The Trend Spotter joins us today on the program. Tim O’Reilly is one of the top minds in tech, who has predicted and/or driven many of the movements that now seem so obvious to us. In today’s episode we discuss:
- Tim’s path to becoming an investor
- How he linked up w/ Bryce and launched O’Reilly Alphatech
- The shift in their model w/ Indie VC
- We talk about Tim’s focus on profitability and his counter to those that cite some of the biggest and best tech companies that are not profitable
- We discuss Tim’s new book WTF: What the future and why it’s up to us
- Tim outlines the way he thinks about business model maps
- He explains his thought process of identifying technology shifts before they happen
- We discuss fear and it’s role in shaping consumer mindset
- Tim talks about the role of AI and if it poses a threat to jobs
- Tim references the historical lessons most overlooked by today’s society
- and we wrap up w/ a conversation on ICOs and cryptocurrencies and get Tim’s opinion on their role in the future of tech
- Tim’s Book– WTF: What’s the Future and Why It’s Up to Us
- Tim’s Website
- Tim’s Twitter
- Tim’s Slideshare– How AI can create jobs
1. Being too close to the bullseye is a big risk. Tech companies can come in and crush you.
2. In order to dominate a market, you need to have more than 50% market share and be able to grow faster than the market as a whole.
3. Many entrepreneurs end up looking more like actors in Hollywood than real entrepreneurs. Real entrepreneurs build primarily w/ customer money and only secondarily w/ VC money.
4. Cash flow is the most critical metric in business.
5. A real, successful company should provide value not just for suppliers or shareholders but all its stakeholders.
6. We are gaining more jobs in e-commerce than we are losing in retail, and those e-commerce jobs pay better.
7. The killer app for the Internet of Things is not Nest, it’s Uber.
8. Companies like Microsoft lost their prime position when they changed from creating value for all to extracting value for themselves.
9. AI is a technology like any other. It’s a tool that will work in collaboration with humans, not one that will compete with humans.
10. If you wanted to build AI that couldn’t be turned off, you’d do it on a blockchain foundation.
Transcribed with AI:
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the full ratchet
Welcome back TFR listeners. The trend spotter himself joins us today on the program. Tim O’Reilly is one of the top minds in tech who has predicted and or driven many of the movements that now seems so obvious to us. In today’s episode, we discuss Tim’s path to becoming an investor how he linked up with Bryce and launched O’Reilly alphatech. The shift in their model with indie VC, we talk about tins focus on profitability, and his counter to those that cites some of the biggest and best tech companies that are not profitable. We discussed Tim’s new book WTF, what’s the future and why it’s up to us. Tim outlines the way he thinks about business model maps. He explains his thought process on identifying technology shifts before they happen. We discussed fear and its role in shaping consumer mindset. Tim references historical lessons that are most overlooked by today’s society. And we wrap up with a conversation on ICOs and cryptocurrencies. And we get Tim’s opinion on their role in the future of tech. Tim’s thoughtful and polarizing positions are on display here in today’s episode, it was a thrill to get the man that so many VCs admire and mentioned as a key influence on their investment approach. It was about three years ago now that moon amid suggested him as a guest, and I couldn’t be happier to feature him. Here’s the interview with Tim O’Reilly.
Tim O’Reilly joins us today from Oakland, California. Tim has broad and deep experience across a variety of industries. But his impact on tech and software can’t be overstated. If you’ve heard the terms open source software, web 2.0, the Maker Movement government as a platform or the WTF economy. He’s played a pivotal role in each. Tim is the founder, CEO and chairman of O’Reilly Media, and is a partner at early stage venture firm O’Reilly alphatech Ventures. He’s also on the boards of Maker Media Code for America, pure Jay civis analytics and pop Vox Tim’s popular book, WTF, what’s the future and why it’s up to us was released last quarter. And he’s here to talk about that and much more. Tim, welcome to the
program. Glad to be with you.
So I feel like this first question here. We could we could spend an hour on this with the depth of your background. But could you just talk about your backstory a little bit in sort of your path to Tech in and ultimately investing?
Sure, yes. Well, I think probably the place to start is not really my path into tech, but definitely my path to investing. So when I started my company was tech writing consulting company, became a publisher of computer books eventually launched a conference business, an online library, originally ebooks, and now sort of online learning. That’s really the core of our business. It’s video, print, video, ebook, live online training. On all this sort of, really, we were the kind of the information company of the Internet revolution. And back in 2000, the Publishers Weekly had a cover that said the internet was built on O’Reilly books. And I think that was true. I’ve had multiple tech billionaires tell me they started their company with a book that my, my company published. So what was really funny was that I was not somebody out of Silicon Valley, I didn’t play the investor game, I had no investors, I started my company with $500 and built it by, you know, selling things to customers, you know, coming up with ideas for things that people needed. And they paid me for those things. And that’s how I built the company. And so in a sense, I was, I was really late to investing because I didn’t even think that way. And it was really a matter. It was really in the late 90s. When I’d been in business for 15 years. I was like, wow, you know, why didn’t I invest in I mean, just even just nevermind venture, but like, why didn’t I invest in Cisco when I knew the internet was taking? Why did I? Yeah, it just was it was just foreign to me because I was in this world of real businesses where you just make and sell stuff and I never worked for anybody else. I basically got into the business pretty much out of college. So I had very little experience. And that was that was a plus and a minus because it meant that I saw things with fresh eyes. I didn’t, you know, take in the usual Silicon Valley storylines. I just found the interest Think technologies that nobody was talking about I published books about them, I convened people to kind of advance the state of the art. And then I said, Oh, why is nobody talking about this? Let me tell a story about it. And so I became, in some sense, an industry storyteller, because I was seeing things that other people were missing. But even though I did invest inside my own company, you know, innovative ideas, I didn’t actually think, oh, you know, start because I wanted to have a company that would just grow. And that was the main the main focus. It was really in would have been in the late 90s. That Mark Jacobson. Well, first of all i, we created inside O’Reilly Media, the first ever commercial website was called GNN, the global network navigator. Back in 1993. It was the it was only about 200 websites at the time, it was the first web portal, the first website to have advertising. And we sold it to AOL in 1995. But we did it because I didn’t want to take in venture capital. I wanted to keep my company private. In my consulting days, I’d been around too many companies that had started out interesting and got boring. And I said, I don’t want to do that. So we ended up spinning out GNN, selling it to AOL. And then we had a follow on company that we had created, called songline studios, that became a joint venture with AOL. So bit by bit, I kind of became exposed and then we sold that. So we were doing this internally. And then in the late 90s, Mark Jacobson, who was our VP of Business Development, suggested that we have an internal venture fund to invest in things that we, you know, we’re involved in. And there were a couple of things that we invested in. The first was a company called, actually, I’m not sure what order they came in. But we invested in a company called collab net. That was started by Brian Behlendorf, who was one of the co founders of the Apache project. And it was really about building software for Internet collaboration. And we also invested in active state, which was building they developed a distributed the PC version of Perl, the Windows based version of the Perl programming language, they also ended up getting into anti virus. And that was actually the exit for the company that got acquired. The antivirus part got acquired by Sophos. And we also were, we invested in Blogger, which was Evan Williams, first company, and have had actually worked for O’Reilly as his first job out of out of the cornfields. And when he left, we invested in his company. And Mark and I actually really wants to negotiated the sale a blogger to Google. So he felt like he didn’t, you know, he didn’t have know how to do it. So at the time, obviously, he went on to become very, very successful. But we, you know, that was a really interesting story. Because, you know, when, whenever and Meg her hands started blogger, it was all exciting. And, you know, he basically, it got to the point where everybody laughed, but and he was sleeping, you know, on an air mattress under his desk, to keeping the keeping the thing going. And so it got a lot of excitement went all the way to the, to the near death experience. And then and then we ended up selling it. And that became that was a very successful exit we sold to Google. And, you know, as a result, we had pre IPO Google stock, which turned out to be very nice. But the other two of those early investments this this original front was just called a Riley ventures, it was actually internal to O’Reilly Media, my company. were interesting, because collabed, that was a great idea. But what happened was a real mistake that we made, which was that we became too responsive to customers, you know, so they kept asking for new features. And we became captive to some very large customers who basically wanted this that the other thing and then you end up, you know, we ended up raising, I think, a couple of 100 million dollars, because we kept growing we grew the business to 50 60 million in revenue, but we never got to profitability, because it was it was really being captive to the market rather than having to, you know, saying no, sorry, we’re, this is what we’re building, we’re not just going to build you HP the features that you want, because that’s going to turn us into half of, you know, development shop and we I was it was it was just sort of a miscalculation where we identified you know, this area of, of sort of collaboration tools for software subversion was, you know, one of the principal, you know, tool so early You know, relatively early version control system and so on. So the ideas were right. But we were relatively inexperienced, particularly in this sort of enterprise software world where this is great imbalance of power with a big customers who put a lot of demands on you. And so that was actually that is actually in sort of the category of lessons learned. And the, you know, the active state exit was actually a great one, because it was so unexpected that, you know, here, they just kind of had this this pearl business, but they’d gotten into building antivirus tools, and then along came Sophos out of the out of the blue and wanting to acquire the company. So so we had, we had two out of three hits there. And then we basically Mark said, Well, how about we go out and raise, you know, rather than just using our own funds, let’s go out and re raise a fund. So we mark did some development and ended up hiring as a as a partner, Bryce Roberts, who’s still my partner to this day, marks marks now. He’s still operate, he’s still working on our first three funds, but he didn’t join in the fourth fund, because he wants to retire. funds have a 10 plus year lifecycle, and he didn’t want to do a fourth fund. So he’s, he’s not active in our in our current Fund, which I’ll get to in a minute, but he was sort of he and Bryce really are the, you know, have been the key investors in our fund. You know, I supply deal flow, I review critical deals. But I don’t actually I’m not actually a practicing VC in the sense that, you know, I’m out there every day, interviewing founders. So a lot of what we did, you know, in looking for deal flow, particularly in the first three funds that Bryce has really shifted in the force fund in a really interesting way. I think, Michelle, I want to get to Azure
let you know, we’ve we’ve actually had Bryce on the program. I can’t remember what episode it was, but, but he was great. He went really deep on on indie VC and a little bit of the background, but this is, there’s
no getting right. So well, then this is is sort of overlapping material. But I suppose not everybody listens to every episode. That’s right. But here’s the thing, it was really interesting. You know, we our basic model, we didn’t have a thesis, we basically have had an approach that was a little bit based on the way that O’Reilly had operated as a, you know, as a publishing and conference Company, which was, hey, here’s this area with some really interesting people in it, doing really interesting work, nobody else seems to be paying attention. So it was really just quickly when when Mark first was kind of saying, hey, we want to do early stage, there weren’t a lot of early stage funds. And so we were just working our network with interesting people and interesting projects. And of course, this is my original business plan for O’Reilly Media was interesting work for interesting people. And those two things, I think, have always been at the heart of what I’ve tried to do in all of my companies, which is, is this work interesting. And are there interesting people doing it? And the people that I want to spend time with here? And so yeah, and probably the thing that you can, you can go wrong with there is, and we certainly we have you can a you can be too early, which is one of the things that we’ve done fairly often. The biggest thing, and this is probably, you know, I know, you kind of have a category away, you do this thing where you ask for lessons learned later, but I’m gonna kind of tell you this here, our biggest lesson learned over the years, is there’s a real risk in being too close to the center of the bullseye. What does that so I’ll give you a first example this well before our venture capital days, but when we were doing an investment internally to O’Reilly, we noticed quite correctly, that there was something wrong with the world wide web, you know, it had started out as this collaborative medium with servers, and, and browsers, you know, where everybody had both, right, you know, it was it was really as collaborative medium. And then, as we we launched a project with it was a company called Spry, called Internet in the box, because we were trying to get everybody on the internet. And we noticed that the web was becoming a read only medium, because we gotten the browser to the PC, but there was no PC based web server. So we launched a product called website, which was the first PC based web server, and we grew that business. It was very exciting. And then Netscape entered the market, the server market, and then Microsoft entered the server market. And here, where are we this tiny, self funded? I mean, you know, I guess at that point, while he was probably 30 40 million in revenue, but you know, the software business was this little thing off to the side that we were investing out of offensive our publishing business. And we grew it we’d grown up to about $3 million a year. You know, it was probably, we launched it I think in 9495. And you know, by by 96, Microsoft originally had to kind of said to us with great fanfare, wow, we’re gonna make you rich and famous, so fabulous. You’ve got a web server running on Windows NT. And then a year later, they were apologetically saying, Sorry, but we’re gonna have to kill you. Because so we were collateral damage. But to win this battle between these two titans, the venture capital backed Netscape and Microsoft, the big incumbent. And so being too close to the bullseye, I think is, is a real problem if you’re an early trends spotter, because you actually have to be, you know, it’s in this world that Reid Hoffman talks about is Blitzscaling work, which is you get into a situation where if you can’t be first, you’re dead. You know, which was why he’s saying you’ve got to raise money. And that’s just not my instinct. You know, my instinct is, you know, I used to say, I like businesses, where time is an ally, not an enemy. And because I was really trying to run this as a sort of a private company funded by cash flow, there’s certain businesses that just don’t fit, and those that are dominated by Titans are, you know, are hard markets to play in. That was also true with GNN, which was our really our first tech investment, you know, I mentioned the the first web portal there, I made a conscious decision. You know, I remember reading this book, I think it was called Marketing high technology, by Bill David Tao, who was one of the early venture capitalists, and he had this appendix in there called the massive market domination. And he said, in order to dominate a market, you have to be more than half the market, and able to grow faster than the market as a whole. And we weren’t dominant, we were running the NCSA, What’s New page, we were that we were the web portal. But I didn’t want to raise money. Because I didn’t want to lose control of my company. And I could see, you know, Yahoo had gone out and raise money. And, and I could see, we’re not going to be able to compete, which is why we sold. So it was sort of a conscious decision, like II either going to run that race, or you’re not. Now later on, I think I would have had more sophistication that, oh, we can spin it out, take an investment, and then play that game. But I didn’t want to, I only had my own pile of chips, I didn’t want to put the whole thing at stay in play, because I wanted to keep the company that I had. But I guess the point is, if you’re really right, you run the risk of getting into a situation where you have to raise a lot of money to compete. Now, if you win, that’s great. Because, you know, the returns are so high, that it’s alright, that you’ve gotten badly diluted by VCs. But I also have watched a lot of companies where huge amounts of money had been raised. And as a result, the entrepreneurs get nothing for, you know, years and years of work, you know, or they get a tiny fraction of what they might have gotten if they had, you know, kept more value. Sure. I remember once talking with the vice chairman of Bloomberg. And he was like, Yeah, Mike always likes to tease the Silicon Valley, guys. You know, they’ve got these companies that are so much bigger than his, and he’s just as rich as they are. Because he didn’t take any venture money. Right? Right. You know, so there’s a lot that I think entrepreneurs need to take into account. And understanding the math behind the market that you’re going after, is so important. So many, so many people end up getting caught in this idea that raising money is an unalloyed good, you know, like wow, I’m gonna raise money I’m Alec I’m a real company and, and what they really end up as are hard, you know, hard hands, for venture capitalists, you know, where the VCs make the bulk of the money. And I actually like say a lot of entrepreneurs are really end up looking a lot more to me, like, say actors or directors or producers in in Hollywood than they look like real entrepreneurs. For me, a real entrepreneur is somebody who basically gets the bitten their teeth and they build, they build the the company primarily with customer money, and only secondarily with venture money in order to help them grow. And so understanding that really makes a difference, you know, If you look at at, you know, Google or Facebook, for example, a great success, they didn’t take lots of venture money because they didn’t have to. It was to help them get to scale. But it wasn’t essential to the business. Whereas there’s a lot of businesses where they basically have to raise and raise and raise. And I think face I mean, Salesforce was the first company to show that you can do it that way. Remember, you know, any of your listeners are probably not old enough to remember how astonished people were that that Salesforce had raised $100 million, and they still weren’t profitable. They were the first to kind of just go, though, but you know, you look at someone like Amazon, Jeff was very parsimonious. Yes, he raised money, but he went to debt as soon as he possibly could, you know, because he didn’t want to give up more of his company than he had to think that getting the venture capital is the goal, rather than a means to the goal, which is to build a long term sustainable business that you are in control of.
Right, right. Yeah, I mean, we’ve seen this with the late stage growth rounds, and the ratchets and founders getting closed out of their equity positions. And, you know, the investors end up taking all the money, it’s, it’s a real problem. But So this clearly informs your approach within DVC. I mean, like I said, we’ve talked with Bryce about it, but more of a focus on profitability and some debt arrangements, as opposed to pure equity.
Yeah, and it’s, you know, if you really believe in a business, and you can see your path to positive cash flow, that makes a lot of sense. But it’s funny, you just really have to have a lot of entrepreneurs don’t even have a sense of that being a possibility. I’ll say it for myself, when we, you know, we had done a lot of things in our growth, by way of joint ventures with bigger companies. That was our poor man’s venture capital, you know, we built our international operations originally as a joint venture with international Thomson. And then actually, when we sold GNN, and as a follow on company called songline studios. And then And then, yet another spin out of that group called like mines, we sold all those, and we use the capital to basically buy out our joint ventures. But similarly, then we in the case of Safari, which was our online, original ebook, subscription service, we were, it was a joint venture with Pearson. And we, you know, we grew up very, very nicely together for 14, you know, 14 years, and then they wanted to get out. And I thought, well, in order to buy them out, it’s now pretty substantial business, in order to buy them out, I’m gonna have to take in equity. I talked to one friend who was a, you know, a kind of a late stage VC, really private equity guy, and he says, I’d love to invest in your business. But looking at this business, why aren’t you using debt? And I went, Oh, yeah, you’re right, you know, it’s cashflow positive. And it turns out that, you know, we were able to buy Pearson out, and the amount of money that we used to pay it out to them as their share of the joint venture proceeds now goes to the bank. So it’s effectively a leveraged buyout of our own business. And, you know, we’ve we’ve paid down the bulk of the debt already, and it’s, it was a great, you know, so again, getting more sophistication about debt, and about cash flow in particular, is super important. And this such a focus these days, on businesses that are just hyper growth. And the real idea is some of them may get to go public. But you know, we’ve seen with Twitter and with SNAP, unless you have a real business there, that’s a really hard path. And, you know, yes, there’s companies that clearly made it all the way. But the basic goal of a lot of those businesses to sell, and you no longer in control of your destiny. And I also feel like if you have a business, that your goal from the outset is to sell, you don’t really believe in that business. That’s a fair point. I didn’t you know, I had many opportunities to sell O’Reilly over the years, I didn’t want to because I wanted the business. I was like, why, why would I want to get rid of this thing that I’ve built that I love that I’ve got all these people that I’m working with, and we’re creating, you know, enormous value for the world. Now, the downside, of course, is incredible exits, you know, that have, you know, become possible, and there’s so much greater than they used to be for so much less actual achievement. You know, it’s funny, I was thinking of that line in the the movie, The Social Network, you know, a million dollars that’s not cool. You know, a billion. That’s cool. And you think about all these these entrepreneurs and I go, Look, you know, Hewlett Packard, and you know, Andy Grove and Gordon Moore, they say that, I mean, they did end up becoming billionaires, but they didn’t set out there going, man. 100 million dollars. That’s no good. Well, sure, we gotta be billion. No, it’s just
like, the exits is a byproduct of hard work. It’s not it’s not the goal.
That’s That’s right. You know, and there’s just this as soon as gambling mentality this, you know, easy money mentality, this serial entrepreneur, you know, I’m not terribly excited about investing in serial entrepreneurs, because I go, again, I take that back, but but, you know, like, wanting to do a business, and really caring about it really matters.
Yeah, so I want to drill on this point a little more, because, you know, in the book, you said, it’s only when a business becomes profitably self sustaining, rather than subsidized by investors, that we can be sure it’s here to stay. Yet, as you’ve alluded to, you know, many of the biggest private companies like Uber and Airbnb are not profitable. And even one of the best public tech companies, Amazon is not profitable by choice, of course. So
Amazon is very close to profitable. And the other thing that is very true of Amazon is Jeff understood that positive cash flow was more important than profitability. Right? And they were they had positive cash flow very early on. Right?
Right, well, and if he wanted to be profitable, he could borrow,
and to pay their debt with their cash flow. Which means they didn’t have to raise money. That’s why Jeff is often on the the richest man in the world because he basically said, Oh, I can build a positive cash flow business, which means I can borrow against the future. Because that’s really the thing that I think a lot of people don’t understand. Whether you do it with equity, or with debt, you’re borrowing against the future. If you borrow against the future with equity, you’re asking people to place a bet with you. And if you lose the bet, you’re out, just like in playing poker. If on the other hand, you’re asking people to build the future based on positive cash flow, it’s like, you know, you’re actually gonna make money. Just not saw a bit. Jeff isn’t betting? Me. Yeah, sure. He makes Betsy says, Okay, we’re gonna try the fire in a phone and it didn’t work. That’s a bet within the context of this giant engine of positive cash flow, positive cash flow engine.
Cash is king even even senior to profitability in this case. Yeah. Great. So let’s, let’s talk a little bit about the book. WTF, what’s the future and why it’s up to us? Why? Why’d you read it, Tim?
Well, I think some of the reasons were based on what we’re talking about right now. But more broadly, just I feel, I felt that the, the tech industry was heading for a reckoning in several ways, I think, you know, it’s still ahead of us. I think we’re in a bubble, not that dissimilar from the.com bubble. You know, sure, there are some real businesses just like the word then. But there’s an awful lot of easy money that’s been chasing, you know, lousy or lousy or opportunities. So I wanted people to, you know, it’s like, if you’re gonna go through that kind of, of hell, and it really was hell, there. You know, you should be working on something you really care about, too. You know, this whole issue of technology, AI robots, and the future of work seemed to me to be coming up. And it was gonna be very easy, not just for tech to be painted as the bad guy. But more importantly, for tech to make bad choices. And a really good example, I made Uber and Lyft fairly central to the book, because they’re a really good example of how if you think one way, you know, you’re gonna, you’re gonna, you’re gonna end up with with with basically a worse world, and you’re gonna get a lot of blowback. And yet, they’re so close to being this incredible new capability for the world. So I really tried to unpack what do I see in Uber and Lyft, about on demand about algorithmic management of, you know, networks of people and things and then go okay, so if you and I have a chapter where I talk about business model maps, you know, with this idea that a business model is the way that all the parts of a business work together to create customer value and marketplace advantage. And if you look at it If you unpack Uber and Lyft, one of those things is they augment their workers with technology. That’s part of the opportunity. That yes, they dispatch them with algorithms. And so then in comes this whole discussion of self driving cars. And I say, Oh, well, you know, if you understand that this is a marketplace business, which gets a lot of its advantage from other people succeeding on the platform, then, and you have this narrative that says, Well, no, we’re going to move to self driving cars and get rid of those pesky drivers. A, you get your you’re entering an entirely different business, you’re not thinking through what is the unique advantage of my model? And you end up going okay, well, let’s see, if you own all the cars, you have to have enough cars to meet peak demand, when the essence of your model right now with the marketplace is you have more cars when you need them and fewer when you don’t? Oh, well, again, I’m sure they’ve done a lot of math number crunching, but I look at this and go the way I would think about self driving cars. If I’m Oberer, and Lyft. I go, okay, we can become a platform. Once we have those self driving cars. What will the people in our marketplace do then? Yeah, rather than we’ll get rid of them. You know, think about Airbnb, they’ve done that. They’re saying, oh, let’s build this new layer called Airbnb experiences. Because as they’re more hosts, whenever we’re trying to create more value for the people who are part of our network, yep. You know, if Airbnb were going well, now, let’s just have self driving. Yeah, we’ll get rid of those pesky hosts. Oh, yeah. We’ll become Hilton. No. Yeah. Why would you want to do that? Yes. The model is that it’s a marketplace that brings more people in. Now you look at Amazon, they’ve gone the other way. Yes, they built this incredible platform infrastructure. But in everything from warehousing, to cloud computing, they’ve actually said, We’re gonna enable other people with this stuff we built. And so I feel like that’s sort of a central design pattern of, of the economy is it should a really successful company should create value for not just for customers, but for suppliers for the entire economy. And so I spend a lot of time in the book talking about marketplace, businesses, what makes them tick, how do you build a thick marketplace? And then I really tried to apply that to our broader economy. You know, we have a bunch of industries, like our finance industry, which is simply becoming extractive, they’re no longer trying to invest in the real world create value for ordinary people. And I do look at, you know, people are maybe surprised that some ways, Amazon is, you know, one of the heroes of the book, because there was a narrative that Amazon is, you know, there’s this horrible company, they’re working people so hard. Yeah, I think they made some pretty serious mistakes there. But it’s increasingly coming out. They’re creating more jobs. You know, I mean, look at Amazon flex, it’s almost as big as Lyft. And the number of drivers, you look at the, the research is now showing that we’re gaining more jobs in in E commerce, they were losing in retail, despite all the stories about the the retail apocalypse. And those jobs, according to Michael Mandel of the progressive policy institute actually pay better. And so we’re actually understanding and I think Amazon is probably furthest along, understanding that we can make good jobs in this new world. And I think so anyway, so I wrote the book to really try to say, well, who can we learn from and what do we learn from them? That’s helpful to us in understanding the economy. So there’s really three big blocks of lessons in the book. The first one is just a set of techniques for how to think about the future and how to notice trends and how to notice patterns. The second part of the book is really the dynamics of platforms as marketplaces, and why they need to be two sided, why they need to build this thick marketplace, and how that ultimately distinguishes this success of these platforms. And then the third part is really about how do we manage algorithms in today’s increasingly algorithmic, ly dominated marketplaces? And what does it mean to manage an algorithm? And then really, I go from there to sort of saying, Okay, well, here are all these lessons that we’ve gotten from from technology companies, do they apply to the entire the economy as a whole? And I come to the conclusion that yes, they do.
Got it. Can we dive into the first one a little bit more? Can you talk about whatever framework or method you use and you employ to spot some of these trends and in see some of these techniques Just before they happen,
yeah, well, probably the, the biggest thing that I do is that I try to meet interesting people and notice things that other people don’t notice about them. You know, so probably the earliest, really vivid example of that was with, you know, my championing of open source over free software. And what I noticed was that there was this whole movement around Linux, I was publishing Linux books. And, and, and, and there was a narrative about free software that was framed, as Linux is going to replace Microsoft, it’s, you know, Linux, that was actually first was going to replace Unix, but it was also going to compete with Microsoft. And wait, wait, wait, all the internet stuff is free software, too. Why aren’t you talking about that? And so it’s just like noticing the map that PBO because basically, I got this training very early on in general semantics, which was this sort of slightly cranky? Well, maybe not just slightly, this certainly idiosyncratic philosophy from the 20s. And 30s. Was really was around the idea that a lot of the problems in the world come from people mixing up words and things. The bottom, you know, the famous dictum of Alfred Korzybski, the author of this book was called Science and sanity, was that the map is not the territory, the language is a map, we people all the time, get locked into ideas that turn out not to match the reality on the ground. And he was using it for things like, you know, racism, you know, or whatever. But as examples of sort of, pathologies that were basically based in the words we use and mistaking the words for the underlying reality, but that also really applies to technology in a here was this whole movement, it was talking about the power of free software. And they were so wrapped up in this map of the politics of free software versus proprietary software, they didn’t notice that the World Wide Web had been put in the public domain, that the, you know, they left it out of the story. I mean, they kind of knew it, but they, you know, that the DNS was based on the Berkeley internet name daemon again, you know, one program or maintaining this thing, you know, it’s out under the Berkeley license, you know, the X Window System a patchy, you know, Sendmail, you know, all this internet infrastructure was also free software was taking off even more than Linux. And nobody was talking about. So I started talking about and I said, all these things, I kind of redrew the map, so to speak. And I think the same thing, the next big one of those for me, was after the.com bust, where we were like, No, the web is an overlook this, you know, all the all the companies that thought that the web was a broadcast medium, became kind of like a sort of television ish model died. And the ones that understood that this was a way of harnessing collective intelligence, that there really these network businesses, you know, Google Amazon, they’re thriving, and I, you know, told the story about that which my colleague Dale Doherty, eventually, you know, Christian web to Dotto and, you know, but I was really looking the internet is becoming the platform, data is the Intel Inside in that platform. It’s effectively software above the level of a single device, what we now call cloud computing. You know, it’s data driven, you know, big data, and all these ideas were sitting there in front of us, in the companies that survived and why they survived. And so it’s really, for me, a lot of it is do you look at the world? Or do you just kind of rehearse the maps what you’ve heard from other people? And so I’m always trying to, you know, notice things that are sort of outside the map and other one was, you know, I think I, there were everybody was looking at me sideways when I started saying, Well, you know, Uber is the is the is the killer, Internet of Things app, not Nast. Yeah. Everybody was sort of focused, so focused on the device as the center they had this bad map. Yeah, I said, Lucky. If Uber were self driving car bigger, whoo, Internet of Things. Or if there were an Uber button, they would have said Internet of Things. But the fact that it was a brick and phone on both ends, nobody, but I was like, no, look through it. It’s it’s this is sensors, you know, connected sensors. Isn’t that interesting? And, you know, what does it teach us about the Internet of Things? It says, oh, once we have connected sensors, we can rethink business models. We can rethink the way we organize what we do. And so You know, again, it’s sort of like you look at the, the patterns, and then you go, Oh, okay, what does that teach us? So, you know, again, you know, in terms of how all that’s affected my investing, you know, for example, when I, you know, if you look, look at one of our most, you know, investments that I’m really happiest about in recent years, Planet Labs, or planet.com, has now called some x NASA engineers, they’re just sort of part of O’Reilly’s sort of network, we, we run this event called foo camp. It’s an unconference where we invite interesting people, and we’ve done one, since its original one was since 2003. But we started in 2004, doing one on science together with nature, publishing, and Google. And I met these guys from NASA, and they were like, Oh, we can make satellites that are, you know, you can hold in your hand, you know, and you can kind of disposable and we want to image the surface of the Earth every day. It’s like, oh, wow, this is combination of the Maker Movement, which we’re seeing is combination of big data, which we’re seeing. And now of course, we’re there, you know, AI is central to what they’re doing. Because if you’re imaging the surface of the Earth every day, how do you so got that much data, you got to have AI to look at it, you know, so all of these interesting things that were just wrapped up together. And for me, I’ve used this term, sometimes called, I call people, alpha geeks. And a lot of ways the Alpha geeks are people who are on at the conjunction of two or three different interesting trends. Yeah, right. And so that’s one of the things you know, so these guys go, wow, they’re the conjunction of, of the maker movement, big data. And, you know, ultimately, you know, this whole idea that we’re going to have new kinds of sensing applications.
Yeah. And with you, I’ve got like five big movements on my website, and things that I look for in companies. And when I see companies that are fulfilling are meeting all five of them, that’s when I get extremely excited. But yet your point on Uber is also well taken. So I’m an IoT investor. And people often ask me, What’s, what’s an example of a big successful IoT company? And I say, Uber, and people look at me with curious looks and strange faces, they, they they just don’t they don’t get it that this location based service company is, you know, the IoT movement.
That’s right. And the thing, you know, that I tried to do in the book by unpacking Uber is to say, okay, look, a lot of people very shallowly said, Oh, it’s all on demand. And I go, No, there’s so much more there. You know, the, you know, Uber and Airbnb, are real marketplace companies, you know, there’s a lot of people who want to supply this, this service, a lot of people who want to consume it, you know, it’s relatively easy to create new capacity. I mean, you know, for me, there’s a really interesting thing when you create a marketplace, that allows new people to come into the market, which is, for example, what the World Wide Web did the publishing, man, anybody could come in and start producing content. And you go, Wow, all of a sudden, what’s special about Uber that was missing in taxi magic, is it wasn’t just a technology play for taxi companies. It was it was creating this new capacity by by empowering people. And now you look and then you go, well, well, so when somebody says, well, we’ll be the Uber of dry cleaning, they’ve taken one small part of the business model. And not the most important part because they didn’t actually have a good map of what really mattered about Uber. And they also didn’t understand I think so many people still don’t understand. The real expense of that business model is in building the marketplace.
Yep. Couldn’t agree more. I’ve got I’ve got so many questions to get to here. I’m not sure we’re gonna get to them. But okay. Can we touch more on AI? So you mentioned AI with with Planet Planet Labs. Many people have this fear of technology, whether it’s maybe AI taking over the planet or automation taking their jobs. You know, do you think technology is something to be feared? You know, What’s your stance on this?
Well, the key part of the title of my book is the end which actually my wife I have to confess supplied. Jen Pahlka, founder and executive director of Code for America has this wonderful, saying what she originally got from Matt Weaver, who worked with her at the United States Digital Service, a massive former Google site reliability engineer who got recruited into working on healthcare.gov and and sequels and, and his line was, no one is coming. It’s up to us. And so Jen persuaded me that the title of my book should be I was recently WTF, what’s the future? And it became WTF What’s the future and why it’s up to us. And that’s really the to me, the central point is that we can make choices. And we have to make choices. And I think that the, you know, as I get into the, the economics part of the book, it’s really a narrative about better social choices and why they matter, is this wonderful quote that I get from Bob Putnam, who the author of Bowling Alone and many other books, who wants said in a meeting I was attending, he said, all of the great advances in our society have come when we have invested in other people’s children. I like that’s, to me is like this, you know, like, a, a wonderful moral statement, but also the deep insight. Yeah, you know, when we work to make the world better for other people, we succeed, all of us succeed. And, you know, you look at that in the context of education, you know, look at the, you know, universal in grade school education, universal high school education, you know, great expansions of college, postgraduate work, or taking it to my business, you know, I was in the business, I am in the business of creating education and opportunity for others. And when, you know, the origin of our saying at a rally, that our strategy is to create more value than we capture. And when I use that as a, as a call to action, the companies that came actually hit a company management and treat around 2000, not long before the.com Bust. When I was, I mentioned in this small management meeting that you know, the some internet billionaire had said he’d started his company with an O’Reilly book. And I said, Yeah, you know, he got billions, we got 30 bucks seems like a fair deal. If your marketing said, Yeah, we create more value than we capture. And I thought that’s a really, you know, if you look at society, you know, there’s a lot of work this fabulous Economic Research, I think of Darren Acemoglu, and James Robinson, his book, how nations fail, you know, it’s about when they go from being inclusive, with lots of opportunity for everyone to become the extractive where a small number of people are focused on how much they get out of it, and the whole thing falls down. And I think that, you know, it matched exactly what I saw in my own career, you know, when Microsoft started, they were creating value for everyone. And then they started to try to extract it all. And everybody said, Well, we got to go somewhere else. And Microsoft lost their, their prime position, because there was more opportunity over on the web. And I see the same thing happening today, I think, with Google, to some extent, and Facebook, where they’re not leaving enough on the table for other people, the VCs in the ER, once again, saying, as they were in the heyday of Microsoft, wow, we’re not sure where the exits are going to come from, you know, the big guys are, you know, you’re running the risk that they’re going to put you out of business, or they’ll force you to sell for less than you’re worth, they’ll block off your path to, you know, to success, they’ll copy your features. You know, and I think that’s, that’s actually a sign of, I think, impending trouble for the entire ecosystem, including those big guys who are so short sighted that they’re gonna they don’t learn the lesson of the past and go, oh, when you start acting that way, you know, this leads to disaster for your industry.
You know, while we’re talking about the past, are there any historical lessons, technological or otherwise, that you feel like our most overlooked in today’s society?
Well, in today’s society as a whole, absolutely, this idea of of, you know, we forget that creating opportunity for everyone makes the top go up to, you know, and we basically give lip service to that tip today. But we don’t actually, you know, we don’t actually practice it in our society. You know, again, I’m just starting to dig into some of this. But you know, good example. Just just quick, quick digging, you know, Google used to get a lot more of their revenue from advertising on on third party sites. Now, I don’t know the reasons for it. Maybe there’s some other reason, besides the fact that they are offering more and more of the services that used to come from someone else. But it sure looks suspicious that, you know, five years ago, 30% of their ad revenue was on third party sites, and it’s now down to 18%. Yeah. And I look Oh, yeah, I used to use flightaware.com. Now, Google just shows me the results. I used to go, you know, look at this site now. Well, Google just shows me the results. It’s not that different from Microsoft saying, oh, yeah, you know, spreadsheets. Yeah, we’ll do that word processing. Yeah, we’ll do that. And, you know, Google bit by bit, they can make the case it’s better for our users. But it’s not better for the market as a whole. And it’s not better for the entrepreneurial ecosystem. So anyway, that’s probably the biggest lesson. The other the other lesson, I think, that I think we really have to come to grips with, is in the context of long term trends, like climate change. You know, this, obviously, they’re going to be opportunities that are directly energy related. You know, Elon Musk, obviously, is going after a lot of that he understands that that’s a big framing, mega trend. That’s going to affect everything we do. But I think there’s a lot of other implications of things that we know, you know, we know that in developing countries and developed countries, we have a demographic Cliff had a, you know, ahead of us, what are we going to do about that? You know, what’s the right timing, for investing against that, particularly in an era where we’re cutting off immigration? Which is the one thing that well, you know, one reason the US has been ahead of Europe, and so on, and Japan is because we’ve had this, this younger people coming into the country still, and now we’re cutting that off, you go, wow, well, we’re gonna have a problem. And there’s gonna be a lot of interesting opportunities for automation there. But coming back to the, this sort of question of automation, I really like to celebrate the fact that when you use robots correctly, you actually create more, or when you use technology of any kind correctly, you actually create more opportunity. You know, Uber and Lyft, have put more people to work driving other people around than the previous taxi industry, they didn’t put people out of business, Amazon put 45,000 robots into their warehouses between 2014 and 2016, added 250,000 people, because they didn’t say we’re going to do the same thing more cheaply. They said, We’re gonna use these these robots and people to do more, we’re going to make the business better. And I think, you know, so I hear these narratives. I heard one investor, for example, who said, Oh, I’m going to invest in a startup that will get rid of 30% of call center jobs. And I said, why would you want to do that? You know, most people’s experience of call centers is really lousy. You know, like, if you happen to get rid of some jobs in the course of making call centers better, then I’ll buy that. But just the idea that you’re just going to have shitty call centers with fewer workers. That’s a lousy business idea. I don’t care how much AI is in it. Yeah, make it better. Yeah, you know, you have this notion that better is cheaper only, you know, and that’s part of the extractive mindset.
Well, a lot of people, I don’t think they do a full breadth analysis of the stakeholders involved in any business, right? They look at one stakeholder and how to optimize around that as opposed to, you know, customers, shareholders, employees, etc. So, before we wrap up here, well, I’ve got the trend spotter on the line here Can I can I get your thoughts on cryptocurrencies and, and, and maybe ICOs as well.
Well, ICOs, I’ll start with, you know, to me, it’s it’s the we’re really in the gambling bubble phase pretty hard. Now. I, you know, I look, here’s the thing I feel like about with cryptocurrencies, there’s this some real technology there, which is going to be really important. It’s ended up becoming a tool for speculation. I’m not a speculator, I don’t find that interesting. I don’t find that valuable. Now, I’m pretty sure that something really useful is going to emerge out of it. But it’ll be after a crash when we’ll see what’s left standing will go oh, those were the things that didn’t look that interesting at the time. But they were the real that was the real stuff that was happening too close to the bull’s eye right now. I mean, we’ve invested in a couple of things in the space but again, I feel like this so much. money chasing to me chasing an outcome which is basically a big gamble is It’s just it’s just bad investing to me. You know, if you don’t want to own it forever, you know, I you don’t see, you know, Larry and Sergey say, or mark saying, man, yeah, that’s the flip Google and go do something else, you know, or let’s see how fast how high we can run this thing up. And then And then, you know, it’s like, no, this is about building long term value. And again, I think, I guess I would just say, the fundamental dynamic of a value creation in cryptocurrency is, is either, you know, it’s multilevel marketing, in some sense, you know, I got in early and I built a bunch of this, I got a bunch of this stuff. And so I’m gonna do really well, you’re coming along later, you’re only going to do well, you know, if, as long as the speculative bubble keeps going out, once it crashes, you’re, you know, if you came in late, you’re toast. And I don’t like that kind of market where, you know this, some people are big winners and a lot for them to win, other people are going to lose, right?
Well, you talked a lot about cash flows before and Warren Buffett’s classic response to all this crypto stuff is he invests in cashflow businesses, you know, not assets that have no intrinsic value? Or no, or, or are not producing cash flows?
Right. So I’m very eager for the the, the, the bubble part of this cryptocurrency thing to go away. And for us to start understanding, you know, what it’s really good for, there is one cautionary thing, you know, when they talk about, you know, sort of risks of future AI. And you think about, wow, if you wanted to have an AI that you couldn’t turn off, you build it on, on a on a blockchain foundation interesting. Which I don’t think we want to do. Not to say, I’m actually generally skeptical of the idea that there’s going to be some runaway AI. In the book, I talked about the way that AI is already running away, and it’s right in front of us, but it’s not the rogue AI that becomes independently intelligent. It’s it’s the new partnership of humans and machines gone awry in the way that humans and machines have always gone wrong. Yeah,
yeah. What about so on the ICO point, though, what about ICOs as the future version of venture capital, you know, easier to sell securities easier to trade securities introducing better liquidity into Vc?
No, I don’t buy that at all. I, to me, bad, easy money equals bad investments?
Well, what if it’s not easy money? What if it’s just a replacement for the existing?
Then, you know, you know, why would you do it? Again, maybe, you know, once it becomes if it became a norm, but realistically, you know, to me, this, there’s also just a real there’s a moral hazard, when you make it really easy for ordinary people to invest. And you have a lot of speculative fever. Okay, the people who don’t have the experience and don’t have the resources are the one who are going to lose their shirt. They suffer. Yeah, like, a young, you know, like a teenager, I know, who has taken his, you know, his small savings, short, maybe. So he’s gonna be this great educational experience for him, you know, buying Bitcoin and Litecoin you know, and he’s not a sophisticated investor. You know, and that’s who you’re gonna get your money from. And when you’re wrong, I mean, you know, I’m, you know, I know that I’m gonna lose a lot of the time when I’m investing. So I think I think you want investing to be hard. Not to be easy. Yeah, you want full to be here, because right now, what’s wrong? Is this so many shitty ideas getting funded? Yeah. You know, there’s this great story that Hank Bryce retweeted this, it was was some protein bar company that got sold for $800 million. And the son who started you know, and his, his college roommate or whatever, we’re like, wow, we’re gonna go out and get venture capital. And the immigrant dad of the one of the founders said, No, you’re not. So you’re gonna go out and sell 1000 bars, sold their 1000 bars, and then they didn’t need to raise frickin venture capital, right right now, because they basically figured out the business. If they’d raised venture capital, not only would they have done much less well, they would quite possibly never have figured out what the real business was. Sure. Venture Capitalist pool is not an end and a goal you If I if I could wave one wand over every entrepreneur, it would be, figure out how to do your business without investors. And then if adding investors will make it go enough faster to make up for the dilution, then you get investors. But if you have to have investors, you know, it’s probably not that great a business. Now, again, that’s not entirely true. There are types of businesses that are capital intensive. But in this internet world, you know, you don’t need lots of investment to tell whether you have a good idea or not. So go find out if it’s a good idea first. Love it.
Tim, if we could cover any topic here on the program, What topic do you think should be addressed? And who would you like to hear speak about it?
Well, I think it’d be really interesting, you should talk to Brian Johnson or Tom Reardon, about neuro tech.
Okay, love it. We’ll do what investor has inspired and or influenced you most and why?
Well, I don’t tend to think probably, I mean, Warren Buffett.
All right. That’s all I guess. And then finally,
VUCA very, from very early in my career, I became a Buffett fan and you know, somebody who basically invest in real businesses.
And then finally, Tim, what’s the best way for listeners to connect with you?
Well, you can follow me on Twitter at Tim O’Reilly. You can go to O’Reilly dot com for everything my company does. I have a personal site hanging off of that called Tim dot O’Reilly dot com. And I’ve also got a site devoted to the book called WTF economy.com.
Check out the book. It is WTF, what’s the future and why it’s up to us. The man is Tim O’Reilly. Tim, thanks so much for joining us today. This was a huge pleasure for me, and I can’t wait to do it again. All right.
That was good. Thanks a lot.
That will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us