The Talk Show

125: ‘They Buy a Hole in the Wall’ With Guest Horace Dediu


00:00:00   Ah Horace did you welcome I think this is definitely the first time right unless I'm misremembered. Yeah, definitely, you know

00:00:07   Now that you had you know

00:00:10   Not that yet Phil on I guess it's you know, you're legitimate

00:00:16   It's worth doing

00:00:19   You know, there was something I was supposed to say last week

00:00:21   I should have and I forgot it's a little bit of follow-up from that live episode of the show with with

00:00:27   Phil Schiller so at the end of the live episode right towards the end as I thanked him

00:00:32   I thanked everybody and then I asked the audience if the live video stream had stayed up because we we had tried something new

00:00:39   We actually had that set up before I knew that that Phil Schiller was gonna be the guest

00:00:45   We were gonna try to live stream it anyway, so I asked the audience

00:00:48   Hey, did the live stream stay up because my thought was hey once word gets out on Twitter that Phil Schiller is on the show

00:00:54   So it might overwhelm it.

00:00:56   And some knucklehead down in front yelled, no.

00:01:00   And then Phil made a very funny joke.

00:01:02   He said, hey, these things are hard.

00:01:06   But I felt bad.

00:01:06   I thought, ah, the live stream is down.

00:01:08   And then as soon as we got off stage,

00:01:09   my phone started going off.

00:01:11   And people were texting me.

00:01:13   And they were like, I'm watching right now

00:01:15   live on the video stream.

00:01:17   I'm watching right now live on the video stream.

00:01:18   Did not go down.

00:01:19   So I don't know who the knucklehead is in the audience

00:01:22   who said that the live stream went down.

00:01:24   And maybe there were problems for a few people here and there,

00:01:27   but it apparently did not go down.

00:01:30   And there were an awful lot of people who did watch it live

00:01:32   on the stream.

00:01:33   And I wanted-- so the reason I want to call that out, though,

00:01:35   is that the company that did it is a company called Hybrid

00:01:38   Events Group.

00:01:39   And I'll put a link to their Twitter in the show notes.

00:01:45   Their Twitter is @hybrideventsgrp,

00:01:49   because I guess they ran up against the limit in Twitter usernames.

00:01:53   But anyway, they did a great job.

00:01:54   I couldn't be happier with them.

00:01:56   I feel terrible that at the end of this live stream that they worked their asses off to

00:02:00   keep up and do a good job on.

00:02:03   It looked like it did not stay up and it went down, but it didn't.

00:02:06   So I just wanted to clear that out.

00:02:08   You know if you have knuckleheads, I mean that the thing is there's always someone you know, who's not happy so

00:02:14   There's always an Apple people are just as likely maybe more so to complain, right? So

00:02:21   Yeah, I guess so

00:02:23   I just don't know what would have driven somebody to shout out know that the stream didn't stay up when in fact it did and

00:02:28   And if there were any problems they were minor and sporadic. Yeah, but anyway, it was a lot of fun

00:02:33   So you were out at WWDC

00:02:38   I was, I was there and I was sitting, I was actually fortunate to sit in a pretty good

00:02:46   spot I would actually they managed, I came in late, I had gone to the bathroom because

00:02:50   they always tell you go to the bathroom you know because it could run long and by the

00:02:54   time I came back out you know they had let everybody in so I was like almost the last

00:02:59   person to get in and I'm like wandering around near the front trying to find a place because

00:03:04   Sometimes people in the front don't fill up completely and I was actually kindly taken

00:03:13   by hand by an Apple person and sat next to, actually sat behind Ben Baharan and his father.

00:03:24   So I was like the fifth row and it was really the best seat I ever had and that's what I

00:03:32   got for being late.

00:03:34   So it was for me, it was a thrill to be in that great spot.

00:03:40   And in previous shows, I remember sitting behind you.

00:03:44   That was funny sandwiched between you and like Renee, for example.

00:03:51   And so there's always these great people you meet there.

00:03:53   And that's almost more exciting than the show itself, just getting to meet these people.

00:03:59   Yeah.

00:04:00   I have been to enough of these now.

00:04:02   It's funny because it's dawned on me that now I've been to enough of these keynotes

00:04:06   where I'm sort of a veteran rather than a rookie.

00:04:11   But I still think of myself.

00:04:12   I still think every time I go to one of these things, like, "Wow, I can't believe that

00:04:14   I'm invited to attend one of these Apple keynotes."

00:04:17   I know.

00:04:18   It's a little bit thrilling every time.

00:04:20   I've probably been three or four.

00:04:23   It's still, you feel a little bit of a tingle every time and it's kind of, I feel privileged

00:04:29   to be there.

00:04:30   I've had the same experience though where sometimes if you want a good seat, it's

00:04:35   actually advantageous to not wander in with friends or colleagues.

00:04:41   Because what happens is you mingle before they open the doors and you see people who

00:04:44   you know.

00:04:45   Remember, I think it was you who took the picture of me and Ben Thompson wearing seemingly

00:04:48   identical shirts this year.

00:04:50   Eric Lander Seemingly?

00:04:51   I thought they were identical.

00:04:52   Dave Asprey They were in fact different brands, but it

00:04:55   would be very hard for anybody.

00:04:56   I think you'd have to look at the label to see the difference.

00:04:59   Thompson and I showed up at the keynote dressed like twins and

00:05:02   You were kind enough to document that for posterity

00:05:06   But anyway, you've run into people who you know like that and then you go in the keynote together

00:05:11   But then if it's like a group of five or six of you you look for five or six seats and it limits where you

00:05:16   Go sometimes going in just by yourself or going to

00:05:19   Like you like you go into the restroom one time. I think it was last year for WWDC it

00:05:25   At the keynote it used to be for years and years

00:05:28   There's always been a 10 10 o'clock start and it used to be that they let press in

00:05:33   Very close to the end

00:05:34   I mean sometimes to the point where people would start like getting nervous and be like are they forgotten us are they gonna start without?

00:05:41   Us like there was one year where we you know

00:05:43   The members of the media didn't get in until I don't know five or ten minutes before 10 o'clock

00:05:49   But it's part of the new Apple with Tim Cook is that stuff runs a lot more regularly and stuff

00:05:55   Starts exactly on time. I mean if you've noticed with Tim Cook the keynote start at 10 Oh, oh, oh, oh, I mean like

00:06:02   To the second but you know, I noticed a couple other details

00:06:06   Maybe you already went over this with your audience

00:06:08   but I a couple of details one they when they let the the press in they

00:06:12   They segregate the photographers from everybody else. Oh, no, they've always done that

00:06:17   Yeah, they've always done that but the purpose is that you know, they've got their own little

00:06:21   They've got their own little bleachers or whatever wing and then the other thing that's interesting

00:06:27   Is that then there's kind of like this time when the executives who usually sit in the middle section and the front middle

00:06:34   So the executives begin to cut, you know

00:06:36   come in and take their seats and they're basically they're mingling a little bit with each other and

00:06:43   And it's like you see the camera guys just going nuts taking all these shots of the executives

00:06:48   mingling and I wonder how much of that is planned so that they have this photo op for

00:06:55   this kind of casual interaction that happens with some of the superstars of Apple, if you

00:07:04   will.

00:07:05   You know, you see people would just like in the audience stand up and you would say, "Hey,

00:07:09   I see Johnny or I see Angela or I see so and so.

00:07:14   And it was funny to see how it seems so natural,

00:07:18   but I wonder how much of it is actually on purpose

00:07:22   done that way to create the opportunity

00:07:24   for the photographers to take their shots

00:07:26   and have something.

00:07:27   I don't know, that's my take.

00:07:29   - It's definitely strategic.

00:07:30   I'm not quite sure what the strategy is though

00:07:33   and about which sight lines they're looking

00:07:35   to give the photographers.

00:07:36   It seems to me like what they want

00:07:38   is they want the photographers not close,

00:07:41   and so if you're serious about taking the photography

00:07:45   at the event, you really wanna bring a long lens

00:07:48   and assume that you're gonna be zoomed in from a distance

00:07:51   and that you're not gonna get close.

00:07:54   But anyway, last year, I think it was last year,

00:07:57   I was walking to the Moscone from my hotel

00:08:02   and it was around 9.30, so it was about a half hour before,

00:08:07   but I got a text from a couple people that, hey, they've already let us in.

00:08:10   And I was like, oh, crap.

00:08:11   So I was like, you were this year.

00:08:12   I was like one of the last ones in.

00:08:14   And had a similar type thing where I wound up--

00:08:17   somebody from Apple PR spotted me looking for a seat and was like, here,

00:08:19   come on up here.

00:08:20   And I sat, I don't know, fifth or sixth row or something.

00:08:22   But it's weird sitting up there because when you're up there with all the Apple

00:08:25   employees, they're the people who sort of applaud at strategic points

00:08:31   and sort of try to get the applause rolling at applause points, which,

00:08:34   you know, to me as a member of the media is not really appropriate.

00:08:38   It feels a little bit like you're sitting in the home team crowd when you're up there.

00:08:42   >> Really?

00:08:43   I didn't sense that, but I did sense in other events that there were some cheerleading going

00:08:47   on, but I didn't see here this one.

00:08:49   But it is kind of an interesting experience.

00:08:55   I guess we're very privileged that we have that access to the event the way we do and

00:09:03   each other and it's wonderful. In fact, that's where I asked you. I said, "Hey, how about

00:09:09   we get together and do this?"

00:09:11   Dave: Yeah. That was exactly where this got set up. Now, we're a couple of weeks out and

00:09:17   I feel like we're about to enter what's more or less the summer doldrums news-wise. I don't

00:09:22   think we're going to get… Other than the launch, the imminent launch of Apple Music,

00:09:29   There's not much going on and never really is in July or August.

00:09:34   So I'm just curious what you think overall with a couple of weeks behind us, what you

00:09:38   think in hindsight of the WWDC keynote.

00:09:42   Well, so the, you know, it's, I'm not a good analyst of events that way because I

00:09:50   tend to look for the understated and the, is there a

00:10:01   deeper thing and I don't dwell on the feature set so much, I'm not making a

00:10:05   list of the big ideas, I'm trying to find where the small ideas and the

00:10:12   To me, the big thing this whole year has been around what I call humanism of Apple.

00:10:22   The idea that Apple is presenting a new face, a new definition of its principal operating

00:10:33   strategy, which is really about not the algorithm.

00:10:38   It's hard to put a word on it because the dominant logic of Silicon Valley is that power

00:10:46   of the algorithm is power of business and all that flows from it.

00:10:57   And somehow what I see is this shift where Apple is saying, "You know, we don't necessarily

00:11:02   believe in the power of the algorithm.

00:11:05   In fact, we may actually believe in the anti-algorithm.

00:11:08   And the anti-algorithm is the human being.

00:11:11   And the word I came up with is humanism.

00:11:13   Although humanism is a word that was used

00:11:16   to counter the notion of a world based around faith.

00:11:21   And so this was a sort of a,

00:11:24   maybe I got the timing wrong,

00:11:26   but maybe a Renaissance or a period of time

00:11:29   when people began looking at humans

00:11:32   at the center of the universe

00:11:34   or the center of thought.

00:11:35   And that idea of putting man in the center

00:11:40   was a big deal back then,

00:11:42   because the church was the dominant leader.

00:11:44   And so my way of thinking is that

00:11:47   I'm not trying to position against faith,

00:11:49   but rather position against the notion

00:11:51   of the all powerful algorithm

00:11:54   as the counterparty to this idea.

00:11:58   And so what's the evidence?

00:12:00   The evidence is number one,

00:12:02   that they believe in curation,

00:12:04   they believe in actual people making decisions

00:12:08   when we've seen this already for years and years

00:12:10   on the App Store, that there would be someone making,

00:12:14   now that means they're fallible,

00:12:15   that means they're gonna make mistakes,

00:12:17   that means they're gonna make,

00:12:18   all, you know, upset people and offend people.

00:12:22   But with it comes also the benefit of judgment

00:12:24   that comes from the mind of an individual.

00:12:28   Second piece of evidence, Johnny Ive,

00:12:30   in all his visions of what people want,

00:12:35   he's making a judgment, he's making a call,

00:12:38   he's calling the, he's curating essentially

00:12:42   what it is that we want.

00:12:44   And rather than offering every possible option,

00:12:47   they'll tell you, no, these are the best options,

00:12:50   we believe that.

00:12:51   So these are old stories, the new stories,

00:12:53   which I think bring it even more to the surface,

00:12:56   are, well, we're actually gonna decide how to surface

00:13:00   the music that people should listen to or we're going to surface the generally speaking

00:13:07   media and so trust us with our judgment, with our taste and that idea is so opposite to

00:13:18   the algorithmic ideas that exist as the norm that I feel like somehow this is the beginning.

00:13:25   And also, by the way, the idea that trust us comes down to privacy.

00:13:29   Trust us comes down to being able to put together the integrated packages that we think are

00:13:38   the features that you really need and no more than that.

00:13:42   And so this whole idea has been around sort of latent, but suddenly it's springing up

00:13:47   and going head to head with algorithm-based business models.

00:13:51   I think that's a great observation and that's exactly the sort of insight that I honestly I'm looking for you from from the keynote

00:13:58   Like whereas it's not about point-by-point

00:14:00   critiquing the the

00:14:03   performances on stage but rather trying to suss out what the actual meaning was because I and I think you'll agree with me here that I

00:14:09   Think one of the more interesting things of today's Apple

00:14:14   Let's call it Tim Cook's Apple because I think that's roughly, you know

00:14:17   I think it does correspond roughly to when he took over as CEO and I think it's it's deliberate and I think it is his

00:14:24   Personality coming to the surface. I

00:14:26   think Apple

00:14:28   Wants to be better understood by people outside the company

00:14:33   Whereas before I don't think it was so much that they they wanted to be misunderstood

00:14:37   But that they just didn't care if you didn't get it

00:14:39   They they want they reveled in the in the mystique of Apple. I think the mystique of Apple was

00:14:46   There's value in being mysterious

00:14:48   There's value in being misunderstood even because at some point you're gonna get the aha moment that you were wrong

00:14:55   And then those who become aware of it through their own discovery own that fact even more deeply

00:15:01   and I think you're right that is the sort of the jobs in ethos of

00:15:05   public relations

00:15:08   preserve a

00:15:09   distance

00:15:10   And you're right. I think there's the sensitivity more towards well, you know

00:15:14   Well, maybe we don't need to be so mysterious after all, but here's where I feel that there's

00:15:21   still the mystique, which is that they speak actually plainly of what their intentions

00:15:27   are.

00:15:28   And when you see this in Tim Cook's statements like, "The product is our North Star," that

00:15:36   we are concerned about doing good work rather than being profitable or having a rate of

00:15:43   return when he sometimes very pointedly attacks some Wall Street punditry.

00:15:50   Other times, you see this language from Johnny Ive about, "Does the product deserve to exist?"

00:15:59   And so you see these framed very carefully articulated statements which I would say 99.9%

00:16:07   of listeners throw away, you know, in one ear and out the other, and it's just as if

00:16:14   these guys are just using some kind of poetry to bamboozle us.

00:16:20   But what I think perhaps my favorite thing to do in Apple analysis is take literal word

00:16:28   out of the horse's mouth analysis of the framing of the phrases, every little detail when they

00:16:34   say something and deconstructing it and saying, you know, there's a code in here, there's

00:16:40   actually meaningful communication going on.

00:16:43   So my take on it is, yes, there is a more, there's more articulation using coded phrases.

00:16:54   And Steve Jobs didn't need to, he would speak from the heart.

00:16:58   And so what came out of his mouth was deconstructed, but he was the spokesperson.

00:17:03   And now we have simply a lot of other spokespeople who are doing these types of very interesting

00:17:08   phrasings and I take them and I see from that to me that is what guides my thinking, that

00:17:15   guides my analysis.

00:17:17   Rather than saying what the numbers say and what the profit logic might be, I always ask

00:17:27   given their language, what are they going to do next?

00:17:30   So to give you the example of like, you know, people were asking a few months ago, what

00:17:33   about the car, what about the car?

00:17:35   And I said, well, here's how I would work that out.

00:17:37   And I would say, what did Johnny Ives say about product?

00:17:40   What does Tim Cook say about product?

00:17:43   Therefore, the product that has to emerge has to comply to these rules.

00:17:47   They have to have a meaningful contribution.

00:17:49   It has to be better in ways that are in which Apple can contribute, etc.

00:17:59   And so what I would do is simply take those verbatim communication from Apple and use

00:18:04   those as my lenses to analyze the questions at hand.

00:18:08   So in that sense, that's how Apple is different in my way of thinking because if you did that

00:18:15   with Steve Jobs' comments, he would flip-flop and a lot of them were simply like, "Today

00:18:20   I feel this way."

00:18:22   And they couldn't really rely on those statements as guiding principles.

00:18:25   And I think Apple remember once it reminds me what Tim Cook was acting CEO

00:18:31   He went on a conference call and he almost like stated a poem in a poetic way

00:18:38   What we believe in and he was like one of these like

00:18:42   Speeches buried in the in a conference call with analysts. Yeah, that usually introduced it and I wrote it up

00:18:49   And I said I called it the Tim Cook doctrine and this was before he was full-time CEO or I should say permanent CEO

00:18:55   And he, you know, I wrote those down and I broke the lines up in a way that almost looked

00:19:01   like a poem.

00:19:02   And I said, you know, there it is.

00:19:05   There's an algorithm right there about how this business works.

00:19:08   We're going to cross-pollinate.

00:19:09   I remember he used that phrase.

00:19:13   You know, I don't remember a lot of it, but I can go back and dig it up.

00:19:17   It's the doctrine and it's still searchable in the blog.

00:19:21   So anyway, that's the kind of guy he is, I think.

00:19:24   And that was way back in what, 2000, probably eight or nine.

00:19:30   So it's very much a reflection of what you think of as Tim Cook's apple.

00:19:37   Yeah.

00:19:38   And so I think part of what went wrong in that keynote was the way that-- and I don't

00:19:44   know if you thought this too.

00:19:45   I know most people who I've spoken to agree that the music segment at the end was too

00:19:50   long and disorganized.

00:19:52   But in hindsight, as we get closer to the launch of Apple Music, and I read more and

00:19:58   more about it, I see that as the picture becomes more clear to me, it was there.

00:20:04   It just wasn't... the information was there.

00:20:07   What I think we should understand about it was there, but it was too disorganized for

00:20:12   it to be clear.

00:20:14   And so part of it is what you said about the humanism and not trusting in the algorithm.

00:20:19   And I know it was there and I know that they mentioned it a few times with the Beats 1

00:20:24   radio how it's going to be human selected.

00:20:30   There was a New York Times profile yesterday, earlier this week, of Zane Lowe who's coming

00:20:38   from BBC One in the UK.

00:20:42   Super highly regarded DJ.

00:20:46   And I know this was mentioned in the keynote, but it just kind of, I lost it because I was

00:20:50   just losing focus.

00:20:52   But they mentioned that their intention with this is not so much that you're going to pick

00:20:58   your favorite genre and go to station.

00:21:01   It's sort of like the anti-XM radio.

00:21:03   We've got XM radio in our car and I think there's like 200 stations or 300 stations,

00:21:07   I don't know, unbelievable number.

00:21:09   But you can dial into, I mean they have an entire station that's just Frank Sinatra and

00:21:15   there's like a station just for Elvis Presley.

00:21:18   With this Beats 1, their intention, I mean obviously you're going to be able to stream

00:21:22   music based on your preference if that's what you want, but if you listen to Beats 1, it's

00:21:27   any new music that they think is interesting, which is to me a really interesting way to

00:21:32   go and it is absolutely not algorithmically generated.

00:21:36   Absolutely. And that's exactly the thinking that I think this new apple is about.

00:21:40   And I think with Johnny... Sorry, Jimmy Iovine was the one who probably sold him on the idea that you can do this to music.

00:21:49   And let me guess here, I have no evidence, but let me guess that he probably remembered back in the days when there were influential DJs in the United States who pretty much drove musical taste.

00:22:02   who could influence a generation by selecting the right music and playing it.

00:22:11   And over time that became corrupted by scandalous type of bribing and so on.

00:22:18   But the job of radio was for a generation to discover the music that spoke for them.

00:22:28   And what we're seeing now with an abundance and overabundance of choice is that there

00:22:37   isn't, you assume, here's the assumption I think of the internet is that you can select

00:22:44   it for yourself and I think that's not the case for most people.

00:22:48   Secondly, you can use your friends as a selection criteria which is somewhat what Twitter does.

00:22:55   use your feed as a way to select what to read.

00:22:59   And so there's that notion that you select good friends and your friends are going to

00:23:03   select good things for you.

00:23:05   But that has its pitfalls as well.

00:23:07   What if you select the wrong friends?

00:23:10   And finally there's the algorithm, which is the idea that let's sample what you like and

00:23:15   then we'll give you selections.

00:23:19   And all of these are the modern version of discovery.

00:23:26   What Apple is saying is let's go back to this idea that no, it's an individual that we trust,

00:23:33   an individual who has supreme ability of taste, supreme ability at judgment about things.

00:23:42   And that's again, this is a reflection of the logic of Johnny Ive and even the logic

00:23:48   of Steve Jobs which said, you know, at the end of the day, we're going to decide what

00:23:54   products are the ones we're going to dedicate so much energy to and we're not going to do

00:23:58   a portfolio strategy, we're not going to hedge our bets and we're not going to do all these

00:24:02   things, we're going to hit a home run every time.

00:24:08   And by the way, you know, if I were to say, well, that's crazy, it's only those two guys

00:24:12   who can do it, it's not something that anybody else can do, but look at Hollywood, look at

00:24:17   the way companies like Pixar are able to hit home runs every time because they have a brain

00:24:22   trust because they selected people who know how to make great stories and gave them the

00:24:27   authority to say yes spend three four hundred million dollars on this project and three

00:24:33   four years to get it done and yet they do it every time and it you know we love them

00:24:40   for it in contrast to a company that you know the old Disney who just you know put out a

00:24:46   portfolio and say essentially they're playing with a spreadsheet in order to decide what

00:24:52   to make and that's that's a difference instinct versus spreadsheets or the human versus the

00:24:58   algorithm and this is what surfaced I think through this through this event is how much

00:25:03   more music is going to turn into that as far as Apple's concerned and that is a very very

00:25:09   different thing than what we've heard in the past from everyone else.

00:25:12   Yeah, Pixar is a good example too because I think that they've been so open about

00:25:17   so much of their process. It's not really a mystery according to them, you know,

00:25:21   how they've been so successful and yet nobody else can bring themselves to do

00:25:26   it. To do it, yeah. It's like hiding in plain sight or here's the

00:25:30   formula, but no one has the courage to do that because it

00:25:35   It requires saying no to things which are nearly proven to work.

00:25:40   You have to say that portfolio theory is the foundation of finance and who would, wildest

00:25:48   mind, it's like if I were an investor and I would say, "Forget about buying a basket

00:25:53   of securities, just buy one company and own it all your life."

00:25:57   That would be the strategy that Apple is suggesting they do as far as their investments or that

00:26:02   Pixar does in terms of their investments.

00:26:05   You have to have so much faith in that decision that you're throwing away the hedge opportunity.

00:26:13   You're throwing away the what if it doesn't go right.

00:26:19   So remember what Steve Jobs said, "Focus is about saying no."

00:26:24   And focus is literally about saying no to everything else but the one thing.

00:26:29   And so that's what's so hard.

00:26:32   And here, when we think about it, so this is very deep in the psyche of Apple in many

00:26:37   ways, but when we're looking at it now through this question of products that they're launching

00:26:41   as services, they're essentially telling, I think, that we're asking you to trust us,

00:26:48   to act, to make those choices for you when it comes to services and things we're going

00:26:54   to give you.

00:26:57   And that means saying no to a lot of things, and many people will just huff and puff and

00:27:02   how dare you but but those who you know go ahead you don't have to buy this

00:27:07   isn't like you know that you're not obligated but it's it's it's the way

00:27:13   that I think that you're gonna appeal to the the type of audiences that are

00:27:18   probably the the best audiences to have yeah all right let me take a break I

00:27:22   want to keep talking about music afterwards but let me take a break and

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00:30:09   service backblaze.com daring fireball so music part of the news of the last week

00:30:20   was this crazy to me it the Taylor Swift story right so we're recording here on

00:30:29   Friday June 26 and it was last Sunday where Taylor Swift wrote a blog post

00:30:36   post on her tumblr account more or less calling taking Apple to task for the fact that in the in the free trial

00:30:43   for Apple music

00:30:46   The three-month free trial Apple wasn't going to pay artists for the music that got streamed. They were only gonna pay

00:30:53   a percentage based on you know, the paid accounts once the free trial period is over and Taylor Swift's argument was

00:31:02   This isn't right, you know, the free trial is a promotion for your service

00:31:05   we should get you know, we the artist should get paid no matter what and and

00:31:09   It not only worked it worked by the end of the day by the end of the day at EQ

00:31:15   You know this Apple senior vice president in charge of music among other things was tweeting that

00:31:22   Okay, I've called Taylor Swift. We've worked it out and and we'll be paying artists even during the free trial period

00:31:30   I'm kind of blown away by that just by the speed at which it happened and how it kind of

00:31:35   In terms of being a longtime Apple observer that it it like the public aspect of it that it took place

00:31:41   You know from one Apple executives Twitter account

00:31:45   Yeah, I was yeah, I was watching it and I was I was I was bemused. I I personally I

00:31:53   Didn't have an opinion on it on one way that I think this is just business

00:31:59   You know terms terms and conditions that are in contracts are often negotiable and sometimes you use boilerplate

00:32:06   That might not you know be appropriate for everybody and you know

00:32:11   Then you change it and and that's that's what we call negotiation and it wasn't to me

00:32:18   This is just a matter of business

00:32:20   But the I think the noteworthy thing was your you know

00:32:23   your observation that they were so responsive to it in such a public way.

00:32:28   And in fact that negotiation took place in public on Twitter.

00:32:36   That amuses me greatly.

00:32:37   I'm not outraged, in fact I refuse to be outraged anymore about anything.

00:32:43   So I'm a little bit just reflecting on the age we live in that this is happening.

00:32:53   In the end, it turns out very well for everybody.

00:32:55   I don't think this was a big deal for Apple

00:32:58   to even do it initially, but they just probably,

00:33:01   it wasn't something that they thought of.

00:33:02   They said, "Well, it's just standard practice."

00:33:04   Yes, it's our service, but it's, in the end,

00:33:09   they're gonna grow your business as well.

00:33:10   So we think of it as a partnership, so we both take a hit.

00:33:14   But at the end, they said, "All right,

00:33:17   "we'll absorb that cost upfront and pass it on."

00:33:22   because you're right, we're probably very well off.

00:33:25   It's money we don't need as much as you do.

00:33:27   But it's just the way it happened,

00:33:31   I guess that's what's interesting.

00:33:32   - Same to me, and I feel like it's also further sign,

00:33:36   and I think Apple accepts this.

00:33:38   I don't think there's any other way,

00:33:39   but with the success that they've had

00:33:41   and the size that they've grown to,

00:33:43   a lot of the times when something like this happens,

00:33:45   there's no way that they can truly win.

00:33:49   'Cause I saw people saying the next day, like on Monday,

00:33:52   that this is sort of makes Apple look weak.

00:33:55   It makes them, you know, that they capitulated,

00:33:57   that they gave in, you know,

00:34:00   and it doesn't make Apple look good

00:34:02   that they scrambled to do this.

00:34:05   Whereas my guess is that inside Apple,

00:34:09   that their take on this is why not make it look

00:34:13   like we're paying attention?

00:34:14   Because we are paying attention, right?

00:34:17   I mean, it's, you know, we saw the tailors.

00:34:19   Why put it off?

00:34:20   Why make it look, why wait a week or two

00:34:23   and make it look like we're a black box

00:34:26   who doesn't respond to stuff like this?

00:34:28   - Or like we called our lawyers

00:34:29   and we called our, you know, consultants or something.

00:34:31   - Yeah. - It's clear.

00:34:34   - I think it's as simple as what Eddie Q said,

00:34:36   that he and Tim Cook talked on the phone Sunday

00:34:39   and said, all right, we'll just, you know,

00:34:40   we'll pay him during the trial period.

00:34:42   - Yeah, exactly.

00:34:44   So, and by the way, I think the reason Apple is in the business of music anyway is because

00:34:48   they love music, as they say many times over and over again.

00:34:52   Again one of these statements that people just, you know, just goes right over consciousness

00:34:58   because they say it all the time, you know, "We love music."

00:35:00   And by saying we love music, they're not just saying, "Yeah, we love being," you know, remember

00:35:06   the dancing of Eddie Key on stage.

00:35:10   The point is that they do love music because actually they think that that's a cornerstone

00:35:15   of the business.

00:35:16   That is, they want to be seen as a brand associated with music musicians and artists and creative

00:35:23   people.

00:35:25   Going back to Think Different, who did they put up on the Think Different campaign?

00:35:28   They're all people who are creative people, fundamentally, whether they were scientific,

00:35:33   artistic, cultural, social creative people.

00:35:37   And so the idea is that that's what the brand rests on.

00:35:41   And so I don't know anybody who would think that Apple benefits by being a tough guy with

00:35:48   artists.

00:35:49   They come to the story, they're coming to the table with music.

00:35:52   In fact, spending all that money on a music... the acquisition of Beats was spending a ton

00:35:59   of billions of dollars on a company founded by musicians or music executive, you know,

00:36:06   a partner with a musician.

00:36:08   And the whole company is like saying,

00:36:11   trying to tell the world, we want creativity to flourish

00:36:16   and we want our tools to be used by creative peoples.

00:36:20   We're on their side, we're on your side

00:36:23   to addressing their customer in a way.

00:36:26   And so that is why if they quote cave into them,

00:36:31   they're just saying, look, we're just being overly,

00:36:33   The fault is that we're being actually overly generous

00:36:38   when maybe a cynical view would be that we ought to be

00:36:41   much more tight with money

00:36:46   and that's not a good thing to come across

00:36:49   as being restrictive with your terms.

00:36:54   You can be restrictive when you're dealing

00:36:56   with another company and I'm sure they drive a hard bargain

00:36:59   but when it comes to artists, the way you want to project

00:37:01   is that you're being very generous.

00:37:04   And that therefore reflects also on developers,

00:37:07   ultimately who are part of the ecosystem.

00:37:10   And so I think it turns out well,

00:37:12   the only people who are gonna be critical of that decision,

00:37:17   I think are cynics because I don't think Apple's brand

00:37:21   is about being confrontational with those who use it

00:37:26   confrontational with those who use its tools.

00:37:32   Yeah, I agree with that and I think I saw some of that cynicism in the aftermath of

00:37:38   this, you know, "Okay, we'll pay you during the free trial thing if that's such a sticking

00:37:43   point."

00:37:44   And I think the truth of it is that it's so little money to Apple.

00:37:47   I mean, the terms have leaked and apparently this is fairly standard across the industry.

00:37:53   you know Spotify is paying somewhere around the same amount where it's about

00:37:58   two tenths of one cent per play for for streaming so in other words five

00:38:06   streams to get one penny in payment which is so little money no matter how

00:38:12   popular this thing gets I mean just a little back-of-the-envelope math but if

00:38:16   you know, like a hundred billion plays is...

00:38:23   it times... wait let me think, I gotta make sure I get this right...

00:38:26   hundred... is this right? 100 billion, all right, times 0.002

00:38:36   is only 200 million dollars, which is a long, you know...

00:38:41   Yeah, I don't even know. They paid three billion for beats,

00:38:46   And it would be a long time before they paid $3 billion in fees.

00:38:52   And this is just talking about the free trial period, right?

00:38:55   Once people pay for the $10 a month thing, the payments will all come out of--

00:39:00   there's no charity involved.

00:39:02   There's no-- Apple's not eating the cost of anything.

00:39:05   Everything will come out of a percentage of what people are actually paying.

00:39:09   So it doesn't matter how popular Apple Music is,

00:39:13   how many people sign up for this free trial and how many songs they play on it. It just

00:39:19   can't add up to an overall meaningful number for Apple in terms of what they would be paying.

00:39:26   So I think the idea that and the idea that they were trying to squeeze that miniscule

00:39:31   amount of millions of dollars because that ultimately it's going to be in the millions

00:39:35   not billions no matter where it falls. The idea that they were trying to screw artists

00:39:39   out of that and take advantage of them in the free period, I think is too cynical. I mean,

00:39:44   it's certainly possible, but it just doesn't sound right to me. I think that it's exactly what they

00:39:48   said, which is that they're hoping that they're going to get so many people onto paid accounts,

00:39:55   and therefore have a real sustainable model for artists to get paid for digital streaming.

00:40:05   They just saw that free trial as a way for everybody to sort of benefit from the long

00:40:10   term of having people signed up for actual paid accounts.

00:40:13   Dave Asprey Sure.

00:40:14   And that's the way it works.

00:40:15   I mean when you're – the point of free trials is that everybody who's – you're

00:40:21   doing it because you want to gain people's business and you want to gain people's attentions

00:40:28   and it makes a lot of sense to – in this case because also there isn't a cost in

00:40:34   giving it away.

00:40:35   Remember, this is digital media, so if they listen to those streams, maybe those streams

00:40:41   would have never gotten listened to.

00:40:42   It's not that they're going to stop listening and somewhere where they are paying and then

00:40:46   start listening on this service.

00:40:49   Maybe they will, but they'll shut off Spotify and some artists might see a decrease in revenue

00:40:55   for this trial period.

00:40:56   But generally, again, these are very small amounts and I think this is one of those things

00:41:03   that I felt that I wasn't motivated by it enough to even make a comment about it. So

00:41:08   I thought, to me, the news is in the way it happened, not what the outcome was.

00:41:16   Dave Asprey Yeah, I think so too. I'm definitely curious

00:41:19   to see how popular album music becomes, but it's sort of outside my purview. I'm just

00:41:25   not into popular music. So I don't know.

00:41:27   Nor am I. That's something I'm embarrassed about. But then again, you get to a certain

00:41:32   age. One thing I have as a theory about the human condition, it's that when music discovery

00:41:42   is a young man or young woman's problem, when you get to a certain age, you know what you

00:41:50   like and you've already probably got it. And so very few people get... are

00:41:57   interested in new music at a certain age. And so that's why the genres break

00:42:02   into nostalgia and you know you can get a radio station for every decade because

00:42:08   people want to go back to that time when they were young and that was the

00:42:11   formative years where that music speaks to them. And by the way the

00:42:17   The interesting thing is that there wasn't such a thing in the 1960s because the industry

00:42:23   was so new and there wasn't the idea of popular music was just recently created so the nostalgia

00:42:30   would have been for jazz or for that sort of music that the 1920s, I forget the names

00:42:38   of some of those types of music then, but it wasn't recorded and so people weren't going

00:42:45   to go back to try to relive that time through music.

00:42:50   So it's very much a phenomenon of the 20th century.

00:42:53   I love one thing about the music event or the music part of the event that I think didn't

00:43:00   maybe rise high enough in consciousness was that video they showed where they narrated

00:43:05   through imagery how music changed over the years.

00:43:09   And I think they missed a little bit with that video because it wasn't narrated, they

00:43:13   They just had images only, but the way you could read that narration is like if you go

00:43:18   back in history, ever since music became a recorded product, it's changed not just in

00:43:25   the form of the medium or the media that was used to capture it from vinyl to tape to CD,

00:43:33   but also because at that time the music, in my language, was hired for different things.

00:43:43   the first record players were hired to play music in the living room to the whole family

00:43:50   and you probably have a very few records and maybe you would actually dance to them in

00:43:55   a formal way.

00:43:57   And so over time you see how music became a different thing and when it became concentrated

00:44:04   enough and portable enough so that you could carry 500 or 1,000 songs in your pocket, then

00:44:11   Then it became yet another thing.

00:44:13   And when it became something you could get on the internet through a stream, it became

00:44:19   yet another thing.

00:44:20   So nobody would have thought in the 1960s I would have these wearable headphones and

00:44:26   I would go running with them and use music as a way to motivate myself through my workout.

00:44:35   or I would use these at work to isolate myself from the noise in the background, or I would

00:44:43   wear these on a commute.

00:44:45   That use case, those types of uses for music emerged only because of the technology that

00:44:50   was available at that time.

00:44:53   And so in some ways what they're saying is that we as Apple, we made one of those eras

00:44:58   happen and now we're going to move to another era and we're going to make this happen for

00:45:03   not just the consumer, but also for the musicians.

00:45:05   And so this whole story, I think, is wonderful

00:45:08   because it's about the evolution of music,

00:45:11   the evolution of how music was consumed

00:45:13   and what purpose it had and meaning it had in people's lives.

00:45:16   And to the chagrin of many people in the industry,

00:45:20   it seems as if music has been devalued over time.

00:45:24   Once we've had so much of it and it's so easy to obtain

00:45:27   and that we can carry so much of it in our pockets

00:45:30   that we've traded analog dollars for digital pennies,

00:45:34   or digital dimes, and then streaming pennies.

00:45:39   But, so that's the sort of the negative spin on it.

00:45:44   But the positive spin is actually

00:45:47   we consume more music than ever.

00:45:49   We're surrounded by it, we have access to it,

00:45:51   we can sample, we can try new things.

00:45:54   And so if you were to take the positive spin on it,

00:45:56   and Apple will say, the conversation to the artist,

00:46:00   is that, hey, let us help you surface this,

00:46:04   let us help you actually take advantage of technology

00:46:07   that helps you continue in your craft.

00:46:11   And for the consumer, the same thing is like,

00:46:14   let's find music that you wouldn't have ever found before,

00:46:17   that is so inspiring or delightful

00:46:20   and that really doesn't improve your life.

00:46:22   So that's why Apple's in the music business.

00:46:26   They come in and say, we're not here to figure out

00:46:28   a new monetization strategy.

00:46:30   We're here to actually make sure that music survives,

00:46:33   that music is continuing to be an important part of life.

00:46:37   Again, I sound like a pitchman for beats,

00:46:40   but the idea is that I've thought about this

00:46:43   for years and years when I was thinking about

00:46:45   where's music gonna end up being?

00:46:47   What is the job to be done, music is hard to do?

00:46:51   And looking through history,

00:46:52   you realize that that job changes,

00:46:54   and that you've got to change along with that.

00:46:57   Yeah, I think that the idea that Apple should have...

00:47:01   I've seen some people speculate, you know, that,

00:47:04   "Hey, why is Apple even bothering with this at all?

00:47:06   "They don't need to do music.

00:47:09   "They don't need to be this involved, right?"

00:47:11   Why not just let Spotify and Pandora handle it all?

00:47:17   They've got great iOS apps.

00:47:19   You can play them from any of your Apple devices.

00:47:21   Why does Apple even need to do this?

00:47:22   And I think it's because, I think it's what you said,

00:47:25   I think it's because they want to,

00:47:26   because they really think music is part of what they want their company to be.

00:47:31   Alex Tsakiris Yeah, it reminds me of a conversation once

00:47:33   I had with someone at Pixar and I said, "Why don't you guys go into doing TV because you've

00:47:41   got these great storytelling techniques and tools and things like that.

00:47:47   They make shorts and movies and nothing in between."

00:47:50   And they were like, the answer was because we love movies.

00:47:54   And I had no way to – I was taken aback.

00:47:58   I was like, oh yeah, of course.

00:48:02   Here I am thinking like a technician or I'm trying to segment the world by what is possible.

00:48:09   And at the end the decision is like no, we just love stuff.

00:48:13   And that's why we do things.

00:48:14   And if we did things that we didn't love, then we wouldn't be good at all.

00:48:17   And so the formula of Pixar isn't just like we know how to turn the crank, it's like we

00:48:21   really are passionate and the passion is key.

00:48:24   And so in this case, I think it's the same thing.

00:48:27   Why is Apple in anything?

00:48:29   Why shouldn't they just leave payments to someone else?

00:48:32   Why should they be trying to make better photographs?

00:48:35   Why should they be trying to make better, you know, even movies with iMovie, even though

00:48:40   nobody's using it?

00:48:42   Or why isn't, you know, why are they doing iWork at all?

00:48:44   Isn't that stupid?

00:48:46   Why get into that and kill it kill it every time I hear is like shut it down shut down Apple TV

00:48:52   It's a failure shut down this and that and I always think that look they didn't get into it

00:48:56   Just for that purpose to sort of make money or to become a success by your your definition of it

00:49:03   They probably do it because they think it's far part of their fiber and it's it's something that they feel that that

00:49:09   will complete them or or the you know, just and I don't want to make it seem like

00:49:14   like there's some kind of an artistic entity.

00:49:17   But when you ask artists this question,

00:49:19   it's like why did you paint this thing

00:49:21   and not show it to anybody?

00:49:22   He said, well, I had to get it out.

00:49:23   I had to get it out and I don't care if anybody sees it.

00:49:27   In some ways, you ought to think about business this way

00:49:30   because this is the sort of antithesis

00:49:35   of an analytic approach is actually one

00:49:38   of being entirely empathy based.

00:49:42   But that empathy allows you to create greatness.

00:49:46   And it may lead you to that one great business as well,

00:49:51   but it doesn't happen through a deliberate act.

00:49:53   It happens through a discovery act.

00:49:55   And so this is why when they make choices

00:49:59   that are based on these instincts,

00:50:03   and people say, well, it's not economical,

00:50:06   or it doesn't make sense,

00:50:07   or they're stepping on toes and things like that.

00:50:10   On one hand on Apple, that's the narrative.

00:50:12   On the other hand, on Google, nobody complains that they get into all kinds of crazy moonshots.

00:50:18   And they all applaud.

00:50:20   If Apple however, even slightly veers off of what is thought to be the well trodden

00:50:25   path, then people jump up with criticism and, "Oh, this is the end of Apple.

00:50:32   Obviously this is not their forte.

00:50:34   There should not be in this," etc., etc.

00:50:37   It's some people do R&D, some people do moonshots, and Apple just wants to indulge some ideas

00:50:47   about what they think is important.

00:50:50   Or education, for example.

00:50:51   Why are they in education?

00:50:53   Why are they getting into healthcare?

00:50:54   Why are they getting into fitness tracking?

00:50:57   Are these all money-making opportunities?

00:50:59   Someday, but I don't see a way I can put that on the spreadsheet, and I don't care either.

00:51:05   It's about really doing things which they think stitch together into a fiber that holds

00:51:10   up the whole thing.

00:51:12   That's the business of Apple.

00:51:13   I think that's not...

00:51:15   Maybe that is a new business of Apple because in Steve Jobs' time, there would have been

00:51:19   a little bit less diversification.

00:51:23   But it's still...

00:51:25   To me, this is because the fiber is so much broader and there needs to be so much more

00:51:31   to support billions of or potential billions of users.

00:51:35   I think fundamental to the culture of Apple, the corporate culture, and it definitely started

00:51:40   with Steve Jobs without question and it was deliberate and continues to have unforeseen

00:51:48   consequences and allows Apple to do things you may not, you know, 10 years from now that

00:51:53   we wouldn't have predicted today, is the fact that they don't do a P&L for each product

00:52:01   or division or however you want to talk about it. They don't have divisions within the company.

00:52:09   They're completely functionally organized. In fact, they're more functionally organized

00:52:13   than even before with Steve Jobs where Johnny Ive's team took over design of everything,

00:52:22   not just hardware design, but with the Forstall Ouster and taking over all of software design.

00:52:29   There wasn't one team doing iOS design.

00:52:32   - They created a new function with design

00:52:34   that's really deep and exactly right.

00:52:36   And this is something I've been,

00:52:38   I'm glad you brought it up because I think it's one

00:52:40   of the most under understood aspects

00:52:44   of the Apple algorithm, which is that they essentially

00:52:49   said no to a divisional organization,

00:52:53   which, here's the narrative I have on it,

00:52:56   which is that, that's fine for small companies.

00:52:59   In fact, if you're a startup,

00:53:01   you are by default a functional organization.

00:53:03   It makes sense that you're gonna have somebody,

00:53:05   you're usually a person is a function and that's it.

00:53:09   There's not that many of you.

00:53:10   But as you grow, it makes sense.

00:53:12   People think it's logical.

00:53:14   Now, okay, now we have to divide

00:53:15   according to where the money comes from.

00:53:17   So if we've got a product,

00:53:20   okay, I'm gonna put somebody in charge of that product.

00:53:22   I'm gonna put somebody in, if it's in fact geographical

00:53:25   because your sales structure is that way,

00:53:26   then you do geographical segments or something like that

00:53:30   and then you organize according to whatever means

00:53:33   you decide the money comes in.

00:53:35   And that's the thing is that the money starts

00:53:37   to lead your thinking and optimization becomes

00:53:42   the rule of the day.

00:53:43   It's like how can I hold that person responsible

00:53:46   to do the best thing for that particular flow of money

00:53:50   that's coming in to optimize it.

00:53:53   And so that's how divisional organizations evolve.

00:53:58   And in fact, General Motors was probably the pioneer

00:54:01   in that area back 100 years ago or so.

00:54:05   So this idea of divisional logic

00:54:10   is pervasive in the world.

00:54:12   And it also makes sense when you're managing people

00:54:16   and thousands and thousands of people,

00:54:17   you wanna be able to create the incentives for them

00:54:20   to align according to certain goals.

00:54:23   And so the pyramid of that division is set up

00:54:28   so that everybody knows what the target is,

00:54:30   and therefore their paycheck is tied to that in some way.

00:54:35   And so people then know what they're,

00:54:37   you don't need to tell them every day what to do,

00:54:40   they'll have that in their incentives built in.

00:54:42   But, and that doesn't work for an organization

00:54:46   which is like Apple, which is functional,

00:54:47   because you're not attached to a product.

00:54:50   might be one day but not the other. And then you're sort of, you're never even, part of

00:54:56   the P&L logic is that you report some of that data and people know how things are going

00:55:03   and so there's a communication that happens through the knowledge of what's happening,

00:55:10   right? And so bottom line is that Apple's lack of a P&L structure means that people

00:55:18   within the organization, you'll have hard time motivating them, you'll have a hard time

00:55:23   figuring out what their responsibilities are, figuring out how they can navigate their own

00:55:29   personal careers so that they can maybe optimize their own career because the signal of pricing

00:55:36   and the signal of profit was used to guide you and or would guide you if you were in

00:55:42   in a divisional organization.

00:55:44   So what we have to be impressed by is how actually difficult it is to do what Apple

00:55:51   is doing because it actually makes running that business really, really hard.

00:55:56   And in fact it may cause some people to just say, "I quit.

00:56:00   I can't make sense of it.

00:56:01   I can't progress in my career because of this."

00:56:05   And so there's a lot of heartache that comes with it.

00:56:08   And there's a lot of chaos that comes with it.

00:56:11   And so this is why every company that grows up beyond the certain stage abandons this

00:56:15   logic and here's Apple which is now, I don't know how many, 50,000 or more people is still

00:56:21   able to continue in that way.

00:56:23   It's hard to put a head count on Apple unless you separate the retail out from it.

00:56:29   I think you might be right that it's probably 50 or 60 now.

00:56:33   It's explosively grown.

00:56:36   Non-retail has grown tremendously in the last five years.

00:56:40   I think it was Don Melton that pointed this out to me.

00:56:42   He said, you know, Apple is the largest functional organization outside of the US Army, and maybe

00:56:47   other foreign armies.

00:56:48   But the idea is that, and then you ask, oh, and that, when he said that, my head went

00:56:53   like pop because I said, holy cow, that's exactly why armies are the way they are.

00:56:58   I mean, the armies are the way they are.

00:57:00   They're actually organized the way they are because they need to be, you know, thrown

00:57:05   at a target.

00:57:07   thrown at a mission and they have to execute on that mission.

00:57:10   But they're very inefficient in terms of trying to do a blend of things.

00:57:15   And often even when you go into that mission, it's like it's chaos.

00:57:19   It's like crazy, you know, incompetencies emerge.

00:57:22   And then you realize that, well, okay, that's why we have war games to simulate them and

00:57:26   sort of make sure that things run effectively and so on.

00:57:28   And so I got into this whole train of thought about what would happen if the U.S. Army was

00:57:35   divisional.

00:57:36   then you would have the head of certain types of missions.

00:57:39   So you would say, "We're not going to have air force, Marines, and an army.

00:57:43   We're going to have a guy in charge of attacks in the Middle East, and we're going to have

00:57:50   a guy in charge of maybe, we'll do it geographically, Latin America."

00:57:55   And the head of Latin America would have under him, you know, army, air force, and Marines.

00:58:00   But the problem is that that person would gain so much power, then they would start

00:58:03   the Joint Chiefs of Staff would kind of have these debates around the big table and say,

00:58:07   you know, you know, Middle East is much more important, I ought to get more resources.

00:58:13   So why don't you, you know, put 80 percent of the budget in the Middle East this year,

00:58:17   Mr. President, and, you know, nobody cares about that in America, all they're doing is

00:58:23   busting drug gangs, you know, I got a real fight here to fight, so give me more money.

00:58:28   So then they would get into that, and then so one general who ran that region would suddenly

00:58:32   have so much more power than the other generals, he could actually probably run, you know,

00:58:38   run his own empire, run his own, make so many decisions that he would become like the king

00:58:45   of the Middle East.

00:58:46   In fact, MacArthur was like that in Japan.

00:58:48   He had so much authority in Japan after the war that he wrote their constitution for them

00:58:53   practically and he was a general.

00:58:55   And so that was a special situation.

00:58:58   But when you think about it that way,

00:58:59   that this is this idea of people who have

00:59:03   under them an empire.

00:59:05   This is the politics, this is the type of politics

00:59:08   that drives organizations into all this paralysis,

00:59:12   all of this mismanagement and all of this running off a cliff

00:59:16   and stupidity that we observe.

00:59:18   And so because someone has that power structure in them,

00:59:20   you can imagine this in Microsoft's world,

00:59:23   well, the Windows guys are really powerful

00:59:24   and the Office guys are really powerful

00:59:26   and they need all the resources

00:59:28   because they've earned them.

00:59:29   And so and so it goes.

00:59:30   But when you take that away,

00:59:32   you depoliticize an organization.

00:59:34   So you, especially with the military,

00:59:36   you've got to be depoliticized.

00:59:37   A politicized military turns into an object of coup.

00:59:42   And this is why you have Republican guards

00:59:47   and things like that, which are politicized militaries,

00:59:49   which often end up really controlling the state.

00:59:52   And in a democracy that's unacceptable.

00:59:55   And for that reason,

00:59:56   militaries and democracies are the way they are and and this is you know that's a long narrative but

01:00:01   i i i'm sorry well and not and not to go too deep down the history historical uh rabbit hole but

01:00:06   that's why harry truman fired general mccarthur exactly i mean which harry truman that's one of

01:00:12   those things where i grew up and i heard the story and i thought well i guess that's the sort of

01:00:15   thing that happens but then like the older i get and the more perspective i get on it it was sort

01:00:20   of a bombshell you know to the U.S. public who viewed him as a you know as a hero.

01:00:28   He was a wartime hero he not only had beaten Japan but he also he had beaten Korea and so or

01:00:35   North Korea and he getting fired I mean so many people were upset but he became too political

01:00:41   and that was unacceptable in a democracy and that to me was a great story to tell and

01:00:48   And I think that's where you got to watch out.

01:00:51   This is the day-to-day fears and worries that a guy like Tim Cook has to deal with.

01:00:56   He's got to worry about – the Forstall story I think had a lot to do with whether that

01:01:02   general became too political and didn't stick to his functional role.

01:01:07   In that case, he had to be sacrificed even though everybody loved him.

01:01:12   So it's the same story.

01:01:14   I think of him as the Truman of Apple.

01:01:17   Yeah, then as the more time is gained from that the less oh not Truman sorry MacArthur

01:01:22   I'm sorry exactly, but I thought you meant cook as the Truman which is true

01:01:26   Yeah, cook is the Truman and and forest all was it was McCarthy right now. That's it the more I see it though

01:01:32   it's it's not just I at first I viewed it as sort of a

01:01:36   Petty more of a petty disagreement between a few individuals and I think that there's something to that angle

01:01:44   but I feel like long-term strategically it was about

01:01:47   Making sure that the institution of the whole company was was truly more functional

01:01:55   Whereas I feel like under Steve Jobs a lot of the functional nature of Apple came down to jobs

01:02:01   singular role in the company not not to say that the company depended on him and couldn't you know that he was a

01:02:08   Cornerstone that the company couldn't do with that

01:02:11   I think we're seeing that that's not true. But I think that the functional nature of the company flew through him

01:02:17   Yeah, and you know, you're you're right. There's subtle differences

01:02:21   Um, we generalize then we use metaphor and we use we use allegory

01:02:26   but the truth is is far more complex and so I don't want to be I

01:02:30   Don't want to make it seem like it's so clear-cut that that you know, this is this tells the story

01:02:36   but it's only illustrative.

01:02:38   For example, just as an anomaly, as a counterpoint

01:02:41   to the functional thing, there's the EdiQ's organization

01:02:45   because EdiQ, I see it as an empire

01:02:50   because he's got under him services now called,

01:02:53   and includes all the stores, it includes iWork,

01:02:57   it includes the new, it includes Apple TV,

01:03:03   It includes products that are hardware,

01:03:07   software and services.

01:03:08   And that is, it could, you know,

01:03:10   if you could spin off to ediQ, you know,

01:03:12   it would be a huge business.

01:03:14   It would be a business bigger than Amazon, in my opinion.

01:03:18   I can probably dig up some numbers that would show

01:03:20   that ediQ's organization by itself, you know,

01:03:25   would be valued by the market far,

01:03:28   with a good chunk of multiple would be far in excess

01:03:32   than what it is inside Apple.

01:03:33   But of course, that's not going to happen.

01:03:35   The point is, though, that is an exception to rule.

01:03:37   And there is a good reason for that,

01:03:39   because there is this kind of like, what do you

01:03:41   do with these pieces problem.

01:03:43   And so in some ways, they're put under him.

01:03:48   So if it happens, there's a reorg.

01:03:51   I would be surprised, because something may just

01:03:54   get out of control there.

01:03:55   I don't know.

01:03:55   I'm not prejudicing, hopefully.

01:03:58   I think what's so funny with Apple today,

01:04:00   it would be it would be almost impossible to reorganize the company. I think what they

01:04:04   could do is is there could be like, departures, individuals could depart maybe just simply

01:04:11   to enjoy their retirement, enjoy the you know, the wealth that they've accumulated. Or it

01:04:18   could be another dispute arises where there's a personality conflict between two senior

01:04:23   vice presidents who need to be working together and can't get along. But I, to me, it would

01:04:29   just be it's almost more like running like sports you know like pick any sport you know

01:04:37   like you if you want to talk about soccer like well we're gonna have to change goalkeepers

01:04:41   yeah it's but it's still right position you're not really you know I think you're you're

01:04:48   absolutely you're saying it right I I just I literally I on the spot thought of the rear

01:04:55   your idea and I don't, on reflection I think you're right.

01:04:58   It's not gonna be what we think of as a reorg.

01:05:01   It might just be that maybe they'll carve,

01:05:04   maybe they could do something with services

01:05:07   that's gonna grow to such an extent that they may create

01:05:12   that as a separate thing.

01:05:15   I don't know, I don't know.

01:05:16   I'm just being completely speculative.

01:05:18   - Let me take another break here.

01:05:20   I'll take a deep breath and I'll thank our second sponsor.

01:05:23   and it's another long time friend of the show,

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01:05:46   It's because we all have really good cameras

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01:05:52   like two or three seconds away from being ready to snap a photo.

01:05:55   Um, and yet so many of the photos that we take,

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01:06:06   They're just digital things that we see on digital devices when we look for them.

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01:08:03   So speaking about not putting everything off in its own P&L, profit and loss, and looking

01:08:12   at things functionally, you wrote a recent piece on Asymptco about maps and the sort

01:08:19   of – well, more like one factor.

01:08:23   How much does it cost to run a top-notch mapping service per year?

01:08:27   You came to the conclusion that it costs about $2 billion a year?

01:08:31   Yeah, I think it used to be one but it's closer to two now and I think that and I

01:08:38   got that figure by looking the financials that Nokia was reporting

01:08:42   for its HERE product or HERE division which was an acquisition back in 2007

01:08:50   actually the year the iPhone launched Nokia spent a seven billion dollars or

01:08:55   viewers I forget, on the acquisition of MavTek, which was at the time probably the best map

01:09:02   service in the world.

01:09:04   And I mean that because I was using maps in 2005 and 2006 on a mobile device, on a phone,

01:09:13   back in the pre-iPhone dark ages.

01:09:16   And I remember using Google Maps back then.

01:09:20   And it was horrifically bad.

01:09:22   I think Google Maps was laughably bad compared to paid services or things you could purchase.

01:09:34   You could download the entire maps.

01:09:36   Like, remember Tom Tom and those, Garmin, those guys had a down or they had an embedded

01:09:44   map in their hardware.

01:09:47   if you had an in-car system like you would have with a high-end car back in the day,

01:09:53   you'd pay three, four thousand dollars for the onboard navigation, which was a DVD usually.

01:09:59   That was, you know, that was upgradeable if you paid.

01:10:02   That's exactly what I, we bought the car that we have, we bought in 2006, still driving it,

01:10:07   and I think we turned down, it was a four thousand dollar upgrade to get inboard navigation.

01:10:14   which in hindsight, there were a couple of years there

01:10:17   where my wife gave me a hard time about that

01:10:19   and in hindsight really looks like a very good decision.

01:10:23   - And at the time you could get a handheld navigator

01:10:27   or you could get like very rarely,

01:10:29   and these were only on some Nokia devices

01:10:31   that you could get, usually was an SD card

01:10:34   that had maps data for the region you were in

01:10:36   and you could pop that in.

01:10:38   Very few, actually none I think were directly over the air.

01:10:42   Google started offering over the air

01:10:44   but again it was horrible.

01:10:45   And I remember using it in those years.

01:10:47   I was in Boston, I was actually working at Nokia's offices

01:10:51   over by 128, and I remember using it

01:10:55   every afternoon going home.

01:10:57   I would open it up on a Nokia sort of Blackberry style phone

01:11:02   and I would have this tiny square screen

01:11:04   and I would pop in through the online,

01:11:08   through, sorry, through the network at the time,

01:11:12   which would have been probably 2G or 2.5G,

01:11:15   and I would get to see my route home,

01:11:17   and I would look for the traffic data,

01:11:19   'cause that was really the only value for me,

01:11:22   is like how bad was the traffic when I would drive home?

01:11:26   But that was it, that was no really discovering

01:11:29   where to go eat or anything like that,

01:11:31   that was maps-based.

01:11:33   So at that time, at that time,

01:11:35   Noki thought we've gotta spend

01:11:41   7 billion dollars on maps.

01:11:43   The thing about Nokia throughout the years I was there is that they're really, really

01:11:48   forward thinking.

01:11:49   They thought about smartphones 10 years before anybody else did.

01:11:53   They thought about maps 10 years before they got good enough and if anything, they just

01:11:58   were too early on everything and didn't focus on the things that needed to be improved,

01:12:04   rather they said, "Okay, we buy the assets or we commit to the strategy," and they thought

01:12:10   that was enough. They didn't have the ability to really, really get this thing sorted out.

01:12:18   So long story short, they buy Naftech for billions of dollars, and then they would report

01:12:25   their revenues and they would report their costs, so from that we could work out just

01:12:30   how much they were spending to maintain that $7 billion asset, to maintain the data in

01:12:36   And of course, nowadays people would say that here maps is not as good.

01:12:41   By the way, here the maps business did have revenues for them because they were selling these data sets to the car makers.

01:12:47   So they were selling them to Mercedes and Porsche and whoever to put on those DVDs in their cars

01:12:53   and put in the SD cards if you were willing to buy that service.

01:12:58   So, NaftX business was a real business.

01:13:01   It wasn't an ad-driven business.

01:13:03   It wasn't based on selling devices.

01:13:06   it was based on selling the actually hard-earned data.

01:13:10   And they had 400 people who every day got into cars

01:13:14   to go collect data by driving around.

01:13:17   And they would also source data from satellites,

01:13:20   they would source data from, I mean, satellite companies,

01:13:22   they would source data from geo position.

01:13:25   And there was these huge data sets

01:13:28   that mostly were not consumer-based, right?

01:13:30   These were for companies.

01:13:32   And so this was an amazingly valuable idea

01:13:35   that maps are going to be someday very important in mobile,

01:13:39   and that maps, therefore, the Nokia thought

01:13:41   by owning that asset, and there weren't very many others.

01:13:44   In fact, they were coming with the baggage of hardware,

01:13:48   like Garmin and TomTom.

01:13:50   And so instead they said, "No, it's a pure asset.

01:13:53   "We're gonna buy it,

01:13:54   "and we're gonna be the best map service in the world."

01:13:56   And at that time, I would argue, yes, they were.

01:13:58   Google was a joke.

01:13:59   And the funny thing to me was a few years later,

01:14:03   when finally Apple gets into the maps business,

01:14:06   people say that their maps are a joke.

01:14:08   And I just remembered Google.

01:14:10   I didn't think that that was a relevant argument

01:14:14   because I remembered that Google got better.

01:14:16   So the only question in my mind was not,

01:14:18   are they any good at the launch?

01:14:20   Of course they're not good at the launch.

01:14:22   They're just getting started on something

01:14:23   that people have been doing for 20 years

01:14:26   and Google itself had been doing for seven years

01:14:28   or six years.

01:14:29   And of course, Google had a six year lead

01:14:31   and of course they're gonna be better.

01:14:32   so let's look at it six years from now.

01:14:34   And I knew that they would have to spend the kind of money

01:14:39   that just to maintain the here maps service

01:14:44   or NAFTA cost a billion dollars a year.

01:14:46   So in order to obtain the depth of knowledge to catch up,

01:14:50   you'd have to be spending more than that.

01:14:52   Now, no one's confirmed or denied the two billion figure,

01:14:55   but I would say that's credible.

01:14:59   The amount of effort going in is at that level.

01:15:02   And so that's how I got that number.

01:15:05   - I will put a link to the piece in the show notes.

01:15:08   I know I often say that and I forget to,

01:15:09   but I've already got it in my notes, so it'll be there.

01:15:12   But you make a good case for why it's,

01:15:14   I think in the ballpark it's gotta be pretty close.

01:15:16   And there is a lot, there's just a lot of ongoing legwork

01:15:20   to run a modern mapping service.

01:15:22   I mean, you need those drivers out on the streets

01:15:26   taking the pictures of the stores and--

01:15:28   I'll give you another example.

01:15:30   And this is from a friend of mine who I met at,

01:15:33   actually, last I met was at ULL,

01:15:36   Paul Campbell's show in Ireland.

01:15:40   And he ran a service in Prague, he was American,

01:15:44   he ran a service in Prague, Germany,

01:15:46   oh, so Prague, Czech Republic, sorry,

01:15:48   where he would pay college students

01:15:53   to walk around the city and make notes

01:15:58   about the opening times of every restaurant,

01:16:01   every place you could walk, bar,

01:16:03   everything you could walk into.

01:16:05   So the address and the details about,

01:16:09   what was on the door that gave you information

01:16:13   that was about that establishment.

01:16:15   And so he would aggregate that data

01:16:17   and overlay it on public open source maps

01:16:20   and provide that as a tourist atlas.

01:16:25   So he would let you download,

01:16:27   So you would download this and not pay roaming charges.

01:16:30   So imagine you're visiting from Italy to Prague

01:16:33   and you're in Italian and you get the map of Prague

01:16:36   from him and the law gives you this level of detail.

01:16:39   Now, the reason he was in business is because Google Maps

01:16:41   would have cost you a lot in roaming fees.

01:16:44   So in Europe, it made sense that you could do

01:16:46   every city this way.

01:16:47   But then the real amazing story he told me was that

01:16:50   Google came to him and said,

01:16:51   "Why don't you just license all this data to us?"

01:16:55   They didn't have it, Google didn't have this data.

01:16:58   So he did a deal with Google where he's,

01:17:00   and he felt he had been wronged in it

01:17:03   because they offered him, like,

01:17:04   we'll just put your name down at the bottom of each page.

01:17:06   We won't pay you anything,

01:17:07   we'll put your name down at the bottom.

01:17:09   And so that'll be a link.

01:17:11   So you're gonna get a lot of business

01:17:13   from being exposed via Google Maps.

01:17:16   And it turned out that that wasn't worth very much.

01:17:19   So he felt that that was a bad deal

01:17:21   and he got out of it later.

01:17:22   But the idea is that Google itself,

01:17:27   in order to get this information,

01:17:30   does all kinds of deals, right?

01:17:33   Either sends people on its own,

01:17:34   or in this case, through another person

01:17:36   who did all this work, has college students doing,

01:17:40   because college students are fairly cheap,

01:17:42   and they're going around by foot anyway,

01:17:43   walking around the city,

01:17:44   thinking they're discovering the world.

01:17:47   And by the way, here you're gonna be paid

01:17:49   a couple of dollars if you jot down this data

01:17:52   every time you pass a doorway.

01:17:54   And so this model of really low level crowdsourcing data

01:17:59   is truly labor intensive,

01:18:02   and it ends up costing a lot of money.

01:18:04   And then cleaning it up and sending it all to India

01:18:06   to have it rationalized and fixed and all that stuff.

01:18:11   So there's a huge amount of effort there as well.

01:18:14   And then they go off and do 3D,

01:18:17   then they go off and do underground and internal maps.

01:18:20   And then, you know, on and on it goes,

01:18:22   the demands of these maps are suddenly,

01:18:24   we wanna have every single thing,

01:18:26   we want flyovers, we want vector maps,

01:18:29   we're not happy with bitmaps, right?

01:18:35   So all of that adds a huge amount of cost.

01:18:37   And so if this is the game,

01:18:40   you wonder then why are they doing it?

01:18:43   Because you've gotta make the money back somehow.

01:18:46   And it gets tough to understand the logic

01:18:50   that exist besides the ones we see now,

01:18:54   which are basically Google Maps advertising-based

01:18:58   and Apple essentially saying that our devices are worth it.

01:19:01   And so I asked the question,

01:19:04   what else can we expect for business models

01:19:07   as far as maps are concerned into the future?

01:19:09   And I lead to thinking about transportation

01:19:12   and autonomous vehicles.

01:19:14   - Yeah, well, it's part of your analysis and I love this.

01:19:17   I never really thought about it,

01:19:18   But if you know starting with the idea that it takes about two billion dollars per year to maintain a modern mapping service

01:19:25   That you can work out rough estimates of how many users

01:19:29   The major mapping services have and then you can divide and figure out what does it cost per user per year and your your estimates?

01:19:37   You come out with so Google Maps is the leading map service in in the world

01:19:43   Costs about cost them about two dollars per user per year. So to be profitable now

01:19:48   I'm reading right from your post Google would need to find ad revenues of two dollars per user per year

01:19:54   With Apple with fewer users, but with a majority of iOS users

01:20:00   By all accounts there Apple is spending about

01:20:04   Six seven dollars a year per user per year and to make to justify that they really just need to you know

01:20:13   Find six or seven dollars of value in the iPads and iPhones that people are buying which I you know

01:20:19   as you said certainly seems reasonable and then you get to Nokia here and

01:20:24   It's costing them

01:20:28   $66 per year per user because they've only got 30 million users at this point and you can if you were to bundle it with

01:20:36   With the old Nokia, I mean Microsoft Nokia because actually

01:20:40   Now they exist without any users, so they are having what they're doing is they licensed it to Microsoft

01:20:45   So Microsoft is a probably only paying Nokia, you know a couple of dollars like they would let's say for for for

01:20:52   Let's say a blend between Apple and Google like some let's say five bucks a year for per user

01:20:58   And that just doesn't cover their cost so they'd have to find other revenue. They do like I said they always been selling to car makers

01:21:05   But that makes it you know, that's why the car in that that's why the car guys are so, you know asking four thousand dollars

01:21:13   That you know, they're probably paying

01:21:15   The the data vendor like three four hundred dollars per you know, their markups are huge and they're very inefficient

01:21:21   But but that that's the that's per vehicle pricing. It's probably in the hundreds of dollars

01:21:26   But again long now it's up for sale and it's still losing money as it is right and and the question I you know

01:21:34   But this is why, people would ask me, why doesn't Apple buy Nokia here?

01:21:40   And I would say, well look, it's up for sale for $3 billion and there's no deal yet, but

01:21:47   somebody supposedly is bidding $3 billion on something that a few years ago cost $7

01:21:51   billion and suddenly we're saying is absolutely a hygiene factor as far as platforms are concerned.

01:21:56   If you don't have this, you're a non-player and Apple is desperate and so on and so on.

01:22:02   All of these things make no sense when you look at the, when you follow the money and

01:22:05   you say here's, somebody could just buy the third best mapping system and probably, you

01:22:12   know, having the longest legacy actually.

01:22:16   And no one wants it.

01:22:17   Why is that?

01:22:18   Why these things don't make sense to, you know, when you reconcile the dollars and you

01:22:22   against the supposed value and in that,

01:22:27   what is it, the invaluable nature of maps

01:22:31   as a strategic asset.

01:22:33   And so I point out that, well, the guys who are in it

01:22:37   already have already decided and committed to this strategy

01:22:40   and they're putting their own people to work on it

01:22:42   and this would not help them very much.

01:22:44   So the only question is, would there be a third party

01:22:46   that wants to get into this business,

01:22:48   but they have to discover a business model.

01:22:50   That's the question.

01:22:52   If Uber, and Uber is one of the candidates

01:22:54   that's being put forward, maybe it's not true,

01:22:57   but the rumors say that Uber's interested,

01:22:59   or the car makers as a group would go and buy

01:23:03   this mapping thing that's up for grabs,

01:23:05   but they would have to come up with

01:23:07   how do we make sure we're profitable

01:23:09   to burning up to $2 billion a year

01:23:12   to keep the service competitive?

01:23:17   And the answer would have to be that

01:23:20   They have to get into some way of monetizing autonomous vehicles, and I both have an interest

01:23:26   in that.

01:23:27   Yeah, because it can kill a bunch of birds, maybe more than two birds with one stone,

01:23:32   where the autonomous vehicles...

01:23:34   And you see, it's no secret that Uber is getting into package delivery and stuff like that.

01:23:42   And that Amazon...

01:23:44   A whole bunch of different companies are converging on the same idea, and that Amazon is investigating

01:23:49   new ways to deliver packages to people that without going through UPS or something like

01:23:56   that actually had an uncomfortable conversation with my UPS guy the other day where there

01:24:02   was a package from Amazon that was left at our door and then the UPS guy came and rang

01:24:07   the doorbell and had another one and that's very unlike UPS. UPS is usually very, very

01:24:12   efficient at bundling two things. If you have two different orders coming that they come

01:24:17   at one time. And he mentioned that he said he thought I wasn't home because that Amazon

01:24:25   package had already been left there by somebody else at my front door. Clearly not delivered

01:24:31   by UPS. But anyway, all these things, people getting driven around and not owning cars,

01:24:36   this whole idea that if you live in an urban environment, you can use Uber instead of owning

01:24:41   a car and you actually save money. You can save a lot of money compared to the monthly

01:24:47   cost of owning a car and combine that with the fact that these cars could do the work

01:24:54   of taking the pictures and stuff like that as they drive around the area.

01:24:58   Alexi Oh yeah, and that's the thing.

01:25:01   In fact, this professor at NYU Galloway, Scott Galloway, great guy and you should probably

01:25:08   interview him.

01:25:09   He's found to the knowledge.

01:25:13   He points out that Uber is potentially disruptive to Amazon

01:25:17   because when you break Amazon down,

01:25:19   besides having a discovery engine for, you know,

01:25:21   through the website, it's really a massive operations

01:25:24   and distribution center.

01:25:27   In fact, that's where a lot of their money goes.

01:25:29   There are a lot of their capex or capital expenses

01:25:32   are in setting up distribution centers globally,

01:25:35   and they're very expensive,

01:25:37   and they're somewhat even robotic.

01:25:39   They have robots and stuff in them.

01:25:42   And so that's a high cost thing and they're doing it

01:25:46   because really that's how they get the growth thing.

01:25:49   They have to get these packages

01:25:51   from a lot of points to a lot of points.

01:25:56   And the thing is that that's exactly what Uber does.

01:25:59   Now it doesn't have the storefront,

01:26:00   but it's actually probably easier for them

01:26:02   to do a storefront than it would be

01:26:07   to build the infrastructure that they're disrupting.

01:26:10   So it's fascinating.

01:26:12   I think Uber is one of the most disruptive ideas ever.

01:26:16   And so that's why they would come to the maps question

01:26:20   with a different set of priorities,

01:26:21   not so much about monetizing them

01:26:23   the way the other two are doing it,

01:26:25   but rather than saying,

01:26:25   "Hey, this is actually exactly in the direction

01:26:28   we wanna go, we wanna be a logistics company,

01:26:30   we wanna be a transportation company,

01:26:32   we wanna be a potential even a vehicle company."

01:26:36   And so all of that, the maps enables that.

01:26:40   And of course the car makers are in it

01:26:42   for the same obvious reasons that they've always been.

01:26:46   - Yeah, it makes a lot of sense to me intuitively

01:26:49   that if somebody else were gonna start,

01:26:52   like let's just say Uber to be a third major maps company,

01:26:56   that they would have a third different revenue model.

01:27:02   So there's Google that's doing it with advertising

01:27:05   and just sort of, we'll put our maps anywhere

01:27:08   and everywhere we can and get the most people

01:27:11   we possibly can and we're gonna make that money back

01:27:13   by advertising and we really only need to sell a few dollars

01:27:16   in ads per user per year to make this work.

01:27:19   There's the Apple model which is we're gonna use this

01:27:22   as a value add to our premium products

01:27:26   and I don't feel like anybody is gonna catch Google

01:27:29   or Apple in either of those ways soon.

01:27:32   And so it makes sense to me that if somebody's gonna be

01:27:35   a strong number three, that it would be with an entirely

01:27:38   different model like Uber.

01:27:39   Yeah.

01:27:40   And that's where I'm saying by the title,

01:27:42   it's like where maps are going, is

01:27:44   where in the sense of obtaining value from transportation.

01:27:49   By the way, it's possible that both Apple and Google also

01:27:52   have that in mind, because they're going to potentially

01:27:54   enable vehicles either of their own design

01:27:56   or licensing it for that.

01:27:59   And the other thing that I found fascinating,

01:28:02   and I don't remember where I read it,

01:28:03   But it was a wonderful expose which said that really the key to the autonomous vehicle,

01:28:10   the self-driving cars that Google is now field testing is not that they have this amazing

01:28:16   algorithm that it recognizes the world and is able to act as if we do in terms of avoiding

01:28:23   an accident, but rather that they compare what they see with what they stored. And what

01:28:30   is stored is essentially hyper high resolution

01:28:35   map of the street.

01:28:36   So imagine that the vehicles drive over the same spot

01:28:39   many times, they always take a picture

01:28:42   and then they upload it.

01:28:43   And that is what's stored as the,

01:28:45   this is the world the way it looks.

01:28:47   Now compare the way the world looks

01:28:50   with what you are seeing at this moment.

01:28:52   If they don't match, then there's an obstacle.

01:28:55   So that's the way they determine

01:28:56   whether there's an obstacle in the way,

01:28:58   because there is this kind of comparison being done.

01:29:02   Rather than saying, oh, I see this blob,

01:29:04   I'm gonna use my artificial intelligence

01:29:06   to determine if the blob is a person or an animal

01:29:09   or a boulder.

01:29:12   It's really about this kind of differential

01:29:15   they're able to do.

01:29:16   So it's really much more brute force than we think.

01:29:20   And probably more effective by the way,

01:29:23   and less error prone than this idea

01:29:28   of really machine learning about driving.

01:29:31   And so it's very data driven and that boils down

01:29:35   to therefore really having super hyper accurate maps

01:29:38   like down to the centimeter in terms of resolution

01:29:41   rather than what we see now which is down to the meter.

01:29:44   And also not just street view, imagine street view

01:29:49   with the ability to see every square centimeter

01:29:54   of the world as you're moving along at 60 frames a second.

01:29:57   And so you're doing that comparison continuously

01:30:00   and therefore you're able to really have

01:30:03   that autonomous machine.

01:30:05   And this is why also it's very difficult to,

01:30:08   one of the side effects is that they,

01:30:10   unless you have a map of the inside of a,

01:30:13   let's say an inside of a parking garage,

01:30:15   the car cannot go there.

01:30:17   The car can only go in places that have been pre-mapped

01:30:20   and pre-visualized.

01:30:21   And so that's why maps are so important

01:30:24   to autonomous vehicles.

01:30:25   It's because the algorithms depend on having

01:30:28   a very hyper accurate view of the world.

01:30:30   And so if either three of these three contenders, right,

01:30:35   Google, Apple and Uber who want to become potentially,

01:30:40   again, there's a lot of hypothesis here,

01:30:42   potentially suppliers of transportation services,

01:30:47   then you get into this whole question,

01:30:49   how good are your maps?

01:30:50   They have to control the maps.

01:30:52   And in fact, maps are not good enough,

01:30:54   so they can't just go, oh, we'll just get somebody

01:30:57   to do it for us.

01:30:58   No, we've gotta have to figure this out.

01:31:00   So that's why I think part of these vans

01:31:03   you see that Apple drives around

01:31:05   and we think of them as being,

01:31:06   well, they're just doing Street View.

01:31:08   Well, Street View is the baby version

01:31:10   of what's gonna be necessary

01:31:11   if you're gonna have autonomous vehicle.

01:31:13   - That's a great point.

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01:35:13   So we were talking about maps.

01:35:15   I'm not sure if we have more to go on maps,

01:35:18   but it has occurred to me.

01:35:21   One thing I've looked at,

01:35:22   as I've been thinking about it more and more,

01:35:24   is that I'm slow to the uptake sometimes

01:35:28   on revolutionary companies.

01:35:30   And Uber is one of them.

01:35:32   where Uber is a company where I've been using them for a while, especially since they came

01:35:36   to Philadelphia, but they've always been—they started in San Francisco and San Francisco

01:35:41   has—well, it's gotten better and it's because of Uber, but San Francisco to me has

01:35:47   always had some of the worst taxi cab service of any city that I visit. It's simply appalling

01:35:53   compared to what I'm used to on the East Coast. I was a big fan of Uber in San Francisco

01:35:59   right from the get-go. But I just I thought of them simply as a newfangled

01:36:06   taxi company and that's it and I didn't look past that and it occurred to me

01:36:10   that that's exactly how I used to see Amazon. I was a very early adopter of

01:36:14   Amazon for buying books but I saw them as a bookstore and then people would say

01:36:19   "Oh Amazon has ambitions to do a lot more than just books" and I would just roll my

01:36:24   eyes and think whatever but it's a pretty it is a pretty cool bookstore I

01:36:28   thought the same thing about uber until recently but I see now that I think that

01:36:33   they they sort of are like the inverse of Amazon indeed and you know what

01:36:40   what's interesting when you think about trying to do this type of analysis of

01:36:45   where thing you know I always use some kind of you know biological metaphor

01:36:50   Like I say, you know, it's like looking at a baby and saying, "That's a pretty useless

01:36:56   human being."

01:36:57   You know, it's just like, can't do anything.

01:37:01   It's like, this is a lot of the criticisms we get when, not just when new companies are

01:37:06   born, but even when new products are born from established companies.

01:37:09   And we're just like, "Eh, it's useless."

01:37:13   You know, like the Apple Watch or the first iPhone or the first whatever.

01:37:17   I mean, yeah, some things Apple does

01:37:19   were much more meaningful, but it's like,

01:37:21   the logic of it is that,

01:37:23   or rather to say the magic of it is being able

01:37:27   to look in the child's eyes and say,

01:37:30   there lies a human being that's gonna live 90 years,

01:37:34   that's gonna have an amazing life,

01:37:36   that's gonna change the world

01:37:38   and contribute so much to others.

01:37:40   And yet, that's not what comes in the mind

01:37:46   even of the parent, the stranger may just be ambivalent.

01:37:50   Or a lot of young people who haven't, you remember,

01:37:54   when you were a teenager, you didn't think babies

01:37:57   were all that great.

01:37:58   But when you're parent age, you kind of really get

01:38:01   a soft spot, and then when it's your kid,

01:38:04   you're completely irrational about children.

01:38:07   But the point I'm making is that we don't love children

01:38:12   because of what they're gonna be necessarily.

01:38:15   We don't love our children because they're gonna grow up

01:38:18   to be lawyers and doctors,

01:38:20   nor that they're gonna help us in our old age.

01:38:23   We love them 'cause it's just we love them.

01:38:25   And the thing is that there's this,

01:38:29   I'd like to propose that we treat startups

01:38:34   and young things in general with the same

01:38:39   the contemplation of their potential,

01:38:44   but also sort of saying, well, they're valuable just because they exist.

01:38:48   You know, they're just valuable because somebody took the effort of making it.

01:38:53   And, you know, that's worth a lot.

01:38:58   And, you know, it's coming back to Pixar again, remember, in Ratatouille and that speech

01:39:05   of what was the name of the critic at the end.

01:39:11   He said, "Nothing we do as critics is worth the crummiest product we've ever visited or

01:39:20   the crummiest restaurant we've ever eaten at because these people work to make it happen

01:39:26   and all we do is consume the result and mock it.

01:39:33   So they deserve a lot more than we do."

01:39:37   he said, you know the value of the critic he continues is in discovering the new and

01:39:42   that's that that was in a beautiful speech and

01:39:46   I wish I would remember who wrote it but it was almost as if they were speaking to the characters name was Anton you go

01:39:54   Portrayed that's Peter. Oh, I remember that hitting home for me too, because I

01:40:01   clearly was self-aware enough to recognize that that's more or less that the career that I've carved out for myself is

01:40:08   you know effectively I'm a critic a

01:40:11   Pundit on these things and that I do a lot more

01:40:15   Telling tell you know thinking about whether the work of other people is good or bad or how it could be improved

01:40:23   Then I do creating it myself and that you know, I should remember that and keep that perspective and not

01:40:30   never lose sight of the fact that what I say is not more important than the

01:40:34   actual work itself. Having said that, so I you know I want to make sure that we

01:40:42   give we give a lot of credit to those who stick their necks out but it's it's

01:40:47   also important that when you when you look at something and you ask yourself

01:40:51   what can it become that there are helpful hints. One thing you can study

01:40:57   with a baby is the kid study its parents.

01:40:59   Often that's a great indicator of what they're going to end up doing or how well.

01:41:03   Not always.

01:41:04   I mean maybe even if you have 20% chance, it's better than zero though.

01:41:10   So there's that.

01:41:11   And also sometimes you study the child and you see whether they struggled through life.

01:41:16   And that usually tells you that they will do better than average because they actually

01:41:21   are learning through experience.

01:41:26   And so when you see something like an Uber, you know, you measure things like are they

01:41:31   flexible, are they driven, are they, do they have an ambition.

01:41:38   And fundamentally, I think the disruptive theory that I'm a big fan of and I'm a big

01:41:46   supporter and advocate of is that it gives you these hints about where things can go

01:41:52   And the thinking around the analysis

01:41:56   around an object like Uber is that, you know,

01:41:59   they're solving a job,

01:42:00   and that is to get people from point to point.

01:42:03   And that job today has an alternative called a car.

01:42:07   And it's really about understanding the substitution power

01:42:11   that they have versus something that doesn't necessarily,

01:42:15   is not seen in the same category.

01:42:18   And this is when you start to jump across markets

01:42:22   and you have to cross categories and say,

01:42:24   you know, actually this thing has the potential

01:42:26   to be a threat to something that's completely unrelated.

01:42:29   And that skill of understanding what it's really,

01:42:34   what it's really trying to do and what the customer,

01:42:38   we use the phrase, what the customer hires the product to do

01:42:42   and this is in a way of saying,

01:42:44   this is the jobs to be done methodologies,

01:42:48   like saying, well, you don't buy a drill,

01:42:50   you buy a hole in the wall.

01:42:51   And so if, and this has been an observation

01:42:55   for many, many decades ago,

01:42:56   that that which companies sell isn't what their buyers

01:43:00   or their customers are buying.

01:43:02   So this distinction is important

01:43:05   because those are the capabilities that the seller have,

01:43:10   that has the capability that they say,

01:43:13   well, we can make this,

01:43:14   but then the other person on the other side

01:43:16   who receives the product is saying,

01:43:18   well, what I really need is something else,

01:43:19   but thanks, I'll take this and I'll make it work.

01:43:22   That's where the combination of those two things,

01:43:25   plus the opportunity to shake hands and change money,

01:43:29   that's how we make business.

01:43:30   And so often these are separate things.

01:43:33   Too many times we end up in a situation

01:43:35   where we buy a product, not exactly what we want.

01:43:38   But then you ask yourself,

01:43:42   but that product can evolve and get better

01:43:44   because it's getting information from the buyer

01:43:46   about what's wrong with it.

01:43:48   And then they get pricing signals.

01:43:52   Sounds very, very much like a buzzword.

01:43:55   But the idea is simply that,

01:43:56   look, I can't charge much for this thing.

01:43:59   Like today, I can't charge $400 for Office anymore.

01:44:04   And that's a signal to Microsoft to say,

01:44:06   go do something else.

01:44:08   And if you don't have that signal, you just keep doing it.

01:44:11   So if you sell to enterprises who are like,

01:44:13   or whatever, I'll keep paying, then you get dumber.

01:44:18   You get dumber and not move on.

01:44:20   And so if you have consumer as a customer,

01:44:22   then they're gonna eventually say,

01:44:24   oh, I'm not gonna pay that anymore.

01:44:26   I'm gonna go off and buy a tablet

01:44:27   that does good enough work instead of a PC,

01:44:29   et cetera, et cetera.

01:44:30   And so this is why the conversation happens

01:44:34   with the customer.

01:44:35   So anyway, there's a lot of these things we can talk about.

01:44:38   But bottom line is that when I think about an Uber,

01:44:42   I always think about, well, what are they really hired to do?

01:44:44   And I think what they're hired to do is saying,

01:44:46   I want a car outside my door whenever I'm ready to go.

01:44:49   And if I have that option every time, every day,

01:44:54   everywhere, then I don't need a car anymore.

01:44:59   And that means I can get rid of my car.

01:45:01   And if I can do a deal with Uber and say,

01:45:04   hey guys, I don't wanna pay for this trip

01:45:06   every time I get in the car,

01:45:08   but can I just pay upfront $300

01:45:10   and you guys always show up.

01:45:11   And Uber works it out and says, okay,

01:45:15   they probably will have some customers

01:45:17   that will use it less and some customers

01:45:19   that will use it more, but on average,

01:45:20   maybe $300 a month is a good price

01:45:23   to offer it as a all you can eat Uber.

01:45:28   Then suddenly you'll have like Amazon Prime.

01:45:33   And so you'll be saying, I want Uber Prime.

01:45:36   So Uber Prime is $350 a month.

01:45:38   Maybe in the beginning they're gonna charge $500 a month

01:45:41   'cause some people will pay that

01:45:42   and probably they'll have fewer sparse users,

01:45:47   et cetera, et cetera.

01:45:48   So over time that's gonna change.

01:45:49   But anyway, they'll do that and someday,

01:45:51   and then what?

01:45:52   And then, so Uber is pulling in all this money, $500,

01:45:56   and they're saying, and then they have to turn around

01:45:58   and hire people to serve as chauffeurs or whatever.

01:46:02   And they'll say, maybe we oughta finance

01:46:06   their car prop buying.

01:46:07   Maybe we ought to put them on the payroll.

01:46:10   Maybe we're gonna get some autonomous vehicles.

01:46:13   We'll have better algorithms for dispatch

01:46:16   because we'll know where these people live,

01:46:17   et cetera, et cetera, et cetera.

01:46:19   So a lot of these things are gonna be information driven.

01:46:21   And at that point though, the machine just takes over

01:46:25   and it just goes, goes, and goes rolling and rolling.

01:46:27   And as far as the entrepreneur is concerned,

01:46:30   at every stage of that journey,

01:46:32   they're just following in their instincts.

01:46:33   They're saying, well, obviously we gotta do this, right?

01:46:36   people are asking for it.

01:46:37   Or hey, I just, some guy, you know,

01:46:40   an intern runs in the room and say,

01:46:41   "Hey, have we thought of doing this?

01:46:43   "This makes a lot of sense.

01:46:44   "I just ran these numbers, look at this."

01:46:46   And so they'll do it without any kind of great strategy

01:46:49   or any kind of big vision or any McKinsey consultant

01:46:52   telling them that's what the future's gonna be.

01:46:54   So they'll do it intuitively, and lo and behold,

01:46:58   10 years later, they'll have millions of customers

01:47:03   paying them billions of dollars a year

01:47:06   to provide transportation services

01:47:08   and all those millions of customers

01:47:09   will have abandoned owning a car

01:47:12   and Uber will be commissioning more Priuses

01:47:14   than anybody else on the planet,

01:47:16   probably enough to fill a factory with production.

01:47:20   So in that case, why shouldn't Uber just make its own cars?

01:47:24   And maybe it will, maybe it won't.

01:47:25   Maybe it'll just simply do a great deal with Toyota

01:47:28   and Toyota will essentially be having one giant customer

01:47:32   versus millions of small ones.

01:47:35   And so maybe that deal will work for both of them,

01:47:38   but maybe not, maybe Uber will say,

01:47:41   price isn't the best configuration,

01:47:43   we could do a lot better if we made our own design.

01:47:46   And then they'll hire the best designer out of GM

01:47:49   or Toyota or BMW and they'll say, we go to it.

01:47:51   And by the way, we've got manufacturing guys

01:47:54   who can help as well.

01:47:55   And on it goes, right?

01:47:56   So this is why you go from a baby to a mature adult

01:48:00   that suddenly is changing the world.

01:48:02   - But that's the thing that's occurred to me.

01:48:03   And I realized that it's very different

01:48:05   if you live in a relatively, or like I live in a real urban environment. I live in Center

01:48:09   City, Philadelphia. I go to New York a lot. I go to San Francisco a lot. But if you live

01:48:13   anywhere, it's even relatively Uber where Uber can be a practical service. I mean, obviously,

01:48:18   there's, especially in the United States, there's many people who live in rural areas

01:48:21   where Uber isn't going to make sense or at least isn't going to make sense for a long

01:48:25   time. But just take a look at a typical city. Where are most of the cars? By far and away,

01:48:32   of the cars at any moment in any city are parked, right, which is incredibly inefficient.

01:48:38   And it's an enormous part of the pain in the ass of owning a car or even visiting a city

01:48:44   with a car is the pain of parking.

01:48:49   So I can, but that's actually good for the auto industry where there's a lot more cars

01:48:54   being sold than there are cars being driven at any moment.

01:48:59   the disruption of Uber is let's keep these cars moving. And it's almost like the airline metaphor,

01:49:06   you know, and you hear that like, one of the reasons that Southwest is is more successful

01:49:11   than most other airlines is that the employees buy into the mantra. You can't make money with

01:49:16   planes that aren't in the air. And that's why they their Southwest has, you know, significantly,

01:49:23   like, like, it contributes to their profitability that they

01:49:29   there take that takes them less time to deep disembark and

01:49:33   embark on a flight and they keep most of their planes in the air.

01:49:36   Well, an Uber car that isn't being driven isn't making money.

01:49:40   And but that if people stop buying cars and just leaving

01:49:43   them in their garage parked all night. I don't know that that

01:49:47   could to me be terribly disruptive to the auto industry

01:49:50   in terms of the number of cars being bought.

01:49:52   Oh yes, oh yes, oh yes indeed.

01:49:54   And that's, see, the dream that you have

01:49:57   of better utilization of cars

01:50:00   is exactly also Google's dream when it came to,

01:50:03   you know, to their motivation for driverless cars,

01:50:08   because they, but here's the interesting thing,

01:50:10   this is where the theory comes into play again,

01:50:12   is that let's say you follow the logic of Google

01:50:16   and their algorithmic approach to autonomy,

01:50:20   and then you follow Uber's logic and you ask,

01:50:23   here's a good question.

01:50:24   Let's say you see both of them pointing in the direction

01:50:27   of depopulating cities with automobiles

01:50:34   and increasing utilization of automobiles.

01:50:38   And so who wins?

01:50:39   Because this is where you have to have another way

01:50:42   of thinking and theorizing about it

01:50:44   because the problem I think is that in the case of Google,

01:50:49   they're just saying we understand where we were going,

01:50:52   we're gonna get there through a process of research

01:50:56   and we're gonna ship the product when it's ready.

01:51:01   And that's where I think that's kind of a deliberate

01:51:04   approach where Uber is just gonna follow its nose

01:51:06   and go down that path and maybe it'll get there,

01:51:08   maybe it won't, but all the time it does it,

01:51:10   it learns and all the time it does it, it's profitable.

01:51:13   And so if that's the, my bet would be that Uber

01:51:16   will get there faster.

01:51:17   So that's how I would analyze that.

01:51:19   But it's a great story.

01:51:21   It's a wonderful analysis.

01:51:22   Dave Asprey Do you think, here's my question about Uber,

01:51:24   is how does Uber protect their lead?

01:51:29   What keeps other companies from saying, "Oh, I see what they're doing.

01:51:33   Let's all do that too."

01:51:34   And then all of a sudden, the whole idea of anything you could use Uber for is commoditized?

01:51:41   Some of it is just plain running as fast as you can.

01:51:47   So one thing obviously is that they're recruiting drivers as quickly as possible, they're recruiting

01:51:54   users as quickly as possible, establishing as many cities as possible.

01:51:59   So they're running essentially in the land grab scenario where you identify the resources

01:52:04   that you need, drivers, cars, passengers and regulation.

01:52:09   you just like sweeping the land with that and then you assume there's a first mover

01:52:14   advantage of course others can come in but you realize it's heavy lifting.

01:52:18   Similarly you could have said well why you know when Google stumbled upon search as the

01:52:22   answer why didn't everybody else I mean yes their algorithms were better but there were

01:52:26   other search engines and partly was like Google doubled and tripled and quadrupled down on

01:52:30   servers and on infrastructure and that was basically that was their secret sauce.

01:52:36   It was brute force, it was just running really fast.

01:52:38   And so in the early years, that's what you do.

01:52:40   - And they were obsessively focused on response times.

01:52:44   Like to a degree, like where other search engines

01:52:47   were measuring response times in seconds,

01:52:50   and Google was already measuring in tenths of a second.

01:52:53   - And so experience was important,

01:52:57   but ultimately it was like, they did the heavy,

01:53:00   they designed their own data centers,

01:53:01   they designed their own servers,

01:53:03   at a time when all of those things you could buy

01:53:05   and even rent, and so why did they need to go

01:53:08   so deep in the guts of their operations?

01:53:11   Because they realized that the thing that they needed

01:53:13   to tweak the most was that performance metric

01:53:16   and the scaling metric, and so that let them essentially

01:53:19   run like wildfire and capture share.

01:53:21   And again, same thing with Microsoft, by the way,

01:53:24   and others who came before.

01:53:25   It's this driving force that you're just gonna go

01:53:29   as fast as you can because you know where you're going,

01:53:31   you know what you're doing.

01:53:33   And the other guys are just not sure if that's worth committing how many billions, you know,

01:53:38   and especially the big guys are like, I don't get this.

01:53:40   Yeah, I had the thought I had about it was sort of the way that as long as they as long

01:53:47   you know, the first mover advantage is, is real, but you have to kind of stay focused

01:53:53   on still being the best, even if it's in small ways.

01:53:57   And the thing that made me think about it was a tweet from our friend, the guy who stole

01:54:02   my shirt Ben Thompson this week where he he mentioned that he was in San Francisco obviously

01:54:08   for WWDC to and had a couple of coupons or codes or something to get free rides in Lyft

01:54:18   and he had been meaning to try it he'd never tried the service and here he'd gone back

01:54:22   home to Taipei and forgot to use them and had taken an Uber every time he got in a car

01:54:27   in San Francisco simply out of habit and that the habits matter that without even thinking

01:54:32   about it he'd forgotten to try Lyft even though he was going to be able to try it for free.

01:54:38   To me that just speaks to the power of the first mover advantage.

01:54:41   Alex Petros Yeah, power of first mover, power of defaults,

01:54:45   power of being the go-to thing that people hire right away.

01:54:50   There is something, but that's again, that's earned.

01:54:52   It's not something that you can get to before you actually do great work.

01:54:59   It comes as a byproduct of building the brand and building the experience and all those

01:55:05   other things.

01:55:06   So knowing to focus on the right thing at the right time, knowing to put all the chips

01:55:10   on the table when you know you have a good hand, that's really, at first of course you

01:55:15   got to get the chips but that's the thing is that the magic of the entrepreneur is the

01:55:19   one that is able to parlay every advantage into another one and then bet again and again

01:55:26   and again, doubling down every time and shifting their strategy all along the way and pivoting

01:55:32   as they call it these days.

01:55:34   That's the magic of it.

01:55:35   I could not agree more.

01:55:37   So let's wrap it up.

01:55:38   We're nearing the two-hour mark.

01:55:40   Horace Tedu, thank you extraordinarily for your time.

01:55:44   What a fascinating conversation.

01:55:45   Here's where people can find out more at first your website, asymco, A-S-Y-M-C-O dot com.

01:55:54   You've got your own podcast, The Critical Path, over with the 5x5.

01:55:59   Go to 5x5.tv and find your podcast, The Critical Path.

01:56:05   And what else?

01:56:06   Where are you on Twitter?

01:56:07   A.J.

01:56:08   ZWICKI A Twitter, it's just @ASymco.

01:56:09   A.J.

01:56:10   ZWICKI @ASymco, a very good Twitter account.

01:56:13   Anything else before we go?

01:56:15   A.J.

01:56:16   ZWICKI No.

01:56:17   Thank you very much for this opportunity.

01:56:19   It's been a long time.

01:56:21   A.J.

01:56:22   ZWICKI Likewise.

01:56:23   Fascinating stuff.

01:56:24   and we'll talk to you soon.