Episode 19: Jet
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Ninety plus percent. I don't think you rode together ninety plus percent.

That right? Who got you?

Easy you with you with you see me down, say state. Welcome to episode of acquired.

the podcast where we talk about technology acquisitions. I'm bang gilbert.

David wasn't though.

and we are your hosts. Tod's episode is the big news. At the last few weeks, walmart acquiring jet dot com.

I think this set a new record in terms of episode request that I have been yeah .

if you combine email, slack in person, twitter, I think I I personally saw the north of ten.

We give the people what they want .

and you before we dive into IT um I want to do a community spotlight. We've a listener. His name is Crystal and he has an APP called now do invoicing like it's the future.

So now do is to do superfast invoices for teams. It's actually a sp slack APP powerful by stripe. And if you're interested in doing invoices for your team, you should go check out there right now.

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If you're not in the sack community, go to our website to join lots of good discussion um from lots people not just spend .

me acquired dot F M. A breath of fresh air from David I okay listeners, now is a great time to tell you about long time friend of the show service now yes.

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So um under this week topic, David, you want to do the .

acquisition history in fact has always so jet 点 com blockbuster acquisition this month by walmart， over three billion dollars for a company that I was two years old and had only been public for a year but the story actually starts not gone public but yes, I had been launched public um but the story starts way before then actually uh back in two thousand five when mark Lorry, who was one of the confounders and C E O of jet found IT company called cozy which you may may not have heard of but you may know uh it's mean Operating business which was diverted com .

killer domain.

killer domain name and and the quiz y story actually starts even earlier than that when mark started his first company which got sold the tops, the trading card company and he moved out here to seattle to run this division, division of tops. And when he was here in seattle, he was thinking about going in the e. Commerce and starting debris that calm.

And his daughter went to a private school here in seattle that jeff bassos, his children, just happened to go to as well. And so they met IT like a school picnic c one day, and chatted about e commerce. And little did they know the intersections that would be to come.

wow. So this is two thousand. One, before he started, jeff was obviously, what, six, seven years in in full force with amazon?

Yes, sometime between two thousand one .

and two thousand and five this time. Wow OK OK. So, you know, e commerce was a thing.

Amazon was, no, they were not to start up anymore. This was a very real company. It's not like they were both editing that maybe e commerce will be a thing .

together no amazon was a thing. Yes, public company um and and Lorry was thinking about thinking about jumping into the frame, which he did two thousand five when he started the stock come and there is a great history of debris that com would make a good episode us someday. But it's already been covered very well in the everything store, which is the fantasy tic book about amazon. And the punchline is that after a protracted negotiation during which amazon tried to basically clone and then compete with an undercut on Prices for everything debris that com and all of the other 搜 不到 com and many other properties， amazon ended up acquiring the company in twenty ten for five hundred and forty five million dollars.

Do you know what that didn't work IT seems like amazon would have the resources to continue to um you deep discount went on Price and that eventually put them out of business.

They would. But there is an important other player in this story, which we will see comes back again. The second time that walmart was also interested in acquiring debris is 点 com。 Oh, wow, so I came have made a bit for the company.

I see, I see. So amazon strategy maybe .

was very defensive. Prevent literally in in the everything store, the bad stone rights about that bazas gave direction to his corp. Dev team like do not under any circumstances allow walmart to buy this company.

Wow yeah super interesting.

super interesting. So um amazon buys diverse um Lorry and the many employees of of quiz I going work for amazon. The quiz I was established in in new jersey actually in hoboken an um so mark moved .

and as was jet right place .

as was just yes。 So amazon, much like they did, was apple left types alone. It's still an independently Operating company fully on by amazon. Lorry continues to run IT for a couple of years and two years later in twenty thirteen, he leaves and he starts thinking about um what he's gonna a do next was that .

on good terms?

Do you know how you left? Yeah well it's interesting um especially now that the jet acquisition has happened. Um you know the as chronic in the everything store and elsewhere, you know the negotiations and the tactics that amazon used in acquiring diverse uh were aggressive um and Lorry was not a fan of amazon and especially after having worked there. And so when when he leaves in two and thirteen, which is pretty quickly, we don't know what the terms of his uh, retention package wear, but I got to imagine that was longer than start of two each years that he stayed there. Yeah, he's canna got a chip on his shoulder and he wants to gun for amazon in bazo kin with events yeah, and I think he rips on when .

he was starting jet are talking about the reasons behind starting jet. He ripped on amazon's culture a little bit and he's talking about among the many, you know, ways that he wants to compete with amazon on jet being, well, I leave you til the business strategy, but he he wants to create a place that's not such a cut through at culture.

absolutely. I've got the quote right here. He does gives the a quote in the new york times after he leaves amazon starting jp. He says I saw that he didn't at amazon. I saw that he didn't matter how you treated people. You just paid them enough so you didn't care if you burn them out and then you got new people and burn them out. IT was an environment of very short term thinking.

Wow, which is, you know, we talk about EMS on all the time on the show and we praise them for their incredible long term. Yes.

I don't think that is as as an environment of a short term thinking, but we'll get to that. Yeah so so he starts jet a in um the summer of twenty fifteen. And the vision, the idea that he has is that amazon obviously is very, very good at what he does.

But amazon's core customer is not your average american, is the upper class is wealthy individuals, upper middle class people who actually care. They care about pace, but they also care lot about convenience and selection. Amazon's holdin ity, which we will come back to um and he thinks there's an opportunity to compete directly with amazon and to compete on Price to be the low Price discount retailer on the internet. And the model that he has for that is costco.

Um I know great seattle company.

another great seattle company. The intersections are just amazing here. Um and so and so another quote he says as he's starting the company um in the interview, he says there's this huge middle class of people that are going to be spending more and more dollars online and for them it's going to be all about Price and they'll be willing to trade off convenience ince selection verses Price.

So he has a big vision. He's going to win the core middle class of amErica away from amazon and he's he's not going about this small. He goes big.

So he raises a seed round from N, A, uh, excel being and W T, I, uh, as he started the company. This is joy, fourteen, one year away from watch. Just starting. The company raises eighty million dollars right off .

the bed wow yeah and anybody who's going out raising a seed now and knowing what what valuation you're getting like there are a small handful of people in the world that could do a seed like that and is still enough trust to say, yeah you know my my c adventure um you can have what twenty to twenty five percent of or something for eighty million .

dollars and and he's not done. He doesn't stop there. February ary of twenty fifteen were still months away from launch.

They even sold a single thing. The website isn't like anything. He raises another hundred and forty million dollars. So before they even launched the company launched the product, he's raised two hundred and twenty million dollars. wow.

And I remember and remember hearing about this when he was going on and everyone that had been burned in the the late nineties talking about, oh my god, the bubbles back. This companies IT does even have a great plan to make revenue.

They haven't launched a product yet ever again. Well, needless to say, there was a lot of hype when they finally launched on july tony first two thousand and fifteen. So just over a year ago, a year ago, as we said here today, and when they launched, they spent eight hunt of that money on advertising customer acquisition. I remember I was in I was in new york city h last fall um shortly after they are launched and like jet had bought out like felt like half of the subway is on on new york city in new york city and billboards all over the place all over the country. They um they did not go they did not play smallbone e here yeah .

and they actually I think they had a pretty successful organic invite campaign to where they they gave people um like six months of free membership. This was called the jet insider program yeah I have IT here and referred were given up to yeah six months of free site member ship and they ve got almost four thousand people, three hundred and fifty thousand people that uh that signed up for the early membership program. So me, that be incredible to be able to build a base of three hundred and fifty .

thousand users prelaunch a absolutely. And they did IT as giving away free membership for six months. So we mentioned a minute ago that the model for how Lorry and jet we're going to compete with amazon, uh, was there going to use the costco model? And so the idea was that jet was a membership site and IT costs fifty dollars a year to be a member and a prime half of prime, half of prime and that the company Lorry was super explicit about this.

That um much like costco, if you actually look at like costco s financial statements um and you take a the amount of the amount of money that they make from membership fees and you look at their net income, like it's basically the same thing. They make no money on everything they sell in the store. The only money they make is from the membership fees.

And so that was what jet was gonna. So this is good. Like, this isn't us talking. This is straight from Lorry here, quote, he says the bottom line is where basically not making a dime on any of the transactions were passing IT all back to the consumer. So they were going to charge membership fees for six months. If you are part of A A jet insider, you didn't ought to pay for six months, but then they were going to charge fifty dollars here.

which really is only a twenty five dollar value. I mean, we're actually for those of us who are no longer Price sensitive because to the a membership like that because we're used to paying one hundred dollars of prime a year, like giving me twenty five dollars toward that, sure like that. That's interesting.

But it's not like IT doesn't seem like a huge reward and IT doesn't seem like a huge barrier to keep me away from signing up either like the convenience afforded by fast shipping. And I guess that they weren't quite doing as fast shipping, but free shipping IT seems, of course, worth a prime membership. yes. well.

And so then IT comes down delay. okay. So what was actually doing? And the whole idea again was that Price was most important.

And so they had a goal that everything that you would buy on jet would be ten to fifteen percent cheaper than you could get anywhere else online. And by that, they may amazon. Um so they actually built a lot attack around this. And the whole idea was to incentivize customers to buy more than one thing at a time. So like the defauts behavior that Lorry saw with amazon and that, you know, i'd definitely fall into this category, I don't know you you do bin to, is that once you a prime member, you like, oh, I need this, i'm going to order IT. Like right now I want off like, i'm gonna wait in order a bunch ea stuff, whenever I need something.

I just order IT and IT comes right. And they have looked away from that a little bit with things .

like prime pantry or add on items were in no .

longer of which they from oh interesting yeah with with those with those kind of mechanics uh a little bit less confident and amazon actually that I I was um called IT three years ago before those things when I would just be like, oh ogi primate, i'm i'm sure I will get here and i'm sure i'll be able to get IT free. And right now and you know when you when that's the promise for so long and then you you have a couple of these things where it's like you need to buy something else to get the free shipping. IT does actually .

stay a little IT does IT does. And so what jet did a couple things. You had to hit minimum order amounts to get free shipping.

Um but also as you added more items to your car and in particular items and they would incentives surface these items that incentivize you to do IT that were look physically located in the same fulfilments center. So IT costs less to assemble this package and you could send IT all in one box. They would then drop th Epace o n y our o n y our i tems i n y our t otal o rder a s y ou a re b asically d oing t hese b ehaviors t hat t hey w ere i ncentivising. And the idea was another thing that they did and still do is I believe is if you use a debit card instead of a credit card, you'll get a one and a half percent change back um if you this is super interesting. If you wave your right to return anything, then we'll give you an extra discount on um if you wave your way to return certain items, you'll give you .

discount on those items. Uh, it's so interesting. I mean, all these things are like wild, ambitious, very interesting. Um they're intuitive and require a lot of .

technology actually.

right right? A lot of technology in a tonne financial modeling. I think you have to imagine that they're figuring out what return rates are, what it's worth to them if they are going to make the trade off between customer may be getting dissatisfied with something they have and blaming the jet brand verses how much IT costs them to filter the return. And actually except the the thing back all all this is very ambitious and interesting, maybe too short of a time frames is still only been a year, but you did IT .

work interesting. So let's remember all of you know, the stated goal is all the savings that we're going to get Operational from this we're gna pass back to the consumer um and we're going to our starting places are going to be so low anyway that we're basically not making any gross marin anyway. And the whole idea was the membership he would make up for that.

Well, couple months go by. We get to october twenty fifteen and the other shoot drops. And for a whatever reason, I got to imagine the internal data was showing that IT was a flap.

And it's like three months after they yeah .

three three months after they launched jet, announced that the dropping the membership fee. So it's now completely free open to anyone to shop on jet and the Prices are still going to be really low. So they basically said our only profit engine we're killing. I'm reminded of that. You to quote that people often they don't really anymore but they used to talk about amazon like the um the equity analyst would say that you know when they were down on amazon that IT was a charity being run for the benefit of the american consumer. Would jet literally became a charity being run for the benefit .

of the american consuming .

wow and and you know so loris statement on this was that they decided that on some items the data showed them that they actually didn't need the discount ten to fifteen percent. They would only discount four to five percent um and that's how they would make money. But remember again, they're discounting four to five percent relative to amazon, which already has like incredibly low Prices and drives massive and can get those Prices the massive scale and negotiating power with suppliers and they're incredible .

supply chain and everything. So add razer than razer .

than more profit margin. So the fact the idea that you could take amazon's profit growth margin on items ah knock IT down by another forty five percent, do all the film in yourself and still make money perhaps suspect here. But none's the very next month in november of twenty fifteen, they managed to is another three hundred and fifty million dollar around that fidelity leads this time I was publicize at at one point, four billion dollar post money valuation.

okay. So David, you are a venture capitalist. You get mark lory approaching you for this round. why?

Because I got to imagine, like, if not slide one, but somewhere in the pitch decks is the slide that says, oh yeah, our profit model.

We just killed that, right? right? So what what could possibly be the thing where you're like, you know, we painted as a pretty game story so far. Why would you do IT?

Here's why you do IT. Uh, so they announce the round in uh november twenty fifteen thousand three hundred and fifty million dollars in december twenty fifteen in q 4 holidays。 You know the big moment for retail.

Um at the end of december, they announced that they now have two million active customers and that they did thirty three million in revenue in december alone. This is for a company that only launched six months ago. So this is incredible.

incredible growth. So so it's growth even though you know even at this point in history, you you would have been still suspect on the unit economics of the business. IT still seems like good a good investment opportunity.

Go, go, go. And you know I really am sure this was the story wasn't IT is still the story that to compete with somebody like amazon in e commerce and in retail um you need to acquire customers and you need to make huge splash and you need to just make this massive investment in that customer acquisition plus the infrastructure. And to do that, you're going have to lose money for a long time and amazon itself lost money for a long as .

we all know yeah and I wondered to like, is IT is mark li going in to making that pitch without any hedgers and saying, you know, this is one hundred your company we're going to be enduring, we're going to serve middle class? Or is there something in there where you're like this could be a quick turnaround, like something like this walmart thing could happen?

Well, that's say, you know, whether this was a slide in the pitch deck, literally or metaphorically, will never know. But I got to imagine going through all of these investors minds are, hey, this is a getty scale play. And if jack can get to scale, maybe there's some chance that they can build A A sustainable standalone business here.

But there are a lot of people in this world who are very threatened by amazon and who would love to have an opportunity to bring into their fold. At scale e commerce business, of which they are basically one in the world in the U. S. Right now, which is amazon.

right?

So um will get to that in the second. So that was december twenty fifteen, may twenty sixteen. So a couple months ago, um jet announced again that now they did ninety million in revenue in may of twenty sixteen. So they've tripled revenue. Monthly revenue from the december holidays in december, of course, is the biggest revenue month for any retailer.

You have been up well.

IT was infinite because they weren't even been launched in may of twenty .

fifty and rape but presuming that they could compare .

IT to the growth, the growth is incredible. No doubt about that. Uh but what was interesting is uh, shortly after that announcement um last month, so july twenty sixteen, lord does another interview with fortunately clearly pr was one of their customer acquisition strategies yeah and Lorry is very good at that and has always been um but that is interesting this quote that he says in this interview last month, he says well um this being american retail e commerce has never been a winner take all market ah we know he wasn't exactly saying was before but he was kind of like, hey amazon, i'm coming for you.

I'm going to be you before that he says this has never been a winner take all market. There will be a really large number two, three and four, and we can be one of those. So he basically said, I give up my camp number one.

So this is a good time. I mean, we a lot of times we pause and wait for tech trends to later um for new listeners. We've got our sections coming up our acquisition category.

What would have happened otherwise? What tech theme is this illustrate for you? Then we create the acquisition. And rather than saving this for what tech themes, you know, David, is he wrong about the future that the economics that the internet creates can turn retail into a winner takes all market?

Well, I think, you know, if you go back to our our favorite analysts on this show, ben thomson, and you know the idea of aggregation theory, this kind is the underpinning sort of ideology of the internet and internet business models is that you can take all of these industries that before the internet um were buying necessity fragmented and could have multiple winners because you needed physical store space in you know every market in town and that LED to you know some companies would do Better in some locations and other s and others all the sudden there there is only one star front and it's a website.

And and that can lead to just this huge ability to aggregate you if you can create the best customer experience. And we will get back to this a lot. I want to talk about the idea of the customer experience of amazon versus the customer experience of jet that the the best customer experience is gna win and be a winner take all.

Yeah and i'm i'm trying to look at a stand here. E commerce has a percentage of U S. Retail revenue in twenty twelve. I'm sure it's only a few percent points more now, but in two and twelve of IT was like five percent. Like there is so much of retail that is transacted physically that has yet to move to online.

And we you are talking about the other day about i'm doing the dumb thing where I try time the market and wait for a little dip amazon so I can buy IT and then realize like that that you know short term little gain and then hold on to IT for the long point, the long while. And you were in the obvious point that then there's so much retail that still has to move to online. There is ten ex or hundreds more growth left in this company if they continue to the way that they are.

And I do wonder as all this the ninety percent of of retail is left physically as IT moves online, is that margins ory comment? Is history going to disprove that right? Is that maybe I will be a winner taker market because um if you vertically integrated and and have all of the distribution centers and the best customer experience and the best customer experience, yeah and you have all that under one roof like amazon or maybe what jet could be, maybe retail is a winner take all in the future.

Well, um I think we should talk a lot more about that. Will this wrap up real quick? Acquired acquisition history, in fact, because we're at the end here. So August of last week, as we're recording this bomb till announcement, walmart quires jet for three point three billion dollars, three billion in cash and three hundred million in stack retention and said I was for employees. So couple of quick things on this. Um one market lory is gonna ue to run yet it'll be a stand alone an property taking the amazon model here like examples and like diverse but he's also gonna run one more that um um and ah they have a pretty significant lock up on him. So uh a huge portion of it's been reported that a undisclosed but huge portion of his financial outcome from this deal, both in the stock incentives ah that were the three hundred million and and I think also a big part of what he would earn from the cash up front um is going na be subject to him staying .

at walmart for five years .

wow which is quite long compared to uh traditional lock ups in in tech acquisitions .

right right um and he .

wed a tremendous .

man of this company. Still mean like a quarter a third even after all this .

after all that money raised yeah don't know exactly because we don't know the valuations on the early rounds. But but he definitely earned a lot um and super interesting and and so much of the um so much the press um but the press and the actual statements from walmart about this dealer you know clearly a lot is about yeah the fact that they're putting .

in the acquisition announcement that he's going to run walmart dot com. It's like obviously you don't pay three point three billion for a person, but they really wanted my glory.

Well, we will get into that a next in in acquisition category. But to come back to um to this idea you know is there gonna a really large number two, three, four in in U S. RetAiling commerce man IT is really hard for me to imagine that. Yeah I think right .

now I was trying to do some research the other day and who is the number two day and is on right now like IT is is there a meaningful second large commerce? And what IT comes down to is that there are category by category. I talking to a friend who who used to work in amazon, and he was saying that that you know, in electronics, there's s obviously like your best buys of the world that that dominate online in that category still generally way behind amazon. But um there is no massive horizontal platform like like amazon is that that gives you A A strong number two yeah and I think.

well, let's let's continue this discussion in tech themes, but let's do category first so here's the tough one where you're going .

to put IT in. yes. So my I started to have like a little flow chart here.

I don't believe that it's a good food and slip. I don't believe that walmart will independently Operate jet dot com forever. I think that they take the learnings from that role IT into their business. They could do something really in seen and .

bet the farm on jet that they .

actually keep jet alive and poor, although a walmart 点 com resources into that。 But I don't think they're do IT. I think what ends up happening as they run jet as a stand alone thing for a few more years, they take the learnings from IT, maybe even they they take the entire model and rebrand jet dot com as walmart dot com and keep that entire model as as the the way to do wm R E commerce.

But I if they had permanently kept IT alive, I would have said business line. But since I low confidence in that um it's a people in a technology acquisition, I think it's it's actually more the people that know how to build the technology. I think they've ably built a tremendous amt of interesting technology now, but it's really the fact that walmart, other than walmart ABS who built the mobile APP, but that's much less sophisticated, doesn't have in their DNA a strong technology background.

And I think with buying such A A large group of people who are running such a fast growing business, it's like, can we overcome this tipping point of making this actually a place for technologies to go like amazon is, rather than we usually see in these scenarios of buying a smaller company in those people are just a treat. At some point it's like is is yet a big enough buy that we actually can tip the scales and say, you know what, you are a sophisticated developer, an architect that arc, whatever, yeah that that is interested in, in building the future of this stuff. This is the most interesting place to be.

No question. There's that part of IT know as I was thinking about this, I was going to the you know our standard rubrics of categories that kind of went down the list and like, okay, well, people, there's a definite big aspect of that in Lorry and and the other people at jet technology also exactly, as you are saying, a big aspect of of that to this deal product. I don't think there's really a lot of product here because i'm in jet was retail platform not not a product to itself. So maybe not that one as much business line yet there adding the jet 点 com business line um and then asset to the category we added last time with ways um very much so in the press release that one mart puts out here。 They know um that they make sure that I think the second bullet that they call out about the rationalis that jet has a growing customer base of urban and millennial customers .

but that doesn't sound like .

mars best who does not shop a walmart urban and millennial customers um so there is definitely a asset by here in the customer um the customer base. Um I think you're right though at the court, like the two biggest reasons are the people in the technology. But IT kind of like could fit into multiple buckets .

here yeah yeah agree. It's funny as you say, the the millennial generation in the urban the urban dwellers are more of the jet base and that's so obviously not walmart. I saw a couple comparison ones um on a couple of their podcast I listen to and then um in a techy to uh walmart being the generation kind of fitting into irrelevancy because the factors that made them big are not aligned with the current generation. And you know you see this this incredible trend td urban ization and in a very Better way, amazon setting the. The trend for what is a modern um urban campus look like rather than being out in the suburbs and industrial parks and jet just caters to that demographic and plays on that trend so much Better than walmart existing business.

So do we think that um this means that we're gonna biodome .

hoboken nail that exactly what do I mean for those of you not in seattle, amazon is building these like super crazy um is IT biosphere BIOS yeah sure but the yeah I can endure I can endure central park type thing for our employees and and people and I think it's going to be open to the public really in .

right in downtown seattle it's awesome yeah right here in the middle amazon's campus um we yeah i'm trying .

to like take off my obviously were huge fans van s on here. So like i'm really trying to take off my amazon's gna take over the world hat when looking at this thing because I think more and more even over the past year with amazon's tremendous growth and just having a lot more faith and there they're a long term plan, I just start evaluating things as are they really going to compete with amazon? And I think that's a pretty fair assessment. But in the generations.

microsoft, like in the nineties, you know any company that was trying to his mentor capital, like the first question .

would be like what was going to do in micros? So this is like a great allegory. So mobile undid microsoft, or at least the old microsoft way. Like what will be the thing that pushes amazon india relevancy?

Yeah, great quest. I mean, and I think this is obviously, you know, self, admittedly were both huge amazon fan boys here, but like I don't think it's jet, you know I think it's something and and I think there's also a .

good chance that IT wasn't the mac.

Yeah um I think there's a good chance that whatever that is comes from amazon itself. You know they're making big investments into drones with primary like that could be hugely disruptive because that changes the economics of delivery and fulfilment. IT could be a voice that they're doing with alexa because that changes the custom experience of how you order.

Um you know I could be 3d printing right with like you products that your buying don't get made in a factory anymore。 They get made maybe they get made at your house, but maybe they get made locally and then you know just last mile delivered to you. Amazon's investing in that too like it's hard to see you know what the body may be virtual reality like I don't know.

Yeah it's interesting. The other lens look at that through maybe order mixing tech themes all three here the but .

it's one of .

the things that, that is talked about with why apple nailed mobile is because apple like skipped generation and lost the previous war. So it's it's like who's sitting out this one and will be like way behind and gasping their last breath to come up with something truly innovative that amazon i've been thinking .

about this too. Um there's a great article uh that will link to in the show notes serious articles that have come out of this week on apple interviews with the senior team.

P. R.

They must be ready .

for the .

september tenth. Yeah but there's really good one with him, cook and he kind of talks about this a little bit and and I I love this because tackling it's so easy for us to like always be thinking like what's the next thing like you? What's you know and and he talks about this like the interview as iphone growth is slowing, you know that actually was down last quarter. Like what's next after mobile eggs at the car as you know a um and he makes this great point. He's like mobile is the greatest market that technology has ever seen and we are still so early in IT like every person on the planet that is gna have a smart phone and half of them do already.

The people that never had computers .

exactly like you can't even compare like, yeah okay ay, let's look at the auto industry like its way smaller than the phone industry. And his point is that, like he says, mobile still has so many amazing years of growth ahead of IT. Like it's to use amazon Price its day, you know still ten years in to the smart phone. Um and I think amazon is kind of the same thing like that. Their phrasat day one like you know e commerce uh is day one you know there's still so much ahead .

of IT yeah .

five percent of U. S. Retail like there is so much ahead of .

IT yeah I was going to refute the tim cook think because like two and a half billion people or three billion people or something have smart phones so there's like two to three x more growth left in IT.

Well his point was that um his point wasn't so much that I was like think about all of the the corners of your life that your smart phone is going to be a critical part of in the future that IT isn't to that like uber great example. Like who would have thought the smart phone would have like been your taxi couple years ago? Now IT is.

But like is the smart phone your doctor today? no. Will IT be in five or ten years maybe, right? You know, is a, is the smart phone? Know whatever?

IT was the smart phone how you bought stuff funding amazon five years ago? no. Is that how you buy stuff on amazon now?

yes. yeah. interesting. yeah. And and you make a great point on the the retail thing like that. Really it's cheesey. But I get really as day one, like people overwhelmingly still don't buy their stuff online.

So yes, I mean, I think of course, there are things that waves that will come along. They could disrupt amazon, but it's also like the basis has architected. That company is so well that like there out at the front of every way I can I can see at least all right, lessons are next sponsor is a new friend of the show.

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Let's get into um what would IT .

happen otherwise yeah well.

I can tell you one thing that would not have happened yet would not have sold day amazon under any circumstances. I mean, I can't I can't imagine Lorry no working for jeff again.

Yeah and okay, so that's not a possibility. So the walmart thing falls through, let's say walmart just not going to pay the Price tag is IT like to target or one of the other sort .

of bigger or google retail?

Why a technology company? Like why why a google?

Well, google has been experimenting in many ways over the last couple years with trying to compete with the amazon. There is google shopping express.

which never really never taken up.

but they sound time of money into and a whole bunch of initiatives. Um I don't think any of which have really worked, but um that they're working on. And so you can imagine that me because I don't know if they still are. But for a long time, amazon was the number one advertiser on google. They spend more money on Edwards than anyone else in the world.

And I totally believe that because that you it's amazing when you searched for a product, how your your organic search olt and your paid search result are both for that product on amazon.

And like neither google nor amazon are happy about that. No, amazon is aggressively trying to move do everything they can to reduce that dependency like .

amazon is paying the google tax.

Yes, exactly. And google is like omen. That's a huge opportunity and like that's the biggest part of our business. Like how can we just .

do that yeah and how man I this is really interesting fact um so I ve been using smile dam is under com for a long time. They basically take the affiliate fee that you would be giving to, uh you know whoever referred you like clicking through from the wire cutters or something and donate that to the charity of your choice and I was like that so interesting. I was wondered, like, what's the motor fan is going to do that? And they basically are trying to give you a strong enough incentive to book market so that you hit amazon as direct traffic instead of going .

through google and paying that everything they won't be paying that word tax to google.

Yeah it's like we'd rather donate this money than given to google.

Yes, seriously interesting. okay. So I mean, I think somebody else does this company like yeah like .

they were not going .

to be able to continue to raise the amount of money that they would need.

Now which is a is so interesting that is an amazon did but did IT .

in the public .

markets did before, like when there was no amazon to compete.

Well, yeah, right. They built their business over a very long period of time, right? And they did IT financed by the public markets, neither of which jet had the luxury of doing. They had to do IT superfast and they had to do IT from .

private market investors. yeah. And they definite get picked up because investors have put a tony money into this thing. It's not it's not going to zero like that. This company is going to get picked up at some point for some kind of favourable outcome.

Yeah, I mean, you got to imagine that that was a huge part of the investment thesis fur all the VC and and the mutual funds that invested in in jet yeah and you start .

to wonder too, like a few months ago, do you start getting in if you're mark lar, do you start getting investor pressure to be looking around?

Yeah, like it's clear you're burning tons all like growth is there. You're getting building a customer base. But like you've explicitly told the market you have no profit engine and then you explicitly told the market that you no longer think you can be, the amazon somethings got to happen.

Yeah.

yeah.

Um nothing is gone through my house. okay. So like why is this wada tailor bird on last week and he was talking about the acquisition that he thinks the acquisitions that he thinks go the best are the ones where the founder of that company, the acquired the company to be acquired is excited to get their hands on the assets and resources of the larger company to make their their original vision fulfilled and and successful and water walmart assets that mark lory would be happy to get his hands on to make that dream come to free. Why is IT a good place .

to land for jet? Well, I think I think it's a couple of things. One, a lot of money. Yeah like walmart has wait more money than jet would ever be able to raise.

So yeah that's an interesting thing that like if if IT really is true that they're onna, let jet continue to be its own thing and they I mean it's a tall order to to hold walmart to their word of continuing to pour money into this thing like we don't know what promises were made, but like this thing needs a ton of capital to grow walmart effectively the best private investor or maybe the best since they didn't have access to the public markets and definitely couldn't IPO. Um that's like, hey, this is actually a great place to if if they're committed to a fulfill our mission and just a horton on of money into growing.

And I think that's number two, which was doug MC melin, the C E O of walmart, you know please. Well, at least if you listen to the interviews after the acquisition and the press release clearly has a main crash on on so and dog is, said mark, basically going to have car bunch to to do what he needs to do to make this a successful business in all the resources he needs. And then I think three the other the third I said um that a find mark i'm excited about is is the customer base of one more like vision of jet originally was like serve you know the middle class americans that are praised conscious and that's walmart customer base yeah that's true.

And before I move on, there was one of thing as thinking is it's really difficult to compete with amazon now merely because of how razor in their margins are.

And amazon, you famously, your margin is my opportunity was as a jeff basis quote from a long time ago when they were starting amazon and he was saying that about walmart, you know that they were making a few one, three, four, five percent um of profit margin each sale and amazon makes in neighbor d of one or less. And the amazon was growing up in this world where there was opportunity to compete on Price there. And jet had a really hard time.

Obviously, competing with them is on Price. And there just wasn't much margin left. The nobody historical precedent where there was already raised to the bottom, the one company became dominant because they were incredibly cheap ed on razor worth in margins.

Like how would they offended? How did they cause presumable? You have to compete with them on some other access or some new technology comes around up.

And I don't know, it's hard to like I think about like microsoft, you know or traditionally you know the whole your margin is margin is my opportunity quote applies to harm high margin businesses like microsoft. Problem was they made so much money on windows that they couldn't transition to a world or transition fast enough in the last generation to a world where the Operating system is commoditize by the browser. Um but if you already are Operating in a world where you know you're a commodity, it's super hard to get disrupted.

Yeah and that goes right in my tech theme. This is such a classic innovators dilema. yeah. I mean, for twenty years now, walmart has watched and their their biggest fear or materialized where amazon just grows and becomes as mega he ethos and starts stealing their business.

But they can't seem to compete because what that would involve is, is canonizing their incredible business and building a super low margin business. And you know that might be a long term strategy and might be the necessary long term strategy to stay alive. But there are publicly treated company like how do you tell your shareholders you know the next ten years are going to be pretty rough going because we um you know we're undercutting ourselves and building the thing that makes way less money for a long time.

Yeah super heart. I mean and again, we're in a minute we're going to grade this. But man is hard for walmart out there right now like on the one hands like they spent a lot of money for something that I think at least been and I feel like is still gona lose to amazon.

Like walmart still gone to lose and jet still gna lose um but they spent three billion dollars, three point three. Like that's not a lot of money to walmart. So you know it's shot yeah, it's a Better shot than we'd have on their own.

right. I was thinking about that in the lens of like how do I want to evaluate this IT definitely puts them in a more favorable able position than they were. But unfortunately, I think we've to evaluate on the lens of, is this actually worth that much money where that false flat? And I think what my real position is, is you have to do an expected value calculation and figure out like what do you think the chances that .

this thing actually succeeds are the jet will return in profit dollars more than three point three billion yeah .

and like taking a twenty year time horizon. I mean this is like a potentially trillion dollar um category yeah so so I mean .

there is not in the year chance the jet can can can either beat amazon or become a meaningful number two.

Like we could be wrong yeah right. Let's say this becomes a trillion of our business. I mean if there's a one percent chance um that IT succeeds the .

expected to ten billion.

right like that IT actually kind of great.

Three x yeah exactly exactly. You know um this is the art of being an investor versus the science. What are these probabilities?

Yeah and you know a assigning one percent and assigning a trillion in our super arbitrary the the magical nature of the whole thing is its binary like either it's really gonna and it's going to be company saving, which were both saying is the very unlikely what could happen yeah or it's definitely not onna work and we know for a fact or let's like say that I was the far more likely outcome if they didn't acquire jet, is that all marches was gonna totally lose like that could not have competed with amazon.

Back to the people thing, right? Like, man, three point three billion dollars is an expensive aqua higher. But like who's gona? Who would walmart be able to recruit to go be a senior leader at wall mart who would see them through, you know, guide them through this lake? You do last stand um that actually really knew how to do e commerce and knew IT from the best, knew IT from the inside of amazon like .

nobody yeah and if you're recruit to be that exactly this uppal battle of recruiting all the people that you know are talented to come work at walmart with you this way you can to bring like a world .

class team even even if you .

are arranging the deckchairs on the time.

I feel like we we're bleeding in the conclusion, which will get to real quick. But two tech teams I wanted mention quickly. One, we've touched on a bunch, but I just think this is such a lake in terms of handicapping jets, chances for success lake. I so totally believe in aggregation theory and ben thomson benton son's aggregation theory in the idea that on the internet, the best customer experience wins um and this is where I think the logic of jet was flawed, which is that oh like there's a segment of customers, they care about Price more than anything else and they don't care about the other two parts of the whole lectricity of you know the amazon holy trinity of retail, which is Price convenient election on the internet. I think that's wrong.

I think everybody cares about all those and amazon can offer all three to everybody, to lower class people, to middle class people, to uber le class people um and like who wants to think that they don't deserve great convenience and great selection like nobody you know um so I think again, I could be wrong you know but but I think the logic behind jet was flawed in that um all three are important to everybody so that's one too. I also think like um this also we've been really hard on jet on this episode, but um IT also is a little bit of the faster horse thing to me too. Like we're talking about lic.

What's gonna actually disrupt amazon. I don't think it's jet you know like it's jet is a faster horse. So like what what will disrupt amazon is like drones, you know or d printing or .

virtual ality. And at hearing jet, it's like, okay, cool jet can be competitive on Price, much like walmart was always competitive on Price and their business model was to make a little margin. Amazon has a different business model where we've created this incredible fly wheel, where they make a small margin on third party cellars for using the platform, oh yeah. And then they also charge those third party sellers that used for film by amazon for like least space in their warehouses. They're created this .

totally running their websites on AWS.

right? They've created this totally different business model that's not making a couple of pennies on every transaction. It's like like having A A percentage of every piece of the back end and the logistics leading up to that transaction. You and I think there's they're playing a different game.

Yeah where's deep fundamentally was playing the retail business all yeah okay.

Conclusion d like it's it's not enough because walmer had to do something.

Yeah, i'm. Going to go to see further reason that I was saying a minute ago, which is like they had to do something. And this, I think, was the best that they could do.

Like again, they weren't going to hire like what search firm in the world is gna take on that job of? Like, you know, hey, the J. D says build amazon within walmart. You like, nobody who's actually capable of that is gna take that job. Yeah.

yeah. So you think this is just as good as youtube?

Okay, okay. See my, we're all over the place.

Okay.

that's what we got for jet. Hopefully you enjoyed IT. This was a lot of fun doing.

Got a couple sections.

couple sections to wrap up quickly here. Follow ups ban, did you watch? Did you see the new star wars trailer during the olympics? Look this film follow .

up alert my god so at my spoiler alert and let's give about five seconds of me talking to spoiler for the trailer or not still .

there there there are dedicated .

people who don't want to watch the trailers um my favor tweeted the whole thing so obviously there is an incredible moon at the end. We about a half second reseed death fator.

And it's like, and I know .

I don't know how much we wanted get this on the show, but you know, twitters become this place that is not necessarily the greatest place to hang out all the time for for all people. And i'm going to look up the actual tweet here. This is from craig hackberry, the developer of twitter.

terrific. Everyone's worked up about seeing darth vader for half a second, seeing a strong female protagonist for the other two. Fifteen is more important.

Yeah, love that I was .

awesome is like, I like that up. I know I found myself like, I saw that right after I saw the trailer and i'm thinking, oh, like I in the rest of american, the world, they're all work up about dark and there's an incredible shift going on in like the world where the most anticipated movie of this year has uh, amazing strong female lead yeah .

as did the previous yes I um yeah what disney just continues to be a Stellar stored of lucas film and star wars and like man two star wars ds films in two years and I and then we're going to get three and three years risom and word like so empt up about this trail with strong .

female protagonist and we've never .

met any of these characters like these .

are entire exact for that little quick clip of dth fator like you this is these are people that exist in the universe they were invested in but we are invested in a sing one of these these are these characters so um for man his job to to disney .

as usual okay uh new section that were adding um this i'll be very quick uh but we we gets every request for this is hot takes yeah .

thanks thanks for thrown this out this lack as an .

idea yeah there have been a ton of M A transactions happening recently. It's like they're coming hot and heavy.

We do an episode just based unlooked .

what is going on in the market. Yeah, we could we could do some fun stuff. Uh, so for that we have today for the idea here is we're going to do thirty seconds or less quick takes on these deals. Number one for is on acquiring yahoo.

Yeah.

like I feel like we just did that episode so we don't have to do that.

I saw this great, more great tweet about like that. The variation that yahoo is gonna like the fabric that holds all of various areas assets together, something it's like I have no .

idea that means like that's like that's like gram started up .

generator. You have a history in bin.

We want IT into that here. Yeah okay ah number two, a lift turns down acquisition offer from gm reportedly .

um a Better been really low like to me, I don't know if there is a strong place for a second player here. I think that right sharing lends itself to a winner take all dynamic because density is so important.

Customer experience .

yeah like if if if .

I wait two minutes for a newbery versus ten minutes for a lift, i'm opening a boobed every time.

Yeah yeah. I remain bullish. I tried to start a company a few years ago called red ride that was a red showing aggregator. And I I remain bullish h on aggregating all the other options, but I don't think there is a way that you can bill almost exactly like uber, but slightly worse without like a different value.

That's never been a winning value problem. I'm going to be exactly like x, but I will be slowly worse. Yeah yeah, okay. Um close to home, microsoft acquired local seattle startup beam.

Yeah, i'm super curious to see what are going to do with that. I mean, we don't know how how a big the deal was being wasn't incredibly fast growing twitch like service that enabled interactivity and a lot of features that want .

to you could actually play games or influence influence things that we're happening in the game while somebody else was playing.

Yeah, great job to that company for building something that that caught on so fast. Text stars and and other .

other super Young, incredibly talented founders. Uh, big, big congrats everybody there.

Yeah to me, I think there's they're gonna melt into whatever um is part of the the broader gaming strategy right now. But I don't think that they're going to like bet .

on being being this distribution twitch as a dog or not. So but will be great as part of microsoft. Okay, final one, monster that com getting acquired by around stop.

Oh how the mighty have fAllen.

Yeah it's so funny thinking .

about like early days of link in when that was getting started um that that monster was the thing with the super ball commercials, right? Monster was the place that before I was thinking about .

I think the little size of people.

little over four hundred million dollars yeah like, yeah yeah so it's what IT fifty eth, less than a fifty eth, the size of the linked deal. You and you know the trend there, like, let's go, what is network effects are so powerful, a flat site like monster is just never gonna compete with a site that has all the right network effects. And incense they linked does .

network effects. They are a thing. We should .

just renewed .

the podcasts. That's yeah aggregation. The network effects fly. Well, perfect. boom. We do not have to do any more episodes. Okay, Carry out where to get in.

All right. So another podcast for me, IT, is a another a previous carbon that I had was a talk at google by Michael mobile.

W so good.

Yeah incredible. And he has this great book um untangle ly skill and luck, the success equation. He has a podcast episode where he is on the masters in business podcast.

There is a bloomberg news publication and really, really good. He talks about a lot of the same things but applies IT worth a fund management um about luck for the scale. He talks about A A lot of the things that we all know, but get caught up in the um the glitter glamour of what company is hyper growth right now.

And you kind of like brings in home and in me to realised investing is more about identifying this Price assets in places where you have an information mismatch and then using that information to your advantage. And everyone is is very, very focused on, you know, will amazon go up? So want to put money in amazon, but how there's all these other strategies around using using information to your advantage to um yeah identify and and bet on this Price assets.

not mean you you set my heart of flutter. I thought you were going to say that that Michael was starting a podcast of his own and that would have been like the most amazing thing i've heard all month. Um sadly sadly no but Michael, if you're listening, you got to get on here. Um but just to add on to that really quickly, he also did release about twenty thirty page peace this month there last two with sort of ten top top no eternal truth of investing and it's so good he is just a treasure. Are we both following .

bill gilly on twitter? I think we are I think I think that's both .

of our source. Yeah I think that's of our source. Ah I have I have a non bill girl y car out though um a mine is actually straw um which is an APP uh for iphone and android designed for uh for working out uh for bicycling, for running, for swimming.

And IT is so fun a bit a bit a lot of our listeners are already on IT but then and I went for a long at times, ill, faded, but really fun by grade this weekend. And we both use straw to track our ride and it's just like the APP is so well done back to customer experience, like it's the little things like we didn't have to tell strawy that we were biking together. But at the end of IT, because I knew that we were IT was tracking us our rides and that he was ninety percent plus together, IT joined our rides together.

And then to all of our friends who are following us on the apple, IT was but and David road together and and your friends gave you kudos. And just like the all of the little that the segments there are, the the leader boards is so well done. And IT makes working out and exercise in outdoors, which I love to do anyway, just that much more fun and IT makes .

you feel like you're part of a community which is super .

cal to and their their marketing and brand is just like, yeah so on point you like .

to bike a run, just go watch all the videos that they've produced to make .

you like literally go out the door and start.

yeah yeah, awesome.

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that's IT. If you aren't subscribed and you'd like to hear more, you can subscribe now from your favorite podcast dcs client and ah if you feel so incline, we'd love of you on itunes or a tweet or a post on facebook so thank you so much and have great everyone.

We'll see the next time who got.

The truth? Who got the truth?