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Intro: Gimme a job that you think we need to have here that we don't currently have that isn't basically like the equivalent of like a $2 an hour wage. Let's say we put in these tariffs, to what extent are we actually creating these jobs? That assumes we can make cheap shit here and we can't. There's short term protection, but then after that, it leads to higher consumer prices.
Yes. Export retaliation. It leads to regional. For class tensions. I'm gonna make a little bit of a bear case for open ai. If you had shown me what the image generation could have done five years ago, I would've been like, oh my gosh, I'll pay $20,000 for this. Yeah, yeah. And now I'm like, this is bullshit.
You're gonna charge me like $20 a month. I'm gonna kill myself for saying this out loud, but I think it has to be like, welcome to Logan Bartlett show. On this episode, what you're gonna hear is a conversation I had with my friend Zach. Weinberg, Zach and I wanted to mix up the format a little bit and just talk about some of the things that we're thinking about in the markets.
So we go into a lot of things related to tariffs ahead of Liberation Day, which is coming [00:01:00] on April 2nd to the United States where Donald Trump is set to introduce tariffs on a number of different countries. We talk about the implications for that, why we're not the biggest fans of tariffs, and how this is likely to play out based on history of tariffs that have happened in the US historically.
And we spend some time talking about open AI's latest fundraise, where they're raising a $300 billion valuation, as well as their release of their image model, as well as how we think this is gonna play out over the course of the next couple years with the competition that they have something that's a little bit different that you'll hear with Zach now,
Logan: Zach, happy Liberation Week.
Zach: I am pretty excited.
Logan: We have Liberation Day, so we're recording this on April 1st. Tuesday and tomorrow is Liberation Day, which, um, I think will free us of all the, uh, oppression rot of global trade that's occurred over the last, uh, last hundreds of years. So it's exciting.
Zach: I've, I've felt very oppressed [00:02:00] by having cheap t-shirts and solid kitchen appliances and, uh, you know, reasonably affordable things. That's been, that's been a challenge. So the impression being over is, is great. I'm excited to pay more for everything. It's good.
Logan: Well, so, so maybe, uh, we're gonna do this and we're gonna talk, uh, kind of freeform here. Go through, uh, a few different topics and we'll see how often we do this. Uh, obviously this is different than what I've done recently with different episodes. I think you have a little bit more availability than you've, you've had in the past to do this on occasion.
So I think we'll, we'll test out the format, hit some different topics, and hopefully, uh, hopefully it's good. I think you'll also probably join some of these conversations, interviews we're gonna do over the course of the next couple weeks. So,
Zach: Yeah, we successfully closed our funds and so now I'm like, the number one priority for me is shooting the shit with you. And,
Logan: I, I, I know, I know. You know, once, yeah, once you're done fundraising to become a vc, then you just podcast as a vc. That's the, uh, that's the [00:03:00] natural transition point. So welcome.
Zach: isn't that, that's the job, right?
Logan: Correct. Correct. Yeah. Yeah. It's the, it, it, it, it,
Zach: Do you, at Red Point, do you have podcasting skills matrix that you need to get promoted? Or how
Logan: correct. Yeah. It's on the evaluation criteria. I'll pull it up for you. Uh, but yes, it is, uh, it's really the, the distinction between like a general partner and partner is, uh, quality of podcast, uh, that you can do. So it's, uh, you know, it's, it's a, it's, it's our cross the bear, I would say. But, you know, people continue to find ways to iterate on it, so we're pretty proud of it.
Logan: But, um, I guess, eh, talking about tariffs, so I get the feeling that you are, you're anti tariffs.
Zach: I mean, I'm, I, yeah, no, it's a good question. Uh, I, I like, I like to reframe it as I'm, I'm like, what the fuck are we trying to do? Because like a tariff, to me, it, it's a tool, right? It's a tool in, in, in the toolbox. And so like, what's the [00:04:00] goal? Uh.
Logan: Maybe, maybe I can steelman some of the arguments. Uh, I think if you were to steelman, at least as I've heard articulated or seen, articulated, there seems to be, uh, I wrote 'em down before we hopped on here. Maybe, maybe three to four different points that people seem to talk about. So there's, there's the national security and strategic autonomy, uh, element of it, which Covid supply chain, um, semiconductor steel, pharmaceutical.
Like, there's things that are, are maybe either too important or, um, too existentially risky to have outsourced. Right? So I think that's, that's one point. Um, I, we could,
Zach: start with, let's start with that one. 'cause I think, you know, if you're gonna start with maybe the, the only point I would assume there's like some reasonable logic to, it's probably that one. Um, the other ones I'm sure get dumber as you present them. Uh, not that [00:05:00] you are the one presenting. I appreciate
Logan: mean both, but yes. Yes.
Zach: Um, there was a really interesting, did you watch Palmer? Lucky he did this long podcast maybe like a few months ago, where he talked about kind of like the military supply chain in particular. Did you watch that?
Logan: I think I saw a clip of it, but I, I, I don't, I didn't actually watch the full thing.
Zach: So this is, this is the only pro tariff, and it's not even broad tariff, right? It's like highly specific strategic tariff argument that I think is reasonable and, and I buy, which is you don't want the US military and specifically the military, we're talking about defense, right? Because like, as somebody who works in healthcare, I don't view pharmaceuticals as defense.
This is not the same thing. One is like, you know, the safety and security of our people. The other is, you know, healthcare, which is not. Safety and security, which comes first. So he made the point, which I think is reasonable of, there are certain [00:06:00] critical military supply chains, think like ammunition being one.
Or you could argue like drones for modern warfare being another, that we as a society should be willing to pay higher prices. And I think he's very, the thing about harm is just good is he's smart. So he recognizes, like, it does mean higher prices. Like let's just acknowledge we're gonna pay more for having a domestic version of, you know, whatever ammunition, supply chain.
But that's worth it. It's worth it to pay more because in a military conflict with whomever, Russia, probably not China, but theoretically in China, Iran, whomever, you, you don't wanna be relying on global supply chains and shipping for your military. Now fine, but we're talking about like a very narrow, specific list of items that probably shouldn't be like some.
Random bullshit that Trump pulls out of his ass one day, which is actually like, dictated by the Department of Defense and the Pentagon, and they create a list and we review it and we're like, alright, these make sense. And then we do it [00:07:00] strategically and we plan it like, you know, uh, professionals would do.
Like, I hope our military can do, uh, fine. Like, that seems to make sense. Right? But like, what else is strategic about like t-shirts? You know, like t-shirts are not strategic to the United States.
Logan: So what are the ones I, I've seen some different ones, uh, spoken about and so, uh, I guess we don't know as we sit here, but automobiles and auto parts, I think pretty consistent, 25% on foreign made cars. So I think that we, we would say that probably doesn't fall into the strategic bucket. Um, pharmaceuticals, uh, that's different than, than the defense supply chain.
Uh, metals, it looks like aluminum and steel are likely, uh, particularly, uh, obviously there's a lot of imports that come from both Canada, Mexico, and I think China on, on
Zach: the way, those are like, you know, [00:08:00] key inputs to like half the stuff that we make. I think the, the thing that I thought Palmer did a good job of in this debate, which I think it'd be worthwhile and have the, if the press could, could do this, is he acknowledged that the a trade and the trade on. Tariff for military use cases is higher prices, so that if we go to war, we actually have guns and drones and tanks and shit that we need to fight,
Logan: You're buying an insurance policy the same way your, your house payment costs more because you have home insurance or your car payment costs more. 'cause you have auto insurance, you're buying some insurance policy. If shit hits the fan, you are protected in some way.
Zach: Yeah, exactly. And like, okay, that trade seems reasonable and highly targeted by the way, given tariffs. Like it should be congressionally approved, but we don't have to [00:09:00] deal with that piece of it now. And so I, I'm go, okay, fine. Like, that seems strategic. We don't want to go to war and have to rely on importing stuff from some country that we, we can't trust or, or don't have control over.
And, and I think that's a reasonable argument, but there is a trade and so he acknowledges the trade now. My pushback on, on many of these things is, you know, and let's just talk about the military one, the same people who have been telling us for the last year and a half that the government is full of incompetent idiots and needs to be streamlined and doesn't know what it's doing, which is maybe partially true, are now also saying we need the government to lay out central planning wise, right?
Like we're, we're in like China land here of like the government centrally plans, which obviously doesn't work at scale, uh, exactly where the strategic supply chains are. Like we trust our elected politicians to decide these things. Like it's the same people you just told me were more on. So like that part I really get uncomfortable with, which is, you know, we're making, we're [00:10:00] putting the decision making about what is strategic to the military in the hands of a bunch of people who don't work in the military.
Logan: And I think the national security thing, to your point, it's, there's a reasonable argument to be made here. It's, it's a narrow subset of what we're talking about and, uh, the actual sophistication by which we're approaching this, at least it doesn't seem from the outside in to be the most deliberate and thoughtful approach to exactly what the key inputs and considerations are to building a government or defense oriented supply chain chain.
That's resilient. But that's my perception. I could be totally wrong on that.
Zach: I, you know what's interesting? Like if you even, and we can go to the other probably materially worse arguments for tariffs, but like if you go and you look at the rhetoric from the Trump administration and whatever the followers of said administration, they don't talk about like strategic military supply and their list of like [00:11:00] shit that they're messaging.
They're not talking about the military, right? They're talking about. Manufacturing and they're talking about reciprocal tariffs, and they're talking about like fentanyl, which we, I don't know if we wanna go there about how stupid that argument is. Um, they've never actually made this argument, at least in, in like, the focus of their messaging.
And I, the sad part is it's the only one that makes sense and they don't even mention it. Uh,
Logan: so, so the next, the, the ones that, I guess the other one, and I, I, it's kind of three derivative points in my mind, but let's just put it under a big umbrella of like other, uh, you know, there's the national security one, and then there's all the other. Or things, which seems to be some combination of counteracting unfair trade practices, uh, that other countries are doing.
I think namely China. Uh, but, you know, uh, that that's kind of the big bucket of the argument. It's not actually free trade if the other side is, is cheating [00:12:00] or, you know, using state subsidies or currency manipulation and all that. The second part is like boosting domestic employment. Um, and so protecting US jobs, uh, and, you know, building stronger local economies, better wage growth, whatever, all that stuff.
And then the third one is, um, I, I think. The, the 40 chess thing is, it's actually just a negotiating leverage. Uh, uh, you know, we're, we're gonna, we're gonna win this trade by threatening this deal by threatening tariffs and bringing people to the bargaining table, be it for fentanyl and, uh, whatever enforcement of drug policies and things like that, or whatever, whatever the thing is.
So, I guess, let, let's pause that fourth one, the, the negotiating tactic thing, because it's almost, um, not as interesting to sort of talk through in my mind, like, yes, maybe, probably not, but who knows? So those two, two middle buckets I think is, you know, it's not fair and boosting domestic employment. Um, I'm curious your, your perspective on [00:13:00] that at a high level.
Zach: I mean, let's talk about the domestic employment one, because it is like the dumbest argument I've heard people make and it, it, I think it is just like a, we're we're watching like a global intelligence test, uh, and half the country is failing pretty miserably. Um, so like. Let's start with a few things.
What problem are we solving here? The US by the way, is at 4% unemploy. It's like we have like the best employment we've ever had in the history of, of, of the United States. Even with reasonably high rates. We have like very, very low unemployment. This is a very employed nation, right? And our wage growth is faster than any other country in the world, essentially, right?
Like you've seen those charts where it's like, you know, Canada and US and Europe all started here and then like they separate in the us. We're like far out in front of everybody else in terms of GDP growth, in terms of our wage growth, purchasing power, all of those things. We have our problems, but uh, you know, we are in the lead.
And so there's just like, first of all, things are [00:14:00] good. Uh, second most of the stuff that we want to make, right? That, that, that create high paying jobs, have these like extraordinarily complex supply chains, right? Think about making airplanes, thinking about making. Complex semiconductors, thinking about making, obviously software, which is like no real supply chain, but like these are complex goods, uh, that are high priced and we make good money on them, and that allows us to pay workers like a great wage.
They're not like, it's not like an, they're not making t-shirts anymore. We don't need like day laborers doing t this is not the US economy. And so like what jobs, this is what I was trying to ask, like, we gotta bring the jobs back to the United States and it's like, which one? Like, gimme a job that you think we need to have here that we don't currently have that isn't basically like the equivalent of like a $2 an hour wage.
Logan: Well, it seems, I mean, one of the, the, [00:15:00] um,
Zach: By the way, sorry,
Logan: that gets brought up the most.
Zach: just to tie it right, like if you decide, all right, I wanna go build domestic version, let's use the the apparel example. 'cause it's the one I think is most egregious. We're like, ah, the Chinese are like supplying us with all these cheap t-shirts and like, we've lost our, you know, t-shirt manufacturing capacity in the United States, whatever.
Great. So here's what we're gonna do. We are gonna make getting cheap stuff for Americans. Cheap t-shirts. Like this one's probably like six bucks. Uh, that's gonna go off to the, your t-shirts are now $25, but we're gonna make t-shirts here because there's excess t-shirt demand. And now because the Chinese prices are so high, people are gonna buy stuff here that assumes that we can make cheap shit here.
And we can't. We can't, because we're talking about like, if you are making cheap shit, then you're clearly not paying people. The, the, the domestic wage gains that we keep talking about. So all we're gonna make are expensive shirts here [00:16:00] that shrink demand because they're expensive and then they're not globally competitive.
So you're actually creating like shit markets.
Logan: They're not globally competitive, so you're not exporting it. But also it proves to be net regressive to society because, hey, listen, you know, the people in tech can afford the t-shirts or automobile's, the one that I see used a lot, and I think, you know, that has some, um, political, uh, affinity affiliation, I think, uh, to, to history.
It's like a hard industrial economy that whole towns were built around, right? So automobile, it's, it's going to create jobs. It will, in the short term, it will a hundred percent create jobs, right? If we end up charging 25% tariffs on imported cars
Zach: I'm, I'm not sure that's even true. I'm not sure that could even, I mean, maybe a few hundred jobs. There's like a few people who are like, ah, okay, there's this like T-shirt spread I can go pursue. But we're not, this is not material.
Logan: I actually think the difference of, uh. The difference in demand for [00:17:00] people making these car, it's gonna be more expensive to make, uh, to, to purchase an international car, which theoretically should lead to an increase in demand for US cars, which theoretically should lead to an increase in jobs for us auto manufacturers.
Do you agree with that? At least thought tree?
Zach: No, we already have us cars, like we already make them.
Logan: but there's a fixed amount of demand associated with those cars today. And if the alternative becomes more expensive and the domestic becomes cheaper, it theoretically should unlock some percentage of demand associated with US cars.
Zach: I mean, if you, if you think that we can just kind of like ramp up US manufacturing to meet the demand and do that in a cost effective way, I mean the prices are just gonna do this.
Logan: Well, so, so I, that, that's the point. Is it, it the time lag of like actually fulfilling the demand. Okay. Let's say we put in these tariffs, like over what period of time, and then to what extent are we actually creating these jobs. I think the time lag is probably, I don't know, [00:18:00] medium. I, I, I assume you can't do it tomorrow.
It's not gonna happen on April 2nd or third,
Zach: But also it makes our US manufacturers less competitive, right? Because we don't have the competitive pressure coming from like external nations who are doing it in the right way. I'm not talking about like BYD subsidized Chinese shit, but like the rest of the world. And so slowly you erode your manufacturing advantage.
This is the argument I would make. It's like if you don't have external pressure, then doesn't really matter if you can make cars efficiently and cheaply. And so what you actually end up doing is shrinking the global competitiveness of our auto manufacturing industry, which actually over the long run is going to shrink the industry.
So we're like making people pay more for this bullshit argument of like more jobs and even if you got some more jobs. Whatcha talking about like a thousand people in Michigan?
Logan: and that was my point, is I think the net of it is going to end up being more expensive for consumers. Like it just, it has to do that. And so it's gonna hit disproportionately people of lower [00:19:00] income more because you know, a car is, a car is a car, plus or minus, right? And so that's.
Gonna flow through and impact people domestically more. But then to your point, we're, we're quite literally artificially propping up an industry that will no longer be as globally competitive as it's been forced to be in recent history, which is just going to lead to less, uh, uh, efficiency and capitalism.
Like all the market forces that we talk about, we're putting on a, a artificial bandaid that's just gonna have derivative externalities associated with it, that aren't gonna be good in net for us, for the US economy. Yep.
Zach: For the consumers. I mean, I think we just gotta go, like, one thing I, I, I find the Democrats are just so bad on, is like simple messaging to explain to people who don't think about this all the time. But we gotta go back to the basics, which is like competition, fair competition. And we can talk about where, you know, if it's like state subsidized manufacturing, which is really mostly an issue [00:20:00] in China, it's, this is not a global issue.
It's not like the Europeans are subsidizing Mercedes-Benz here, right? Like they're all competitive. Competition is fucking awesome for consumers. I just, I, I think we missed that point that like, when you have. Big dollars that people are chasing and lots of companies chasing it and competing with each other to build a better or cheaper or faster, whatever it is, it's fucking awesome.
You get better stuff cheaper. It's more abundant, like everybody wins. And I think we just like forget the fact that global competition is actually a good thing for Americans and for consumers. If it's done in a fair way, right? Meaning like you're not, you know, subsidizing the cost here and we lose sight of all of this, right?
When you add in, it's just more expensive shit for people to save like tiny numbers. It doesn't make any sense. It's just like a tax. And by the way, they're aggressive tax, which is the craziest part [00:21:00] of the whole thing, right? Because it's a tax on purchases. It's basically like attacks on the poorest people.
Like for me, my grocery bill goes up, I'm not even gonna notice.
Logan: It goes from, it goes from 0.01% to 0.02%, and it's a rounding error. Or versus someone that it's going from, you know, 10% to 20%. That's pretty material.
Zach: Do you think I know what a banana costs? I have no fucking idea. What? I have no idea. I have no idea. I, I, I am so far in the clouds of like, like for me, I, I should be arguing a tariff, whatever. I don't really give a shit, but like, I do give a shit because I care about like, the American economy and you know, there's obviously the selfish nature of that, but like, man, this is going to hurt the poorest Americans, the middle class Americans the most.
And I mean, we're gonna see it very soon, but it, it is a tax and
Logan: Well, and so, so there was actually an interesting deck sent around that I sent to you before this call. Uh, it's from the FDRA, I think it's like some, uh, footwear. Uh, lemme see what it actually is. It's the footwear [00:22:00] distributors and retailers for America. And they actually pulled together a deck here that will show on screen, basically kind of talking through here.
Lemme see if I can successfully pull up something on screen. Where are we headed with the current trade war? Uh, so here's the, the stuff that they kind of walked through and basically the, the net takeaway that I had.
Logan: So we've been through this a few different times before, I think, um, minus the last couple years of Trump.
Uh, I think that the big times, so there was 1828, which they call a tariff of abomination. 1890 was the McKinley tariff, uh, 1922 and then 1930.
Zach: How'd that go?
Logan: They, it all plays out the exact same. It's their short term protection that they end up, uh, that that ends up playing through. Uh, but then after that, it leads to higher consumer prices.
It leads to export retaliation, it leads to regional or class tensions. One of the things that they argued was that the tariffs in, uh, [00:23:00] in 1828 actually was one of the precipitous, uh, things that led to the conflict between the north and the south, uh, as well for the civil war. And then there's ultimately political consequences that royal through the system because people don't like paying more.
And it's interesting. I was gonna play a game with you here. Let me read you a quote and you tell me if this is something that's been said, uh, in the last six months, or if it was said in 1830. Okay. So let me, let me pull this up. Just to every American and to every laborer.
Zach: Oh God, that's a hard one. I'm gonna go 18 hundreds I think.
Logan: Okay.
Zach: Yeah. The laborer word.
Logan: Yeah, I was gonna say
Zach: Also, I'm not, I'm not sure the Trump administration is like a justice oriented framing, but let's see, that was 1890.
Logan: Yep. 1890 McKinley said that. Okay. Uh, I will charge a reciprocal tariff. Whenever countries [00:24:00] charged the USA will be charged, we will charge them.
Zach: That's gotta be Trump.
Logan: Yeah, I was, uh, I just
Zach: Okay. Okay.
Logan: a dead gig away on.
Zach: Yeah,
Logan: Uh, all right. What about this one? never has been a time in the history of the US when tariff protection was more essential to the welfare of the American people than present.
It's imperative that the American protective policy be maintained.
Zach: Oh my God. It's like saying you need pigs to fly. Um. I'm gonna guess 18 hundreds,
Logan: Yeah. And all the, all the rhetoric of it, the, the sentiment's the same. That was 1930. Uh, the sentiment is identical, but it's actually crazy when you go through and read this stuff, how familiar the talking points are to today and the outcomes. I, what was that? Four different times They all ended up the same.
So I don't know how long this will last, but it's ultimately gonna be a pretty net negative for the average American, and it's gonna be a net negative for the party in power, which, uh, [00:25:00] you know that that's the markets
Zach: I think like cheap stuff is good. I. I just like start there. Cheap shit is good. It is a good thing to have cheap shit as an American either because you are purchasing it directly yourself and therefore you can spend more of your money on whatever it is, you know, doing podcasts and, uh, the microphone.
It's like six microfund, maybe buy here, stuff like that, right? You want cheap stuff. The other thing is like cheap stuff is also an input to more complex things we have to make, right? It's not like we're not making stuff out of like single materials anymore. Like we're not, we're not buying wooden spoons at scale, like at scale.
Like the stuff that we do end up making are these really complicated products that have many, many parts coming from all across the globe. And this is why free trade is fucking awesome because it allows you to subspecialize. [00:26:00] So for us, we can say, all right, we really wanna build the drones or we really wanna build the batteries or whatever the, the complex piece is.
But in order to do that, we gotta go and source two to 2000 different underlying materials products. They have to be to spec. You need them at scale, they have to have certain cost structures. If you wanna make an awesome thing in America, the chances that you can do that with just pure domestic supply is like nearly impossible.
And so it's not just like that. The goods that people buy in the store are going to get more expensive and they will depending on, you know, what is it April 1st, tomorrow, I don't know, whatever insane policy they put in tomorrow. It's also the stuff we make here is going to get more expensive. And so it doesn't just harm the American consumer, it harms the American employer as well.
It harms our competitiveness in the global markets because all the shit that we're trying to build here and export or even sell to ourselves is about to get more expensive as well. So it's not you, you kind of like lose both ways.
Logan: What's your prediction right now of how this [00:27:00] actually plays out? Do you think it, uh, goes into effect and ultimately gets, um, rescinded at some point? Or do you think, uh, there's, this is kind of a negotiating tactic and it gets pulled back?
Zach: So in the beginning I thought, look, the stock market is not the economy, but it is a pretty good predictor of the economy because it's basically like a giant prediction machine. And no, it is not centrally controlled either, which is really, really interesting. And so obviously the stock market, you know, hates this shit.
And my assumption was as the markets kinda like sell off and they're continuing to do, so, we'll see how bad it gets. Trump likes money. It's like the number one thing he likes besides praise, I guess. And so eventually he backs off because he like is, you know, he's losing money and all his friends are rich too, and they're like, dude, we're losing money.
Like there'd be some feedback loop that would cause him to back off. He would claim some like stupid. Win. That was already something we got. Or like, you know, like no more fentanyl coming from Canada, even though like the amount of fentanyl [00:28:00] they're importing like fits in this fucking can. You know? Like it's not a big, it's not a big deal now.
That was my optimistic view. It was like, okay, fine. Go play the stupid game and eventually we're done. I think this guy is dug in. I think he's stupid. I think he is generally not a smart person. And then everyone's gonna be like, oh, but Biden's really dumb too. Yes, they're both stupid, right? Like this is not a partisan thing.
Like Biden's a fucking moron as well. And we could talk about that. And some of the things he did, Trump's probably dumber, but like, I don't know if you wanna win that contest, so let's stick with him as like, he's dumb. And so I think he's just got this like internal feedback loop of like syco offenses around him who are telling him, this is awesome and everything's gonna work out.
And I think he believes it. I think he believes it. I don't like the clarity that smart people have of like, these tariffs are not going to work in any way, shape, or form. I don't think he realizes, and I think he's gonna let this thing play out much longer than I first [00:29:00] anticipated, which is bad. And then you get this self-fulfilling prophecy.
And this is the part that really matters that I think is, it's like even if he unwinds it at a certain point, you've already done real harm, which is by having an anticipation. This, I think this is like really important for, for, for people to realize anticipation of higher prices. Not even just the prices themselves, but the actual like anticipation of higher prices, which you can see in all the polling data.
People are like, oh fuck, it's gonna be more inflation. Prices are gonna go up. Tariffs aren't great. Causes people to stop spending. They budget, they budget, they go, ah, this is, I'm gonna buy stuff now and then I'm gonna stop. Right? And they get more conservative. So they kinda like accumulate and stop. They get more conservative.
They don't take risks, they don't invest because uncertainty is like a killer of economic growth. And it's not just uncertainty for businesses, uncertainty for consumers. And so when you get consumer spending slowdown, which if you saw, I think it was like FedEx announced, they're already seeing it.
[00:30:00] Walmart's announcing like soft consumer sentiment, therefore expect spending you get a recession. It is a self-inflicted recession. We basically tell people we're gonna have higher prices. Yeah. They're like, oh shit, higher prices. Okay, I'm gonna slow down. Which causes, in this case, probably in the beginning, a consumer demand led recession.
The recession can come from lots of different places, but in this case it looks like consumer demand's gonna shrink, which is then going to cause businesses to shrink. And you run that little cycle, right? And like it's hard to unwind that. The other problem with it, which is like this is the kind of stuff the global macro people are really scared about is in a recession like that, where, which seems possible, I mean not likely, but I don't know, 50 50.
We don't have a lot of tools in our toolbox. Like what are we gonna like cutting rate, like, you know, cutting rates. I, that's going to be challenging. It's, it could be inflationary, right? Like, is that actually going to be something that's even possible given the state of affairs of like the US deficit?
Are we gonna be able to like properly bring the tenure down? I don't [00:31:00] think so. So like all of this
Logan: That's where the stagflation thing, uh, comes into play, which is like, uh, for people that don't appreciate how bad a, uh, uh, stagnating economy with inflation can be, uh, which I've never lived through, but I'm, I'm told from economic data, uh, when we, when we last had that in the seventies, it's really, really bad.
And by the way, this whole tariff thing, this isn't like, um, this isn't like, there's, there's people on both sides of, of this, uh, at least a economist level like. If you look at, obviously there's people that argue this is, this is net good and there's some people that will benefit, uh, from it. But like, no matter any survey, and I was, I was Googling before we came on, I was doing chat, GBT, it seems like almost every survey of economists, the academic elite, the, you know, the, those people, it seems like at, at the lowest we kind of get 85% think it's a really bad thing.
Bad thing. [00:32:00] And at highest it's up to like 95 with like 5% uncertain. Like they did a test, I guess, that there was an ING economic experts panel that, uh, Chicago put on University of Chicago put on in 2018. And, uh, it was about steel and aluminum tariffs. The question was imposing new US tariffs on steel and aluminum will improve Americans welfare.
Uh, 0% agreed. 93% disagreed. 7% were uncertain. So it's, it's like this isn't, this isn't some, uh, thing that I think there's some broad, Hey, there's good people arguing either side of this, at least among economists and policy makers.
Zach: I think you said something really, really important, which I agree with on the stagflation front. Um, by the way, what a horrible brand stagflation. Like what does that Even nobody, part of the reason I think people aren't afraid of it is they don't know what the fuck it means. Uh, 'cause it's like te sticky high prices and no growth.
Logan: Yes. I feel like [00:33:00] it went through some like corporate branding exercise that like a lot of people got in a room and they're like, well, we can't be called like this anymore. Stagflation. That's what it's gonna be.
Zach: like, I know it's a mouthful, but should we just call it like high prices, no growth recession? 'cause like that's what we're gonna get. Uh,
Logan: Uh,
Zach: yeah, like nothing good, right? Like, and, and, and I, I think, but you said something really interesting which is like, we haven't really had this since whenever it seventies, eighties, you know, most of the people who have been through really bad recessions are older.
So like the vast majority of the US. Really been through it recently, or even if they were, they were probably young.
Zach: And also like human beings. Our memories are short and I think people forget how bad a recession is, and especially one that has like stagflation style characteristics, how bad that is.
Like it's not good for everybody. Everyone loses. And we haven't really had one of these in a very long time [00:34:00] because for all the stuff, even if you go back to like 2008 where we, we almost had one from, from the real estate crash, you know, then the fed pumped like trillions of dollars into the economy and we had this little dip.
But if you zoom out in a stock chart, you can, it's like hard to see it. And so I, I, I just think we haven't had real problems in a while and so we forget why. And it's like the vaccine shit, it's like people are like, ah, but we don't really get polio, so what's the point of the vaccines? And you're like, well, that's why we don't get polio.
And they're like, I.
Logan: you're so close to getting it.
Zach: Yeah. And they're like, well, we don't really get recessions, so like, we're just gonna tear up the shit outta people. You're like, you know why we don't get recessions? 'cause we have this like, giant, cheap shit economy, which is really good for everybody. Uh, and so I guess we just have to like, relearn the lessons that, you know, once they get like a little stale in your mind, you, for you, you, you forget.
Uh, I'm trying to think. Have you been, I got outta school in oh eight, so like right into that [00:35:00] crash.
Logan: I was, I was 10, so I, I, I like did my internships into that crash, but by the time I, I came out it was sort of boomerang back around
Zach: See? Isn't that amazing? Two years. That is a tight, almost non-existent, you know? And a bunch of people lost some money and like, residential real estate. That's that we, we really contained it. I worry, I worry this is gonna be very hard to contain because it impacts so many things.
Logan: I, I, uh, this is kind of a transition, but also at some point, I guess the next time we do this, I'm, I'm, you and I were both pitching, uh, a guest or two that I think would be good to talk about criticizing, uh, the left and some of their, uh, policies and problems that have led to, um, I guess, uh, maybe a lack of economic growth or at least making things difficult for people to, uh, to move forward and actually innovate in a meaningful [00:36:00] way.
Uh, so I guess at some point we'll do that.
Zach: One thing that's underlies a lot of this, and it's interesting 'cause you know, in venture, and I'm curious if you guys talk about this as a firm, but the difference between like a fixed mindset and a growth mindset.
Logan: Yeah,
Zach: you know, in, in
Logan: maybe explain for people that, uh, that don't know the difference.
Zach: Well, it's used in multiple contacts. I, I mean, I think people in. The venture world have used it in different ways, but I, you know, where I've seen it is really about like individuals, you know, like are people kinda like stuck in what they're capable of now or can you actually like turn them into something better?
And so like people have growth opportunities, they can get better. And from an economic standpoint, I think of it as like if you view the economy as a fixed pie versus a pie that can get bigger, that's really the big one. That's like the, the fixed verse growth and the history of like the United States economy is the pie got bigger [00:37:00] and as the pie gets bigger, everybody wins.
Now we can debate redistribution within that pie, and that's like tax policy and you know, unemployment and how we like move the money around. But the pie getting bigger is better for everybody because then we have more money to redistribute.
Zach: And Clinton got this right? If you go back and you listen to the Bill Clinton speech, like the true, I think of Clinton's like the last true Democrat and like if you listen to some of his stump speeches, even even Hillary a little bit, but mostly Bill, he is talking about growth.
Like the Democratic party used to be a growth party and you know, they would argue like, well, how are we gonna grow faster? Like these are the best arguments for America. It was all about like grow faster because everybody recognized that it's better to try and redistribute $2 trillion than $1 trillion, right?
Like a 5-year-old understands this, do you want the 16 inch pizza or the eight inch pizza? And they're like, well, I could probably the bigger one. And so [00:38:00] we've lost sight, I think, I think the Democrats in particular have lost sight of if you grow the pie, all the like equity and redistribution stuff that they care a lot about just gets easier.
There's just more money. And we, we, we somehow, we've lost sight of that. And their messaging has been anti-business, very anti billionaire, which is related to anti-business. And it's not like I care so much about billionaires, but it's, it's the idea of like the Democratic party has gotten to this fixed pie mindset and it's really bad.
Logan: And if you go back, by the way, on your Clinton point, like if you go back and, and read the, uh, internet bubble and like a lot of how those things came to be, there was pretty close, uh, alliance between Silicon Valley. I. Like the Clinton Gore administration. I know people like the meme Al Gore inter uh, inventing the internet, but he like did [00:39:00] sponsor the legislation that funded the early infrastructure of the internet.
And the administration itself was pro-innovation, pro entrepreneurship, light touch on regulation. It was like a lot of things that were basically catnip for Silicon Valley. Bill Clinton signed the, the Telecommunications Act in 96, which was the first major overhaul of, of US telecom law in 60 years. And that led the, a lot of groundwork for the internet explosion.
And so like. We're not that far removed from this, um, from this time that, that everyone was sort of like pushing this agenda forward. I actually saw, um, an interesting, uh, there was an interesting chart about like the coalition and the profile of the Clinton voters versus today's voters. And there's, there's, it's interesting how much that's like, federated out that the educated high income people, the, the top of the top are mostly still pretty liberal, but the, the sort [00:40:00] of, you know, upper middle class, like that group has really federated from the coalition that was like, oh, maybe it's Bill Clinton, maybe it's George Bush.
And they flipped back and forth to now there's, there's not really a party. I think that uniquely resonates with that group anymore. I feel like it's a lot of the suburban dads like it, they're, they're not pro tariffs and they're not. Uh, you know, a lot of the woke stuff for whatever, like a bunch of the things that they don't appeal to either of those.
And so there's this, there's this party that maybe once was a Bush voter or a Clinton voter that is no longer, uh, you know, has, has a home to the same extent.
Zach: I mean, yeah, a hundred percent. There's like a weird disenfranchised. Uh, set of people that tend to be like, kind of like upper middle class educated. I think it's happening now. I, you and I were talking about this at one point, uh, and I can only speak to like whatever, techy humans, but I feel like there was a deal that you and I signed up for [00:41:00] back in like, uh, whatever, 2008, 2007, get Out school, which was basically like, here's the deal with the Democrats and why we will vote for the deaths.
We like socially liberal policies. We believe in things like gay marriage and kind of, I kind of think of it as like, do you, like, I don't think the state should really tell us what to do. You do. You we're, we're gonna support those liberal causes because we think they're like, good for human beings and free trade and all this kind of stuff, and we'll pay higher taxes.
Like, we'll, we'll, we'll eat it, we'll eat it. Like, I'm happy. I wanna make 4% more of my, like, who fucking cares, right? And I'm willing to do that. Because the rest of Democratic Party was like pro-business, pro-growth. And so that's just trade. We like agreed. You know, it wasn't like an explicit agreement, but that was essentially how I felt.
And then sometime between then and now, the Democratic party was basically like, business is bad and it's not all Democratic party [00:42:00] and it's, but it's a lot of rhetoric that I think got lost, especially in state, state level of like, business is bad, criminals aren't bad. It just like went off the rails. And that's why I think you saw a lot of Silicon Valley types kind of like move to Trump end of last year, let's say.
They were like, you know what? Fuck this. I'm done with the Democratic party. They think I'm a bad person. And I think, I think a lot of tech people and finance people too. Uh, not that we matter in the grand scheme of things, but like felt that I, if you.
Logan: Yeah, I mean, I, I think the two moments I reflect on, and I'm sure we could actually have someone on to talk about this, uh, but, but the Occupy Wall Street kind of 20, uh, 2000, uh, 11 period of time, and then kind of the Cambridge Analytic, uh, like 2016 Facebook, like all of that, the distrust of social media, which now both parties, uh, I think equally kind of [00:43:00] feel.
Um, but I feel like those are kind of the, the big points in time. Uh, Bernie obviously was always kind of a member of the, the, um, the Democrat or whatever, uh, whatever. He calls himself, but like broad umbrella, he, he, uh, he's a broad part of the Democratic party. And, uh, I think that plus, like Elizabeth Warren and, you know, that whole period of time, I think that kind of pulled it in that direction a little bit, which I, I actually, if, if you reflect on it, I, I think from a first principle standpoint, um, 20 years ago or 15 years ago or whatever it was, I think you and I, we were probably leading with, um, social issues first and, and it was kind of like, oh, you know, I, the
Zach: But here's, I think it's really important, it's, we led with social issues first because we felt like there was this fundamental agreement that business pursuit of profit, capitalism, free trade, like let [00:44:00] human beings grow, was there. We, we, we, we, we didn't have to talk about that because I just, you should go look at the Democratic rhetoric from back then.
There's just growth, growth, growth, growth. And so, okay. We had, I think of it as like a luxury, like we had this luxury that we could talk about social issues because the underlying economic stuff was, was clean and stable. That that social trade is unwinding, right? Where it's kind of like, well, yeah, obviously like I support things like gay marriage and what, but, but you guys are coming after like the basics here, which is like allowing people to pursue a living and make money and all that.
And now I'm kind of like, I'm not sure I'm willing to make this trade anymore. Uh, you know, the Democrats are like, profit is bad. Like, what are you fucking talking about? Like, making money in America is a good thing. It is a good thing. Like why can't we just acknowledge that profit is a good thing? It means you made something that people want to buy, like profit, [00:45:00] just like pull profit outta thin air.
You know? Like it has to come from like making something that people wanna purchase. You hire people, it's sustainable. You took some risk. You by the way you take those profits. Guess what you do with them? You reinvest them into US businesses and startups and bad venture funds like yours and I, you know what I mean?
Like, like the money cycles back through, not as tax revenue, but as investment. And, and I think that trade with the Dems kind of like unwound really, really poorly people like, oh, look at this Trump guy. He is like a businessman, you know? Like in theory, uh, let's get on that train. How bad could it be? I really felt that, I felt that with a lot of my friends where I was like, you are kind of a Trump supporter now, aren't you?
And they're like, well, the other one's really bad and this guy seems like he's like pro business. Let's try this. And that, that, that little shift seems to have unwound very fast because now even the moster, like former dem, currently conservative friends I have, and like, I don't know, they're mostly like WhatsApp groups are kind of like, [00:46:00] yeah, this is bad, this is
Logan: Yeah. Well, I, I think that's an interesting thing and, and then we can put a pin in sort of the, the macro politics stuff. But one of the, it felt like the first term of the Trump administration, there was kind of this, uh, in broad strokes like the, there was the Jared Kushner. Sort of side that still had a, um, a global macroeconomic mindset and was moderate.
It seemed in a lot of ways as like a mitigating force for some of the, uh, the worst inclinations of populism. It seems at least, and I haven't uh, discussed this with anyone to know behind the scenes, but at least that's my outside in observation. And then there was kind of this like populist nationalist thread, uh, that felt probably more core to the MAGA movement in a lot of ways.
One of those, the, the cushier side was kind of like the, my, my, the broad strokes like, uh, father [00:47:00] or father-in-law bucket of like the, uh, conservative party, uh, not mine specifically, but general. And then the, the, the other side was like more of this nationalistic populistic movement and it fell going into 2024.
You couldn't really tell which side of those it was gonna break to. It seemed like the rhetoric was populous, but you know, we had seen the proof in the pudding. Everyone sort of said going into it, like, take him seriously, but not literally in all the stuff that he was, he was talking about. And it's, it's clear we're like way on the popula side, uh, right now, which I, I would never have expected.
I thought the, the stock market would be the global voting mechanism or the, the, uh, national voting mechanism by which we would kind of keep score and then ultimately decide if things were working or not. And it's clear that's just not the case. I, similar to you, I thought this stuff would've been unwound weeks ago, so.
Zach: I, I don't think it could have gone poorer. Like there was some stuff they were doing. I was actually really supportive of, and, you know, we were talking about [00:48:00] regulatory reform, unleashing the US economy. We were talking about unleashing our energy resources, both, you know, oil and gas and, you know, modern solar and nuclear and all these things.
And then we just like started to do all the stupidest things humanly possible in, in two months. Even. Even the, the one of the things I'm like most surprised about is the Doge Elon Musk thing, because, I mean, look at this guy is maybe the single best entrepreneur of our generation. He is got, he is top three.
You know, in the sense that he has started multiple massive companies. Like, look, someone starts one awesome company. It's impressive. Starting three awesome companies. Like, I don't think people appreciate how fucking hard that is. That is so hard. And to do it in different industries, in, in, in hardware and two of them.
Like this guy is, yes, he didn't [00:49:00] start them all, but he's pretty amazing. And so you assume that some basic ability to like learn something new and go in and come up with a plan and talk about government efficiency, that seems like a good idea. Like I was all, I'm like, oh my God, Elon Musk is gonna be in this administration talking about government efficiency.
Like, this is great. Like we, we need this. The execution, not just the rhetoric, but the actual execution of it has just been, it's like watching a 20-year-old make a bunch of like operational mistakes. It reminds me of like an inexperienced founder and I don't understand like how and why that happened. Uh, like why not just spend two months like doing homework like you would normally do in a startup, like figure out how this thing works and understand where it's inefficient, and then come up with a plan and run it by experts and do all the normal things you're supposed to do in a startup.
And he did none of them.
Logan: Well, I think we sort of saw, I mean this is clearly a, [00:50:00] uh, a replication of a playbook that was run with Twitter in that way, where I think it was far more. Uh, you know, measure once cut 3, 4, 5, 10 times rather than the other way around. And so I, I agree with you in principle, but I think there is the precedent of, uh, where it's made sense.
It, it, uh, yeah, it's gonna be, I think Doge could be its own, uh, I mean, obviously, uh, very long podcast for us. So May maybe let's, let's pause there. I i, I do wanna transition.
Logan: Um, I mean there's been a lot of open AI stuff this week. Uh, and I guess maybe that's just a universal truism at this point. Like we could probably just say any week there's been a lot of open AI stuff.
So I guess to rattle 'em off and I'm curious what you find most interesting in this. So they close a $40 billion, uh, round of financing, 30 billion from SoftBank, 10 billion from Ascend investors. Uh, I think the initial funding this is interesting will be about 10 billion in the, followed by 30 billion at the end of 2025.
[00:51:00] Um. And SoftBank, uh, I guess disclosed that, uh, the, the their, maybe it's in total investment could be slashed as low as 20 billion of OpenAI doesn't restructure to a for-profit entity by December, uh, 31. Uh, also I think we've seen OpenAI absolutely explode. So, um, there was on Monday chat, GPT now has four, excuse me, 500 million weekly users, uh, up from 400 million, uh, last month.
So added a hundred million in the last, uh, the last couple weeks here. They also released their image model. They also, uh, or a new version of their image model. They also, uh, said they were gonna release open weight models as well, which I think is something that people have been calling on for a long time.
And I think Sam indicated, uh, was on its way. I'm curious, anything of this that jumps out to you or that you find most interesting?
Zach: I mean, a few things I think only 'cause I'm in, you know, economic. Mode just from our previous conversation, can, like, can we just pause for a second and acknowledge how [00:52:00] amazing it is to have like 5 trillion companies startup and big, like all competing at the same time? Like the product innovation, the speed of it, the cost of it, and by the way, like they're almost all American companies
Logan: It's really incredible. How, how much of your activity that would've previously been reserved for Google search do you think has now converted over to Chat GT or Perplexity or Gemini or whatever?
Zach: Probably like a solid 10, 20%. Um,
Logan: of your ac you're still doing 80 to 90% on Google.
Zach: I, I, I think of it actually more as like going to like fixed versus growth. I actually think I do more research now. Like I think of it as like there's a, like the pie has grown for me. There are things that I now go chase down using either like perplexity or chat GBT that I might have just like not done before.
Um, and then some subset, you know, shifts over from Google. I also like to test the Google. I'm in the beta, [00:53:00] so like the native Google AI mode that they just launched. So
Logan: random or did you pull some strings to get into? Uh, into it.
Zach: I just like signed up for the
Logan: Oh, you did? Okay.
Zach: and, and
Logan: This wasn't
Zach: I think it's in,
Logan: sold my company to you 15 years ago. Uh, can you give me, uh, can you gimme some preferred
Zach: no, I haven't pulled that card, uh,
Logan: It probably, it probably doesn't work anymore. I, I, uh, I think that's probably, uh, it's probably worn a little thin after 15 years.
There's a statue of limitations on it. I would say my.
Zach: Yeah.
Logan: My thing has converted way more than that. I, I, I don't, I, I haven't actually tracked it, but I, my guess is 60, 70, 80% of stuff and it is growing the pie as well. It, it's amazing how, uh, many things I now default to going there. We, we, I had some stain on my, um, kitchen counter and I didn't know how to get it off.
And so I took a picture of it and I didn't know what it was, and I uploaded it to the, you know, chat GBT. And I said, Hey, what do you think this is? And they gave me like a diagnosis of it and I was like, all right, well, what [00:54:00] are the techniques to get rid of it and these multimodal things that previously I would've spent so much time like trying to debug it and testing or even, like, there's so many little processes that I think I previously would've spent time on YouTube searches or just clicking around to different forums and now it just lays it out in such a clear synthesis.
Um, my behavior is totally shifted and so it's just, it's remarkable, uh, how sticky that's become for me.
Zach: I think like I would start.
Zach: I'm gonna make a little bit of a bear case for open ai, but I always wanna start with like, this is just really good for America. Like Apple, Amazon, Google, anthropic, open ai, perplexity, uh, some of these voice models, like 95% of the innovation is a here. And at some point we should like, take a step back and be like, this is pretty awesome.
Let's not fuck this up for the [00:55:00] next thing. Leaving that aside for one second, uh, OpenAI specifically and why I don't, I wouldn't be investing at this price and I was even skeptical at the 80 point. Um, I think there's like three bear cases that you could argue and let's see if any of these resonate. My favorite new one is.
SoftBank tends to top tick everything. So there's just that, like SoftBank has a history of, you know, like investing at the peak and losing all their money. So
Logan: there is a signaling association with, with, uh, with that it's not universally true. Uh, there's, they've made some good bets in history, but yes. Uh, in recent history, I would say there is a top element.
Zach: you know, they have those two phrases, the broken clock is right twice a day, and, uh, what does it blind squirrel finds a nut. Mazda seems to be an incredibly blind squirrel, but like, okay, we'll leave that aside. I, I, I think there's kind of two, two bear arguments that I would consider. One is just the margin profile.
I think we've talked about this before, but like, this isn't SaaS [00:56:00] style margins and these like foundational models, uh, because of the CapEx, because of the amount of infrastructure that you have to build to keep pace. And you're competing from like a CapEx spending data centers inference model, all this stuff with some of the largest balance sheets.
Right with Google and others. And so what looks like incredible revenue growth. And it is incredible revenue. It's like the fastest I've ever seen, but it's not SaaS margin revenue. And so the question ultimately in any business over the long run is like, can you make money? Not just like, can you grow revenue, but can you be profitable?
And then, you know, applying a multiple to that. And so I think there's some very fundamental questions about can OpenAI as a business be profitable? Not can it grow, but can it be profitable? Now they're doing all the right things. I think building this like consumer brand and subscription business and is really smart because it makes you sticky.[00:57:00]
Which leads to my other question, and I maybe there we're just early in this cycle, but, 'cause I, I like Stan example, that functionality, which is basically multimodal, right? Like I can text and image, uh, use text input and use image input in like real time. That is going to be native in your phone within two to three years.
Like that is not going to be like open up the app in, at least in Android. 'cause Google's ahead that's gonna be Android native functionality, like all the Gemini stuff that they're, because you can do that same thing in the Gemini app, right? It's not just chat GPT, maybe it's just not as good. That stuff's gonna get built into Android natively.
And so are you really going to like go to the chat GPT app when like the functionality is as easy as Google search? Like have you seen that little Google bar that they stick at the bottom today, which has like image input, voice input, and normal search. Like you're gonna have multimodal input. [00:58:00] Where I think OpenAI has this really interesting advantage right now is that Apple is so slow and so there is no like native iOS functionality that chat GT is competing with.
And so in that world. I do think they have like an interesting runway. The question is just, you know, how fast can Apple and iOS catch up to move this functionality from like a standalone app into like native os? That's what I would be concerned about. I would be concerned about being front run by the, the phone companies.
Logan: There, there, there is a power of defaults and I, I, I guess in some ways we can go back to either the, the browsers in the Microsoft generation or the browsers on the different phones. Uh, the search on the different bones, the maps on the different phones and all of that. I do think that, um, and so there's power of default and I think we should always just assume consumers are lazy and, uh, they're just gonna do what comes easily to them or what they [00:59:00] recall easily enough.
Um, I think we probably would agree that the B2B side of this market is, is going to end up federated in the way that a lot of B2B markets probably not too dissimilar to cloud computing, where, you know, you have an AWS and GCP and an Azure and you know, and so maybe that's, you have OpenAI and you have Azure again, and maybe you have Anthropic or whatever it is.
You have some version of these folks and, and maybe with the open models it just ends up being the cloud hosting providers or maybe it's OpenAI and Anthropic and whoever else Xai that can do that. But I guess let's, let's put the B2B thing to side because I think that's sort of different then on the consumer side.
Um. I do think the power of defaults is a, is a risky thing for this business for sure. That said, they're at 500 million weekly users, and I have just had the power of delight or the amount of delight I've had from like [01:00:00] using OpenAI. There's been, I would say so, so deep research was like a, wow, this is so cool product for me.
And the native image generation thing more recently was like a, oh my gosh, this is just like so cool. Uh, and so I, I do feel myself increasingly sticky, even though I had Gemini on my phone, I have grok on my phone, I have perplexity on my phone. I, I am increasingly getting more and more drawn to using open ai, just like as my default every time there's one of those breakthrough experiences.
And then at some point, just based on the
Zach: the way that that's 'cause they are ahead. Like we should acknowledge they are ahead. But for how long and at what price point?
Logan: Yes. And, and, and so it, it's a reasonable question of what is, like, do you think, is it, is there a tolerance? What is a switching cost associated with it? Right. Uh, as I understand there's a lot of good [01:01:00] products that have been built that ultimately once I got going o on using the existing product, I just never thought about switching to the other one because it's better and there's inherent defaults associated with this.
I obviously ostracize you for having green messages on your, your phone and so there's a lot of like little friction points. And I just think the data, the corporates of data and the amount of feedback loops and the behavior that can be personalized to you when there's more longer context in memory associated with the product itself.
I just think they can continue to build on this viral. Loop of it, and so I worry of the thing. Two things you mentioned, I worry a little bit more about the CapEx side of things and just the cost of continuing to push forward versus the defaults side of things. But we'll see. I mean, obviously this is being played out and you're dancing with elephants in a meaningful way.
Zach: well they, you know, I think this question of like how long can they maintain a true product lead is the fundamental question. [01:02:00] Uh, because I agree there are defaults and the longer they're ahead of everybody else, the more those like consumer defaults will lock in, even if apple catches up. And that's a huge advantage now.
It's not free to run Chachi bt, right? Like there's a lot of costs in trading models and then on the inference side as well. So it's expensive to pursue this and so, and to run it. So they have to charge for it at some point. And my concern, and let's just use the Google example, would be if Google can catch up, and I'm gonna leave that as like a giant execution if, right, if like Gemini can catch up to chat GPT in, in, in quality and, and they're kind of like getting there on the image generation side.
And maybe they can, they have like get out on the runway, Google can run Geminis at, at, at a loss because they can monetize it with the ad machine. And that is a dynamic that open AI cannot do. You just like [01:03:00] eventually, like you have to make money and if Google's just gonna use its giant balance sheet and its ad machine.
So you run, you know, they could run this thing, they could run Gemini at a multi-billion dollar sort of direct cost loss for a long time, decades and just monetize on the backend eventually with ads open ai, like the price point. That's kind of the thing I would be really concerned about with OpenAI is like just erosion of the price point by Google and then maybe eventually Apple.
The fact that Apple is so far behind is really interesting. Like they are in trouble and they're gonna have to buy something and we'll see if the government allows them to, but it would not shock me if at some point Apple goes a hundred billion for philanthropic. Like they might need to.
Logan: The thing with Anthropic is the consumer business just isn't there. Uh,
Zach: Totally. But if you take their [01:04:00] technical infrastructure and then you layer it into the, like the mass distribution on the consumer side, that. You know, apple has, you can think of open AI as being, sorry, as anthropic being like the deep mind of Google, right? It kinda like launches their infrastructure. I mean, that would be the most logical outcome if I'm Apple is like building this in-house is gonna be difficult and every day we're not there.
Or like losing ground, um, in the way Microsoft lost ground on the phone. So I don't know, but margin, margins, price point.
Logan: if we look back on like corporate, uh. Battles. This is at least in terms of like us, which I have far more familiarity with. I mean, we can, uh, obviously there was Apple, Microsoft in the eighties to two thousands that, uh, was particularly, um, you know, uh, heated and then, um, to some extent Apple and Google, [01:05:00] Google and Facebook and more recent history, Amazon, Walmart.
Um, and then, I mean, we can go back and come up with a bunch of ones way back, Coke, Pepsi or whatever, four gm and uh, but this is one of the most interesting chess boards because it's not just. There's a lot of global supply chain considerations. There's incumbents and disruptors. It's ex, it's expensive.
It's very capital intensive to do it, where Google was able to operate in a pretty light, CapEx way for a long time without burning a ton of cash. And so this is just like, in terms of a business case study of how this is gonna play out, it's, it's the most fascinating, at least that I can come up with, uh, in recent history for sure.
Zach: I'll layer in maybe one last thing I think is interesting. Um, and if I were open, I'd be about this pretty, pretty deeply. Um. Consumers are very sensitive to price [01:06:00] and like the fact that like Netflix has this like incredibly massive free tier, blows my mind. It's like hundreds of, I mean, it's insane how big it is.
And Netflix is like 12 bucks a month. Right. And, and what, what's Jet CPT is like open, it's like 20 a month or something like that, I think for the, yeah. Okay. It's a little complicated to compete in the long run with free and that's where Gemini's going. It will be free and there will be paid versions of it, but like the native stuff is gonna be free.
They're gonna mon like that is a hard thing to compete with, so I'd be really worried about it
Logan: I ultimately think. Open AI will have to, I know Sam's resisted or talked about resisting this, but I, I just have to think that they will need an advertising supported model. Uh, it's just, I know he doesn't want to do it, but like, it just unlocks such a huge part of the population. It, it is, there is this like hedonic or insatiable thing that people are willing to [01:07:00] readjust to the new normal of what their expectations of free would look like.
And, you know, if you had shown me what the image generation could have done five years ago, I would've been like, oh my gosh, I'll pay, you know, $20,000 for this. And now I'm like, this is bullshit. You're gonna charge me like $20 a month for infinite ability to change anything.
Zach: the way I would go about this if I were in charge of products at Open AI is I would be thinking about non-monetary lock-ins, because if I'm gonna compete with free, I better have some like lock-in value that isn't just, you know, essentially like a high quality search query. And I think it has to be, I'm gonna kill myself for saying this out loud, but I think it has to be like social networking.
I, I, I think you need some reason that it makes it hard for you to leave OpenAI Chat gt, even if something else is cheap or free, and. If the tool is utilitarian, which it kind of is today, find something, make an image, [01:08:00] you know, do a query, whatever, like I have a thing I wanna get and it's done. That's switchable.
Because if you could just do it cheaper over here, like people will switch. If I have like friends and social and sharing and something native, I actually think I would go after like messaging within chat. I think people would message in the way they kind of do. Uh, like inside, like Bloomberg, chip and I, I think you could like backdoor an interesting messaging platform there.
Then the threat of free from Google and Apple, I'm not as concerned about because there's like real lock-in, but they, I don't know. I assume they're thinking about this.
Logan: I hadn't thought this through in a few. Yeah, I mean, they have smart, yeah. They, they have wild and a bunch of interesting pro smart product people over there, so I'm sure they're thinking about all these things. Yeah, I, uh, it's interesting, like Spotify versus Apple is an interesting analogy that, um, I, I would have thought my default behavior w just conceptually from the outside in, I would've said, okay, I started with Apple Music, but I've now moved to [01:09:00] Spotify.
But when they go back to a native thing with Apple, I'll go back to Apple. That would've been my, like, zoom now thing. And I don't know about you, but that just hasn't happened for, for me. I've, I've stayed with the de default of Spotify. I don't, I haven't used Apple enough to know the nuances of the product, difference of it.
Uh. I've never even felt tempted, even when they were doing the exclusive album releases and trying to find all these different things. And maybe it's just a shittiness of the product thing. And so to your point, like if you can compete on price, uh, and be free, or if you can compete on product in some meaningful way, you at least need to get to a parody level.
But just an analogy that I've thought about in the past of like, that didn't change my behavior in a meaningful way. Uh, I do think if the price point's materially different that we're having a totally different conversation.
Zach: and it's not, it's like basically the same cost for Apple Music for Spotify. The other thing I'd also highlight too is like Spotify has really good, like it's got improving [01:10:00] margins. Uh, there's, you know, apple doesn't have an ability to monetize without charging, so I agree. It's like an interesting, you know, native versus app.
Comparison, I think the economics of these
Logan: I will say what Spotify has done against the music oligopoly. I never thought, I mean, they, there, there's just a couple labels that theoretically should they, they colluded to keep the prices where they were in the industry and Spotify has just continued to. Generate the user demand side of things that have given them more and more leverage.
And then AI discovery. Now they're the ones with their algorithms that can make or break artists. And so now they have power that the, you know, the labels no longer have. So it's a very interesting case study. There's probably a lot of lessons there to be learned for open ai.
Logan: I am curious, uh, before we hop here, like what, um, what's your perspective on the wildcard and all of this?
In the last week, uh, there's been the combination of, uh, the artist formerly known as Twitter and Xai, and obviously the, the bull case in this is, that's such, such a unique corpus of [01:11:00] data, uh, that Twitter or X provides. Uh, I'm never gonna convert to saying X by the way, but, uh, that, that it provides. And so theoretically there should be the most proprietary data set to learn things on, uh, with, with rock.
Uh, the flip side of that is like, uh. I don't know where that business is right now. Uh, compared to Anthropic or open AI or some of these other names that we've talked about. My guess is materially, materially behind.
Zach: I mean, it's another competitor with a big balance sheet and a willingness to look at super long horizons and a willingness to lose money for a while. Um, they'll move fast and you know, they're not gonna have any of the breaks that like a Google will have to have internally. So it's another interesting, real threat.
I mean, I actually think like Rock [01:12:00] basically, when they first came out, removing all the, or most of the restrictions on image generation was like the key
Logan: I agree. I still use it for image generat. Now. OpenAI seems to have rolled back their, by their ability for me to mess around and make memes and stuff, uh, for the content policy restrictions related to copyright. I can't make you South Park or you, uh, you know, whatever Ghibli style anymore. Like I, like I could two days ago.
Uh, so I,
Zach: can you make, can you make a black Nazi? Remember that was the original one where they're like, in, in, in Gemini it was like the only Nazi you could make was like, you know, 'cause it had to be e equitable. And then, you know, the, the, the fear of like, ah, I don't know if we can have these images.
And I think Grok was like, I don't know, make whatever you want. And that's really what people, that's where this is clearly going. And besides legal copyright issues, which will always be there for everybody, it seems one of the benefits of Rock is [01:13:00] just like, we're gonna remove all the guardrails here that are kind of stupid.
Uh, like. Use the technology, just free speech. Come on, let let people do this stuff. Uh, as long as, long as they're not breaking the law, they're making child pornography and stealing, you know, copyright content, which will get litigated anyway. Uh, but yeah, I don't know. That's another entrant and a big one.
And maybe that's who Apple picks up at some point. 'cause they can solve both their like social networking thing and the model all in one company.
Logan: I, I think Apple wants. Nothing to do with Twitter, but, uh,
Zach: fair. Yeah. Culturally, you know,
Logan: far away from that one if I were them. But, uh.
Zach: yeah. Yeah. I mean, let's see. Let's [01:14:00] see.