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Hi everyone, this is Pivot from the Vox Media Podcast Network. I'm Cara Swisher. And this is Scott Galloway. Happy Valentine's Day, Scott.
Hi, David. I was wondering if you were going to remember it. I was wondering if you were going to remember it. I bought you nothing.
I bought you nothing whatsoever. Although my son did an amazing thing for his girlfriend. I can't talk about it right now. He's bringing it to her.
My son is the best to have Valentine's Day for his girlfriend. But I did not. I was thinking I made no effort for you. But here we are.
OK, so I bought you a Valentine's card, and the only problem was I ran out of space riding on the front and the back, and I had to buy another card. What are those letters? Yeah, that's right. I just ran out of space articulating the ways that I appreciated and loved at Jungle Cat.
That's right. I think this is literally one of the worst holidays in the world. All this is is down outside. This is literally just a series of disappointments.
It's like, no, no, no, don't do anything. We don't want to do anything. It's not important. And then you don't actually don't do anything.
Boy, are you in trouble. Boy, are you in trouble. I don't like the whole thing. I don't think there was a devastating piece in this, sort of dating and stuff like that.
In the New York Times, they did a video about a woman in China and who didn't want to get married. And they're called leftover women. I mean, the whole thing, all the little romance stuff, is really disturbing to a lot of people. Listen to me.
You were in New Orleans? I was. So I've officially become an old man. I was speaking down there, and I thought, you know, I'm going to take the day, and I'm going to do a self-guided tour at the Garden District.
Go see the World War II Museum. I'm literally 105. And I had a fantastic time. It's a wonderful place.
And I've decided that Louis, your son, is going to go to Tulane. And me, James Carvel, and Louis are going to start the world's worst fraternity. And people will come over. People will come over.
Jim will be like, it's about credit power. We have a mom's party. Professor Galloway's going to miss us all up. Some mint julops.
Let's not come here before we have an issue. Either of you. It's not it. That would be funny.
He's a seven-year-old white man that went to LSU. So I can mock him. I can absolutely mock him. He's saying some things.
He's getting some notice. Suddenly he popped up. That guy's a gangster. That guy is so good.
He talked about not Honey Badger. Don't give a shit to him. Oh, my god. It is analogies make no sense.
But they sound so powerful. He's like, you don't know what a hush pup is in a waffle house? That makes no sense. But he sounds smart.
He sounds smart. He's like, of course you don't. What the fuck does that mean? Of course you don't.
We'll see where Louis is in his house position. But he's in Tulane. Well, Tulane, first off, your son is a wonderful cook. And he's into it.
I mean, New Orleans is a great food city. I know. It's called New Orleans. New Orleans.
New Orleans. And then a fantastic Tulane is a great baseball team at a great medical school, which is kind of the one-two punch of a good university. Sure. Yeah, we'll see.
We'll see. Louis makes his own decisions. I'd like to call him sometime. Oh, Louis, Louisiana.
Louis, Louis, Louis. Listen, we have to talk about Amazon. It's like all over the news. I'm going to count a couple things.
But first of all, Jeff Bezos bought the most expensive house in Los Angeles, which is Jack Warner's former state that was owned by David Geffen. It's the Warner, old Jack Warner state. Secondly, it announced it was finally owed some taxes. It said it would pay $1 in federal income taxes.
New tax rate of 0.01%. All right. And then thirdly, Jeff was all over the Oscars. And it's still going to be spending a lot of time in Los Angeles, many properties.
And then the Jedi decision, one of them, to stay his fight with Trump over the Defense Department contract that Amazon lost to Microsoft, which it had won, allegedly. And Trump put his thumb on the thing. That's coming down this week. And then it's PR person, Jake Hardy wrote a piece in the New York Times op-ed page.
It was sort of a PR ad for Amazon and what a good city. You should take our goodness and shove it down your throat because we're so good. And then he had a meltdown on Twitter, which was somewhat when we're joining our questions. What did he do?
Well, he had said that Bernie, he started with Bernie Sanders called to thank Jeff Bezos for the $15. And I was like, you might want to point out the $15 wage increase. And everyone was accepting the fact that they thought that Bernie Sanders' pressure had been brought to bear there. And then he was denying it.
And then he started insulting reporters for being Brooklyn hipsters. And then it was untoward for a PR person. He should have put the Twitter down. It was very late at night, so I'm not sure what was going on.
But he just couldn't stop and started really attacking him. So we have experience with Aaron Tweets from the reporters for 11.30 PM. I know what that's like. We know what that's like.
Text is what I do. I do not have to wait at you. Listen to me. So anyway, let's start with the Hollywood thing.
So he's bought this thing. We don't usually talk about people's houses. But this is a big old I'm staying here in LA. His girlfriend is from LA.
But it has a lot of businesses there. Obviously, he's moved his operations down there, it seems like. And this purchase, which is a massive purchase. Talk a little bit about streaming and what do you think he's doing, even though his real business is retail up in Seattle.
So this was the Jack Warner State, the most powerful man in Hollywood, nine acres, nine acres in Beverly Hills. And it's just so metaphorically rich, it's literally falling off the tree here. And that is the most powerful force now and the most powerful individual in Hollywood, seen as a place that had somewhat of a moat from zeros and ones in processing power, because of the culture of creativity and kind of the unique secret sauce. It's enabled a region in Los Angeles to largely have a monopoly over a global industry, unlike any region's ability to master monopoly over the world, maybe the exception of San Francisco in processing power, which the entire world is.
But you have now, Jeff Bezos is the most powerful man in Hollywood. And if you look at Amazon Prime Video, which came out, I think in 2011, until Netflix had it all to themselves, it's really paying off of them, because it looks, on the face of it, like a $7 billion a year, kind of a rational purchase. They haven't had a lot of amis, a lot of people sort of mock the service, but there's such genius in this movecare, because the NPS scores are the loyalty that people feel for e-commerce companies or internet services. It's negative with internet services, it's marginal with e-commerce companies, but the NPS scores on streaming video services is really huge because there's storytelling and it's emotional, and you think, well, I love Homeland, so I like Showtime, well, I love Game of Thrones, so I like HBO.
And since they have launched Amazon Prime Video, the renewal rate, so the retention rate on their stats like Prime programs, not from 78 to 92%, so to look at it. Well, it's very, I do it more for the delivery, you know, it's a good deal, it's a good deal in terms of whatever you're doing with it. What was interesting about this is, besides that, is there was a, we'll get to the taxes in a minute, but there was a great piece about actual how many taxes they actually pay, but one of the things that was most interesting in it was the retail business is not very good, and they're not very good compared to other retail businesses, they're fine, they're like in the same margins, but they're AWS and some of their entertainment stuff is much more possibility of being a bigger margin business. And, you know, it was fascinating that, you know, this is where they moved when actually their core business is one with very tight margins, with very tight margins, and difficult, which they try to help out with technology, but it's still not, they're not hanging the moon quite as much as people thought, so this move is critically important, I think, for them.
Well, they're not. My colleague, anyway, also at the motor, and he's arguably the most impressive teacher in the world right now, has always said that Amazon is an e-commerce company, it's on a cloud company, it's a disruption platform, and that is through great execution, unparalleled access to capital, and very visionary, you know, discipline strategy, they find categories right for disruption, and they use their flywheel effect to spin into that category. And if you look at, if you look at video, if they can get an incremental 14% renewal rate on the 70 million households that have them, that translates to another couple, just about $3 billion a year in incremental revenue, with a SaaS like multiple, that's $10 or $15 billion in market capitalization, and then if you look at the fact that prime users spend an average of $800 more, and you look 12 million times 800 bucks, that's an incremental 10 billion, you sign a lower multiple to that, two to three, you're looking at 40 to $50 billion in accretion before you take into effect the flywheel of Amazon Media Group, and more vendors on the platform, so it's just amazing this notion. I just can't wrap my head around the notion that this entire industry of Hollywood and media and content, literally the pride and joy in the kind of running commercial in an unbelievable juggernaut of an industry, hundreds of billions of value, cultural influence like no other industry in the world, is being featureized as an accessory to sell them all to handsets and toilet paper.
It's just, I mean, just. My mind is blown, Carol. My mind is blown. I told you about my conversation until I got this.
I'm like, you're selling toilet paper, just like the old days when they, the beginning of TV was that though, right? The sponsors were these toilet paper, whatever, whatever they were selling, fall mallow, or whatever. What's interesting about this is Jeff's being in Hollywood. He seems to be enjoying it personally.
I mean, there is a total fatal attraction to Hollywood. You know, I mean, Sony and others. So could that be a problematic? Like, because he starts to, this house is very metaphorical, but boy, you sort of worry a little bit for him, because so many other big companies have gone there and gotten their pockets.
Whether it was the Japanese in the 80s, my Columbia pictures and there's 75 cents on the dollar, whether it was half my single buddies and some of them recently divorced in the 90s who got lucky at AOL and thought they were geniuses and said, I know I'm gonna move to LA by a Porsche, be a movie producer and try and sleep with actresses who then realized it lost half their net worth in like five years and had left LA. LA is the land of broken dreams for the most part. It's just not for people. So what do you think about this?
He's got the money to break a lot of dreams. I mean, basically when you're a movie producer, it means one of two things. You're Jeff Bezos or your father is Larry Ellison. It's now become the playground for people who are willing to lose a ton of money because other than the real pros at this, Disney, the Arsenal pros at this, it's a very difficult business.
It is over invested. It's like nightclubs or restaurants or any other passion business. There's too much capital which drives down returns. So all the good stuff is soaked up by a few players.
Speaking of money, Amazon has also caught in a war with the Trump administration when it lost their Jedi contract, which was a big giant contract with the Defense Department for advanced technologies. It was awarded to Microsoft, but Amazon is disputing that decision. Amazon has many other contracts with the federal government, but this was a big one. That was one with the CIA, AWS does.
So what is this? And this will be, they'll decide whether they're gonna stay the deployment by Microsoft, which won the award. But this, I think he's got a real up this week when Trump meddled in the Justice Department because their whole narrative is Trump meddles. You know, so he meddled in Ukraine and now he meddled with Roger Stone case, with his henchmen Igor, I mean, Bill Barr.
And so, you know, he's got a good narrative here of medicine. And the government is trying to say it's because of national security. They've got a rush. And in fact, it was a government, especially Trump who slowed down the whole process.
So it's an interesting thing. It's impressive with this lawsuit. It's linked to the Washington Post and everything else. So it's real money for Amazon if it starts to lose some of these contracts under Trump, as opposed to what's going on here.
And then these taxes things. So talk a little bit about the taxes. They made a blog post that we paid taxes and Jay Carney's piece was presumably, we provide jobs, don't be mean to us, you know? We're a better corporate citizen than you think.
That was what that piece essentially said. And this is talking about a billion dollars in federal income tax, more than $2.4 billion in other federal taxes include payroll taxes and customers, which they have to pay, it's too bad. Everybody has to pay them. And then more than $1.6 billion in state and local taxes, including payroll taxes, property taxes, income taxes and gross tax receipts.
Tell me what you think about what they're doing here. I bet Target, and I'm almost positive to this on this, I bet Target, FedEx, William Sonoma, a smaller retailer, and most definitely Walmart. I bet Walmart has paid over $70 billion in federal income tax in the last 10 years. And I bet Amazon has paid somewhere between one and three.
I mean, and this is despite the fact that Amazon will add the value or has added the value, the entire value of any of those retailers I just mentioned in a three month period, in a specific three month period over the last five years. Amazon and Big Tech has overrun, Washington, the IRS is overrun and their tax lawyers are smarter than our tax authorities. And we now have small and medium sized business paying, a disproportionate share of taxes to fund our navy and our parks such that Amazon Apple Facebook and Google don't have to pay taxes. I mean, I really are, our taxes, you could argue taxes are too high, you could argue they're too low.
I think there was a solid argument for why corporate tax rates should be brought down so that we didn't have these inversions where corporations were leaving the US. I think there was a solid argument there. But when they said that corporations were paying 35%, I know that we're big tech was paying 21%, and now the average tax rate on big tech is 12%. So why are they doing this?
They're trying to get pushed back these narratives of being a bad employer and being a bad taxpayer, essentially. Because it's the same people that defended Bill Clinton, is working for Goldman Sachs. So you go to Washington, you are under attack, you develop unbelievable skillset at taking incoming and then returning fire and you go to work for the organizations that need the most Kevlar because they're the most aggressive or they're the most hated. So the entire administration ends up at Facebook, Google or Goldman Sachs.
Tell me where Sarah Huckabee Sanders ends up and I'll show you a company that's probably bad for the world because that's who needs them. How many state house would they do? Probably the state house of her state. Oh, is that right?
She's not for governor, is that what you're saying? Possibly, yeah. But you talked about Jedi, I mean, a couple of things. You talked about Jedi and then I'm gonna go back, just touch on the media end.
I'm a pretty big critic of Amazon and I think Microsoft has become a little bit more cuddly and fair, and I don't know if that's fair to say they're more fair and cuddly but because they're effectively a monopoly too. But Amazon really gets me going. I actually hope Amazon, the courts decide this because the courts don't in some way decide this. Basically Donald Trump and Bill Barr have co-opted the law of the land.
And if that's happened, I mean, essentially kind of what America is about and why we elect people and go through this process. I mean, the whole reason we go through this process is to elect people who are supposed to make laws and if they make laws and then they're not willing to enforce them. No, it's a man. I mean, this is really, right?
I'm not the most underreported story right now. Someone's talking about Bill Barr meddling and with Roger Stone, but this is another example. If all of a sudden- Yeah, I'm gonna, I'll be writing a column about it in the New York Times. This is where I, I'm gonna get signed on this one.
A hundred percent. And you know, I can't believe I'm backing this billionaire who I have lots of issues with, but in this case, it feels like- It's cucked. But it is interesting. It's an interesting face-off in Amazon and sort of trying to navigate right now in that we pay taxes, we're not a bad person, don't attack us.
And at the same time they are getting unfairly attacked by the Trump administration, what it seems like. So it's kind of an interesting, it's an interesting face-off between him and Trump and an interesting face-off between Bezos and sort of the media in terms of, and not just the media, but everybody in terms of their corporate hegemony, essentially. So it's a fascinating moment for this company for sure. But just circling back a little bit to put a bow on the media side.
Just to give you, I mean, just to, I love that saying it's surprising how long things take and it's shocking how fast they happen in the streaming video war. It's the last 24 months we've been to the shocking phase. And if you think about just, if you think about how much the landscape has changed just in the last 24 months, 24 months ago, it was not only Netflix, but there was this new entrant that everyone was excited about and they came to South by Southwest and it was Meg Whitman, probably the one of the most accomplished and talented tech executives in history. Jeffrey Katzenberg, the iconic storyteller, and they raised, get this, a staggering $1 billion.
Whitman Katzenberg, a billion short-form video disruptive. This thing is dead on arrival because in the two years they've been trying to figure it out and explain the non-strategy strategy they have, everyone has come and said, oh, well, that's cute, but we're spending $8 billion and we're preloading it on your phone. Oh, that's nice. But we're in the business of content and we just started Apple TV+, and oh, you can go to Galaxy's Edge.
I mean, Quibi is literally dead before it's stillborn. It's literally dead on arrival. I never thought much of it. I'll be honest with you, I didn't know why these two knew a lot about young people.
I'm sorry, I just was always like, hmm. It got a lot of attention though. It got a lot of attention. I know, but I was always like, not so much.
It is literally gonna be a fly hitting the windshield of Apple, Amazon, and Disney who are able to have the distribution or able to monetize it if I will. Things are changing, things change. We gotta move fast in this world, Scott. Speaking of which, speaking of which, a couple more things very quickly, I want very quick reactions to this, very quick reactions to each of these.
I mean, quick ones for that. And then we gotta get to some other stuff. One is SoftBank lost a lot of money off the Vision Fund, but it had a big multi-billion dollar quarter loss because of it that had a huge win this week after Sprint has approved the merger with T-Mobile. SoftBank made about $12 billion just to be courtesy of Sprint's surging stock price.
So very quickly, very short answers here. What do you think? Is this a big deal for them? Because they're losing everywhere else.
And there was a devastating story about one of its investors at Piff and Saudi Arabia and the Mulchit Journal about what an idiot investor is essentially, especially sort of getting played by Moses on the Vision Fund, but having lots of trouble there. So what do you think? Well, I touched on a few things. When the FTC and the DOJ have decided to finally look at smaller acquisitions because the consolidation that I constantly harp on across big tech is happening across every industry, whether it's anti-play driving software or food, it's just happening or it's syndicated research.
You see consolidation of power that is bad for private business, the economy and job creation. And again, we have now four telcos going to three. So that's one externality of what's happening here. As it relates to SoftBank, I would argue SoftBank is a pretty good investment right now.
If you're looking for something with more kind of modest upside, I'm not talking about the kind of gains that we expect from venture back companies, but if you're looking at a 10 to 30% gainer over the next 12 to 24 months with limited downside, SoftBank is actually a pretty good stock to own because the headline news there, the headline risk is so dramatic because Vision One fund is just such a spectacle. But the core business of SoftBank is actually pretty strong. And even if they lose all $60 billion that they've invested in, obviously they all $40 billion that they've invested in Vision Fund One, they're still fine. It's such a big company, it has so much, they still own a large portion of Alibaba, they own a big portion of Sprint, which is now their third largest telco.
So if you're looking for a company that they qualify. I like your counter thinking, you're a counter thinker. All right, let me give you another crown, I think it very quick, brandless, fold it. This was a company that's just direct to consumer goods, labelist products.
A lot of people use the products and they were very good, that was one issue. But most of these branded products are just made in the same factory, essentially. So what does it tell us about this? What do you think about brandless itself just closing?
It just doesn't work, people don't want to buy that way. Well, so some of the underrated companies in the world, I've worked very closely with P&J and Unilever. These are extraordinarily innovative companies. I mean, people don't understand how difficult it is to manufacture a good razor, a good diaper, or a tide block.
And their ability to balance capital allocation across media, packaging, retailer relationships. I mean, this just, this shit is hard and they do a fantastic job. And they're also amazing at retaining or attracting and retaining some of the best human capital in the world. They get very talented people.
And the notion that it was kind of a cute idea where, oh, we don't need a brand, we'll focus on the product, but you're right. It's like, okay, we have a marginal product, but a mediocre brand, that just doesn't cut it, right? And then you have- Yeah, it wasn't so much better. It wasn't like, oh my God, these chips are so good.
Yeah, this wasn't- And I was able to think that way. You're right, by the way, let me just add an experience with that with Nabisco, a division of Bundles, which they have like a 14-stuff Oreo that my son and I bought. And then there was a great tic-tac on it. But these Oreos have like so much stuff inside, like whatever that white stuff is.
And I have to say, I was like, this is so innovative. We had to buy it and we had to eat it and then we had to regret it. It was fascinating. It was fascinating.
Well, for the guys, the CPG guys are striking the innovative. They just don't attract you capital. And obviously it's a difficult business to, you can only scale out business 68%. But P&G has actually been a pretty good performer over the last 24 months.
Agreed, agreed. I think it's hard to think of this brand. I thought it was a cute idea, but it wasn't gonna go anywhere. So last one, another exit at Google.
I mean, Naughton, the long-time head of Google's HR. She used to work at Time Magazine by the time Ink stepped down this week. She was a key figure, and I think it's been a long time. It's been a long time.
She was an advertising I met her a million years ago. She's a fourth big player to exit Google in the last few months. Larry and Sergey left alphabet in December. The founders, David Drummond, the legal officer left in January.
I had talked about some of these exits in a recent episode of Pivot, about this cleanup. Let's roll take. You know, I think what's happening is Sundar Pichai, who's has been the one to move in and clean some of this up. You can see his sort of invisible hand everywhere.
What he's trying to do is clean it up quietly because he's a good guy. And he's actually, you know, and move it away and move Google into the next year. All right, so we're now playing old clips of Pivot on Pivot. Yes, we do that all the time.
Oh my God. Talk about shavings of shit on a shit salad. Oh my God. Okay, jealousy.
I'm a brilliant person. I want to talk about Google. I want to talk about Google. I want to talk about Google.
Oh, are you going there? Are you going there? Are you going there? That's how desperately become for affirmation?
No, no, no, no. Oh my God. I remember when I said this smart thing two years ago. Let's play that.
No, wasn't two years ago. That was recently. Anyway, please comment on this. Don't be trying to tackle it.
What are we talking about again? We're talking about Google. The executives. These are a lot of...
You're going to forget more about this than I'm ever going to know. I don't know these people. I don't know what it means. What are your thoughts on it?
I think it's fascinating. These are major figures that have been moved out of Google. The old Google is going. It's interesting to see who puts in place.
They face a lot of challenges. They had this penalty, Googles, in the EU for 3 day hearing. They're fighting a penalty. They got all kinds of issues that they need to battle.
At the same time, they've been doing a really interesting job on marketing and trying to, as opposed to Facebook which is coming at things really hard. They're coming at things in a software way which is interesting. Then they face these antitrust issues, the FTC ordering these special orders for these companies for Google, Amazon, Apple, and Facebook, and Microsoft, which you refer to, which is looking at the small mergers. So I think they really need a better team there to face what are some real big problems coming up.
Well, it goes back to what we just referenced. And that is the kind of the algorithm in DC is go there, work your ass off and try and leave with your reputation somewhat intact and then go monetize the influence and context you have. And I don't, it's not, it sounds gross. That's the way the game is played.
And I don't, I don't resent their bill. Everyone deserves to make a living that worked really hard. I think it's a good thing to go on to make a, now should it be a revolving door until obvious, probably not. But anyways, that's the algorithm there.
The algorithm in big tack, quite frankly, is now just trying to save your reputation and get out with your money, right? Because they make a ton of money while they're there. I mean, as an example, what would David Drummond give? Would he give up $50 million to have left 24 months ago?
I mean, most of these guys, they're doing the math. They're like, okay, I'm starting to take heat in incoming. And some of it is warranted. I'm just going to get out of dodge because there are a ton of tech executives who think, you know what, I wish I'd left 12 or 24 months ago before the New York Times, someone started deciding, I know, Pulitzer slash ruined this person's life slash dig deeper and I keep finding more ugly shit.
So I think all you're going to see a lot of these guys say, you know, I have $30, $50, $80 million piece of fuck out the algorithm, the algorithm for happiness, Cara, is to be anonymous and rich. That's what I'm saying. This is your new thing, your new thing. And now we will announce Scott will be leaving, be quietly spending his money in the office.
Peace out, word, drop the mic. That dog is leaving the building. This is your thematic thing. This is your thematic thing.
There's a dignity to leaving the stage when people are clapping. Oh, that's true. That's a fair point. I wonder who's going to be out next.
I think you're going to see you're absolutely right. You are going to see a lot of departures at some of of these companies, maybe not, I don't know, maybe not as much at Amazon. And I was just going to say Facebook is going to be less leaving because look, Jeff's had those executives in there for 17, 20 years, whatever. They don't leave those top executives.
And Facebook has an unusual amount of people who were there from the early days, except for the companies they bought. And so, you know, it'll be interesting. And Apple, Apple, the same executives. So there's a difference, though, because because Amazon and to, to some extent, Apple, they don't appear to have the kind of fraternity culture they had at Google, which is rearing its ugly head.
They don't have, they're not, you know, prime isn't depressing teens. Apple, Apple has not been weaponized by the GRU. I mean, it's just an entirely different level of scandal. We need to blow up in your face at Google and Facebook.
And also the value of cruising there has been so dramatic that a lot of these guys are like, okay, I'm, I'm the VP of communications for Facebook. And I've made 20 million bucks and people are starting to recognize them be roaming the world saying we want to get voice to the unheard when there's absolutely nothing in my background that would in any way indicate I give a flying fuck about the first amendment. And I'm using this as cloud cover such that we continue to have technology where Indians are pulled out of their cars and hanged because of a rumor spread on WhatsApp. And our responses to refuse to hand over information, we're just going to run some newspaper ads.
You know, there might be some bad press on me. And I have a bunch of money. I like, I like it when I drop off my kids at school and people don't point at me and refuse to have dinner with me. I'd like to keep it that way.
So these people are smart. They're getting it. They're piecing out. They're piecing out.
You know what they're going to do then? They're going to take their money and go to Hollywood and have it stolen from them. 100%. 100%.
We're going to take. See how I brought that around? Brilliant person. I am.
Let's wait again on the next minute. Oh, you know what? Oh my God. You take so many friggin laps around the, around the, around the, dog does like the scratch and stuff.
The dog doesn't even begin to dignify. Your dog does like to put his leg back and lick himself. I said, good morning. He can't.
He can't. I'm not going to put up with it from you. No. No.
I already handled the switcher boys this morning. You are going to be handled. Anyway, we're going to have a quick break. We'll be right back with listener mail and wins and fails and predictions.
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We need to see your therapist together, a couple of therapists. Listen to me. Listen to me. Listen to me.
Listen to me. Let's dig into the listener mail bag. Go ahead, tape. You got to believe I'm going to be your mailman.
You got mail. Hey, Cara and Scott. This is Us Me from New York City. I'm a part-time yoga teacher and have firsthand knowledge of yoga studio economics.
Last month, class has had the $1 billion valuation mark making it the first unicorn of the new decade. I've heard studio owners complain that class pass doesn't pay enough for student, which they don't understand since it's a billion-dollar company. Does class pass have a sustainable business model? Do you think the bubble is ready to burst?
And what does this tell us about the fitness industry disruptors in general? Thanks. So Scott, what do you think about this? I've heard a lot about that.
I've got a lot of emails about class passes. This reminds me of a group on and some others, like what the valuation people are getting out of it. But there is a lot of disruption in the fitness industry. There's not just class pass, but Peloton Mirror Rumble Orange Theory.
What do you think about this whole fitness space? It's always been individualized before. Class pass is really interesting. I wouldn't have bet on class pass, but if you look at the dynamics of the industry, there's a ton of suppliers that are very fragmented and are so desperate for new customers that if you can create a middleman platform, if you can become the app store, if you can become the search engine that basically influences where people go, you're just going to have a lot of power.
Now, I don't know what's sustainable about class pass. I don't understand the business that well, but a billion-dollar market cap for class pass. And also, I think I need to disclose, I think it's backed by my backers, general catalysts. I think that's one of the winners.
So I bet it seems like an industry where someone could insert themselves and take advantage of the fragmentation of what I'll loosely call the artisanal sweating industry, where there's a lot of individual players that are probably not great at using technology to acquire customers. What are your thoughts? Yeah, there was a really good piece in Vice this last week by Maxwell, I think, Strutchen. The headline is class pass is squeezing studios to the point of death, the first billion-dollar unit quarter of the decade says it's saving the fitness industry.
Some of its own studio partners insist it's doing the exact opposite. So I think you're going to get a push-pull here because you're right. These are usually individual operators. And they're now a lot of more chains.
They're always with chains, but with rumble, orange theory, soul cycle, et cetera. So there's more of this changing where people, it's almost like a McDonald's method of fitness. You're going to see that happening, and then this at-home stuff that's going on with Peloton Mirror and others. And then, most of these studios, I've noticed a lot of the bike studios.
They've closed. I bought a pair of shoes off of a bike in New York at one point because you can't attract enough. You can't do enough marketing to get people to come. And so people, if they can rely on a soul cycle or an orange theory, whatever, they kind of do it, right?
And so you do have this idea of this class pass is going to save me by helping with marketing or getting me customers regularly. But then they're going to get swoos in, no matter how you, you know what I mean? Like that's the problem. There's bigger things happening here in the industry where there's consolidation among people wanting to get in 35 minutes, and that's it, right?
You know what I mean? I want to do my 35 minute workout. And when they want to do it in this class and also go into these classes, which are super organized, I find them like orange theory I go to now, it's like easy, and it's regular and it makes sense. And I don't, I could probably do it.
I mean, I have been going to the Y2, but it's really, it's a real problematic for all these companies, I think. No, I'm sure that it's interesting to be on orange theory now. I like orange theory, too, because I find CrossFit is too intense to me. So I've downgraded to like the non-carbonated CrossFit, which is orange theory.
But the metaphor here is movie theaters, and that is the home experience. So they did some innovation, but the majority of gyms really haven't changed that much. New York Sports Club or LA Fitness or whatever you want to call it. The majority of workout establishments have not really innovated.
Meanwhile, the home fitness industry has innovated dramatically, similar to the way your TV viewing experience has just exploded in value. But movie theaters really haven't innovated. And as a result, fewer people are going to the movies, more people are watching Game of Thrones at home. And the sad part about it is that slowly but surely all the places we went and occasionally saw someone from a different income level or a different ethnicity or a different age were slowly but surely casting segmenting and segregating ourselves out of community places like movie theaters, like gyms, and it creates a lack of empathy.
It creates fear to be around people who don't have the same background as you, and it's an un, it's an unhealthy manner. There's been a lot of writing about this. It was a great place as we shouldn't get our avocados delivered to us. You know, there was a big theme, I think it could be your next book, Scott Galloway.
I know just focusing on this community aspect of that. And David Brooks was, I'm not always the cutest fan, I did write a very good story in the Atlantic about it. I think it's probably his next book about people, the nuclear family, the loneliness, essentially the nuclear family, and how it's fallen apart, same themes. But in terms of class pass story and vice, which I urge you to read, one of the owners of a yoga student in Pilates studio in San Francisco called the pad said, class path continually tries to take more and more control of our business, but their latest iteration is now critically or is no longer financially viable for us to continue the partnership.
So they pull themselves. And so I think that's, again, as I said, the scosetness of it is really hard for these partner studios because, you know, class pass wants to get these discounts and at the same time, these businesses need to stay business. And the rates, the rates don't work. And so you run the, you take away the relationship with the customer that these small studios have and hand it over to someone like class pass, but it's inevitable.
What's happened with class passes, whether it's an orange theory or rumble, I think people find it much easier and it's the way they want to work out. So unfortunately, for these small studios, I think there's no winning in general. It's a very difficult industry where we let the bigger players have access to cheaper capital, figure out a way to pay lower taxes and there's an accretion to scale such that the little guys who traditionally been the biggest job, you know, job creators have just a tough time. It used to be 15% of all businesses were less than a year old.
And the yoga studio across from me, Y7, which is this wonderful little studio, they have three locations, what happens when class pass raises 30, 40, 50 million bucks and starts finding all the yoga enthusiasts and slowly but surely starches all the margin in exchange for some sugar high of sending some people to your four o'clock class. It's no different than Google getting in between manufacturers brand. I mean, it's fine if there's a bunch of them, such that there's competition on all sides, a place that hasn't worked, is that tech guys tried to roll up and stop bank, tried to roll up food delivery, right? And there's so many players in there and there's so few, there's so, there's so few berries of entry that the suppliers, the end suppliers have all the power.
And so they've not only seen marching oppression, they've seen marching expansion because Uber shows up or some of them show up, actually not Uber, but a couple of them showed up and said, we'll pay you, we'll give you more to deliver your $11 burrito in an attempt to steal market shares. So the dynamics, it's all about, I mean, it's kind of like, I mean, it takes me back to Christina Romer when I was a graduate student instructor for her class in Business Law and Economics. By the way, I just dropped out to try and signal that I have some more than I am. Oh, you know, you know, I had a chance to meet with a hero of mine, Chancellor Carol Chris, who is a warrior for lower income households, where she will graduate more kids from lower income households, the entire Ivy League combining to meet with the Chancellor, and she does exactly what she's supposed to do.
You're so inspired by her substance and her commitment to young people that you want to get involved and look back and nod to the University of California taxpayers. But I'm just inspired by the Chancellor and just feels, you know, feels so fortunate, any graduate in the University of California, feels so, so fortunate to have a warrior like that, looking out for the interests of future, our future University of California graduates. So that was a real thrill for me. I should have hard to code.
I mean, invite her to code. She's such a gangster, such an impressive woman. We are so fortunate, all of us at the University of California, generally. Back to class pass.
Anyway, Chancellor Chris, back to class pass. We'll see. So I think I don't think there's secular trends in how people like to work out. They didn't like, going to gyms and wandering around is not what people like.
And so a lot of those businesses fell apart. You paid your $40. Now, if you go to class, but people that are so ridiculously hot, I'm like, I'm like, I'm not that guy. But many people just want to get in and get out.
And that's why those other companies. And so it's very difficult for these businesses to keep competing and hold on to the relation with the customer. Anyway, wins and fails. Would you like to go first?
You go first. I would say, I was going to say Jake Carney's meltdown on Twitter was that, but I do think the win for the FTC in terms of doing these, I have a comment on the time about this, but in terms of, I don't know if they can pull it off, but studying the small companies where you don't know about what they're doing, I think is critical. What they're doing is sort of block and tackle investigation. Is they calling it a study and a review into these small companies?
I like that it was zero to five. I mean, five to zero, excuse me, unanimous by the commission. And they're starting to understand the insidious nature of these big companies buying up all these small companies that you don't know about for feature set and things like that. And sort of, I talk about something called killer acquisition, which is they do it sometimes for talent.
They do it sometimes because they need a feature help. And in a lot of cases, they do it so they don't have a competitor. And so I like that the evidence is a win for the FTC. I don't think they're well funded.
They just have $330 million. And they have a lot of people fighting all these people, including the other things they have to cover. So I was very much, I was happy that they did this. And then a fail, I think, is Bill Barr again, once again, already low standards for an attorney general, and he's managed to go below them.
And this is problematic and has repercussions. And I know everyone says they never have repercussions, but I think the karma is just building here with every ball of them. They're just overreaching in every single way, including, I'm sorry, Russian but has a cancer, but I'm not sorry. He's still a fucking asshole.
He attacked Pete Buttigieg in a really repulsive homophobic way. And him getting the Medal of Freedom at the same week when he was just making these just horrible comments. I haven't heard since the 1980s. I didn't hear those.
Can you repeat those just so we can change? I don't want to be that he's a man. Donald Trump will take care of him, the gay, essentially. It was just gross.
And he calls him booty booty jeege or he's like, he's gross. He's a gross man, and his legacy is grossness. And again, sorry, his cancer, but man is he just an awful human being, just an awful human being. So along the lines of your win, I couldn't, we're in my sister, because if we wanted the best investment, we could make our economy over the next 10 to 30 years.
I mean, to get staggering return on investment would be to take the FTC and the DOJ and triple their budget and say, your job is to go across the most productive parts of our economy. And I'm not just talking about big tech. I'm talking about hundreds, hundreds of sectors and go in there and oxygenate it and go in there and say, what companies have flown under the radar, whether it's in textiles, whether it's rolling up rubber placemats and say, what industries have used a series of size scale and what's called killer acquisitions where you acquire a company and if it does great on its own fund, but if it goes out of business, you cauterize that competitor, you make all the executives who are the most talented, upstart risk-taking human capital in that sector sign, owners, non-competes, non-solicit, thereby not only ensuring that company won't survive, but basically you take all the players out of that industry. It's like if the NFL, if a team said, okay, if you leave us, you can't play for anybody else.
And one team would just emerge and soak up everything. So the most oxygenating, longest term job creation thing we could do right now would be to overfund the FDC DOJ and literally let them go. Unchained. Anyway, my win is India and the United Kingdom, respectively, have looks like they're going to pass legislation where India is going to demand that Facebook cooperate with the government, which means that they're saying you can't encrypt your backbone.
And I recognize there's a downside and there's some risks here, but unfortunately, we're not playing this clip. But remember when I predicted several months ago that Facebook would be banned from a country? I think Facebook is going to be banned from India, because I think Facebook is going to say, look, our primary, we're gangster, Mark Zuckerberg has struck a very brazen posture. What's up is huge over there, but doesn't produce any revenue.
He's just not going to make an exception and start handing over information such that when those 11 men were pulled out of cars and hanged because of false rumors that had gone like wildfire on WhatsApp, Facebook refused to hand over the identities of the sources of those rumors. They refused to cooperate and instead ran some newspaper ads saying don't pull people out of cars and hang them, which I'm sure solve the problem. But anyway, that's that his, his, the person against it, Modi is really an autocrat, come on, and he's pulling all kinds of racial problems in India pushing them up for his own political gain. So it's a complicated situation.
No doubt. And I think there's, I think there's real downside, but I think, I'm just saying, I think India has had, I think India and the UK and the UK has announced now that the senior level executives for Facebook are like any other company going to start to be liable for the damage they cause. In other words, in other words, England is more interesting, I find, because I think they are, they've been very thoughtful, I think in Europe and much more so, though, though, Facebook, I think the brazen word you just used as a substitute, I just, I'm about to interview Stephen Levy who's written he had inside, inside access to Facebook, they cooperate with him on his book called inside Facebook or Facebook, or Facebook, the inside story. It's an interesting read, I think it's slightly too kind, quite a lot too kind, but there, what does come through whether Stephen means it or not is this brazenness throughout his career, throughout his career since the beginning.
And it wasn't that he was young and arrogant, it is a, it is a hallmark of, I had forgotten so much about the early history of Facebook, but the brazen is exactly the right word, I think we've chosen well. I think there's a reason he and Trump get along. I think they both respect each other's autocrats and people who never give up and quite frankly have this kind of, I'm going to call it psychopathic element, but they really don't care what other people think of them. They don't care about their place in the world.
They don't, they look outside the window and they see themselves. And it was, there was a scene in this book, which I kind of don't think it's even meant to show this through, but he was walking across the street and this guy, Joe Green, who was one of his whatever, his house at Harvard, and he was walking across the street and he just walked even if he got hit and someone was like, he feels as confident, even then his confidence shield will protect him. Like, you know what I mean? Like he didn't, and it was a small little moment.
I was like, oh, yes, I've seen that. And it's really, I think people should be confident, but it was really the entire book so far is all about fuck you, like it's all about fuck you. And so I grew with you. It's really, he's really, he's going to brazen it out.
It works for a lot of people. I'll tell you that. You also have my, or I don't understand how, I just don't understand how people work so hard, makes so many personal sacrifices, including oftentimes their own kind of integrity, so they can get elected to office. And what, what do these people do in elected office for the most part?
If they're, if they're, if they're going to do see, they're there to make laws. And so if you have one branch of government, the executive branch has decided these laws are just convenient when they work for them or they don't work for them and they're starting to interfere and sentencing, then why, why the fact that we have senators? And so I don't understand the topology of a Republican center of the thought process who's going to put up with that. I would, I would have thought this would be the red law.
Well, Democrats, not the Republican. They've all said there's the same three or four people who have moderate voters who are so disappointed in him. Yeah, they want to get credit. They won't actually do anything, but they want to be seen as thoughtful and say, Oh, I think he's learned from his impeachment.
Yeah, Senator Collins, he's definitely learned. He's a change man. Yeah. Anyways, that is, I think that is really attorney general bar deciding that he is no longer attorney general, Republican senators deciding that the laws they made are not really laws.
It's very, it's really chilling. And we keep saying it's culpability. I mean, everyone, you know, look, Larry, else is about to throw a big fundraiser for Trump. Well, that's okay.
You and I disagree with that. I just tell you people just move along. They just literally, I got mine. I'm talking about a larger thing and they give lip service to this.
Everyone's great, but it's very disappointing. Leaders don't actually say leadership things. They just really does. By the way, you know, there's numbers three in the latest Quinnipack poll.
Is that now a 15%? Amy Klobuchar. No, my man. Oh, Blooper.
Blooper. No, your man. He's moving up. And by the way, let's just finish, but he did an excellent job on the memes thing, another great digital move on by them.
They're very, you know, the whole talking first thing was not great with what happened to him trying to explain it. And you know, he's quite conservative in many ways. And that was the top and first was he's got to answer better. He just has to.
But they're inadequate answers, but you're right. He's this money is working and he's spending it and it seems to be having an impact. And as the as the parties, by far Kate, in terms of left and center essentially, it's going to be something to watch. Something might come right up the middle.
Sorry. I'm telling you, I mean, we talked about this thing about predictions is when you get them right, they don't seem that impressive because a series of events between the prediction and how it plays out make it more and more obvious. But it is all falling into place for him because Bernie is way ahead in the Democratic in the poll. If in Democrats are going to realize that if we're to end up being Sanders versus Trump, effectively the entire election would be cast by the Republicans effectively as socialism versus capitalism and capitalism would win.
And then you have Klobuchar is probably, she's got the most momentum right now. And Biden and Elizabeth Warren have the most negative momentum and you're going to see Elizabeth Warren radically go on the attack against Trump personally, which is her raising her hand to be the vice president and the attack dog for her. She just did impeachment. You're right.
She's now running for vice president because the vice president's role is to be the attack dog. And she is an outstanding, standing, outstanding. Except for you Scott Galloway, who is nice, you couldn't make this week. When I make a good prediction, you should give me a pat on the head.
Now I'm going to bite you because I'm a cat. Are you upset? I'm here for you. I am here for you.
I need my ears rubbed. I feel like I need my ears. That got so much play. That got so much play.
The whole bank off coming over geography questions, even bank off texts with me. I like this. So few of us are stuck with our emotions care like you and me. So few of us.
Yeah, I will be temporarily heard. And then I will plot revenge. That's really how I work. Anyway, Scott, for anyone not producing a bi-weekly news podcast, it's a three-day weekend, what are you doing this weekend?
And by the way, we will be back Monday. So we just forget it for you. What are you doing? I'm excited.
I have this wonderful Argentinian friend and he's celebrating their wonderful story. Their immigrants came from Argentina. They are wonderful people with wonderful kids. And he has an entire, he's built, and this is what Argentinians do, I guess.
He bought a house and immediately said about building not a garage, but basically what is a meat cave where he makes meat. And he buys people over to eat his incredible Argentinian beef in his beef cave. I'm doing that tonight. I'm going to a beef cave tonight.
I need a photo from the beef cave. Oh my gosh, it's Argentinian beef cave. And then I have, unfortunately, I have a soccer tournament. It's really terrible.
My son is up ticked in his athletic ability. It's just the worst thing I've ever seen. Palm Beach Garden. My friend, the Cross these and starts it is my, literally, and I'm not allowed to look at my phone during the entire process.
And it's just agonizing. It's rough. Anyway, I will be doing my Children's Laundry all weekend. Anyway, Coats coming up, Vera.
Coats coming up. We got a lot of things. A lot of stuff. You're going to be a big part of it, Scott Galloway.
Are you just teasing me? When you say big, how big? No, you are. Have some more big names coming.
More big names. I cannot say why I'm talking to, but there's some ones that you will like quite a bit besides the ones I already got that were quite good. All right. All right.
It's going to be good. I actually like that. I don't got the moment. If I have another space, I don't have space.
But the woman from Berkeley is a great idea. That's a great idea. Anyway, thank you so much. Good.
Thank you, Cara. Have a great weekend. All right. Remember, we love your questions.
If you have a question about the story, you're hearing the news, email us at pivot at boxmedia.com to be featured on the show. Scott, please read the credits. Today's episode was produced by Rebecca Sonones. Our executive producer is Erica Anderson.