On TWiST #304 we have Henry Blodget, Business Insider CEO and Declan McCullagh, CNET’s Chief Political Correspondent. Following President Obama’s reelection, they discuss the effects of big data on voters as well as the impact 4 more years of Obama will have on the country. Later in they show they get into the debate of which social network Facebook v. Twitter and the futures of AOL and Yahoo.
:30 Obama remains the president, Let’s welcome Henry Blodget, Business Insider CEO and CNET’s Chief Political Correspondent Declan McCullagh
2:20 Let’s thank out 1st Sponsor New Relic; go to NewRelic.com/thisweekin, to sign up and get a free TWiST T Shirt
4:30 Henry how is everything going at Business Insider?
5:00 What’s the number of uniques over at BI?
5:30 What is the success of the site attribute to?
8:00 What is the next piece of technology that will affect politics?
9:30 Henry, do you feel political dialogue is devolving?
11:00 Declan, what do you think about technology and political dialogue?
12:15 Financially, did you think there was much difference in the candidates?
12:20 What about Nate Silver? What impact does this have on the NYT?
14:30 Henry what are your thoughts on it?
16:30 Declan is big data leading the voter? Is it driving others to rally for the opposition?
18:45 Do you think if the republican party gave up on gay marriage, abortion, and religion, they would be more successful?
20:30 Decker do you think the GOP will will listen to the data that says its over for them unless they change their stance on a few key issues?
23:15 Thanks to Igloo Software. Go to igloosoftware.com/thisweekin for a 3 day free trial
27:00 Declan you an ipad/ipad mini fan?
27:20 What was your most interesting interaction with Steve Jobs?
29:50 Was Twitter’s lack of failure during the election announcement a big moment for Twitter?
30:30 What do you think about Facebook vs. Twitter Henry?
32:40 Declan do you think Twitter and/or Facebook will be around in 20 years?
36:10 What do you think about double taxation in Facebook?
42:00 Is there a way to make this work without advertising?
43:30 Is Zuck growing up as a CEO, putting advertising 1st now?
44:14 What do you think Declan?
50:45 Declan, What are your thoughts on employment?
54:14 Do you think we should take capital gains and make it more advantageous for rich people to invest in small enterprises?
56:00 Kirin, why hasn’t Obama been able to do anything with immigration?
58:15 Henry what are your thoughts on Obama and immigration and marijuana?
59:30 Declan let’s talk about weed a little more? WHat do you think about our laws across the country?
61:30 Proposition E in SF: Will more startups stay in SF now?
62:40 Declan why is there such a concern about the gentrification of SF?
63:50 In NYC, everyone knows Manhattan is for the wealthy?
64:30 Was the acquisition of Kayak by Priceline a smart move?
67:30 Any chance marissa and time reunite, and AOL and Yahoo merge?
68:00 How do you rate each CEO?
69:45 What am I going to get from an Inside.com subscription?
70:00 If you’re a developer, do you take a deal with Facebook or Yahoo?
73:00 Thanks to Declan McCullagh and Henry Blodget and both of our sponsors, Igloo Software and New Relic!
Narrator: Distribution provided by CoudSigma. The cloud that adapts to you. Visit CloudSigma.com/This WeekIn, for a free $200 credit.
Narrator:Today’s episode of ThisWeekIn Startups, is brought to you by, NewRelic. Use promo code: TWIST and get a free month of NewRelic Pro. To redeem: visit NewRelic.com/ThisWeekIn, and see why thousands of developers, world wide, don’t deploy, with out it. And, by Igloo. An intranet you’ll actually like. Visit igloosoftware.com/thisweekin, for a chance to win: $150 iTunes gift card.
Jason: Hey, everybody. It’s November 9, 2012. Obama has been reelected, President. With me on the program: Declan McCullagh, the Chief Political Correspondent of CNET/CBS, and Henry Blodget of Business Insider. It’s going to be an amazing episode. We have a lot to talk about. Technology played a big role in the election. Let’s discuss it this week. Right now.
ThisWeekIn Startups title sequence.
Jason: Hey, everybody. It’s November 9, 2012, and Obama was reelected, President, tuesday night. We’ve got a great program, today, talking: technology and politics and all the stuff going on in the internet space. If it’s your first time joining us, where the hell have you been? We’re 300 episodes in. We’ve got two amazing guests, that I have wanted to have on the program for awhile: Declan McCullagh, an old friend, from CNET. He is their Chief Political Correspondent. He’s been writing about this stuff for decades. And, Henry Blodget of Business Insider, is with us. A former internet analyst and an old friend. Both, two decades friends. Two two decade old relationships, there. I’m getting old, Kirin.
Kirin: We all are, Jason.
Jason: Let me start off by thanking our sponsor for today’s program. One of our two sponsors and partners: New Relic is a great, great service. We get metrics, everyday, of how our servers are doing, our uptime, and which days are busiest. It’s really helpful to know how your web apps are doing and performing. The Launch Ticker has been doing great. An innovative, new format that Kirin and I have been working on. We really need to know what the server resources are and how we’re doing with that. It’s been working, very well. We’ve made a lot of changes to the code to make things work, better. These guys do a really great job. Customers like: SkullCandy, Spotify, Nike, Zillow, Vonage, all use New Relic to check out their performance and to make sure their servers are running as fast as they can. Marissa Mayer, told me long ago: “the best way they could ad a feature to Google, was to make it faster,” because, then, it would increase usage. To just add features: no additional usage. They would make it faster, usage would go up. You need to have a partner like New Relic, to get that virtuous cycle going. Get some ex-ray vision into your web apps. The truth shall set you free when you start to see what’s going on with your app. It could be a little scary, like, maybe I have to go to the developers, and the code’s not perfect or the servers have issues, but you gotta face these issues if you’re going to build a great, world class company. New Relic is a great partner for that. Go to newrelic.com/thisweekin, and create your account. Super fan, Jess Bachman, he’s really a super fan, made a great t-shirt, for ThisWeekIn Startups. If you create a free account, you’ll get one of those t-shirts. So, that’s a pretty good deal. These guys understand how to engage with our super fans and our audience. They understand that you guys, as members of our audience, work on startups and they want to reach you. Go to newrelic.com/thisweekin, to get the elite, super fan, TWiST t-shirt. Look at this. It’s got the samurai sword on it. All that stuff that we talk about: how hard it is to build startups. You gotta be a samurai. All by Jess Bachman, who is super fan. You can check him out at byjess.net. Thank you, to New Relic.
Today, on the program, Henry Blodget of Business Insider. We’ve known each other for almost two decades, now. How’s everything going on Business Insider?
Henry: It’s going very well, thanks. Great to have you back, fully in the media business. We’ve missed you.
Jason: Yeah, exactly. I had my little diversion into search. I got my ass kicked and, I’m back, baby.
Jason: I have the Inside.com domain name. So, interesting speculation as to what I’m going to do with it.
Henry: I know that’s great. Let’s merge. We can use it.
Jason: That’s right. You’re insider and we have inside.com. I didn’t think about that. I bought a domain name for under $100,000. So, I’ll take half of Business Insider. We’ll merge it. No problem. You have Business Insider, which is doing tremendous. What’s the number of uniques per month, now? How many people are working on the site? It’s really doing very well.
Henry: It’s been doing great. We’re over 20 million uniques, now and over 100 people at the company. It really is growing steadily and becoming very substantial, which, is fabulous.
Jason: I knew that you were going to have great success, when Nick Denton told me, over lunch, “Henry Blodget built the business site that I would have built. He’s like a sleeper.” This is two months into Business Insider. What do you think the success of the site is attributed to? It’s been a pretty good run, in just 3 or 4 years.
çI think, the key is the product we provide is a combination of editorial and technology. So many of the folks that we compete with, there’s this hard wall between the ‘editor’ types and the ‘tech’ types. So often, the ‘tech’ types are completely subservient, and so forth. Really, the combination is ‘speed matters’ and a combination of the two things. Ultimately, speaking to people about stuff that is very important. Not trying to fit square pegs into round holes, by trying to put a newspaper online or a television show online. But, just taking full advantage of the internet. That’s what Nick Denton has done. That’s what Matt Drudge did. That’s what Huffington Post did, and that’s certainly what we try to do and that has helped a lot.
Jason: Well done and great success, so far. Declan, you’re on the call. Where are you, Declan? You’re in the library.
Declan: This is actually my home office. I could have done this from CNETs studios or offices at 235 Second St., in San Francisco. But, you don’t want to talk and have all these people walking back or walking behind you, on their way back from lunch. So, I figure, I’d do it from my home office and you’d get to see my taste in books, behind me.
Jason: It adds 7 I.Q. points, instantly. You’re already a smart guy. Let’s get right into it. Kirin, what’s the top story?
Kirin: Since, you mentioned the election: we also, happen to know that big data was one of the big stories from the election. As it turns out: Obama’s campaign realized, back in 2008, they didn’t have all of their databases in one place. They decided not to let that happen, this time around. They consolidated everything. They used metric driven emails to raise money. Even the office pools that tried to guess, which would be more successful, were very often wrong. They used Facebook to replicate knocking on doors. They found that 1 in 5 people, contacted through Facebook, acted on the request. They used modeling to determine their ad buys. They found that those were 14% more efficient than in 2008. There’s also, these dinners, that they did to raise money. They used the data ford their George Clooney dinner, that they did on the west coast to find the right person on the east coast. That was Sarah Jessica Parker. And who to invite for that.
Jason: Really. So, they figured that out as well.
Kirin: They used data every step of the way. They modeled thousands of times, how they were doing in every state and what they needed to do, and they allocated their resources, accordingly.
Jason: So, I guess, the question is: Is this a big data or social election?
Kirin: Right. And what else are we going to see in politics, next? What technology-driven thing are we going to see, next?
Jason: Declan, this is your realm of expertise. We’ve been having… Meetup.com was the false start. Who was the guy that did the “Dean Scream”?
Kirin: Howard Dean.
Jason: We’ve had so many false starts, but is this the real deal, now? Is the internet playing a big role?
Declan: We’ve been saying, for a while, is this going to be the year of the internet, really, making a difference in the election. I think it was. It was the year of social media. But, the interesting thing is, if you look at the numbers, the internet is not being used as a place that candidates spend money. It’s being used for two things: it’s being used as a place, where they raise money, and scads of it. That’s the first thing you do when you sign up to one of their mailing lists. Once, you do, you can never get off of it. They’re worse than the direct marketing association. The second thing is: to get out the vote. But, it you look at where they’re actually spending the money that they raise on the internet, it’s still about 98% of the media buy. The advertising that they’re buying is still, old media: television, radio and, yard signs.
Jason: It doesn’t seem that the internet has elevated the dialogue. Henry, you cover the election a lot on the site. The dialogue is devolving it seems. It didn’t seem to go to a higher level, did it?
Henry: I agree. I don’t think that it has elevated it. What it has allowed people to do is, we hear it, now. It is deafening. I have to say, this is the first election cycle, where I’ve been very, very focused for the entire four years. On this sort of development of the dialog, and the different positions and the whole effort of the republicans over the past four years to make Obama look incredibly ineffective by saying ‘no’ to everything he wanted. It’s almost like bullet points get distributed to everybody on the internet, every morning, as to what their talking points that day, are supposed to be and what both sides are. I do think that there is constructive engagement. I think the ability for stories that really do break ground, to go crazy, and to educate people is very encouraging. But, what I’ve been struck by, again and again, is people want to hear what they believe. They want to be on their team. It’s almost the same as rooting for the Giants or the Jets. That’s how dedicated people are. They never want to hear anything else. So, it’s definitely been surprising to have it front and center, all four years.
Jason: Declan, what about the dialogue. We’ve built this incredible tool, in the internet, we should be able to fact check people. We should be able to have really granular discussions. Why has that never manifested itself. People have been saying for two decades of the internet, 25 years, that we’re going to get a better process out of this. But, it’s not a better process.
Declan: This is an example, where theory outpaces reality. Henry’s a smart guy and I have to agree with him. This is a lot like rooting for a political team. If you look at it broadly, it doesn’t really matter who was elected president on tuesday. You’re still going to have your drone killing. You’re still going to have troops in a hundred plus military bases, overseas. Taxes are not going to go up by 50%, they’re not going to go down by 50%. You’re not going to end the war on drugs by fiat. Because the parties have come together on a lot of issues, not all, it’s like we’re rooting for a sports team. If you’re going to a sports game… I’m going to the Stanford home game, tomorrow, then you can do this. It’s a lot of fun and you can do it in person. But, how do you root online? This is a killer app for Twitter, in a way. This is the presidential elections.
Jason: Henry, I know you analyze all this stuff. On a financial basis, there doesn’t seem to be that big of a difference, as Declan’s saying. The difference in tax rates, you’d think, from the dialogue and the screaming, that we’re 20 points apart but, we’re really single digits points, right?
Henry: You’re so right. That’s what I mean. This hyperbolic idea of, now, Obama is a socialist and we’ve got to return to capitalism. When nobody on the democratic side, who’s reasonable suggested the tax rates are going to go any higher than, maybe, they were in the Clinton administration. Maybe, a little bit higher, but the idea that they’re going to go back to 90% tax rates. Yet, that’s the way that it’s always framed: this struggle between black and white and, so forth. The other thing that struck me watching the election is that you come out of it and here we are and it’s incredibly close and those independents do actually matter. Ultimately we go forward. It’s not going to make that much of a difference. So, I’m consistently struck by how unbelievably impassioned people are about it. When, it doesn’t in fact, at least given the two candidates that we had, make much of a difference.
Jason: What about Nate Silver? He seems to be the winner of the election, doesn’t he?
Jason: What impact does this have on journalism and The New York times, going forward, Declan?
Declan: The New York Times did a great job snatching him up, a while ago. He was right, right, and right, again. I was talking with one of my colleagues early on, before California came out and said, maybe Nate’s not right for the west coast. By the morning, when he woke up, he was. But, you don’t need that, even. You can look at the prediction markets: InTrade.com and Betfair.com. They’re also doing a very good job of predicting elections because, people put their own money up. Their own money is at stake. So big data is a winner. But, so are prediction markets. I think you’re still going to see pundits, though. I’m not going to trust George Will’s election predictions, anymore. He’s a conservative columnist for the Washington Post, who predicted a Romney sweep, but they’re still going to be around. Television networks needs to fill airtime, if nothing else.
Jason: Henry, what are your thoughts on it? It seems, like, he become Walt Mossberg, of the space.
Henry: I thought he was remarkable. This was totally money ball in politics. You have these stack geek, basically, being incredibly clear about the way he saw it and why he saw it that way, explaining it. Even going the extra mile, at the end, to aggressively challenge people who clearly were rooting or just full of crap. Saying, whatever came into their heads. It was such a complete victory for data and analyses, as opposed to sentiment and the gut. It mirrors the argument that we’re having nationally about things, like, climate change, where we’ve got a huge percentage of people who say, “hey, that just doesn’t feel right to me.” Then, you’ve got the scientists saying, ” I don’t know what to say, here is what the data is saying.” Hopefully, this is a move towards analyses being, actually, valued a little more highly than it is. We live in this culture, where so many people… any sort of analyses of study is dismisses as elitism and what have you. It couldn’t have been more right here. The thing that was most surprising to me, was that even in the Romney inner circle, they seem to have believed that they were actually going to win. I understand saying that publicly, it’s a confidence game, but actually, really believing it? To me, you’re getting delusional. For someone, especially, who is holding himself out to be very pragmatic, a great manager, someone who understands details, I’m just very surprised that they were taken in by their own story.
Jason: They never seem to have listened to the data. They had time. They knew they were going to lose. The statistics were there for a long time and they didn’t make changes.
Henry:They found a wonderful way to explain it away. Again, doing it publicly, I get it, but in the war room, at night, “Guys, we’re still behind. Should we be bringing out the big kahuna?” They don’t appear to have done that. They appear to have actually believed their story.
Jason: Declan, is this big data actually leading voters? When the voters see InTrade, this crushing, statistical analyses, coming out months and months and months in advance, is that driving people to participate more for the opposition, and try to rally capitulation. It seems like the G.O.P. capitulated this election. I don’t think they made any radical changes to try to win.
Declan: I think you’re right. The G.O.P.s real problem is demographics. When you have large numbers of minority groups, increasing in numbers, and going for the democratic party… last election, maybe that was a fluke. Well, no it wasn’t. This is a broad and very powerful trend: women, minorities, young, anyone under 30. This is a real problem for the republicans. It’s actually a real problem for anyone that likes the idea of the democrats having a good loyal opposition to keep them honest. To go back to your Romney point, for a moment, The Romney campaign tried big data. They had this application called Orca, you can’t get any bigger than that, right? With the idea being: we’re going to allow everyone to coordinate. Our volunteers can coordinate. The whole story hasn’t come out yet. I expect it will in the next week but, Orca flopped, it crashed. Volunteers weren’t getting their marching orders. It wasn’t stress tested. It wasn’t available to volunteers till election day. So, they tried to do the big data thing, they just failed miserably. One last point: They actually thought it was a turn out election. They thought the 2008 election was unusual. They could have won this if turnout had gone a few percentage points, either way. It was really close in Florida, Ohio, and Virginia. We’re not talking a 5% point difference in these states. It was much smaller than that.
Jason: Henry, you’ve lamented on your blog that you’re looking for a fiscally conservative candidate but, liberal on social issues, or at least, neutral on social issues…
Henry:Reasonable on social issues.
Jason: Do you think that if the Republican Party did any of the following: 1. embrace the gays, 2. gave up on abortion, as a national issue, and 3. just said that religion is a private issue and took it off the table, any of those three would win them the election. Two of those three, definitely wins them the election?
Henry: I don’t know. I think that and embracing the fact that America is an incredibly diverse country, would help a lot. There was barely any lip service to that. And, a view of immigration that acknowledges the fact that everybody who is in this country, or almost everybody, came here from somewhere else. So, the idea that we have to, effectively, shut the borders down, I know we’re talking about legal verses illegal immigration, but often that seems to be code for let’s close the borders. I think it’s a lot of issues. I’m not a political analyst, but when I look at it and certainly when, you look at Nate Silver’s analyses, the core republican party, as it was defined in this election, the group who are going to embrace that is going to get smaller and smaller. Just through the diversification of the American population. One of the biggest things, I’ve always had a problem with is the idea that the republicans stand for limited government. Yet, socially, what they stand for is very aggressive government, that wants to legislate things like: stripping away choice, legislating who you can marry, really tying religion in with the state. To me, it’s fundamentally inconsistent in a way that bothers me, personally. Also, seemingly, they need to capture that middle to win the elections. They’re certainly not, at this point.
Jason: Declan, do you think, you’re going to see the G.O.P. just, listen to the data, just listen to the statistics, telling them that it’s over for them, unless they change these three or four fringe, kooky… what I think is kooky, that you would take religion and make it a national issue.
Kirin: How about rape? The whole rape comment. The guy in Missouri: “A woman’s body can control, whether or not, she gets pregnant, if she’s raped.” That will send them off the deep end. Women are not interested in candidates who talk like that.
Declan: In fairness to the republican party. This wasn’t part of the republican party platform. They had a few kooky candidates, and in part, this was the tea parties influence. But, when you have candidates saying that kind of thing, you’re not going to appeal to a broad audience. Republicans… parties, in general, they adjust and morph. They respond to political pressure. This is what they do by definition. I can imagine the next generation of republican candidates being a bit more reasonable on a lot of these issues. You’ve got Governor Fortuno, of Puerto Rico, whose eligible to run for president, who will be an attractive candidate in four or eight years. But, Henry is saying…, let me ask him a question, he’s saying socially liberal and fiscally conservative, this sounds a lot like the libertarian party, that got one percent of the vote.
Henry: To me, I don’t care what you call it. This country has a huge economic and fiscal problem. So, somebody, very strong, has to come in and deal with that. I actually, think that Obama is doing a very good job on that. I don’t think that he has been helped by the republicans. But, I think, now, there has to be compromise. We have to get a long term budget deal in place. We have to get spending in line with revenue. That’s going to be tax increases and spending cuts. You can’t do it either way. I definitely want somebody there, who has the ability to say ‘no’. On the other hand, how does something like, gay marriage hurt anybody? Preventing it is stripping away freedom. I don’t understand why a party that is supposedly for freedom and liberty in America, would ever come out against that. Unless, you are, really, tying a particular religious view, and not a particularly open minded one, into your state governing philosophy. That’s where I think there are some issues. It’s not that’s it’s libertarian. I don’t care what it’s called. I just think that in order to win elections, it seems that you’ve got to capture the hearts and minds of the center. The republicans fail to do that.
Jason: When we get back from the commercial break, I want to talk about employment and technology and efficiency and what’s going on with the economy. Since, we have two great guests.
I want to take a moment to thank our friends at igloosoftware. A great intranet software company, that you’ll actually like to use, and that we’ve been using it here, at ThisWeekIn, to very simple things. We have an extranet, now in our intranet. Where the companies who sponsor and partner with us on this program, can put there assets into the system, our little intranet. So, we don’t have to keep asking them for it, or it’s trapped in email. Here is all that creative, here in our ThisWeekIn locker. We, basically, have a very easy way, on our ipads, on our desktops and, with our clients, to coordinates all the different projects that we’re doing. It’s fully hosted and managed in the cloud and it’s, obviously, super secure. Big companies are using them. Like: IDC, Deloitte, NetApp, Blackberry, Hospice. A lot of great companies are using them. Go to igloosoftware.com/thisweekin, to get a 30 day free trial. You might even win an iPad mini. They know what you guys are thinking. Everybody wants that iPad mini. I have it. It’s become my default. I love it.
Kirin: That’s the only thing I see you carrying in your hand when, you come in and out of the office, now.
Jason: That’s it. Why am I going to carry around a 17lb. iPad 3 Retina. The iPad mini is obviously the winner. igloosoftware is the winner for giving an iPad mini away to our audience. Great internet software. We having a great time using it here, at the home office. So, everybody it’s your ‘giri’, if you’re a super fan, to thank @igloosoftware, for supporting the program. Go to igloosoftware.com/thisweekin, and get a 30 day free trial.
Henry, you’re an iPad mini fan, I see.
Henry: I think, what you just said is very profound, on a number of levels. First observation: very interesting. Steve Jobs, who there’s unbelievable respect for. Remarks he had in 2010, don’t appear quite right. Unless, he was just trashing his competitors. It seems like, the iPad mini, according to you and many other very smart people, is going to become the iPad. In fact, that is really going to unlock the promise of the iPad, which is that every household is going to have two or three of them, sitting on tables, everywhere. Maybe, in every room. It’s going to be explosive in terms of access to content. I think it can be a huge product for Apple. I think it is still a little bit too expensive and I think, it will change their margin structure, somewhat, for the negative. But, overall it seems that this is the winner.
Jason: It’s pretty clear the resolution is not even close to the iPad 3, or whatever you’re supposed to call it. I think, I’m supposed to call it the new iPad. Steve Jobs was completely wrong on this. That’s the thing about having an extreme personality like that: you could be, absolutely, 100%wrong and you’re so pig headed, that you’re like, “nobody could possibly be right, but me. So, why should we ever even try.” Then, Eddie Q or someone was saying in an email exchange with Jobs, “I’m using the Kindle Fire, the Nexus 7″, it’s pretty good.” It’s just so much nicer to hold it in one hand. I think, Henry, the margin on this has got to be 100%, for them, right? It’s costing them $180-$190, same cost as the Kindle Fire, to make. I’m sure, right?
Henry: They’re certainly making more money than the Kindle. But, my understanding is that the screen is actually pretty expensive. Can they maintain these margins? Can they keep charging this price? My guess is that they’ll come out with a retina, early next year or middle of next year and we’ll have a cheaper version. I would hope so, anyway. I think the right price point is around the $200 mark, where everybody else is.
Jason: Well, that’s $200 with no margin. Amazon has 0 margin and Google has near 0 margin. Declan, are you an iPad/Ipad mini fan?
Declan: I’m slowly going to transition, I think, to more Android devices. But, I’ve been an Apple user since the 1980s, mid 1980s. I worked at Next, for a while.
Jason: You worked at Next?
Declan: I did. I was a next developer, as well. I was a low level flunky at Next, but, I did interact with Steve Jobs, a few times.
Jason:What was the most interesting, memorable interaction with Steve Jobs?
Declan: This was a conference in Red Weed City. Like a Next Developer Camp, they called it. I was living on the east coast, then. So, I flew out here. He drove up in a black 911. It was an all vegetarian lunch. It was a very California lifestyle, as someone who grew up on the east coast. Silicon Valley was a different way of living. So, this just exemplifies your point: Jobs had this, ‘we’ll do it my way or no way,’ a lot of times in Next’s history. The original Mac didn’t have a way to expand it. It didn’t have a hard-drive built in. The original Next was $8,000 and was not available in color. Just black and white, grey scale. It took him a long time, years in both cases, to say, ” O.K., maybe, we can bow to what our users want.”
Jason: O.K. Next story, Kirin.
Kirin: Twitter, actually, did not go down, during the election. People are calling this a watershed moment for Twitter.
Jason: That’s when you know your company has a low benchmark: you didn’t go down and people celebrated.
Kirin: In all fairness, they had a surge at the election at: 327,450 tweets per minute. They had a one minute peak of 875,560 tweets when the election was called for Obama. There were 31,000,000 election tweets that were sent on November, 6. The four more years tweet, where Obama is hugging Michelle, had over 450,000 re-tweets. Most ever. It beat out the Justin Bieber tweets.
Jason: That’s almost as many likes as George Takei gets on his viral stuff on Facebook. Keep going.
Kirin: On the Twitter engineering blog, they say that starting to see peaks for hours, not just seconds or minutes. They’ve also, mentioned, that they’ve been optimizing their Ruby run time. Traffic for the mobile client was hitting a different machine. Even their creative director, Jim…, tweeted, “R.I.P. FailWell.” And, Mike Isaac of AllThingsD, said, “It was Twitter’s watershed moment, performing as it should, during the most tweeted about moment in the service’s 6 year history.” In addition to this, of course, they also compiled a bunch of election-related coverage on a special page the had #election 2012 hash tag marks on it. So, they got, a little bit, into the content side of this, as well. Was this, actually, a defining moment for Twitter? Now, that they have stabilized the service, what is their next challenge?
Jason: I don’t think this has to do with the service staying up. I think, it has to do with the fact that this is the place that the news is not going to report on the Facebook image, that Barak Obama posted, because, who cares. People just seem to not care about Facebook, as much, but, they do love Twitter. To me it feels like… and I’m interested in Henry’s thoughts… Facebook is doing all the wrong things, right now, to get revenue and to squeeze people. Twitter seems to be the cooler service. On a ‘temperature of the world,’ it feels that Facebook is becoming authoritative, boring and ugly and Twitter is becoming essential. What do you think, Henry?
Henry: I think a few things. First: it’s always amusing to me to hear people say, ‘a company is completely screwed’, because the service goes down, because the demand is so great for it, that they can’t keep up with it.
Jason: High-class problem.
Henry: Exactly. It happened to AOL in the late 90s. It happened to Ebay. Obviously, some companies get killed: MySpace got killed, Friendster got killed because, they couldn’t manage it. But, temporary outages, companies can deal with that. It’s a sign of overwhelming demand, which is wonderful. So, that’s never been an issue. I, actually, think the big issue for Twitter, and I should confess that I am completely addicted to it, is,still, it is not in any way, shape, or form, a mainstream technology. There is a very passionate group of the population, that uses Twitter, constantly, but if you look at the Pues study, we’re still talking about 10-15 percent of the country. When you compare that to Facebook: huge usage, 70% penetration. It is absolutely a mass market technology. I realize that a lot of folks in the tech world, are actually, appalled by that. Facebook has become boring. We don’t want to be there, kids are quitting because, their parents are on it, it’s so uncool, they’re going to Instagram. The good news for Facebook is that they own Instagram, so that’s not a terrible outcome. I think, the key next challenge for Twitter is finding a way to really becoming a main stream technology. Part of that is: finding a way to radically simplify the service. The fact that you have to figure it out, figure out who to follow and, there’s still all these inside jokes, and things like that. It’s addictive, but, it’s addictive for a very, very information intensive consumer and most, just aren’t.
Jason: Yeah. You have to be smart to use Twitter, right? It’s almost like using IRC. IRC is where all the cool kids hung out. You had to figure out IRC.
Henry: That’s right. You have to do work and consumer don’t do work. That’s the big secret that a lot of big brand consumer brand managers know and that a lot of the tech community always miss. It’s not about features. It’s about the whole thing and it’s got to be as simple as possible. Twitter’s still complicated.
Jason: Declan, what do you think? 50 years from now, Facebook or Twitter, either of them around? Is Twitter surging now and Facebook declining? What’s your take on it?
Declan: Maybe, the way to think about it is that there are natural caps on market penetration. Facebook is not going to go that much higher. I could be proven wrong. I suspect, my grandmother is not going to get on. She actually, gave up her internet connection. She didn’t use it enough to make it worth while. Facebook can be very asynchronous. You don’t need to be on there, right now, talking. You can just, check in what your cousin or high school friend was doing a week later or a day later. Twitter is more synchronous. It really thrives when you have these live events. There’s a cap to how many people want to use it this way. I think, I’ll take issue with Twitter being the nice guy on the block. In fact, if you talk to developers, the last half year, they’ve been locking down their API. They have every right to do this. It’s private property. They can if they want but, they run the risk of pissing off developers. You’ve seen the rise of App.Net and similar services. Developers are so happy to see a company that wants to work with them. They want to build all these wonderful, next generation apps on top of something that’s open and not closed. There are more API restrictions coming in February, from Twitter. So, Twitter has to do something to keep their developers on board. Otherwise, they’ll build the next wonderful product on App.Net, or something, I suspect.
Jason: Henry, you think, their charge to shut down their API is really to have less noise around Twitter? Let’s have one, singular experience?
Henry: It makes perfect sense. Again, there’s this huge angst and whining in the community, and understandably. Because, a lot of the folks who are now getting shut out, are the ones who made Twitter this incredibly powerful utility, that so many people are on. Twitter has been clear from the beginning, at least, some people in the Twitter ecosystem, have been clear, this is the step and this is what a lot of platforms do. So, this is a risk you take, when you build a company, or, at least an app, around a particular technology, like that. They’re perfectly within their rights to do it. The next thing: can they build a real business out of it? Certainly, anecdotally, it seems to be working. But, as I said, before, they’re still only a slice of the market. The brand is completely mass market. Yet, people try it, they don’t know what to do with it, they drop it. Twitter has got to solve that problem.
Jason: What’s really interesting to me about Twitter, or the trend that’s happening, that I see, is I see that the most interesting and intelligent people are now, not even logging into Facebook, anymore. They’re just syndicating their tweets over there. So, Henry says really interesting things on Twitter. We have exchanges, back and forth. We both syndicate our tweets, I think Henry does to, to Facebook. Then, once in awhile, I’ll log into Facebook and see that there’s another discussion going on. It’s almost like, this water cooler… People discussing our discussion. It’s almost like a class system: intelligent people are discussing it here, then it gets syndicated to the masses over here and, the dumb people can talk about it, there.
Kirin: I’d be careful to call everybody on Facebook, dumb, Jason.
Jason: Well, I just called 70% of the country dumb, but it’s almost like…
Henry: Twitter is a broadcast medium. Facebook is much more intimate.
Jason: I don’t know if I feel that way. What do you think about double taxation in Facebook. People paid Facebook. They put the ‘like’ buttons on their sites. They tried to build up their fan base on Facebook, which I said from the beginning, is stupid idea. You’re, basically, paying Mark Zuckerberg to get people to ‘like’ his page. That happens to have your name on it. Now, everybody got duped. They spent hundreds of thousands of dollars, millions of dollars for some businesses, tens of thousands of dollars for smaller businesses, to build up a fan base, that now, when you try to reach that fan base, the edge rank is not letting you reach them. Unlike Twitter: if you have followers, 100% see your tweet. Only 1%, 5% of people are seeing it and now they’re asking you to pay to reach your fan base. It’s almost like, you’re paying twice. What do you think, Henry? How big of a mistake is this?
Henry: I don’t know, Jason. I hear that and I say, “cry me a river.” They give you access to a billion people for free and now, you’re going to sit there and say, ‘You tricked me?” The fact that brands can host pages and gather fans for free, on Facebook, is pretty generous.
Jason: They were paying for it: a lot of these people. They were paying a dollar, two dollars to Facebook to get those followers. You do realize that?
Henry: Certainly, when they’re advertising, that’s right. You could have the ability to get people for free. It seems that when you use Facebook or Twitter, it seems there’s no guarantee everybody’s going to see your stuff. Yes, they have an algorithm and that makes it a little bit different. I would cut Facebook slack. They have totally focused on the product, from day one. They have now gotten serious about trying to build a huge enterprise, based on that. Some of the sponsored stories that they’re doing, anecdotally, seems to be working, and we’ll see.
Jason: But, you wouldn’t spend any of your investor’s money building out your Facebook presence?
Henry: Facebook’s a great partner for us and distribution is very important. We get a huge amount of traffic and we are grateful to anyone who shares any of our stuff on Facebook. We don’t actually have a dedicated site within Facebook, in part, because our stories get distributed very nicely through Facebook. It’s early in the Facebook growth curve. There was a lot of excitement around commerce and you’re going to build stores within Facebook.
Jason: You’re not spending $25,000 a month, say, ‘we’re going to build 25,000 people, who are subscribers and get to a million, some day, on our page. And, you’re not publishing inside of that ecosystem, as others, of your contemporaries have tried to do.
Henry: That’s right. A lot of the early… at least for publishers, a lot of the early success seemed, kind of, gimmicky: that people didn’t really know they using an app in a way that it was sharing everything. It was huge traffic spikes. It didn’t seem, particularly, sustainable. We had the ability to log in. You’re on our site, you want to share with your friends, automatically, that works. I think, just overall, Facebook’s big challenge now, is that everybody thought it was the next Google. Now, everybody has sobered up and realized that Google still has the best advertising medium in the history of man. You type in what you want, then suddenly, they serve the ads. Whereas, Facebook, even though, they can get you to the right people, you’re still advertising at a party. A lot of people aren’t open to that. So, it’s always going to be challenging in a way that Google is not. I think, some of the new products they’re doing: the sponsored stores, especially on mobile, makes a lot of sense.
Jason: What do you think Declan, about the capacity of publishers to make a business go, inside of Facebook. Smart idea? Is CNET really invested in that? Or, is it just like Henry’s approach, if you happen to like it, and we get some traffic referred from there, that’s fine?
Declan: We’ve invested a bit in it. I wouldn’t say that it’s a huge priority for us. Cause, you are taking the risk of building your business on top of someone else’s platform, or use the term ‘ecosystem’, it’s just as valid. If they want to make changes then, well, you get the rug yanked out from under you. You’re not going to be very happy. I think, Facebook’s move, sponsored promoting, is brilliant and, possibly, slightly evil. Imagine if Google had done something like this. Right? Like, ” O.K., all you New York businesses, if you want your site to appear in organic search results, then, you can appear to the rest of the country, but for New York residents, pay up a little extra money: $5 a day, or something like that. The outcry would be amazing. You’d have the U.S. Department of Justice file an anti-trust lawsuit, within five seconds. But, Facebook is immune from this. I’m not saying they should be the target of an anti-trust lawsuit, cause there’s a lot of problems with the anti-trust laws. But, it’s kind of, interesting that you see this happening. You might see Twitter do the same thing. Henry knows much more about this than I do, but if the investors are going to want a payout, their early employees are going to want a payout. How do you do that? There are only a few paths: increased revenue. All the paths point to increased revenue.
Jason: We’ve been through this, sort of, social becoming the ‘fabric’ of our society, or playing a major role. Now, maybe, through three or four sites: Friendster, LinkedIn, Facebook, Twitter, MySpace, and it’s always ended the same way. It keeps ending in tears. Which is, you have to sell out your users, you have to bombard them with advertising, in this, most intimate of contexts. Does App.Net have it right: pay some modest amount of money and have no advertising? I instantly, paid for that and I, instantly, endorsed that, but, the public is pretty adverse to paying. Is there a way to make this work without advertising, Henry?
Henry: Well, I guess, Facebook could offer a version of the site, that doesn’t have advertising, where people pay for it, a premium version. I don’t know.
Jason: Would you?
Henry: Would I? I would not.
Jason: $10 a year. Take out all the ads. No?
Henry: $10 a year? At that level, that’s not very much money. It would certainly be interesting.
Jason: Wait. If it’s $10 a year and there are 800,000,000 people, that’s $8,000,000,000. I’m not saying that 100% would do it but, that’s an $8,000,000,000 pie, even if only 10% did it, you’re talking about a large amount of money.
Henry: I don’t think you’d get anywhere near that penetration. I think, it would be far lower. People would flee and, so forth. Everyone complains about advertising. Sometimes, when you offer an alternative, people are loath to pay for anything. Everything is supposed to be free. Look, Facebook can screw it up. I think, they have the right guy in command. In terms of hoping they will not. You cannot have a guy who is more dedicated to the product than Mark Zuckerberg. He’s been very clear about that from day one. He seems to have gotten a little more capitalistic, lately. He sounded that way during the earning call, saying, “Look, when we get back, we need to design new product.” Advertising is baked into that. He should, I hope, stick to his guns in saying, “Product comes first.”
Jason: He did say, obviously, famously in the movie, “Advertising is terrible. He’ll never have advertising in the main column. He went public, as you predicted, I believe I remember one of your pieces. He changed his tune and, you’re saying, now, he’s really changed his tune, now that his stock is cut in half. He’s becoming, I guess, a grown up C.E.O., in that, he’s putting, maybe not advertising and revenue first, Henry but, certainly, it’s a close second.
Henry: Look. I just hope that he doesn’t lose the unshakable view that he had prior to the I.P.O., that ‘the product is most important,’ because it is. Who’s the other C.E.O. that’s had that, kind of, long term view and delivered, Jeff Bezos at Amazon, have always been about the product and customers first. And, Jeff’s very focused on financials. He’s not ignoring it in the least, but the whole thing is do the right thing by customers and everything will work out in the end. Mark Zuckerberg has talked a great game on that. I hope he stands by it.
Jason: What do you think, Declan? Do you think he’ll stand by it?
Declan: Look, us coastal pundits, that’s all of us, here, like to criticize others. I don’t think that the rest of the population cares, much, about the dangers, perceived evils of advertising. There are plenty of advocacy groups in D.C., that want to ban advertising. Which, basically, mean banning a large portion of the internet. Which, we’ll possibly see on the ascendance, on the next Obama administration. People don’t mind and sometimes don’t even like them. I don’t think that an ad supported Facebook is a terrible thing. I don’t think that Facebook is going to offer an ad free version. App.Net is, kind of, clever: have developers pay and, eventually, have the end user pay. On the other hand, they’re still a minuscule, fraction of a fraction, of either Twitter or any other social network.
Jason: I think that you two gentlemen are correct: advertising is not that big of a deal to most people, of course, that’s a very astute point. I don’t think, Zuckerberg is going to go over some line, to make it abhorrent to use Facebook. However, I do think, there is a premium service to be had. I can see the adoption of Path is increasing. The usage is increasing, amongst the people who are the avant garde and App,Net, maybe it’s not a juggernaut, yet, but it’s definitely captured the hearts and minds of developers, in a major way. If you could get 5-10% of the audience to pay: subsidize the rest of the audience and keep it ad free, I think, that somebody could make a product that is more delightful to use, if they leaned into that. But, not be a venture capitalist stream. So, that is the limitation of it, which is, if you get a billion people and 5% pay, you’ve only got 50,000,000 people paying. They pay $20 a year, you’ve got a billion dollar company. That’s not going to cut it with V.C.s. for that size business. They’re going to want much more revenue.
Henry: A billion dollars. Come on. Let’s not raise the bar, too much. That’s not so bad.
Jason: I just think, V.C.s and the market just pushes you. It seems like, Amazon is the one example… Henry this is your expertise… only person who seems to have pushed back the stock market, without their stock price being, absolutely, decimated, is Amazon.
Henry: Look what it took to do that, though. Amazon stock was destroyed for seven years. They had a couple of early years, out of the gate, like gangbusters. That was the whole late 1990s. Then, the stock collapsed and they almost went bankrupt. It was that close. One of the analyst predicted that it was going to go bust. The stock recovered a little bit then, bumped along for about 5-7 years before it really took off. During that period, there were unbelievable insults thrown at Jeff Bezos. People had given up on the idea that Amazon couldn’t make money. That was the whole mantra in the 1990s. But, still, “they’re not focused, enough, on making money.” But, Jeff Bezos, very thick skin and always focused on the long term. By the way, he’s doing it right now. Amazon’s margins are terrible because, they’re investing so much in Amazon web services, they made Kindle, and a smart-phone, we haven’t even seen, yet, that we’ll probably see, early next year. They’re making huge bets and those bets don’t pay off this quarter or next quarter, or even next year. Bezos, he owns a lot of the company and he is just strong headed when it comes to doing that. Mark Zuckerberg is very young. But, he’s shown some of the same ability to just ignore critics. Critics, who are much more, held up, legendary, all that stuff. That’s why I have hope that he will actually, make the right decisions, here.
Jason: How ironic is it for you and I to be having this discussion? You, famously, made a bullish call on Amazon, were perhaps, wrong in the short term, but certainly, correct in the long term. How do you reconcile that? It’s gotta be a great F.U., for you, back to the market, that you are a tremendous success, now.
Henry: I’m glad that that one worked. I’ve had plenty that didn’t work. But, I’ll tell you what I’m really glad about: I think the american business ethic has, fundamentally, warped in the last 10-15 years, in a very destructive way, by the stock market and by the incredibly short term demands of a hyper professionalized investment industry. Investment industry, the mutual fund industry it’s about what’s happening this week, this quarter. Same thing for the hedge funds. That is terribly destructive to most companies because, as you know, from having built many businesses, you simply cannot maximize both, the short-term quarterly performance and your 5-10 year outlook. You can’t. You’ve got to go one way or the other. There are going to be times when, you have a big opportunity, you want to make a big bet, and spend a lot of money. Your earnings, in that next year, are going to go down. From a long-term perspective, that may be a brilliant thing to do, but, from a short term you will be crush in the stock market.
Jason: You’d be fired.
Henry: You probably would if you don’t earn enough. This is a much larger issue. I think, the religion of, quote, ‘shareholder value’, this country has become obsessed with has been incredibly destructive. And, our profit margins are too high, now. That’s why we have such a high unemployment rate. We have got to get companies to focus on the long term: invest more, now, in people, in research, and in everything else, to grow much faster over the long term. Instead, of maximizing short term. That’s what Bezos has done, in spades. I hope that Zuckerberg… it sucks to have your stock cut in half… but, part of that is because investors got completely crazy at the I.P.O.. It was a little too high.
Jason: Yeah, it’s not all his fault. You make a good point, though, Kirin. It seems that if one company has balanced tremendous earnings with long-term investment, it would be Sergey and Larry at Google, correct?
Henry: Yeah. They’re helped by the fact that they have this absolutely, miraculous business, that just has mind-boggling profitability.
Jason: That nobody seems to be able to make a dent in.
Henry: They’re helped by that. Huge kudos to them for continuing to invest in stuff. Google’s doing a lot of cool stuff. I’m not crazy about it from a non-focus perspective, but they’re making the big bets.
Jason: Declan, what are your thoughts, vis-a vis, employment… and Henry makes a really interesting point: if you’re so obsessed, and the market is so obsessed, with the short-term earnings, companies are sitting on mountains: tens of billions of dollars: largest hedge fund in the world is now Apple, with $110 or $120 billion dollars in revenue, Google with $40 or $50 billion, and any given point in time, the same thing for MicroSoft, these companies don’t want to hire people, because they’re slaves to the earnings. Are we shooting ourselves in the foot?
Declan: It’s difficult when your company’s a bit more mature and you have employees, who say, ” I want my Google stock, GSUs, to be worth something. So, it’s great, Larry and Sergey, that you have these five year plans but, I need to buy a house, next year. Or, pay for an addition.” So, it is more tricky for them, than for some other folks. There’s also a political point to be made, here. That is: companies have not known, until two or three days ago, who’s going to be the next president, who’s going to have control of the senate, who’s going to have control of the house. We have probabilities and sometimes, that’s good enough. That’s one reason, not the only reason, mind you, that they’re sitting on all this cash, especially, small business. Because, there’s uncertainty about regulations, uncertainty about taxes, and the ObamaCare taxes, that will start kicking in next year, on medical device makers and other folks. It’s been a weird political environment, the last year or so.
Henry: Can I disagree with Declan, on that? I have to say that I realize: these are the talking points of republicans have distributed, these last four years. All about the uncertainty and regulations and maybe taxes will go up, so don’t invest. I have to say, from a business perspective, I have never met one honest C.E.O. or entrepreneur, who has ever, ever, made his decision, or not made his decision, because regulation might change, a little bit, or taxes might go up, a little bit, or what have you. Running our business, we are very concerned about the uncertainty, but it has nothing to do with the political uncertainty or the regulatory uncertainty. It is all about the economic uncertainty.
Jason: For you, there is more uncertainty in Greece or Spain, than in Washington.
Henry: Absolutely. And, that comes down to the fact that american consumers are broke. That’s the problem. We’ve built up debt for thirty years, now we’re trimming debt. It’s good but, it’s going to take a while for us to get it down. That is creating a lot of uncertainty in a crappy economy and that’s the big issue. How do we get out of it? Corporations have to suck it up and invest in America. Stop having the highest profit margins in history. You listen to people in Washington talk about business, it’s like, “Our companies are a disaster, nobody is making any money, it’s terrible, we’ve got to unlock business.” It is a crock. Our businesses: big companies, not small companies, are at the highest profit margins, ever. Huge cash balances. And, they are just sitting on it and hoarding it, because that’s what Wall Street is telling them to do. It is time to find some way to get them to spend, lower today’s profits, invest in the country, hire more people, that will create more spending money. Then, we can get ourselves growing, again.
Jason: There’s some talk. Capital gains keeps coming up and, obviously, relates to our industry in a major way because, venture capitalists are investing with, basically, half price taxing, due to capital gains. I’ve been the beneficiary of it and I don’t to see it go away, but, do you think we should take capital gains and make it more advantageous for rich people to invest in small enterprises, Declan? Is that something that they’re talking about in Washington, D.C.? It seems that capital gains has become the enemy, when you see somebody, like, Romney, paying some ridiculous tax rate: 11% or 12%. Then, your cousins are paying 30% or 40%.
Declan: Teresa Heinz Kerry, if you go back to the 2004 election, was paying very little in taxes, because it was all tax free municipal bonds, cause it was where all her income came from. Once you have the money in the bank, and you’re sitting on millions or billions of dollars, depending on who you are, then, you really don’t have to worry, too much, about it. It’s more about the people getting there in the first place. I don’t want to go down the path of asset tax verses income tax. So, let’s talk about one thing that may be happening, or may not be happening, next year, and that is immigration visas. This goes to the employment point. Companies, sometimes want to hire, but, sometimes, they can’t find qualified workers or are printing all these degrees for engineers, who are very well educated, here, and then sending them home because, they can’t get visas? Marc Andreessen told us at CNET, two days ago, that he really wants to see the Startup Act 2.0 go through Congress, which, would create immigrant visas. Which, would allow folks with master’s, Ph.Ds, and engineering disciplines, to stay here, if they’re educated here. It was introduced half a year ago. It’s been before, both, the House and the Senate, it’s been endorsed by everyone. There’s been zero hearings. Not one hearing in either chamber.
Jason: Kirin, you worked at immigration, before this. Obama seems that he is very pro-immigration. He’s been in for four years, he’s got nothing done, essentially. Why not? Why can’t he get it done?
Kirin: Immigration is the third rail of politics. You don’t, really, benefit politically. Whether, you act in favor of more immigration or in favor of less. The problem is that he had other legitimate things to deal with, first. There was a promise to Latino voters, in particular. The black and white, polarization that you see in other areas definitely saw it in immigration, as well. It’s all about: secure the border and no amnesty. Once you put the argument in those terms, there’s no way to talk about all this other stuff. Things that are very reasonable, that people agreed on, as recently as 5 or 6 years ago, they don’t even want to talk about, anymore. That’s just not reasonable. You have to be able to talk about some of this stuff. Not all of immigration is about legal or illegal. There are very real issues around employment. Most definitely, it would help the country if you allowed certain people, who are educated here, to remain. That’s the thing. It is much harder to get a job in a country, if you don’t have a degree from that country. Australia, actually, realized this. They made it much easier for foreign students to stay in Australia, after they finish their degrees. They figured it was in their interest. Why hasn’t the U.S. figured that out, yet?
Jason: It’s kind of crazy. I think they should come up with some very simple things. I had a couple of companies that I had angel invested in, or was considering, and they were like, “We raising a round. Everybody in The United States wants to invest in us but, we don’t know if we can be there.” If the investors in The United States: angel investors, venture capitalists, are going to put together a pool of money to bring people from another country, I think, we should just accept them. There should be some system. Like: if you raised over $500,000, you get two people to come into the country. If you raised over two million, you can get four people to come into the country. Maybe a pro-rated system. If you come here for a degree, you should, immediately get plus 10 years. If you get any college degree, plus ten years. You get another degree, another ten years. That would be such a simple system.
Kirin: It should be much easier to get your permanent residency, right? Rather than these temporary situations. If you’re pretty sure that somebody is going to add to your society, then why would you make them go through hoops to stay?
Jason: Henry, what do you think? Is this just Obama that was desperate to get his second term and now, in his second term, we’re going to correct all these immigration problems and make marijuana legal?
Henry: The immigration thing is a no brainer. I will defer to Kirin, as to why it hasn’t been happening, cause it is just such a no brainer. All I can say is that, on the other side of the aisle there’s this knee jerk reaction: ‘Can’t have that,’ ‘No more. Close the borders,’ basically. It is an absolute no brainer. On marijuana, I have to say, I didn’t think I’d see an election where we had gay marriage legalized in a couple of states and marijuana legalized. It’s always struck me as absolutely preposterous: that you could walk down any city block and buy all the drugs you want at a drug store and liquor store and drink caffeine, and everything else and yet, “Oh, you can’t have pot! That’s terrible!” Like the last days of the Roman Empire, debauchery. But, finally, it’s becoming a little reasonable. You know what? It’s already a good business in Colorado. People have jobs and maybe they’ll tax it. That’s good. It eliminates the black market that’s always been there. It just makes so much sense. So, I’m actually encouraged by that.
Jason: There you go, folks. Henry Blodget says, “Smoke more weed.” Declan, let’s talk about weed a little bit more because, it is a representative issue of this society, where we won’t make advances forward when something just seems so logical. What do you think of the marijuana laws, across the country and what’s happening?
Declan: I tend to be libertarian on this issue. So, I’m encouraged to see the ballot’s initiatives passing. The problem is that, the Obama administration could have said, ” Guys, we got re-elected. We can actually, do the right thing.” But, instead, you had his Drug Enforcement Administration say, immediately afterwards, “We’re still going to enforce federal marijuana laws, which makes it a crime to possess marijuana. So, great, voters in Colorado, etc.. In theory you can have it, but, if you try to buy it, or try to possess it, The D.E.A. will come and put you in jail for ten years.” I’ll disagree with Henry, a little, on the immigration point. It’s a left-right coalition in favor of it. Bush, for all his faults, was generally, pro-immigration. Then, you had the left-right coalition against it, which includes, labor unions. After Google, MicroSoft, Oracle, Intel, etc., sent letters saying please let us bring more already employed biased foreign workers into the country, you had the A.F.L., C.I.O. write a letter to Obama, immediately afterward, saying, “No, no, no. This is going to cost american jobs.” It’s not a partisan issue, unfortunately. We’re talking legal immigration, here. Illegal immigration might be a little more partisan.
Jason: That’s the crazy part. People are actually, so dumb, that they actually think that bringing intelligent people here to start businesses , would have a negative impact on job growth.
Kirin: There are some people who think every immigrant is a mexican. Yes, they are the majority. They are the largest foreign-born group in this country. But, that’s not everybody. People actually come other ways, besides over borders. They come on airplanes and ships, and guess what, people also overstay visas. You don’t have to come over the border to come illegally. There’s lots of people here on “unauthorized” status from Ireland, from the Philippines, from wherever. They didn’t get here, by the border.
Jason: Let’s do the last two stories, then we’ll wrap up.
Kirin: Alright. I think, this is kind of interesting: Proposition E, in San Francisco, to end the 1.5% payroll tax, Ron Conway supported, did pass, overwhelmingly. Over 70% o f the votes. Firms will now pay a gross receipts tax that varies according to industry. Conway got interested in this, because he moved to the city, after raising his family in Silicon Valley. Although, the companies that he was investing in, were up in arms about this tax. What do you think is going to happen, now? Will more startups stay in, or move to San Francisco?
Jason: I think, we have this, here, in Santa Monica. What do you think, Declan? Have you been following this?
Declan: I only follow it peripherally. But, it does sort of broaden the tax base and probably, at the margins, make San Francisco, marginally, more attractive. A lot depends on things, like construction. Whether, you can eventually pay a tax to get into the city: congestion taxes. The city has made some great strides in trying to improve part of market share. This is the area where Twitter is. I don’t think it’s going to be a huge success. It doesn’t have to be huge, because Google doesn’t have to move here. It just has to be a modest success to keep that area alive. It’s more like, check back in three years.
Jason: Declan, why is there such a concern about the gentrification and evolution of San Francisco from a place where there’s a lot of cheap rents to a place, more like Manhattan, where you can only live on the island of Manhattan if you are very affluent? It seems like there’s a lot of pain around this topic.
Declan: There is. If you talk to folks who moved to San Francisco, in the 60s or 70s, they say, “Now, things are so much more expensive.” “There’s gentrification.” “I can’t afford to go out and eat in my neighborhood.” But, you hear these things, everywhere. Has it really changed the character of the city? One reason that housing is so expensive is supply and demand. Housing in the bay area, more broadly, we’re not just talking about San Francisco, here, was in line with the rest of the country, until the 1980s. Then, a few things happened: Silicon Valley grew, but also a lot of building restrictions. So, if you could have a more dense building, which Manhattan does allow, but, San Francisco doesn’t, except in a few areas, then, you’ll increase supply and drive down cost. But, San Francisco is not going to allow that. Part of the problem is the city’s own making.
Jason: Henry, in New York, nobody is under any delusion that Manhattan is for rich people, ultra wealthy, and the boroughs are just for the wealthy, and if you’re anyone else, you’re taking the Long Island expressway.
Henry: In New York, the real estate market is just not to be believed. It doesn’t matter what happens on Wall Street, it just keeps going up.
Jason: It’s kind of interesting. Last story.
Kirin: We have to talk about the Priceline acquisition of Kayak, a very big deal in the online travel space. It’s $1.8 billion: $500,000 in cash and $1.3 billion in stock. It was $40 a share for Kayak, that’s a 29% premium on their close. Kayak only went public in July. They only reported one quarter before this deal was announced. Priceline is the most valuable corporation in the online travel market, with a market cap of $31.3 billion. And Raffat, he’s got a new venture called, Skiff and, he’s all about covering the online travel space and he said, ” Priceline will gain a great online and mobile team to build it’s portfolio and will put muscle behind the Kayak brand.” Is this a smart move for Priceline? Can we expect more consolidation in online travel?
Jason: The interesting thing is about Kayak and SideStep, which, I think, they merged with or bought, is those businesses were under massive attack by Google and they should have gone out of business. The fact that they have survived this long, after 3 or 4 near death experiences, is miraculous. Priceline is the same thing: that was another business that was supposed to go away. What do you think, Henry?
Henry: Priceline is one of the most amazing turn around stories, I’ve ever seen. It’s hard to say that of, obviously, Apple, which is now, the most valuable company in the world, after being left for dead. Priceline was a gimmick. It was a big name and it had a tremendous crash. They have built their way back. They made a very smart buy in Europe. Now, it’s $30 billion. This is company that people don’t pay any attention to, at all. The fact that they have this roaring business and they’re not using their capital in the form of both, cash and stock, which is very highly valued, to really build out there presence, in the United States, where they have not been very strong- it’s been Europe that’s driven it- very smart.
Jason: This Priceline chart is an amazingly awesome, like, a web 1.0, 2.0 story. It was trading at $800, $900, or whatever, in 2000, comes crashing down to nothing: single digits. Then, this amazing recovery back to $600. If you invested a thousand dollars for a share, you went down to $10 then, back up to $800. Talk about a roller coaster, huh, Henry?
Henry: Unheard of. It’s bigger than Yahoo!. That would have been, absolutely, unfathomable several years ago. While we’re on the topic of unbelievable, in terms of the stock market, what’s been one of the best stocks this year? AOL.! Everyone wrote that thing off for dead. This is the company that bought your company. Everyone thought they were done. Now, here they are at $40 a share. Everything looks great. Miraculous things can happen.
Jason: For content companies, which all three of us are involved in, it’s pretty great to see AOL doing better because, along with Yahoo!, they’re going to be the main acquirer of Business Insider or Gawker or Inside.com or any of these companies. We need to have a strong AOL. They’re making $100 million in video revenue. They were only making $10 million, two years ago. Their video is going off the charts and nobody even knows that they have video. I think Yahoo! is the same story.
Henry: It’s extraordinary. It really is great to see. it’s wonderful to see these companies turn around. Again, going back to the really short-term focus of the stock market, to see stuff like this is great.
Jason: Any chance Marissa and Tim reunite, the two companies merge?
Henry: I don’t know. I think it makes sense. There’s a lot of efficiency to be gained from that. On the other hand, Marissa has, definitely, a lot to focus on. Yahoo! has to focus. She has to make those decisions, first. AOL can still be focused. There’s more to do there. There is time.
Jason: How do you grade each C.E.O.?
Henry: I work for Yahoo!. So, I’m not going to do a line by line of Marissa. I’ll just say that everyone is really excited. She has done a great job. She has reinvigorated the place. Everything she said on the conference call makes sense. That was great to hear. Yahoo! has a massive opportunity, especially on the news side. AOL, I think, has a lot of figuring out. What business is going to work? They have some great brands. The subscription business is starting to stabilize. There’s still a lot of cash flow. A lot of interesting things can happen, there.
Jason: Declan, what’s the vibe on Yahoo!, right now? It seems that Marissa’s building a management team, buying some interesting companies, stabilizing and, there’s hope. What’s the vibe?
Declan: There is. I work in San Francisco but, live in the center of Silicon Valley, just west of Palo Alto. I think, you’re right. The people that I talk to, who work at Yahoo!, are, for the first time in years, excited about their jobs. Nobody would actually show up at Yahoo!. I’m exaggerating but, Yahoo! would have a lot of people working from home on fridays. Now, post-Marissa, you have a Google-like, directly imported from Google, ‘let’s talk with our C.E.O.’ session. People were showing up. They’re excited. The problem is that, a lot of employees, who could leave, did leave, because, they saw, what they believed to be, the writing on the wall. So, I’m not sure, what’s going to happen. Jason, I signed up for your Inside.com site, early on, after you mentioned it. All I got was something saying, “Your subscription to our list has been confirmed.” What does that mean? What am I going to get?
Jason: I have to figure out what to do. I’m figuring that out, right now. No. Obviously, Mahalo is pivoting to Inside.com. We’ve been doing video and apps. The writings on the wall. We know what we need to do. It’s a little bit early for that discussion, but we’re getting closer. I think, Yahoo! is going to do tremendous, actually. Right now, I think, if you’re a developer, and you have an offer from Facebook and an offer from Yahoo!…and I’m interested in Henry and Declan’s point of view… which one do you take? They give you a half million dollars in stock. Which one is the better bet? Which one is going to be more fun to work on? Declan, Henry? Jump ball?
Declan: The first is that you hold out for Twitter or Google. Barring that, I think that Yahoo! might have the greater upside, starting from a lower base.
Jason: What do you think, Henry?
Henry: That’s interesting, Declan. Yahoo! always hire, beta and the same with Facebook. Google’s just, fantastically, wealthy. If you want to get compensated in cash, they can do that. There’s certainly room on the stock. It’s not trading at a particularly high price. I don’t know. You tell me, Jason.
Jason: What do you think? If you had the opportunity to sell your company and work at Yahoo! or work at Facebook, which one do you think would be the better bet, if you had to take an all-stock offer?
Henry: Our business fits very well with what Yahoo! does. It doesn’t fit with what the Facebook does and it doesn’t fit with what Google does. So, I wouldn’t even know how to evaluate that.
Jason: That’s a failed test. But, for a developer, I think that it’s a jump ball. Which, if I was asking this question pre-Marissa, and you said, “should you go to Yahoo! or Facebook?”, that’s 100% that you go to Facebook. Now, it’s 50-50. You’re actually, thinking about it as a developer, as an intelligent person. Marissa might be more fun and interesting to work for than Zuckerberg. People are going to have that bait and that’s what Yahoo! needed.
Kirin: But, you did say, not too long ago, that if you got an offer from Yahoo!, you might think, “I don’t know if I really, want to sell my company to Yahoo!. There’s not really enough caché, there.”
Jason: Right. There was no caché, pre-Marissa.
Kirin: Somebody like FourSquare or Path or some other companies, you were like, “I just can’t see, Dave Morin or Dennis Crowley, selling to Yahoo!. To them, it might just seem like it was not a success.”
Jason: Previously. But, I think, that with Marissa, that would start to change. Cause, she might be able to lull them, and say, “Hey, listen, you’re going to have a big role. It’s a big opportunity. You could help me build this. You’ll be a partner.” I think that now, as she builds this team out, she’s starting to have some credibility. Which, is good. She brings some credibility. For some of those folks, like, Dave Morin and Dennis Crowley, I think that they’re going to take it all the way. For them, it’s binary.
Henry: It’s not about who’s going to buy Marissa out.
Jason: At this point, Dennis Crowley or Dave Morin, people who have made money, already, it’s like, ” Either, we go for success or you’ve got to fire me and then, sell the company for parts.” I think, that’s, sort of, how those guys think. This has been an amazing program. Henry, thanks, a lot. Everybody follow @hblodget. What’s coming up? Do you have any events coming up, or anything that I can plug?
Henry: We do. We’ve got Ignition, in two weeks, in New York. A great line-up. We’d love to get you out here, at some point.
Jason: Everyone checkout Ignition, at BusinessInsider.com. A great conference. And, Declan. You can follow him @declanm on Twitter and at CNET, of course. Yes?
Declan: Or, news.com. I used to own that. It’s an even more direct way to get to the news section of our site. Thanks for mentioning it.
Jason: Thank you, Kirin for reading the news, although, you didn’t get to read, too much, cause you had those smart guys talking over us. That’s O.K. We like it. It’s a power panel.