20 rounds of funding that they would get before, you know, up until going public, what's going to happen to those founders? They're just going to be, you know, totally spinning out of control. They're not going to be able to stay focused.

A stupid standard VC question. How does OpenC differentiate when this is all built on open standards platforms and anybody can build these, you know, how do you think about, I mean, obviously brand is definitely important trust is important. But is that

is the answer as simple as that is that we're going to build a really trusted brand and that will win the day? I think it's a combination of things. I mean, inventory is certainly shared across all applications. The liquidity of the marketplace is not necessarily shared,

right? So building up sort of the best place for buyers and the best place for sellers is kind of the traditional marketplace mode. Of course, there's a little bit less friction to moving between marketplaces than there is for like something like eBay or something like that. But I do think trust is really important.

So we put a lot of effort into ensuring that we remove fraudulent NFTs or legal NFTs or anything that our users wouldn't want to discover on OpenC. And brand for sure, ensuring that we're sort of supportive of our community and also sort of discovery, right? So ensuring that you can kind of come. to OpenC and always find what you're looking for. So I think there's these sort of soft factors that kind of add up to, you know, pretty strong moat against folks that are going out to the exact same thing.

I agree with that. I mean, we had Stock X on the program and like, you know, they're selling sneakers that are worth tens of thousands of dollars in some cases, six figures. And it's like, well, okay, how is this defensible? It's like, they verify that these are actually really, you know, those special Jordan retros that, you know, Yeah.

Whatever, providence, right? And then you have the eBay, has seller ratings. Are there, is there an equivalent of seller ratings here? Is it unnecessary? Not really, not yet. It could become necessary because so now you can, anyone can create an NFT, right? So that means that I can go and find, you know, some cool looking photo that someone else made and upload it and sort of, you know, try to sell it as my own. And so there's that kind of activity that might be, might mean that it makes sense to have some sort of rating a reputation system.

Right. Somebody could basically create a BEPL account with a entry E and then take his content and make fake Bibles and then people think they're buying Bibles and they're buying Beebles. And this is what we see every day. Yeah. Oh, you do? People selling Bibles or Bipa Peeples. Really, that makes sense. If this person has never sold one before, you've got to. I do it. Or listen, continued success. Congratulations. We're going to be watching it. And really interested to see what happens with that video games and being able to take a weapon from Fortnite and bring it into, you know, the new call of duty to me seems like a mind-blowing. Absolutely awesome concept. So continued success. Random fact, Devin had co-founded a course scheduling app at Brown in 2011 with Figma CEO called CourseKing. I just got this random note.

Tell me about that. Oh, yeah. So, Dylan and I are really good friends from college. And the first, I mean, honestly, the thing that inspired me to kind of at least do software engineering and maybe do entrepreneurship further down the road was this project that we did in college, which was a, yeah, social course scheduling software where you could share your classes with your friends. And it was a lot of fun. working with Dylan on it. And now Dylan's actually an investor in OpenC and one of the, you know, one of my favorite people.

Oh, you got the Brown Mafia going right now. You got the Brown University of. Yeah, there we go. I had always dreamed of going to Brown because I had heard in an interview, some celebrity who went there in the 80s that you made your own degree. You would pick your own degree. And I was like, well, I want to do a degree in like, online, like cyber or whatever. And then I went to my counselor and he's like, there's no.

way you would ever get into Brown. I was like, well, should I try? He's like, you're going to get into Brooklyn College or be a cop. Like, get them out of my office. Literally, college counselors are just like, get out of my office. You're crazy. You're going to be a cop or go to Brooklyn College. You'll be lucky if you finished.

You're getting your associates, Calicatus. Well, now you've, this is what happened. Yeah, this is what happens. Yeah, it worked out. Okay. All right, brother, have a good one. And we'll see you all. next time on this week in startups.