All-In PodcastE171: DOJ sues Apple, AI arms race, Reddit IPO, Realtor settlement & more
EVERY SPOKEN WORD
155 min read · 31,434 words- 0:00 – 0:55
Bestie Intros: Don't spoil Dune 2!
- JCJason Calacanis
Has anybody else seen Dune 2 in IMAX?
- DFDavid Friedberg
No, don't say anything.
- CPChamath Palihapitiya
Ugh, don't say anything about Dune. I wanna see it.
- JCJason Calacanis
All I wanna say about Dune-
- CPChamath Palihapitiya
No, don't say it. Okay, stop, stop. Just stop.
- JCJason Calacanis
... is it, it is fantastic and I want to see it again in IMAX.
- CPChamath Palihapitiya
Stop. Just stop.
- JCJason Calacanis
That's it. That's all I'm saying, is that it's worth seeing twice.
- CPChamath Palihapitiya
I don't even want to know that you think it's good.
- DSDavid Sacks
It's overrated.
- CPChamath Palihapitiya
It makes me... Ugh!
- DFDavid Friedberg
(laughs)
- CPChamath Palihapitiya
Stop, both of you. See, the exact-
- JCJason Calacanis
He didn't see it. He didn't... Sacks didn't see it.
- DSDavid Sacks
No, I saw Dune.
- JCJason Calacanis
Dune 2.
- DSDavid Sacks
Yeah, I saw it. It's overrated.
- CPChamath Palihapitiya
Okay, stop. Stop. Okay, stop. Everybody, you... Both of the two of you-
- JCJason Calacanis
It's not overrated.
- CPChamath Palihapitiya
It... There's, like, five great scenes. Stop.
- JCJason Calacanis
Sacks, the scene where-
- CPChamath Palihapitiya
Stop.
- DSDavid Sacks
(laughs)
- CPChamath Palihapitiya
Stop. Stop. You guys are so annoying.
- NANarrator
What your winners ride.
- JCJason Calacanis
Rain Man David Sacks.
- NANarrator
I'm going all in.
- DSDavid Sacks
And I said, "We open sourced it to the fans and they've just gone crazy with it."
- JCJason Calacanis
Love you guys.
- NANarrator
Queen of quinoa. I'm going all in.
- 0:55 – 23:36
DOJ drops antitrust suit on Apple
- NANarrator
- JCJason Calacanis
All right, everybody. Welcome to the All-In Podcast. With me again, The Chairman Dictator, Chamath Palihapitiya, David Sacks, The Rain Man, yeah, and The Sultan of Science, David Freiberg. It's your boy J Cal here and we have so much to go through. The DOJ dropped a Sherman Act suit on Apple today, right as we were about to tape the program. It seems like Thursdays is the big news drop day now. So this DOJ suit outlines five alleged abuses and they claim, obviously, that those abuses reduce competition while limiting consumer choice and raising the prices that consumers pay for their iPhone. We talked about this actually just a couple of weeks ago when we talked about peak Apple. The five categories are, very quickly, super apps, cloud gaming apps, messaging apps, smartwatches, and digital wallets. If you don't know about super apps, that's the one that's... Maybe you haven't heard of if you're listening to this. In Asia, they mentioned how Alipay, WeChat, and Paytm are, uh, super apps. What does that mean? You get, like, five or six different functions in one app. Social media, images, purchasing, getting rides, you know, all that stuff. And when you have that, you can move from one platform to another super easily. And when it comes to messaging apps, we've all experienced the green bubble friend. So, the main argument of the lawsuit, pretty interesting, they explain, and it's a really well-written document, I read it this morning, that when Apple faces new competition, instead of lowering prices for consumers or offering a better deal to developers they would, quote, "meet competitive threats by imposing a series of shape-shifting rules and restrictions in its app store guidelines and developer agreements." I've faced this every time I've invested in an app startup. They complain about the goalpost moving by Apple, and Apple shares down about 3% on the news today. I'm sure everybody's got some interesting thoughts on it. Chamath, you were talking about peak Apple just last week or the week before, I think. What are your thoughts on the lawsuit that dropped today?
- CPChamath Palihapitiya
To be honest, I haven't read it and I don't really know, like, the odds of these things just because it seems like some of this stuff is so clearly political, and I think that these things have seasons to it in the sense that there are moments where these things are more likely to go in the favor of the company and more likely to go in favor of the government. The one thing I'll say is that these guys have been losing a fair number of these things. So, they're kind of 50/50 in their fight with Epic. They've basically lost against their fight with Spotify. They definitely are in a moment where people are looking at the profitability of these devices as the source of their long-term cash flow, and I think they realize that there's not a lot of growth because they haven't entered a bunch of new markets. So, the real question is, knowing all of that, did they do something beyond what they've already always done to try to lock people in and can they prove it? I think that that's really where the government's case will come down to because then it's clear that Apple probably understood that their market was kind of solidifying and they introduced these blocks, essentially, into processes that, that force people to stay. That's probably bad news for them but I don't, I don't really know because I haven't read the lawsuit.
- JCJason Calacanis
Yeah. Sacks, did you get a chance to read it or do you have any thoughts, generally speaking?
- DSDavid Sacks
I haven't read the filings but I read some of the press coverage about it. I would say, based on the press coverage that I read, that there's not really a smoking gun here. At least, the press hasn't reported one. And what I mean by that is there... Let me give you a couple of examples that were in the press. One is that apparently the filing made a point about when Tim Cook was confronted some time ago by a user saying, "When I try to send a video by text to someone with an Android phone, it just doesn't work very well. It never works." It was a guy trying to send a video to his mom and Tim Cook responded, "Well, your mom should buy an iPhone."
- JCJason Calacanis
(laughs)
- DSDavid Sacks
It's kind of like a throwaway comment by Tim Cook. Probably not a great idea for him to say that, but that's an example of what the lawsuit brings up. Another example is that the Apple Watch doesn't work with Android phones, you know, it only works with iPhones, obviously. Again, is that really a smoking gun issue? I don't think so. I mean, it's... This is Apple's whole strategy, is that all of its products work seamlessly together and Apple hardware doesn't really work with other operating systems. It never has. So, at least based on the press coverage, I have yet to see a single smoking gun example coming out of this lawsuit. Now, I think what those examples highlight is what this lawsuit is really about is your view of interoperability. What the government is saying is that Apple needs to make its apps and its devices more interoperable with other ecosystems. So the watch needs to be interoperable with Android.Apple messaging needs to be interoperable with Android messaging and so on. What the government is saying is that Apple is refusing to play ball with other applications, other operating systems, and that creates a monopolistic network effect. What I think Apple would say is, "No." The fact is that Apple, from the outset, has always tried to do everything soup to nuts. We've always done the hardware and the software together, and that's what creates the magical experience. And so Apple's entire product strategy is based on creating a vertically integrated stack that goes from hardware, to operating system, to key applications. And I think Apple has a point saying if you try to make us unwind all of that, the product's just not gonna work as well. It's not gonna be the same product experience that everyone's used to. So again, I think that how you view interoperability is at the core of this lawsuit. I think that both the government and Apple make good points about that, and I'm a little bit skeptical right now that the government has a smoking gun. At least one hasn't been reported in the press, and so I'm a little bit doubtful right now that the government's gonna be able to win this case.
- JCJason Calacanis
Friedberg, any thoughts?
- DFDavid Friedberg
Yeah. I mean, I think it's a function of consumer choice. If consumers wanna have this closed system where they can iMessage with other iMessage app holders and not be able to have a seamless integrated messaging experience with Android users, they'll be happy. If they're annoyed, they'll switch over to an Android. So, you know, this has always been Apple's orientation. I, I think I mentioned this to you guys, I've been on a Mac since 1984 when the Mac original came out. I still have my first Mac original, by the way. I keep it in my office on my shelf. And Apple's, you know, always had, like, a really hard focus on the software that they make available to their users to create an incredible product experience. So, I don't know if this is necessarily about market abuse as much as it is a consumer choice. If the consumers didn't like the product, they didn't like the fact that things were not available, that things were very expensive, they would go elsewhere. And you do see-
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
... that in segments of the market. And as we talked about a few weeks ago, you do see that ex US. Most of the smartphone market is actually Android-driven.
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
So this is a premium product that people are willing to pay a premium price for, even if that means limited access. I think developers are frustrated that they can't access this premium market, but I'm not sure that Apple necessarily should be coerced to service developers when, at the end of the day, the consumers are paying for the products.
- CPChamath Palihapitiya
And to your point, like, is it, is it really the case that a green bubble versus a blue bubble is really that limiting? You know, it's not the end of the world.
- JCJason Calacanis
It's annoying. It's annoying, but not super limiting.
- CPChamath Palihapitiya
It's annoying, but it's not the end of the world.
- JCJason Calacanis
Yeah. I, I would say Apple has completely abused their power every chance they get in order to capture this 30% from the App Store. They blocked the ability for you to use Audible or, you know, other marketplaces to buy books and media. They blocked the ability to use other media players like VLC, blocked the ability to use browsers. And if you leave Apple unchecked, they just keep abusing it. And so I think this is kind of one of those lawsuits that's like, if we don't stop them, they'll just keep making it worse. And when people file complaints, then Apple will back down, which they did on media players, and, and they'll stand down. If you think about this from the PC era to now, then you can see how pernicious their behavior is. When you buy a laptop, the idea that you would have to go through an app store and pay a $30 tax to put a piece of software on your computer would seem insane. Only-
- DFDavid Friedberg
30%. 30%.
- JCJason Calacanis
Yeah, a 30% tax on your... Which would seem insane. Like, if you buy a laptop, you should be able to put whatever software you want on it. But they did this magic trick where they said, "Oh, no, if you wanna put software on your phone, it has to go through the app store. It has to be 30%." And that's really the anti-competitive thing here. I think this will be settled. And if you look at the different issues here, I think this is gonna be actually a huge win for Apple. Because if iMessage were to exist on Android, they would get all of those users to download iMessage, and they would have all those users. If they made the watch compatible, they would open up many more people to buy the watch, and you would get more watches. I think that Apple's thinking way too short term about the lock-in here, and they should, you know-
- CPChamath Palihapitiya
I don't think-
- JCJason Calacanis
... allow more of these apps, uh, allow more watches, and they should allow the gaming thing. I, I think that they're being petty.
- CPChamath Palihapitiya
I don't think anything's gonna happen here 'cause it's taken them five years to file. There's a, at least a 50% chance that the administration is gonna turn over, which means that this lawsuit changes or goes away entirely. And then even if it does kind of proceed, it's gonna take 10 years of very detailed arguments for something to happen. And frankly, probably in 10 years from now, we've already moved to a different compute platform, and this is not gonna matter.
- JCJason Calacanis
I mean, there, there is the coin toss of what the Trump administration would do here. For sure that's valid. But I think these o- things will all get settled. I think the settlement will be iMessage releases. They allow the... See, the thing about the Apple Watch, it's not just sax that they're allowing it on Android. It's would you allow Android watches to connect with the SDK directly into the iOS operating system, which they block you from doing. I think they should just have a little switch in your Friedberg settings that allows you to flip it and say, "I take responsibility for allowing third-party stores, and I want to be able to load any software." It's your computer. It's iPhone.
- DFDavid Friedberg
I don't think the government should t- should regulate. I don't think the government should be able to mandate that.
- JCJason Calacanis
Uh, I think they... Yeah. I mean, I, I, I like the fact that the government is-
- DFDavid Friedberg
I mean, everyone wi- keeps looking to the government to do things that they want as a consumer.
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
Make your choice with your dollars. Make your vote with the product and service you wanna buy instead of running to the government and asking the government to come and do stuff to make things happen.
- JCJason Calacanis
Do you feel that way about price fixing?
- DFDavid Friedberg
What do you mean price fixing? In what context?
- 23:36 – 32:17
Apple reportedly in talks with Google and OpenAI to power AI features on iPhone
- JCJason Calacanis
listen. Going even deeper into Apple and this Google relationship, big questions emerged this week as Bloomberg reported that Apple was speaking to both Google and OpenAI about powering certain AI features on iOS specifically. According to the article, this deal between Apple and Google seems much more likely than the OpenAI one and could happen this year. As you know, we've talked about it on this show before, Google has been the default search engine on iPhone for, I think, over a decade now. And, uh, Google pays Apple $20 billion a year, and that's pure profit for Apple. Uh, it's unclear what features they would power with Google Gemini. Maybe it's like the search deal and Google Gemini's on there. Maybe it's built in. And Apple has been building its own LLM. It's called Ajax. They've been doing some other open source stuff called Maggie. What do you think, Chamath? You were talking about this on Twitter. You, you had a pretty-... good tweet and a pretty strong position. If Apple is gonna use Gemini, what does that say to you about Apple and their view of the future?
- CPChamath Palihapitiya
I think it's them giving up. This is the most consequential new development in technology and compute in probably 20 years, 30 years. And so, to be spending tens of billions of dollars of R&D and to not have enough allocated to this so that you have a legitimate path forward to do it yourself, I think is a little inexcusable actually. It's akin to IBM in the '70s going to Microsoft and, and basically asking them to build the operating system for them. When you're such a dominant company and such a dominant position, but you abdicate your responsibility to innovate, I think that that's a really bad situation for a company to be in.
- JCJason Calacanis
It's like Yahoo adding Google Search, right?
- CPChamath Palihapitiya
And then by the way, on the heels of, like, turning off cars and, and losing these antitrust issues in Europe and then being sued by the DOJ here, to then be in a licensing discussion with a third party for such a critical technology, I think is just, says not very good things about the state of the company.
- JCJason Calacanis
Friedberg, your thoughts on this potential deal? We, we don't know what features this would power. We don't know if it's Siri or it's just image editing or search or an extension of search, maybe giving an answer.
- DFDavid Friedberg
I have no idea. It seems to me like there's ... If they a- If Apple's doing the right thing, which I'm sure they are, they're probably building their own alternative platform here. They realize it's gonna take them some time in the interim. They wanna have a stopgap. And my guess is go- by going to Google, they're probably gonna get paid instead of having to pay someone else for the technology 'cause Google will realize some benefit from getting users over to search results and seeing ads. So, Google will probably benefit and pay them instead of them having to go pay someone for access to some technology that consumers might want access to.
- JCJason Calacanis
Sacks, any thoughts here?
- DFDavid Friedberg
I'm sure Apple's gonna make an investment in building their own models here.
- DSDavid Sacks
Yeah, I mean, uh, who would look at the launch of Google Gemini and say, "I want that"? That launch was a total fiasco. (laughs) We talked about it.
- JCJason Calacanis
(laughs) Another woke company.
- DSDavid Sacks
Yeah.
- JCJason Calacanis
I think it fits the Apple philosophy pretty good. (laughs)
- DSDavid Sacks
I know. How woke would Tim Cook have to be to look at the launch of Gemini and say, "Oh, yeah, I don't see anything wrong there." You got that exactly right. (laughs)
- JCJason Calacanis
Yeah, absolutely. (laughs) I want that.
- DSDavid Sacks
Yeah.
- JCJason Calacanis
Siri, show me the president of the United States. (laughs)
- DSDavid Sacks
I mean, apparently Tim Cook is the only person on Earth who's impressed with the launch of Google Gemini. I mean, I can't believe this story is true. It's just, it can't be true.
- JCJason Calacanis
I'm so excited today to launch Gemini on stage here at iOS 27. Oh my God, can you imagine him on stage doing searches live in Gemini?
- DSDavid Sacks
It just can't b- The story can't be true 'cause it'd be so strategically dumb. Like Jamal said, even if Google Gemini were great, you'd still want-
- JCJason Calacanis
Hm.
- DSDavid Sacks
... to invest in having your own thing because it's such a strategic technology. Why would you ever outsource it to your main competitor?
- JCJason Calacanis
Uh, you know, uh-
- DSDavid Sacks
But in this case, you know that Gemini was terrible. It was a fiasco. And so, it, the story makes no sense. I just can't believe it's true.
- JCJason Calacanis
It's probably people knocking on each other's doors.
- CPChamath Palihapitiya
They spent $30 billion last year on R&D, 30 billion.
- JCJason Calacanis
Apple, to be clear.
- CPChamath Palihapitiya
They spent $30 billion on R&D. What did they spend it on?
- DSDavid Sacks
Catering? (laughs)
- JCJason Calacanis
I mean, you gotta think, Apple Vision f- is a big piece of that, right? Chips, I guarantee you, like, half of that is the M3, M4 chips.
- CPChamath Palihapitiya
Yeah, but I'm, I'm just saying 30 billion, like, not a couple crumbs fall out of somebody's pocket, and so there's $50 million allocated to just, like, you know, mucking around with LLaMA or mucking around with Mistral.
- 32:17 – 44:30
NAR settlement: how it impacts residential real estate going forward
- JCJason Calacanis
with this?" All right, we covered that huge NAR lawsuit back in December, and there has been a settlement. Big news for the National Association of Realtors. They've agreed to pay $418 million in a settlement last week, and a federal jury found that the NAR and several large real estate brokerages conspired to artificially inflate agent commissions. The settlement is pretty, a pretty big deal. People are freaking out about it. As you know, the seller of a home pays the buyer's agent's commission. So, you have a buyer and a seller, 6% fee typically, sometimes it's five, but they split that 3% to the buyer and the seller, but the seller is paying that 3% to the buyer. Now, that can't be listed in the MLS anymore, and that deal cannot be done ahead of time. Buyers are responsible for paying their agent's commissions going forward. So, if you bought a million-dollar house, and you were the buyer, you would pay $30,000 to your buyer's agent, or you would choose to not have an agent, or you would choose to negotiate it, and you have to have a signed contract. This is a crazy, just shocking, shock to the system, according to most people who are in it. I've seen a lot of real estate folks who are saying this is gonna be healthy, because you have this, you have to have this conversation between the buyer's agent and the buyer. But commissions in the United States are $100 billion a year, and one analyst projected the lawsuit could lead to a 30% reduction in commission payments, and that would eliminate about half of the 1.6 million active NAR members from the industry. You had a lot of feelings on this, Friedberg, when we talked about it-
- NANarrator
Mm-hmm.
- JCJason Calacanis
... a couple of months ago. What are your thoughts on this settlement? Is anything gonna change? Is this as groundbreaking and shocking as people seem to think it is?
- DFDavid Friedberg
Well, I would take this settlement, along with a lot of the developments and advances in AI, as being the moment of catalyzing real change in the residential real estate agency industry. It's an industry that's been known to have fixed pricing and be very expensive to consumers, a real tax on the system, and it's largely been wrapped around this idea of mitigating your liability, reducing risk, servicing the customer. Many of those aspects over the last couple of years have been largely standardized through forms, digitized, because so much of this information is no longer going to get paperwork from the courthouse, but a lot of the information sits digitally and can be accessed in a democratized way, and the fact that so much of the service and discovery, reading through documents, understanding what they mean and what they say, can be automated through AI and LLMs, much of this is kind of coalescing around what I hope and expect will be a more seamless, automated, direct marketplace for consumers. The challenge is that most consumers put most of their personal net worth into their home, and so it is where most people's net worth is tied up, and so because it is such a sensitive investment, and it is their entire savings, they wanna have a trusted advisor by them. So, it's gonna take some time before that trusted advisor becomes some piece of software, but I do think that software is gonna play more and more of a role in providing advisory tools and services to consumers in this transaction marketplace, and that's only gonna catalyze and accelerate the fee reduction. I do project, and I do expect that much of what is charged on a commission basis, on a percent of home value today, will change to being a fixed fee and a flat fee basis.
- JCJason Calacanis
So, 5K, 10K for your buyer's agent
- NANarrator
Mm-hmm.
- DFDavid Friedberg
Different services. So, you can have-
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
... someone do-
- JCJason Calacanis
A la carte.
- DFDavid Friedberg
... do the disclosure diligence for me for 5K. You know, negotiate the purchase for me for 10K. And you, as a consumer, will start to pick from a, a menu of the services that you wanna have rendered for you and things that you're comfortable doing yourself. I don't need someone to negotiate price. I don't need someone to find me a home. I've got Redfin, I can go do that. I can arrange open houses on my own. The lockbox is there. I'll go walk around the property. I don't need someone to point out that the color is nice in a room. And so I think that there's elements of what this hap- of what will happen here, which is a fragmentation and then an automation of these services, and as a result, significant fee reduction. And I'm in the middle of doing this myself right now with a piece of real estate where I'm not using an agent.... and I've been using a direct listing service. I've used all of the standard forms. There's a lot of AI tools you can use to kind of read all the disclosures so you make sure everything's copacetic. And these escrow agents, they'll handle a lot of what a lawyer will handle, and they'll get paid a, you know, a fee, which is much less than the agent's fee. So, I do think that there's a big disruption happening in this industry. I think it's, it's really important for consumers. Agents are going to be, you know, hands in the air telling you, "This is ridiculous, you need someone to help you, you need an advisor." That will continue for a good chunk of the market for a very long period of time. But I do think that it's for the benefit of consumers over time to see these fees come out of the system and see those savings go back into consumers' pockets, and for the value of their real estate to go, to go in their pockets, not into an agent's pocket.
- CPChamath Palihapitiya
Is it gonna change the profitability of a realtor pretty meaningfully, right?
- DFDavid Friedberg
Most realtors won't be able to be in business.
- CPChamath Palihapitiya
Right.
- JCJason Calacanis
I think the sellers will do fine, and they might capture more of it because they'll, we're, they'll... My understanding is the se- the, the seller will maybe do both sides of the transaction.
- DFDavid Friedberg
No, that's not what's gonna happen, and there's also gonna be limits on that. But, but here's what I will say. If you look at the, the, the number of people, there are 1.4 million members of NAR today, the National Association of Realtors. If you look at the distribution of earnings, uh, you guys know this, my guess is probably 10% of those realtors make 40% of the fee income or 50% of the fee income.
- JCJason Calacanis
Some there's a long tail.
- CPChamath Palihapitiya
There's a principle.
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
So there's probably a third of those folks who are already kind of sub-living standards in terms of income. Maybe half of them won't be able to make enough money in this new, you know, fee regime that the, it'll no longer be an attractive proposition to be a real estate agent for, uh, maybe half a million to a million people over time that are agents today.
- JCJason Calacanis
Yeah, you know, I, I... It's interesting this, the, the sellers are going to be faced with buyers who just show up having seen something on Redfin and don't have a buyer's representation. And so they think, from the stuff I've been reading, that the seller's agent might be h- pointing them to, "Hey, go to these services," and be acting as like one broker essentially representing both sides. That's what people are saying is the potential-
- DFDavid Friedberg
Yeah.
- JCJason Calacanis
... downside of this.
- DFDavid Friedberg
I don't think that's gonna be... Yeah, that's not gonna happen for a couple of reasons, but l- let me ask you guys a question. If you guys wanted to go buy a new house, currently, you just go, you know, sign up an agent or buyer's agent, and they go walk with you, and eventually they'll get paid by the seller's agent. So now, you have to negotiate a fee with them upfront. Would you negotiate a fee and say to a buyer's agent, "Hey, I'll pay you 2% on whatever home I buy"? Would you be comfortable doing that, or 3% or 4%? How would you have that conversation?
- DSDavid Sacks
No, look-
- DFDavid Friedberg
What would you say, Sax? I mean, ferg- I know you've got a different situation 'cause you've got real estate people, like, working for you. But, like, if you were to go out and ge- uh, if... Would you go out and get an agent and pay, and negotiate a fee with them?
- DSDavid Sacks
It is not worth it to the buyer to pay 2 to 3% of the purchase price to-
- DFDavid Friedberg
Yeah.
- DSDavid Sacks
... make appointments. You can see-
- DFDavid Friedberg
Yeah.
- 44:30 – 48:43
Microsoft's "Shadow Acquihire" of Inflection
- JCJason Calacanis
here. The AI landscape shifting yet again. Microsoft just, just did-
- DFDavid Friedberg
(laughs)
- JCJason Calacanis
... another one of these shadow acquihires, this time of Inflection AI, bizarre deal. Microsoft has hired most of the team at Inflection AI, including the CEO, Mustafa, who everybody knows. I just actually had him on This Week in Startups. He was the co-founder of DeepMind. He worked at Google for years, and now he's going to be the CEO of a new company called Microsoft AI. It's essentially the consumer AI division of Microsoft, but they did give him the CEO title. For background, Inflection have raised 1.5 billion over the last two years. It was one of these giant fundings that occurred to build a foundational model like OpenAI is doing, like Anthropic is doing. They had a chatbot called Pi, very similar to ChatGPT. It was supposed to remember your history and build a relationship with you. That's all getting shut down. Reid Hoffman, who is a major investor in this company and who's on the board of Microsoft and who sold LinkedIn to Microsoft, him, played an important role in this deal according to reports. And the Inflection investors included Bill Gates, Eric Schmidt, and a bunch of other interesting folks. But this was a acquihire, which is the weird thing, Chamath. They hired all the employees, they leave the shell of a company, the company's gonna go do some enterprise stuff and investors get to keep their equity in Inflection, but I guess that might be worthless. There's something going on here that we don't know about this deal structure. When you saw this deal, and you see Satya taking the entire team like he threatened to do with OpenAI, if you remember, same exact kind of thing, "I'll acquire everybody if you don't take the deal." What is your take o- of what's going on here? Why did this occur like this instead of just buying the company?
- DFDavid Friedberg
I mean, it occurred like this because Reid and Bill are inexorably tied to Microsoft, so they were able to get a deal for investors that would have never happened otherwise. And so good on them. I think they did a very good job protecting the fiduciary interests of the investors of this startup.
- JCJason Calacanis
Sacks, what do you think?
- DFDavid Friedberg
No conflict, no interest, right?
- JCJason Calacanis
Yeah, I mean, we, we say that a lot. This is so weird though. Why not buy the company, Sacks? Is it because of antitrust?
- DSDavid Sacks
Actually, that's a good theory. It's just as hard for Microsoft to get anything through at this point.
- JCJason Calacanis
Mm-hmm.
- DSDavid Sacks
So probably they're just like, "Why even deal with the antitrust?" They don't really need the assets, so I think they license the core tech from the Inflection C Corp, and then they hire away all the talent, and then the investors get made whole. So I think it's like a- an acquihire with a little bit of tech along with it that they get through the licensing deal. Maybe that's just to protect them from an IP standpoint. My take on this is that this was a bailout. This was a bailout of the investors. I don't think-
- JCJason Calacanis
Huh.
- DSDavid Sacks
... the investors got ripped off here. I think the investors were, like, thrilled to get their money back. For whatever reason, this company wasn't going anywhere-
- JCJason Calacanis
Huh.
- DSDavid Sacks
... and it raised hundreds of millions of dollars. Reid and Bill obviously are, are wired in, they're on the Microsoft board. And this company did have some talent that Microsoft wanted.
- JCJason Calacanis
Okay.
- DSDavid Sacks
So they basically did a giant acquihire and it bailed out the investors.
- JCJason Calacanis
Freidberg, is that your take? This is a bailout, or do you think this is a new interesting end run around antitrust where, hey, if Adobe wants to buy the next Figma, just buy the team, do a license of Figma, some fakaka lunacy? Or do you think this is a bailout? What, what's your theory here, Freidberg? And what does it say about Microsoft's approach to the AI space?
- DFDavid Friedberg
I don't think this is some runaround antitrust. I think obviously, like a lot of companies, there's been a realization on how quickly foundational model development is commoditizing and how quickly costs-
- JCJason Calacanis
Hm.
- DFDavid Friedberg
... are escalating and how many folks are chasing it. So having some unique advantage in the particular plane of the market where they were participating as a startup maybe became difficult and untenable in negotiations and conversations between all these parties who all know each other very, very well and are all very friendly. You know, this ended up being kind of the best way to move forward. So...
- JCJason Calacanis
All right. There you have it, folks.
- 48:43 – 1:01:57
How the besties would deploy $40B in AI as a sovereign wealth fund
- JCJason Calacanis
In other related news, the Saudis are planning a $40 billion AI fund, according to The New York Times. Reps from the Public Investment Fund, uh, in Saudi-... have spoken to a number of firms about partnering on it. This would be the second-largest venture fund of all time behind SoftBank's $100 billion Vision Fund 1, which you remember was also backed by the Saudis and some other folks in the Middle East region. This new fund would reportedly invest in AI startups, chip companies, and data centers. So we thought we'd do a little quiz here. If you were given the 40 billion, David Sacks, how would you allocate the 40 billion in AI in today's market, 2024 going on? If they put you in charge of this $40 billion AI fund, where would you deploy it? Same question will come around the horn to you, Freyberg, and then you, Chamath.
- DSDavid Sacks
Well, the first thing is, I wouldn't be in a rush to deploy all 40 billion at once because that's a recipe for spraying a lot of money into unproductive or overhyped things. So I would take my time, first of all. But second, in terms of coming up with a framework, I would think about the different levels of the stack of AI and try to figure out where the value capture is gonna be. And I think there's maybe four different layers of the stack. First, you've got the silicon, you've got the chips where NVIDIA is dominant, then you've got the foundation models where it's OpenAI, and then there's some open source models. And then you've got kind of infrastructure, dev tools, vector databases, things like that. And then finally, you have the applications sitting on top of that, which are just getting started. I think it's really hard to know from what we're seeing today exactly who's going to capture the most value in this stack. I mean, you could make an argument for or against pretty much any layer of the stack. I guess if I had 40 billion to deploy, what I would do is try to identify who are the leading companies at each level of the stack, and then who are the most promising challengers, and I would make a bet at e- every layer so I'm covered. That's not what I personally do because I'm not, you know, I'm just not a hardware investor, I'm not really an infrastructure investor, I'm more of an application investor. So I'm gonna focus on that fourth layer of the stack and just trust that there's gonna be enough value there. But again, if I was managing a $40 billion sovereign wealth fund, then I would play at every single level, and I would hire the best people who know each layer of that stack.
- JCJason Calacanis
Sacks, I think you do a good job of sort of showing the, the four layers of the stack. I think open source, the application layer, and specifically robotics are huge opportunities that are underinvested in right now. So I would take the top open source projects, I'd find those top contributors, take the top 20 or so open source projects and back them to the tune of, you know, significant money, 50 million, 100 million, whatever it takes, and try to own the top 20 or have insights into those top 20 open source models and own those teams. Look for the top contributors, really easy to do on GitHub and Hugging Face and Replit and other places where they're active, and empower those. Then obviously there's verticals. We're, we're working on people who are doing screenplays and tax just like you are, Sacks, and that's a fantastic place to deploy money. But then I think robotics is gonna be super, super compelling here, and that takes a lot of money. And so you do have the capital as a weapon and, you know, the 20-year view of this, and making a general pur- purpose robot like Elon's doing with Optimus or Figure AI's doing with their robot, I think robotics is a major place. You could probably buy... I don't know who owns Boston Dynamics now. I know Google sold it. So, you could probably buy some robotic companies and then put the AI on them and really take a 20-year view of robotics. Freyberg, your thoughts? How would you deploy the 40 million?
- DFDavid Friedberg
The bottom three stacks are very difficult right now to find a footing obviously. Uh, you know, I think Sacks, the, you know, it's, it's the, I think the generally accepted framework for how to think about how the market is broken apart. But on the application side, I think, is where you could think about m- finding more traditional business model advantages. So, you know, I think your point about robotics is a really interesting one. You know, is there a enterprise-like sale of robotics tools that have positive ROI for enterprises? And is there a business that's working there and that is scalable? Vertical solutions in labor and automation and productivity gains are probably the best Sharpe ratio. Good alpha, lower beta, and a good place to kind of deploy competing in chips, competing in infrastructure, competing in models, it's such a, you know, as we just talked about with respect to what happened with Inflection and Microsoft this week, it's such a rapidly changing environment, it's hard to have high confidence in where things are headed there. So I do think that we do know that there are enterprise markets, we know that there are segments of things like food, medicine, you know, manufacturing. These are markets that aren't going anywhere, and they could all certainly benefit from unlocks in software or in robotics and automation and hardware. So, that's probably where I would think about concentrating capital. But, you know, 40 billion is a lot of money, so you'd probably think about deploying it over what period of time? Is it 10 billion a year over four years? And then is it broken apart in what way over those sectors and over what geographies, and, you know, then find good managers to help you get it deployed.
- JCJason Calacanis
Chamath, you're batting cleanup here. You got to hear everybody's answers before giving your own. What are your thoughts on your other besties' answers, and what's your plan to deploy 40 billion for the Kingdom of Saudi Arabia's Public Investment Fund?
- CPChamath Palihapitiya
The most, the most important thing that fund managers get wrong is not having appropriate reserves for your winners. And if I look back, the real profit dollars that I leaked was not not investing enough upfront but when I didn't have enough reserve to do the full pro-rata or even super pro-rata in the ones that worked. So the first thing you have to do-
- JCJason Calacanis
100%. Yeah.
- CPChamath Palihapitiya
... and when I do the regression on all of my funds, you really need to reserve between 40 and 50% of the total fund size for reserves. So, take 20 billion off the table. And now you have a smaller problem, which is how do you deploy 20 billion? Because the other 20 billion is purely meant for the winners.... where you cram the money into the few that are winning so that you can make the most money. Of that 20 billion, I would probably take two-thirds of it, and I would go to all the hyperscalers and anybody that's providing cloud compute and essentially buy out all of the compute credits on GPUs so that I could tell any startup in the world, you will do a SAFE with me-
- JCJason Calacanis
(laughs)
- CPChamath Palihapitiya
... the Kingdom of Saudi Arabia. I will give you free compute on, pick your cloud provider, pick your model, I don't care. So if you wanna run LLaMA on Groq, great. If you wanna run Mistral on GCP, great. If you wanna run OpenAI on OpenAI, fantastic. But we will pay for all the compute. In return, we get 7% upfront and you have to tell us some benchmark of how this model is improving.
- JCJason Calacanis
Hm.
- CPChamath Palihapitiya
And then you are hiring a team of people whose job it is, and you can probably train a model to do this as well, to ingest th- the reporting in a systematic way to understand if it is, as you guys said, a robotics company, there are measures of the quality of a robotic, a, a robot's dexterity or vision or manipulation or task completion rate. If it's a search engine, it's a different thing. If it's a consumer-facing app, it could be users. If it's a drug discovery app, it's the number of legitimate protein synthesis passes that, that pass, whatever it is. So now you've scoped the problem to 20 billion is in reserves, 15 billion of it is tied up in credits, and then the five billion I do think it's what David said, what Sax said, which is a billion and a half to the hardware, a billion and a half to infrastructure, a billion and a half to some of these discrete ideas. You probably need a 30 or 40 person team total, no more. But that business can, could make a trillion dollars if it was set up that way. But the key is to get the credits out to people so that the reality is, what the commonality across every single AI startup is that they will have to run on a model, and that model will be hosted somewhere in a cloud, and all of that compute will need to be paid for. So Saudi Arabia should pay for that compute, get six or seven percent upfront, and retitle the SAFE not as the... What is a SAFE called, Jason?
- JCJason Calacanis
Simple Agreement for Future Equity.
- CPChamath Palihapitiya
This should be the Saudi-
- JCJason Calacanis
Saudi Agreement for Future Equity.
- CPChamath Palihapitiya
... Saudi Agreement for Future Equity. (laughs) I love it. That's what they should do.
- JCJason Calacanis
All right. Well, there you have it, MBS, the all-in KSA $40 billion fund. Give us a call, we'll fire it up, and w- we'll deploy the 40 billion for you. I kid. Maybe.
- DSDavid Sacks
Actually, I'm curious, you guys, since everyone kind of seems to agree with the, the framework of the four levels of the stack. Where do you guys think the value cap is gonna be? Do you think it's gonna be by the chip companies, the foundation model companies, the infrastructure companies or the-
- CPChamath Palihapitiya
Mm-hmm.
- DSDavid Sacks
... or the applications?
- DFDavid Friedberg
I'll actually change my answer in a little bit. I don't think it's necessarily new technology companies per se that are gonna benefit most, but I think that it's businesses in traditional industries that are gonna be able to leverage these tools, whether they're using open source tools or third-party technology capabilities that they're buying as a service or as a piece of software. There's an incredible set of advances that are gonna be realized in things like chemical manufacturing, drugs, general manufacturing that have existing scale and infrastructure that are the fastest to move to adopt these technologies are gonna benefit the, the most. And I think that's probably where most of the value will accrue is not necessarily a chip company, but in other businesses and traditional industries that can transform themselves-
- DSDavid Sacks
Mm-hmm.
- DFDavid Friedberg
... using AI.
- DSDavid Sacks
So your answer is at the application level.
- JCJason Calacanis
Application level, yeah.
- DSDavid Sacks
And then within application level, you could divide it up between existing companies and startups.
- DFDavid Friedberg
Yeah.
- DSDavid Sacks
And, uh, existing companies that are able to leverage AI innovations that are lower in the stack.
- JCJason Calacanis
Another way to answer your question, Sax, is which is the most crowd- which spaces are the most crowded already? And so obviously chips are super crowded, lots of incumbents, lots of people going after it, and the foundation models are very crowded as well. And the application level is yet to sort of be built out, right? 'Cause we're in year zero or year one of that. So I do think application level is where there's a lot of value, but I also think the hosting and the development of these various niche models is gonna be a huge opportunity. So just, once again, those open source models being put into cloud computing environments and optimized, that could be a whole new level of AWSs and Google Cloud and Azures. So there is an opportunity for somebody to compete with those incumbents by just being better at those models that are open source and having the team that's doing those updates and then optimizing that cloud. So I would go with the cloud level for those open source models and providing that as a service like VMware does or other folks do. WordPress would be a tiny example of an open source project like that. And then I just, I, something tells me this robotics space, which has been a false start over and over and over again, I think this is the time where actually it's gonna work. And so I'm, I, I l- love that hardware robotics space.
- CPChamath Palihapitiya
Oh, yeah. I think you're right, Sax. I think it's kind of book-ended in my mind. I think the, the folks that are building fundamental hardware will make a lot of money over the next five to 10 years. And then the folks that are building the fundamental application level experiences will make a lot of money as well. And then who knows?
- 1:01:57 – 1:07:17
Reddit IPO: is risk-on back?
- CPChamath Palihapitiya
to the answer.
- JCJason Calacanis
All right, Reddit went public today. They have 800 million in revenue. Company is worth over $8 billion. In trading, it's up 50%. What do you think, Chamath? Is this the opening of the IPO window again? Is this a one-off? We got Stripe coming. And, and what do you take from it popping 50% on the first day?
- CPChamath Palihapitiya
I don't know. I really haven't looked at the company. I haven't looked at the, the financials. But, like, these last three or four weeks, I think people have been so excited and raring to go. We're in the middle of another meme coin craze, so I-
- JCJason Calacanis
Oh, God. Don't bring it up. (laughs)
- CPChamath Palihapitiya
I just think- (laughs)
- JCJason Calacanis
We're all getting pulled into that nonsense.
- CPChamath Palihapitiya
I think the point is that I think there is a speculative party going on right now.
- JCJason Calacanis
Mm-hmm.
- CPChamath Palihapitiya
And I'm not saying that Reddit is part of it, but whenever these things are so mispriced, just means that people are, are ready to gamble a little bit.
- JCJason Calacanis
There's definitely a lot of gambling in the system, as we've seen, and we're recording this on Thursday, so who knows what the stock price will be tomorrow. Generally, these media companies-
- CPChamath Palihapitiya
I mean, the, by the way, sorry. The other thing is, like, Powell did say finally it looks pretty likely we're gonna get these three cuts, so we're gonna be down to 4.5 to 4.75 on Fed funds by the end of the year. It probably means that we'll get another 50 to 75 basis points through 2025. So, people will look out to the end of 2025 and look at a Fed funds rate that's sort of like-
- JCJason Calacanis
Hmm.
- CPChamath Palihapitiya
... 3.75 to 4%. So, they're getting pretty excited and frothed up. So, this is the beginning of the beginning in terms of that kind of speculation.
- JCJason Calacanis
Yeah, we saw crypto go bonkers the last couple of weeks. Yeah, what, what's your take on all this, Sacks? Is, does it feel like people are in, uh, gamble mode again? And does that concern you, I guess, after what we just experienced?
- DSDavid Sacks
Well, I think they're pricing in these rate cuts as if they're definitely gonna happen. Like Chamath said, I think the ex- market's expectation is with, let's call it 70% certainty, that you're gonna get three rate cuts this year. And it still seems to me that that's a little bit up in the air because inflation has not come down to the Fed's target of 2%. It's still right around 3%, 3.1%. So, it's been sticky around 3%. It was coming down pretty fast last year, but it's still there.
- JCJason Calacanis
Hmm.
- DSDavid Sacks
So, people, I think, are maybe gambling in the sense that they're counting on rate cuts that haven't happened yet, but they liked Powell's dovish rhetoric yesterday-
- JCJason Calacanis
Hmm.
- DSDavid Sacks
... and they seem to think that that means that the rate cuts are definitely coming.
- JCJason Calacanis
Hmm.
- DSDavid Sacks
I don't know how Powell can promise that without inflation coming down, unless he's trying to create a Biden put.
- JCJason Calacanis
Hmm. There it is, folks.
- DSDavid Sacks
Which was my theory going into this year, is that-
- JCJason Calacanis
Yeah. If you took the, um-
- DSDavid Sacks
... is that we would get a Biden put from the Fed.
- JCJason Calacanis
Absolutely, and it's looking like-
- DSDavid Sacks
(laughs)
- JCJason Calacanis
... Biden has a clear path to victory based on the lowest unemployment of our lifetimes and this roaring stock market records. Yeah, this is a easy Biden victory. Freeberg, what do you think about the risk-on?
- CPChamath Palihapitiya
I don't know.
- DSDavid Sacks
Powell is incredibly unpopular. If you look at his actual polling, he should not win the election. But that's in spite of, you're right, the economy is, seems to be doing pretty well, and the stock market's certainly doing pretty well. A president with these fundamentals would normally get reelected, but Biden currently is not, his polling is not the polling of a president who's gonna get reelected.
- 1:07:17 – 1:18:21
Science Corner(s): Universe expansion, first pig kidney transplant in human, Neuralink
- DSDavid Sacks
- CPChamath Palihapitiya
Freeberg, you had a, a science corner here. A couple of different things came up, the Hubble Telescope, 3D-printed organs. What, where do you wanna go with this?
- DFDavid Friedberg
I mean, do you guys wanna talk about t- how the universe is expanding at an accelerating rate and expanding differentially everywhere we look, and we don't understand how or why?
- DSDavid Sacks
Yeah.
- CPChamath Palihapitiya
100%, and Sax needs to use the loo, so yeah, definitely.
- DFDavid Friedberg
(laughs)
- DSDavid Sacks
(laughs)
- CPChamath Palihapitiya
He's all red. (laughs)
- DFDavid Friedberg
He dropped. He dropped.
- CPChamath Palihapitiya
Well, I love science corner. Let's do it.
- DFDavid Friedberg
Yeah.
- CPChamath Palihapitiya
Freeberg, it's your time to sign, to, to shine-
- DFDavid Friedberg
Well, well, well, well, well.
- CPChamath Palihapitiya
... as the sultan of science. Tell us what's going on with the universe.
- DFDavid Friedberg
My favorite topic, astrophysics.
- CPChamath Palihapitiya
Here we go.
- DFDavid Friedberg
My favorite topic. My favorite topic.
- CPChamath Palihapitiya
Sax is back. Sax is back.
- DSDavid Sacks
Are we headed for Uranus?
- DFDavid Friedberg
(laughs)
- CPChamath Palihapitiya
We're actually dead set on it. We're dead. That collision's not over yet.
- DFDavid Friedberg
It's like the second course for his anus. He disappeared again.
- CPChamath Palihapitiya
He's just gonna drop in-
- DSDavid Sacks
(laughs)
- CPChamath Palihapitiya
... and do U- Uranus jokes.
- DFDavid Friedberg
I hear him giggling with his camera off.
- CPChamath Palihapitiya
Oh, he's get, he's, he's with his writers. He's, he just-
- DFDavid Friedberg
Yeah.
- CPChamath Palihapitiya
... went to the writer's room to get an update on the Uranus jokes.
- DFDavid Friedberg
It's long been known that our universe is expanding. We've all heard about the, the Big Bang Theory. And couple decades ago, scientists began to observe the brightness of supernovae or exploding stars, and then by looking at their brightness, we could tell how far away they were. And then looking at the shift of the light, whether it's getting red or blue, you can tell whether the light, the, the, the supernova is moving away from us or towards us and how quickly. And so what scientists have used those observations to deduce several decades ago, and for which a group won the Nobel Prize, is that our universe is expanding, meaning that everything is moving away from itself. It's almost as if we're all in a cake. The best analogy I've heard is that there's raisins in the cake, and as the cake expands in the oven, all of those raisins look around and they're all moving apart from each other. So the distance between everything is getting wider. Space is expanding. And so we can actually-
Episode duration: 1:19:19
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