All-In PodcastElon gets paid, Apple's AI pop, OpenAI revenue rip, Macro debate & Inside Trump Fundraiser
EVERY SPOKEN WORD
150 min read · 30,437 words- 0:00 – 8:48
Bestie intros: Bringing up the energy!
- JCJason Calacanis
Nick, these guys are low energy today. You notice that? You know what we need to do? We need to (censored) gamble. Let's do it, Nick. Let's play a (censored) hand of blackjack. Let's get these guys (censored) amped.
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
Gentlemen, what an absolute pleasure to walk amongst some goddamn greats. Uh, let me see if I can put a bit of pip in your step with a one-time blackjack hand to kickstart one of the greatest-
- JCJason Calacanis
Is this real?
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
... podcasts on Earth. It is... I can confirm this is not AI, my friend.
- JCJason Calacanis
You did this?
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
We're gonna rock and roll proper today.
- JCJason Calacanis
Let's go.
- CPChamath Palihapitiya
(laughs)
- DSDavid Sacks
All right.
- JCJason Calacanis
Let's (censored) get some action. This is early.
- CPChamath Palihapitiya
Wait, are, is this guy... Are you on right now?
- DSDavid Sacks
LFG.
- JCJason Calacanis
Hold on.
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
Oh, yeah. Mate, you are going to... You are... I, I'm actually breaking my own rules for you guys. Uh, I filmed today's hand, day 14-
- CPChamath Palihapitiya
(laughs)
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
... but I'm gonna film tomorrow's hand for you guys right now. Um, it'll roll out this, this week's en-
- JCJason Calacanis
Yes. (clapping)
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
... roll, roll out when you record.
- DFDavid Friedberg
Wait, Tim, Tim, sorry. Hold on. Hold on. Wait a minute, Tim. You are a Kiwi living in Calgary. Is that right?
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
Yes, uh, correct, yep. Kiwi living in Calgary. Been here since September 2022, the missus and I.
- DFDavid Friedberg
Oh my God.
- JCJason Calacanis
That's fantastic.
- CPChamath Palihapitiya
This is awesome.
- JCJason Calacanis
Well, welcome, welcome to my country.
- DFDavid Friedberg
Welcome to the pod.
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
Thank you.
- JCJason Calacanis
I don't live in Canada anymore, but...
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
Yeah, I don't think so either.
- CPChamath Palihapitiya
Tim, that was a fun ride to Calgary. I don't know how I... I stumbled across you somewhere, and I started watching all your videos on Instagram.
- TGTim the Kiwi gambler (Instagram poker vlogger guest)
Mm-hmm.
- 8:48 – 23:16
Trump fundraiser recap
- DFDavid Friedberg
in.
- JCJason Calacanis
I don't know what's going on. Anything going on in your life? Anybody, uh, been busy having some adventure? Sax, seems like you were busy last week. Any- anything to report from your side of the world?
- DSDavid Sacks
Well, should we take you, take you guys behind the scenes of, of a presidential fundraiser? I admit I've never done one before, so it was, uh, it was a new experience for me. When you host a president's, it's a whole different level of preparation.
- JCJason Calacanis
Oh, my gosh.
- DSDavid Sacks
The Secret Service was out, like, a week before. The president has an amazing advance team. They work out every detail, they make a map of your house, they really have to think through everything.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
The police shut down the street. It's really a very involved process.
- CPChamath Palihapitiya
By the way, I went to dinner in the city that night. And, you know, I was right by your house. So I drove up the street, and they had everything blocked off on, like, three blocks on both streets, like, on both sides of your house.
- DSDavid Sacks
Mm-hmm.
- CPChamath Palihapitiya
But there were all these protesters, like, all throughout San Francisco. Like, pro-Trump people had driven in from all over NorCal must have been 'cause these were not San Francisco natives.
- JCJason Calacanis
Supporters, supporters.
- GCGuest (additional, brief contributor)
Yeah, yeah, yeah.
- CPChamath Palihapitiya
Supporters, yeah. And they came in with these, like, cars and the streets were blocked. It was a total zoo in the city. For hours before and after your... I actually stayed in the city that night, and I heard the people going nuts for hours afterwards. But it definitely, like, took over, it took over the city. It was crazy.
- DSDavid Sacks
Yeah, so what's really interesting is that all week the San Francisco publications had been trying to gin up protesters by writing about that, you know, the president's coming to town and the protesters are gonna show up. And in fact, there was almost no anti-Trump protesters, and then a huge number of pro-Trump demonstrators came out, and they were waving flags and cheering along his motorcade as he was coming to the house. So, the whole protest thing backfired.
- CPChamath Palihapitiya
Why do you think anti-Trump protesters did not show up? What happened?
- DSDavid Sacks
I think there's just a big enthusiasm gap. I mean, I think that the pro-Trump people are very enthusiastic, and the, let's call pro-Biden or anti-Trump people are just not very motivated right now.
- JCJason Calacanis
So it's exhausting to be against Trump for eight years. Like, this has been exhausting.
- CPChamath Palihapitiya
People are wiped out.
- JCJason Calacanis
I think they've exhausted folks.
- CPChamath Palihapitiya
Uh-huh.
- DSDavid Sacks
So anyway, so Owen, Owen McCabe-
- JCJason Calacanis
It's a losing proposition.
- DSDavid Sacks
... who's the founder of Intercom, he was there, and I, I think this was actually a, a good summary because he said that he spoke with a bunch of people and none of them identify as Republican, all voted or d- donated Democrat in the past. That's true for me too. Now they're backing this guy for his policies on war, immigration, crypto, and more. This election's a referendum on those issues. So Owen, you know, came out, appreciate his support. But it's true, the campaign told us that they had more first-time donors at this event than they've seen before, and that's because a lot of these people hadn't supported Republicans or hadn't supported Trump, and they came out. So we have a few photos and videos here to take you behind the scenes-
- JCJason Calacanis
Oh, here we go, behind the scenes.
- DSDavid Sacks
... I think might be interesting for people. So the first thing to say is that President Trump is extremely charming. He connects with people in, like, five seconds. I mean, he meets you and f- and finds something interesting and, or funny to say, and he's hilarious. I mean, when he spoke in the, the living room, and he talked extemporaneously for an hour, he's speaking off the cuff, every speech he gives is different. This is him coming into-... the living room. He had made a- just a few notes about topics he wanted to talk about on a piece of paper, but that was it. It was all completely extemporaneous. No teleprompter, obviously. And he's hilarious. I mean, people don't realize how entertaining he is. And-
- JCJason Calacanis
What did- what did- what were some of the greatest hits? What did he hit on? Did he hit on low pressure from showers? Did he- what did he-
- DSDavid Sacks
(laughs)
- JCJason Calacanis
... what did- because I know he's got, like, some things he hits on that are relatable. Was it all, like, specific crypto topics, tech topics, or did he go off and-
- DSDavid Sacks
Well, he did, you know, he did talk crypto. And it was really interesting. At one point in his speech, he called on the Winklevoss brothers who were there. And I'm only mentioning this because it was already reported that they were there, so I don't wanna speak out of school. But he said to them, he says, "I know you guys created Facebook." You know? (laughs) He was giving them credit for creating Facebook. And then he said-
- JCJason Calacanis
I know he- he actually created it.
- 23:16 – 40:12
Elon's comp package approved by shareholders
- JCJason Calacanis
Breaking news last night, Tesla shareholders have backed their guy. Yes, there was, uh, two important votes, measures that Tesla just had taken with their shareholders. The first was approving Elon's pay package, the $56 billion pay package that was voided by a Delaware judge. We talked about that on episode 164 back in February. And then, moving Tesla's incorporation from Delaware to Texas. This is also major. Remember we talked last week about the Texas Stock Exchange? Here's the two charts. Massive overwhelming support. There were some notable people who dissented. I think Norway's sovereign wealth fund and CalPERS were two of the ones who were voting against it. Tesla share price popped 6% on the news. You don't want to lose Elon at Tesla. That would be really bad. So your thoughts, Chamath, on this vote, and maybe the move and what that represents?
- DFDavid Friedberg
It's...... kind of odd that we're in this crazy place.
- JCJason Calacanis
Say more.
- DFDavid Friedberg
When that original package was unveiled, there was a lot of people, including me, who thought, "There's no way he's gonna hit this. It's just way too aggressive and it requires so many things to go right." And so I think in part that's why three-quarters of the Tesla shareholders approved it then. 73% is not squeaking over the line, it's not 50% plus a vote. It's, it's a supermajority.
- JCJason Calacanis
And that excluded Kimbal and Elon shares.
- DFDavid Friedberg
Exactly.
- JCJason Calacanis
So...
- DFDavid Friedberg
And then I think you had this very dangerous form of judicial activism, which essentially ignored the will of the shareholders and tried to create some administrative ruling that threw up this big question mark. So then in, in typical Elon style, he's like, "Great. We're just gonna get them to vote it again." And then yet again, it passes and it looks like it's gonna pass by around 73%. But the problem now is that it's still not clear what happens. I think that there's still some question marks where this may not nullify the judge's decision. It may actually create more question marks. So hopefully this gets sorted out. He should get the stock. He never should have... Or these options, he never should have had them taken away. And so I just hope this thing...
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
... it becomes a nothing burger.
- JCJason Calacanis
Sacks, you have thoughts on this outcome? Is it surprising to you? Not surprising? And then I... I think the jurisdiction thing is bigger than maybe people are thinking, because Delaware has been the standard for incorporating companies, but Elon is putting his companies in Nevada and Texas. We saw the stock exchange, uh, last week going back to move to Texas. This does seem like there's something about jurisdiction in the water. What are your thoughts, Sacks?
- DSDavid Sacks
Well, I think it's ironic that the winning margin, 73%, is the same margin by which shareholders approved his comp package back in 2018. So again, they got 73% voted for this 2018. Now, they voted to reapprove it by the same margin. And the reason why they had to do it is because this activist judge in Delaware voided it on the grounds that somehow the original shareholder vote wasn't valid. And I think this is interesting that the margin didn't change, because it shows that shareholders aren't ingrates. Elon delivered what he promised, and now shareholders are upholding their end of the bargain. And certainly, they didn't have to take that position. There were different groups, like CalSTRS, who basically took the position, "What have you done for me lately?" You know? "Yeah, you delivered, but we don't have to pay you because of the judge, so we're not gonna pay you." And I think shareholders wisely approved the package, because I think there was some chance that if they were negged, that Elon could leave the company, and I still think he's absolutely vital to all the innovation that's gonna come in the future from Tesla. And you see this, the stock is ripping on the news. It's up about 3% today in a down market. So clearly, the market thinks that securing Elon's future at the company was the right decision and shareholders did the right thing.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
And t- in terms of the, the downstream effect on this, like you said, it raises the specter of Delaware being an activist state. That's not why anyone incorporates in Delaware. The reason why you incorporate in Delaware is because you think it makes you subject to an extremely predictable body of corporate law...
- JCJason Calacanis
Correct.
- DSDavid Sacks
... that's been tested and become bulletproof...
- JCJason Calacanis
Correct.
- DSDavid Sacks
... over many, many decades. And now all of a sudden, you have to worry that maybe a judge will set aside a shareholder vote for reasons that seem incredibly specious, es- especially in light of the fact that the shareholders just reapproved it.
- JCJason Calacanis
Hm.
- DSDavid Sacks
So obviously, the shareholders did- didn't think they needed your protection, and they voted to reverse you. And moreover, Tesla could still be subject to paying the legal fees of these trial lawyers who've asked for literally billions of dollars in legal fees that the judge still has to rule on. So imagine this, imagine that the shareholder vote gets set aside by the judge. It then gets reapproved by shareholders, but the trial lawyers who brought this nuisance suit can now get billions of dollars. If that happens, I mean, Delaware can kind of kiss its status as the premier corporate law state away.
- JCJason Calacanis
Friedberg, is this a John Galt moment? Is this where capitalism, socialism and the state collide, and people now start thinking, "Hmm, maybe we need to create a new jurisdiction, a new framework?"
- CPChamath Palihapitiya
That's a good question. I think it's a good example for capitalism, and I think it should shine a light on how other CEOs are getting compensated at public companies, where there's typically a multimillion dollar or multi-decamillion dollar pay package that has no dependency on the performance of the business. You can make tens of millions of dollars a year and not drive shareholder value. And I think that the way that this deal was structured, where Elon effectively got 10% of the company for 10Xing the stock should be an example that other boards should actively consider when considering both candidates and their appetite for this sort of a package and their compensation packages themselves. The way executive comp typically works at the board level at public companies is you hire these comp consultants, and the comp consultants come in and they use comparables, which basically means, "Let's do what everyone else does." And so you have this self-reinforcing system of compensation and benefits for CEOs that bumps up a little bit every year.... that ultimately has not, has some degree of ownership in the stock, but fundamentally has very little downside. And Elon had no guarantees in his pay package when he got this comp package originally in 2018, and he got 10% of the company if he 10Xed the stock, which is what he did. I really think that it is worth having this become the kind of beacon for all boards to consider, and it seems like shareholders in aggregate are applauding the concept. And look, Elon is a special guy and he gets special treatment, but I think that it moves the needle and should move the needle a little bit for other CEOs and other boards to stand up and say, "We should think about something that looks a lot more like this than what we typically do." And I think you would find a very different cast of people showing up to become CEOs and to drive performance out of these businesses, and a lot more risky and aggressive behavior than what I think you would typically see in big companies that are in maintenance mode.
- DFDavid Friedberg
What do you guys think of the organizations that initially voted yes and now voted no?
- CPChamath Palihapitiya
They basically are saying, look, I mean if you think about it, you're a big public company. I, I don't know what ISS recommended, this is Institutional Shareholder Services. They, they-
- DFDavid Friedberg
They recommended no both times.
- CPChamath Palihapitiya
Right. And so ISS basically is what a lot of big public fund managers will follow when they make their votes, and so if I'm a shareholder-
- DFDavid Friedberg
That's not what I'm, that's not what I'm asking.
- CPChamath Palihapitiya
No, no. I, I know what I'm saying.
- DFDavid Friedberg
What I'm saying-
- CPChamath Palihapitiya
But like let's say, let's say that I'm BlackRock or I'm a sharehol- I'm big, I'm not gonna put BlackRock as some big shareholder of Tesla stock. Why would I vote to give away 10% of the company when I don't have to?
- 40:12 – 50:17
Apple announces "Apple Intelligence" and ChatGPT deal at WWDC
- JCJason Calacanis
moving. Apple had a huge announcement this week. Apple has entered the chat. They announced Apple Intelligence. Get it? AI? And they have included a ChatGPT integration from OpenAI. This was really, I think, impressive in many ways, because people thought Apple was far behind. It was a banger of a demo. A lot of un-Apple-like, future-looking demos. So none of these demos that we're gonna show are coming to your phone this week. They were really, I think, playing catch up with Microsoft, and it worked. Stock is up 10%. Uh, they added about 300 billion in market cap. Now the top three market cap companies are all driven specifically by the perception that AI is going to be the next technological wave. Microsoft, Apple, and NVIDIA all cruising around about $3.2 trillion, and th- this top three keeps, uh, flipping back and forth. Apple had passed Microsoft in market cap. Here's the features. I'll just give you a quick overview of what we're seeing. It's added, uh, Grammarly-like features. Great product, Grammarly. I'm not an investor. But they added the ability to proof, get grammar help. AI will transcribe and summarize phone calls with permission. Obviously, double opt in. It will prioritize notifications in iMessage and email that are super important. You can do smart replies. Uh, a company where an investor in Superhuman already does this kind of stuff. And they're bringing AI to Siri, and this is gonna be the big win, in my mind. You're gonna be able to say things like you wanna order something in DoorDash or Uber Eats or Instacart, and it... the AI Siri will be able to dip down into apps. They're building a whole app AI interface, much like the Rabbit device CEO talked about doing. And, uh, I think this means that Apple is gonna win the AI consumer. There is a deal with ChatGPT that I'll get your feedback on, gentlemen, in a moment. According to sources, Apple is not paying OpenAI. It's a non-exclusive deal. ChatGPT can be swapped out. Apple is also talking to Google about a similar deal. Obviously, it doesn't take a genius to predict that Apple is going to auction off the LLM integration, I think, to the highest bidder. They did that with the search deal. Google pays Apple 20 billion to be the default search engine. That's about 5% of Apple's annual revenue, if you didn't know, and it's all profit, right? So, this is a huge, uh, profit moment. I'm gonna pause there for a second before I get into more of this, uh, and just get your general reaction, Chamath.
- DFDavid Friedberg
I think you nailed it right at the beginning. The thing that I was struck by the most in this is, we went from a phase where, in the Steve Jobs era, these events were because you're about to unveil a product that was done and shipping as of that day. And then at some point, we transitioned to they're talking about products that they intend to release within a year. Now, we've shifted to the part where they're talking about software integrations from a third party that will happen in a year. So if you just look at it sequentially-
- JCJason Calacanis
Mm-hmm.
- DFDavid Friedberg
... it's a little disappointing in that sense because for a company this big, it's really not much of anything. You can't really touch it and feel it, and it's gonna take a year before we really know what the totality of all of this is. Meanwhile, the economics of the ChatGPT deal were leaked, and there's no money on either side. So, I don't know, it's a little bit of like, it's really not much of anything, to be honest, because there's nothing we can actually play with and experience.
- JCJason Calacanis
Freeberg, your thoughts on the vision here, at least. And to Chamath's point, Apple used to release dope stuff, fully baked, ready to go, and now we are increasingly see them talking about what's coming next year or at some point. Do you think Apple's gonna win the consumer or do you think Apple's falling behind? Should they have built their own LLM by this point?
- CPChamath Palihapitiya
I'm not sure. I think what they have shown is more of a glimpse into the future of hardware, where for the last two decades or so, hardware has mostly been a portal to access the internet and use the internet through apps or through the browser, and hardware's done a good job of enabling that. But I think we're now gonna see a much more tighter coupling, where the hardware becomes more valuable and it's less of this kind of funnel for apps to flow through and data to flow through, but the hardware actually becomes the value creator, and you see a much more tighter integration in the hardware OS and the AI or the software that enables you to do lots of things. You're no longer just gonna use the hardware to access an app to do something. So a lot of the companies that are app developers are likely gonna end up becoming services developers that enable that hardware AI to do something for you. And this coupling between hardware and software, because of the way AI works, is I think becoming more apparent, not just in consumer devices, but we see it in the data center and in the enterprise stack as well. You know, we've seen that, obviously, there's this tight integration between the chip and the software stack that Grok built. There's a tight integration between Google's TPU stack and then the ML instances and the so- and the tools that you can use in Google Cloud that are optimized for use on that TPU hardware. Nvidia's got a big effort, obviously, in continuing to build out their software stack that sits on top of their hardware and works in a more coupled way. And then Google has this ability to kind of realize, I think, a similar outcome with Pixel phones, which is a pretty sizable opportunity for them. And then all of the hardware manufacturers can probably grab more value now as they build their own AI into their OS, and you start to see more of this value realized by the hardware companies. So I think that there's this really interesting shift, where we've all thought about hardware as being this, like, commodity, where there's some degree of, like, improvement or innovation made over time, but now it seems like a lot of value might actually get captured by hardware companies in all points in the value stack. So it's, it's an interesting moment, and I think that this just shines a light on that trend that I think is gonna play out over the next couple of years.
- JCJason Calacanis
It's clear, Sacks, that right now, to enable these features, you're gonna have to have a pretty solid device. They announced here at the keynote at WWDC that you need to have an M1 chip or better, iPhone 15 or better. So, and having all this local data is a huge advantage for Apple. They've got your messages, your phone, your calendar, your photos, your app behavior, the data inside of your wallet. All of this gives them a huge, huge advantage, so I guess the question is, do you think this renews the Apple franchise and people start upgrading their phones again to get all these new features, David Sacks?
- DSDavid Sacks
Well, the market definitely thinks so because Apple was up big on this news. And even if it was largely vaporware at this point, the market definitely liked where they were going. And frankly, Apple did exactly what I said they should do last week, which was to reinvent Siri as an LLM with the-
- JCJason Calacanis
You nailed it.
- DSDavid Sacks
... ability, with the capability to reach into apps as an agent and take actions on the user's behalf. That's what they effectively announced. However, Apple took a shortcut to get here. They partnered with OpenAI, and this is something that I don't think they've ever really done before at the operating system level. Apple is famous for being vertically integrated, for being a walled garden, for being end-to-end. They control everything from the chips, to the hardware, to the operating system, and they don't let anybody else in until you're at the App Store layer. This is allowing somebody in beneath the level of the App Store. This is allowing someone, OpenAI, to get access to your data and to control your apps at the operating system level. And I think, you know, Elon pointed out, "Wait a second, what are the privacy implications here?" And I think there are major privacy implications. There's simply no way that you're gonna allow an AI on your phone to take all these actions on your behalf without giving that model substantial amounts of user data, and that is a huge change for Apple. Remember, Apple in the past has been the advocate for consumer privacy. There's a whole issue of the San Bernardino terrorist, where the FBI went to Apple and said, "We want you to, uh, give us backdoor access to their phone," and Apple refused to do it and went to court to defend user privacy.And furthermore, one of Apple's defenses to the arguments, the antitrust arguments for allowing sideloading and allowing, you know, other apps to get access to parts of the operating system is they've always said, "We can't do this because it would jeopardize user privacy and user security." Well, here they are opening themselves up to OpenAI in a very deep and fundamental way in order to accelerate the development of these features. In other words, they took the shortcut. They could have developed the LLM themselves, they could have developed the AI themselves, but they chose not to do that. And I think this is gonna open Pandora's box for Apple, because again, they've proven that they can open up the operating system to a third party now, and who knows what the privacy implications of this are gonna be.
- JCJason Calacanis
It turns out Apple has addressed this head-on. They hear the concerns, and much like when you share a photo or you share your location, it's going to ask you over and over again, "Do you want to let this app do this?" So, they're aware that this is an issue. They brought up privacy every single time. But people don't trust OpenAI, and they do trust Apple, so this is strange bedfellows, to be sure. Chamath, your thoughts?
- DFDavid Friedberg
I think that Apple really cares about privacy when they're trying to hurt a company they don't like, i.e. Meta.
- JCJason Calacanis
(laughs)
- DSDavid Sacks
(laughs)
- DFDavid Friedberg
And they're- they're willing to figure out a way to work around it when...
- JCJason Calacanis
They're behind.
- DFDavid Friedberg
... it's a company that they clearly support, OpenAI.
- JCJason Calacanis
Yeah. Well, when you're behind, you know, you behave differently than when you're ahead and you have your monopoly. Freeberg, you wanted to add anything here before we move on to the next story? Okay.
- 50:17 – 1:05:26
OpenAI reportedly hits a $3.4B revenue run rate
- JCJason Calacanis
In related news, OpenAI has hit a run rate, and this is kind of stunning, of $3.4 billion. That means they've roughly doubled their monthly revenue in the past six months or so. These are not official numbers. OpenAI is denying them. But here's a chart that somebody put together based on all the different leaks and approximations of what OpenAI is making. The reason this makes no sense, this chart, and it shows a year, and then it shows a month, a month, a month, a month, is because there's been different leaks at different points in time. But just to normalize this, in 2022, for all of 2022, before they really had a lot of customers, 28 million, and now on a $3.4 billion run rate. Again, it's a pretty stunning number if it's true.
- DFDavid Friedberg
Well, you can, you can do apples to apples here, because like 2023 Jan is 200 million. That means that June is 300 million if they're on a $3.6 billion run rate, so.
- JCJason Calacanis
Yeah. And so, if we were to even look at, you know, the number of people who work there, 770, if you put that at 500,000 a person, some engineer is getting a couple of million, some people maybe getting less, they probably only got a half billion dollars in salaries a year. Who knows what they're spending on the infrastructure for this? If you were to do a valuation on this, everybody knows they sold a bunch of shares in secondary at around 80 billion, which means they're trading at, if these numbers are true, 25 times forward revenue, which is close to what NVIDIA's trading at right now. Obviously, they're two very different businesses. So, your thoughts on this as a SaaS company? Obviously, the majority of this revenue is consumption-based. Some portion of it is SaaS-based reoccurring, like subscriptions we pay for at Launch, my venture fund. We pay for 6,000 a year to have all 20, 25 people on ChatGPT as a corporate account. Maybe it's 250, 300 a year per person. So, what do you think of this business, Sacks, and how fast it's growing? Obviously, some of it's API consumption-based, not reoccurring. Some of it is reoccurring.
- DSDavid Sacks
First of all, let me say that, you know, we've talked about AI General Hospital and all the soap opera issues around OpenAI.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
And, you know, Judge Sacks had opinions on that.
- JCJason Calacanis
Yes.
- DSDavid Sacks
But putting that aside, I mean, everyone acknowledges that their products are awesome. I mean, OpenAI makes really great products, uh, with ChatGPT-4o being at the top of the list. And I talked about how when we moved from ChatGPT-4 Turbo to 4o at Glue, the speed and quality went up, you know, at least 2X, and it felt like 10X. So, they have the best language model as of this point in time. And they also have other products that are really great, like the Whisper API, which does transcription. I mean, there's a whole bunch of tools they have that are great for developers. So, nobody's taking anything away from them on the product side. And I think you're seeing that in this revenue number. Now, if I was to try and take apart this business as an investor, I would separate the B2C business from the B2B business. The B2C is a consumer subscription plan, people paying $20 a month. I'm- I'm one of them. I pay the 20 bucks a month. It's probably the only LLM that I would pay 20 bucks a month for.
- JCJason Calacanis
How often do you use it? Daily, weekly, monthly?
- DSDavid Sacks
I'd say a handful of times. It's- it's not-
- JCJason Calacanis
A month?
- DSDavid Sacks
To be honest, it's not like a daily use for me, but I- I probably use it every week, I would say, at least once.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
So, I still use it. I have to say, though, that the other LLMs are catching up. And if Gemini ever gets good enough or, you know, when Grok gets to the next level, am I gonna stick with that $20 a month plan? I'm not sure. It depends whether OpenAI can really maintain the- the leadership it has or the perception of leadership. Okay, so that's half the business. And then the other part of the business is the B2B, which is the- the API products that effectively they're selling to developers, and that's where I would place the future value of this company. I mean, as somebody who invests in SaaS, when we see a business that has, uh, B2C subscriptions and B2B, we place all the value on B2B. And the reason is because historically, the churn rates in B2C are too high.
- JCJason Calacanis
Yep.
- DSDavid Sacks
5 to 10% churn rates are common. 50% a year-
- JCJason Calacanis
Per month. Per month.
- DSDavid Sacks
Per month. 50% churn a year, very common. OpenAI may not be experiencing that yet, but it's very hard to avoid the downdraft of consumer churn. And- and, you know, on the other hand, on the B2B side...A good B2B business has expansion, 120%, 150% expansion-
- JCJason Calacanis
Yep.
- DSDavid Sacks
... year over year from the same customers. In other words, they're ordering more. And-
- JCJason Calacanis
So you would compare this business to Amazon Web Services, Google Cloud-
- DSDavid Sacks
Totally.
- JCJason Calacanis
... Azure. That's really the business here.
- DSDavid Sacks
Yeah. The first thing I'd want to know is how much of the 3.4 billion is consumer and how much of it is, is developers?
- JCJason Calacanis
We'll find out eventually. Chamath, your thoughts on OpenAI's surging revenue.
- DFDavid Friedberg
I'm kind of in David's camp, which is, I think, to the extent that the business has a large terminal value, it's going to be because of the enterprise cash flows. The thing to keep in mind is that I still haven't seen enterprises building production-level products using AI.
- JCJason Calacanis
It's all experimentational, right? It's all experiments now, yeah.
- DFDavid Friedberg
That's nothing against OpenAI. It's just a commentary on the fact that we are at a very, very early part of the cycle where when you use this term blast radius, right, what are you referring to? You're referring to this idea that you're stringing together elements of a model or multiple models that each have some non-trivial error rate. And by multiplying all these error rates together, you get your final product. But the unfortunate reality in most AI workloads is that you end up with something that's not very good, and that's not the fault of OpenAI, nor is it the fault of LLaMA. It's just the nature of how these models work and the fact that, you know, you've gone from something very, you know, deterministic to something that's very probabilistic, and we have not found a way to create extremely high-quality experiences, we as an industry, that make this cost justifiable. So right now, as you said, Jason, most of that is toy apps and a lot of experimentation. Will we get there? I absolutely think so. But we're not there yet. So I suspect that most of the revenue then is on the consumer side right now, actually, and so I just looked at Google Trends, and I first looked at the United States, and I just wanted to understand how is the traction? And what's interesting is, is that the traffic in the United States is down about 25, 26% since the end of the school year, which I think reinforces this belief that ChatGPT has definitely overindexed in that young people's cohort where they rely on it to write essays or what have you. But then I looked outside the United States and worldwide, and what's interesting about that is that's actually still growing up and to the right. So I think you have then an ARPU problem, which is the same thing that we had to deal with at Facebook, which is we have these extremely valuable users in America. They asymptote at some point, and then we have to grow in other markets, but those markets aren't nearly as lucrative.
- JCJason Calacanis
Right.
- DFDavid Friedberg
You know, to... They just can't generate nearly as much revenue.
- 1:05:26 – 1:23:30
Macro debate: State of the US economy?
- JCJason Calacanis
We're going to get a little macro here in three acts. Inflation has, uh, been broken, I think it's safe to say. We're down at three point X, three point three lower than expected. And hiring and wages are surging and stocks are surging. So let's go through it here and get the besties take on the vibe session.
- DSDavid Sacks
I actually disagree with that framing, Jason.
- CPChamath Palihapitiya
Yeah, I agree, I disagree as well.
- JCJason Calacanis
You can disagree with it. Let me go through the numbers and then you can all disagree. That's how, that's how this works, folks. Inflation print came in at three point three percent, lower than expected. Here's your ten-year chart. Super easy to explain what's happening here. Rates were low for a long time. Inflation cruising at about two percent. And then lunatic spending during COVID and we added eight trillion to the national debt. And then Biden added a bunch, everybody getting those stimmy checks and PPP loans. And so if you look at inflation here, we were just cruising along at two percent. Massive spike, up to nine percent year over year inflation, and now coming back down to three point X. And the question is, can we get to a two handle? And the rates went up faster than in, ever in history. Here is the Fred chart. You can see there in... And this goes from the '80s, so you see that massive, um, spike when they tried to break the back of inflation previously. So this is the fastest ever gone up. And here we go. The common sentiment here is that savings has been burned off and people are starting to have debt. And so now we are in, uh, act two, the lowest unemployment, uh, rate of our lifetime continues, if you believe those numbers. Some people do, some people don't. Labor Department reported s- 272,000 new jobs in May.... smashing, crushing the 190,000 estimate. Uh, and then act three, average hourly wages up a massive 4% from last year at $35 an hour. That also topped estimates, so if inflation is at three point x and hourly earnings are at four point x, maybe consumers will start feeling better about the economy eventually. They obviously, uh, have been pretty shocked by that 9% inflation and only 4% growth. Here's your chart from Fred of the hourly earnings of all employees, and you can feel pretty good about that, where everybody's wages keep going up. The question is, do they go up faster than inflation? Okay, so there's my framing of the situation. Freyberg, tell me what I got right and tell me what I got wrong.
- CPChamath Palihapitiya
I think there are three numbers that matter.
- JCJason Calacanis
Okay.
- CPChamath Palihapitiya
The inflation rate, the growth in GDP, and the cost to borrow. The growth in GDP in the first quarter of 2024 was a lousy 1.3% on an annualized basis, and even if the rate of inflation came down, we are still inflating the cost of everything by north of 3%. So the economy is only growing by 1.3% and it costs more than 3% more each year to buy stuff. So that means everyone's spending power is reducing and our ability and our government's ability to tax is declining because the economy is only growing by 1.3%. And the most important fact is that the interest rates are still between four and 5%, four and 4.7%. That means that to borrow money costs 4.7%, but the businesses, the economy on average is only growing 1.3%. So just think about that for a second. We have a tremendous amount of leverage on businesses, on the economy, on f- on the, the federal government. That leverage, the cost to pay for that debt is more than four to five, four to 5%, but you're only growing your revenue by 1.3%.
- JCJason Calacanis
Yes.
- CPChamath Palihapitiya
So at some point, you cannot make your payments.
- JCJason Calacanis
And the ra- and the goal, Freiberb-
- CPChamath Palihapitiya
And that is true-
- JCJason Calacanis
... was-
- CPChamath Palihapitiya
That is true for consumers.
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
That is true for enterprises, and it is true for the federal government.
- JCJason Calacanis
Just to point out here, uh, what you're saying, the goal was to in fact increase the interest rate to s- to cool the economy, right? Which they got to late, but that was the goal. That was the explicit goal, was to cool the economy.
- CPChamath Palihapitiya
Yeah, the whole purpose of raising rates is to slow the flow of money through the economy. And by slowing the flow of money through the economy, there is less spending, which means that there is, you're reducing the demand relative to the supply, so the cost of things should come down. You should reduce the rate of the increase in the cost of things. Now, if you click on this link, Nick, that I just sent you, in response to the condition in the economy today, Elizabeth Warren sent this note to Jerome Powell three days ago saying, "Dear Mr. Powell," or, "Dear Chair Powell, we write today to urge the Federal Reserve to cut the federal funds rate from its current two-decade high of 5.5%. The sustained period of high interest rates is already slowing the economy and is failing to address the remaining key drivers of inflation." She goes on to point out the fact that consumers are suffering, businesses are suffering, and the strain of these three numbers is really starting to show on individuals, on businesses, and obviously on the, the power of the dollar. But the dollar is a different story-
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
... because of the condition of the, the economy in the rest of the world, and we're in a very unique position. But I think that things are not as rosy. Now there's, uh, certainly a shift in the market because what this tells us is that the timeline at which the Fed will cut rates is coming in a little bit-
- JCJason Calacanis
Yep.
- CPChamath Palihapitiya
... relatively speaking, and so the market is saying, "Okay, let's adjust to lower rates." The 10-year Treasury yield has come down a bit. But we are still in a difficult situation for people and for the, uh, for businesses. And you have Elizabeth Warren, who I think is the voice of small businesses and consumers. She's k- she's j- she's trying to be the voice of those group, that, that cohort-
- JCJason Calacanis
Yeah, yeah. That, that's absolutely who she represents, so.
- CPChamath Palihapitiya
... and saying this, this is very hard on people.
- JCJason Calacanis
Chamath, what's your take on this? We have a slowing, uh, GDP growth. We have inflation going from nine down to three. We have wages going up 4%. How do you make sense of all this? Do you feel like-
- DFDavid Friedberg
Sorry, Freyberg, are you saying we're gonna have stagflation, or...
- CPChamath Palihapitiya
We have stagflation right now, definitely, but I, uh, what, what I'm saying is that it's not a rosy picture just because labor rates are going up.
- JCJason Calacanis
Yep.
- CPChamath Palihapitiya
If the labor rates aren't going up, and you can see this ultimately, the best number for this is the sum of GDP growth. So in aggregate, if the revenue of everything combined, which is GDP, isn't going up faster than the increase in the cost of everything, people, businesses, and the government can't afford their stuff. And that's fundamentally what's going on right now. What we need to see is a normalization where GDP growth is greater than inflation rate. And as soon as that happens, then we have a more normalized and stable economy. So right now things are not stable. There's a lot of difficulty and strain in the system.
- DFDavid Friedberg
I will put myself on the other side of that trade, if, if there was one. If I had to simplify the United States economy, remember GDP is 70% spending by individual people. And so people can spend two things, savings that they have or credit that they have, and what's interesting is that we have finally burned through, and this is what this picture shows-
- JCJason Calacanis
There it is, yeah.
Episode duration: 1:24:47
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