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- [00:00]
Carol Massar
Pinpointing the genetic changes that predispose us to disease Identifying the roots of mental illness Treating congenital anomalies even before birth. At Boston Children's Hospital, we're investing in children's health today to ensure the well being of adults tomorrow. As home to the world's largest pediatric research enterprise and more than 260 specialty programs, Boston Children's is where the world comes. For answers, learn more@bostonchildrens.org how can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast free shipping to in depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to amazonbusiness.com for support. Hiscock Small Business Insurance Knows there is no business like your business across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online', @hiscox.com that's his cox.com there's no business like small business. Hiscox Small Business Insurance Bloomberg Audio Studios Podcasts Radio News this is Bloomberg Business.
- [01:37]
Bloomberg Announcer
Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg Business businessweek Daily Podcast with Carol Massar and Tim Stanweck on Bloomberg Radio Hi everyone.
- [01:59]
Carol Massar
Welcome to the Bloomberg businessweek Week Weekend podcast. We are coming off a Fed meeting that played out as many investors expected, with Fed officials lowering their benchmark interest rate by a quarter percentage point and penciling in two more rate reductions this year. Policymakers pointed to growing signs of weakness in the labor market while also acknowledging that inflation has, quote, moved up and remains somewhat elevated, end quote. For the latest on that Fed decision and all the analysis that we did here at Bloomberg and Post Market Action, head to the bloomberg or bloomberg.com Also.
- [02:32]
Tim Stenovec
Happening this week, President Trump's second state visit as president to the UK bringing along with him the CEOs of Apple, Nvidia and Microsoft, among many others, to announce deals and spend tens of billions of dollars on tech infrastructure in the uk.
- [02:46]
Carol Massar
We meantime focused on the data center build out and spend in the United States. We did that with the CEO of the $77 billion market cap Equinix, plus.
- [02:56]
Tim Stenovec
The CMBS Pioneer who's thrown his hat into the California governor's race.
- [03:00]
Carol Massar
All that to come. We begin with a big story in the chip world. Nvidia agreed to invest $5 billion in intel and said the two will co develop chips for PCs and data centers. A surprise move to help prop up an ailing arch rival that sent intel shares soaring on the news.
- [03:16]
Tim Stenovec
For more on this we were joined by Chris Miller, professor at the Fletcher School at Tufts University. He's also non resident senior fellow at the American Enterprise Institute of and advises businesses and more at the consultancy Green Mantle. He of course also is the author of the book Chip the Fight for the World's Most Critical Technology.
- [03:34]
Chris Miller
Well, I think from the perspective of ten years ago this would have been a pretty surprising pair up. But today there's a real logic for it. Nvidia is a leader in AI chips. Intel has been trying to catch up when it comes to AI, but also Intel's got a lot of unique know how when it comes to building processor chips, which AI servers still require. So certainly on the chip design side there's differing areas of expertise that both of these companies can bring together.
- [04:02]
Carol Massar
All right, but just all of it together. The US taking that 10%, approximately 10% stake in intel over the summer, you've got SoftBank, their $2 billion investment now in Nvidia. What is this? I mean, is this what you thought would happen, need to happen to ensure us remain a dominant player in the semi space?
- [04:23]
Chris Miller
Well, I think we're going to need to wait and see what implication this announcement has, if any, for Intel's manufacturing business. I think there's no doubt that Intel's going to be an important chip designer in the future. Perhaps smaller than it used to be, but they've got a unique position in the market on the chip design side. But from a national perspective, what really matters is Intel's manufacturing arm. And that's where intel has really struggled the last couple of years to stay at the cutting edge technologically and also to win customers away from tsmc, the Taiwanese market rival. And today Nvidia produces almost all of its most advanced chips with tsmc. There's been a big push from Washington to get companies like Nvidia to diversify their supply and to try to help intel become a more successful manufacturer of chips for other companies. The announcement doesn't really say anything about that, but I think a lot of people will ask whether this is a stepping stone for other US companies and Video or some of its peers to bring more of their manufacturing business to Intel's manufacturing arm.
- [05:25]
Carol Massar
So chip war, it is on or where are we? Is it the beginning of the chip war? And I'm just curious, are you starting to think about, I don't know, another book and where it goes from here? Give us, give us your thought here.
- [05:38]
Chris Miller
Why I think we're in the thick of the chip war right now. Next to this news about Nvidia and Intel, there's a big debate going on in Beijing and in Washington about which companies should be allowed to buy which type of the AI accelerators that Nvidia specializes in designing that are almost exclusively today produced in Taiwan. And so you've got these competitive commercial dynamics intersecting with high geopolitics. And today you can't really separate the chip industry from the decisions of President Trump or from Chairman Xi.
- [06:11]
Tim Stenovec
Well, that's a, that's a really good point. And kind of brings me to my question about intel specifically and the US Taking this unprecedented stake in this chip maker earlier this year. What did you think of that, Chris?
- [06:24]
Chris Miller
Well, I think the US has been pretty clear in its desire, going all the way back to the first Trump administration, through the Biden administration, as well as both houses of Congress, both parties, that it sees Intel's success in manufacturing as important for US national security. You know, right now most of the world's advanced processor chips are produced by one company in one country, Taiwan. And the US Wants a more diversified base of manufacturing these ultra critical chips that are key both for smartphones and computers, but especially for AI. And intel is one of the three companies in the world alongside Samsung and TSMC that can produce these cutting edge chips. And it's the only US company, the only company with a major US footprint, at least right now. And so that's why the US Government has been trying to find ways to help intel out.
- [07:14]
Tim Stenovec
Well, what would it take for, for intel to be able to compete with tsmc? I mean, it got money from the US Government, it got money, it's getting money from intel here. As Carol always says, the devil's in the details. And you said we need to see exactly where this money goes. But, but what do we need to see to say, okay, this company, this US company is now competing with tsmc.
- [07:35]
Chris Miller
So there's no doubt that intel needs money and it's raised some money from SoftBank and the US government. But the key thing that it needs is customers for its advanced manufacturing processes. You'd only prove whether or not they work if you've got at least medium sized, but ideally large scale Customers that are going to let you produce thousands, tens of thousands, eventually millions of chips on your manufacturing process. You can't scale up without customers. And right now Intel's got a couple of smaller customers for its manufacturing business, but it's thus far failed to win a very large scale customer. And Nvidia is one example of a company, there are others that could provide a really large contract that would let intel test out its cutting edge manufacturing. And right now I think the entire ecosystem is waiting to see the will it win some big customers that lets it complete that scale out and testing of its cutting edge manufacturing.
- [08:24]
Carol Massar
All right, so we're talking with Chris Miller, professor of International History at the Fletcher School at Tufts University, author of Chip War the Fight for the World's Most Critical Technology. Hey Chris, one thing I want to ask you and I want to go back to China. There was a story I was reading by our Javier Blass, an opinion please piece. And it was asking why is China stockpiling so much surplus plus oil? And one of there were like five or six different reasons. And one of it was does China fear an interruption in supply beyond US And European sanctions? Oil traders who traffic in intrigue utter only one word, Taiwan. Do you believe that there is a strong possibility that there will be a conflict involving Taiwan? And what does that mean for tsmc, who is so crucial in terms of the global chip supply chain? What could that potentially mean for the United States? The global economy? I mean, can you, can you play that out and what the likelihood is?
- [09:21]
Chris Miller
Well, there's no doubt it's a possibility. Nobody knows for certain what the likelihood is. But I think the magnitude of impact is so large that even if you think it's only 5 or 10% likely, you've got to take steps to prepare. All of the biggest, most valuable companies in United States require silicon that today can in some cases only be sourced from Taiwan. That's true for Nvidia, true for Apple, true for Google, true for Microsoft, off through for Meta. The entire US tech ecosystem relies on Taiwan's expertise. And that's why there's been this push for the last couple of years to find ways to diversify the US from being so centrally exposed to China's decisions about war and peace in the Taiwan Straits.
- [10:02]
Carol Massar
And the reality is that the US is still very, very exposed. Correct. Because of how much TSMC still produces.
- [10:11]
Chris Miller
That's right. I think the US has made a bit of progress, but there's still a long way to go. And it's a long way to Go. Because TSMC is an extraordinarily capable company and the entire Taiwanese ecosystem is just so central to producing the semiconductor hardware that our tech firms and AI firms depend on.
- [10:27]
Tim Stenovec
What do you think of the politics of this and the fact that TSMC is, you know, has this facility in Arizona and is working to increase its presence here in the United States? Does it put that at risk?
- [10:41]
Chris Miller
No, I don't think so. I think TSMC has got a strong signal from its customers that they want US Based production. It's got this uncertainty created by the tariffs that incentivizes more investment in the United States. And it's got a signal from the US Government, again across multiple administrations, both parties, that they're going to keep pushing for a bigger US Footprint. But I think the challenge that TSMC faces is twofold. First, all of its key R D remains in Taiwan and will be in Taiwan as far as we can see in the future. So Arizona is helpful in diversifying today's manufacturing, but it doesn't really get you diversification of the next generation. The second thing is that the ecosystem in Arizona is still less developed than it is in Taiwan. And so sourcing the gases and the materials and all the spare parts and specialized equipment you need for a cutting edge chip plant, it's still harder and more expensive in Arizona than in Taiwan. And that's going to be the case for some time until we keep building out the scale of Arizona. And all of that means that Taiwan is going to stay very, very important for our tech ecosystem for many years to come.
- [11:45]
Carol Massar
Chris, really quickly, 30 seconds here. I mean, was President Trump right in his increasing tensions on China? It started in his first term and ramped up in the second. Was he right? Especially when you think about semiconductors. And just quickly, if you could.
- [11:59]
Chris Miller
Well, I think the key driver of tensions in this sector is actually China's desire to become self sufficient. We were in a pretty stable equilibrium in 2015 before the Made in China 2025 plan was released. That happened before any of the US policies to support its own chip industry. And that was really the catalyst for introducing geopolitical tension as a central facet.
- [12:20]
Carol Massar
Of the chip industry. All right, so glad we could get some time with you. So relevant as always, Chris Miller, author of Chip WARR and professor of international History at the Fletcher School at Tufts University. Pinpointing the genetic changes that predispose us to disease, identifying the roots of mental illness, treating congenital anomalies even before birth. At Boston Children's Hospital, we're investing in children's health today to ensure the well being of adults tomorrow. As home to the world's largest pediatric research enterprise and more than 260 specialty programs, Boston Children's is where the world comes for answers. Learn more@bostonchildrens.org how can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast free shipping to in depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to amazonbusiness.com for support.
- [13:33]
Commercial Voice
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- [14:05]
Bloomberg Announcer
You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [14:19]
Carol Massar
Hey, over the summer, one of the things that caught our attention Bloomberg News reporting that the world's largest technology companies so we're talking Microsoft, Amazon, Google, all of them planning to spend billions of dollars, more than $344 billion on capital expenditures, with much of it tim going to data centers for AI models.
- [14:37]
Tim Stenovec
According to Bloomberg Intelligence analyst Amandeep Singh, companies have quote, basically tripled capex investment in cloud due to AI, with executives emphasizing the need to invest quickly to get ahead. Our next guest is helping those hyperscalers scale up when it comes to AI. With us in studio is Adair Fox Martin, President and CEO of Equinix. The nearly $76 billion market cap datacenter reta trades under their ticker EQ I down so far this year about 18%. Adair, welcome. Good to see you.
- [15:04]
Adair Fox Martin
Thank you so much. Thank you for having me.
- [15:06]
Carol Massar
Nice to have you.
- [15:06]
Tim Stenovec
So how's business?
- [15:07]
Carol Massar
Thank you.
- [15:08]
Adair Fox Martin
Business is very good.
- [15:09]
Tim Stenovec
Like the best you've seen it.
- [15:11]
Adair Fox Martin
Like we're in the middle of a very strong cyclical demand cycle for, you know, the products and services that we offer.
- [15:17]
Tim Stenovec
When you say we're in the middle, help us understand how long that means of a Runway there is to go here.
- [15:23]
Adair Fox Martin
Sure. You know, at Equinix, we see a very significant trend from the training of models in the economy that you refer to in your opening there with the hyperscalers to the deployment of those models in enterprise systems. And that deployment is called inference. And we see that opportunity as potentially double the size of the training opportunity. And at our company, we feel we were built for this moment.
- [15:49]
Carol Massar
Has that happened faster than everybody anticipated? Because I do feel like the conversation, although we've been talking about AI now, what, almost two and a half years? Well or well into two and a half years, but we are now increasingly talking about all of this stuff starting to be put to work.
- [16:01]
Adair Fox Martin
Right. You can certainly see organizations, we have 10,000 customers across the world moving from proof of concepts into production systems and applications of the technology.
- [16:12]
Carol Massar
One of the things I think we're curious about is, as you know, the news flow is fast and furious from the White House and out of Washington, and there have been some announcements out of the Trump administration about AI infrastructure initiatives specifically. So I'm curious, Adair, have you seen any impact of that on your existing property's leasing effort? And I'm curious how you compete with. How does that kind of compete their program with your own development program?
- [16:37]
Adair Fox Martin
Look, we very much welcome the focus that the current administration has on data centers and the importance and the recognition of data centers and their important role in the infrastructure of any economy. And we certainly are looking at some of the properties that have been, you know, identified as potential for RFPs. And we would choose based on locations that would be accretive to our business, because we're very focused in cities, in metro areas close to where humans are, who will use this technology.
- [17:09]
Carol Massar
Are you getting pushback from cities and humans who don't necessarily want those data centers?
- [17:15]
Adair Fox Martin
Not hugely. I mean, we're very conscious of the role that we play and, you know, the role that we play with communities where we have data centers. And we're very considerate about our approach there.
- [17:26]
Tim Stenovec
What makes a good location for a data center? Because it doesn't actually, apart from the construction, it doesn't actually involve that many people to keep it up and running relative to the amount of money that's spent on it and what actually happens in there.
- [17:38]
Adair Fox Martin
Yeah, it's really interesting because I think when you think about the operations of a data center, you tend in your mind to go immediately to technicians and technology. But actually, there's a whole series of unsung heroes in the operation of a data center, which are the craftsmen and the tradesmen and women, you know, the plumbers, the electricians, the engineers who basically keep the Internet up and running, you know, through this data center infrastructure.
- [18:02]
Carol Massar
So difficulties in finding those workers. We've done some reporting about that, that there's, you know, okay, yay, great, the spend and the build, but there's not enough workers to do it.
- [18:10]
Adair Fox Martin
So, so I think, you know, the constraints that the industry are facing are, you know, are around energy and power, around skilled workforce and then into the supply chain for software, for the equipment. That's, that's part and parcel of a data center.
- [18:23]
Carol Massar
But is that the build that you guys are trying to do and meet that demand?
- [18:27]
Adair Fox Martin
It is something that you have to actively manage as you are looking to build. You know, for example, in our case, around some of our supply chain portfolio we've pre purchased in order to ensure that we can have the delivery dates that we need to bring capacity online.
- [18:41]
Tim Stenovec
We talked about the $344 billion that some of the world's largest tech companies are planning to spend when it comes to Capex. It's like the thing we look for now quarterly when a company reports results. How much of hyperscalers capex budgets actually flow through your company?
- [18:59]
Adair Fox Martin
We have a very significant approach on a part of the data center industry that we call colocation because not all data centers are the same. And so colocation is where enterprise customers, businesses, 60% of the Fortune 500 for instance, would locate the their workloads or their machinery with us. And in a shared facility we have a JV structure that works with the hyperscalers to build to suit for the hyperscalers. And so that's how we service the hyperscaler opportunity and maintain that very important partnership that we have with them.
- [19:33]
Carol Massar
I mean, I guess we're trying to figure out your exposure. I think your top 10 customers represent about 16% of monthly recurring revenue. So your exposure to the hyperscalers is pretty big, right? Is it manageable?
- [19:44]
Adair Fox Martin
It's manageable. The hyperscalers, for example, when they operate in our retail facilities, they do so because of the connectivity of Equinix. So that's going to be a requirement for inferencing and for the actual activation of these AI workloads. So it is for us about connectivity. Connectivity is the secret sauce of Equinix as a data center.
- [20:06]
Carol Massar
What do you mean specifically by that? Because I think we can use the word connectivity to mean a lot of different things, certainly in the business world. What does it mean specifically for us?
- [20:15]
Adair Fox Martin
So in Our world. It essentially means we're located in 273 data centers right across the planet. Inside those data centers, we have ecosystems of customers, customers whose value chains are connected to each other. And we physically connect them, literally interconnect those customers one to the other. That's the first part of interconnection. So that allows for low latency transactions to happen, say for example, on a trading floor. That allows for that to happen in real time.
- [20:44]
Tim Stenovec
Know we're speaking right now with Adair Fox Martin, president and CEO of Equinix joining us here in the Bloomberg Businessweek studio. You mentioned the difference between training and inference in inference. Thank you. When you think about this like a company like Core Weave, for example, where does that fit into this?
- [21:01]
Adair Fox Martin
Well, a Core Weave is a Neo cloud. They're a company, you know, that provides GPU capability to companies who want to train their models. So they fit into the ecosystem in the same way for us as other cloud.
- [21:15]
Tim Stenovec
Like a GPU as a service.
- [21:16]
Adair Fox Martin
Correct.
- [21:17]
Tim Stenovec
Okay, so what are the average lease terms for an agreement with GPU as a service organization?
- [21:23]
Adair Fox Martin
It would depend, you know, they can be relatively short for us. Our leasing in our wholesale side is 10 years plus.
- [21:31]
Carol Massar
Okay. Now one of the things that I think is interesting is I think we're all trying to figure out the boom and bust of is. And there was an investor, Jackson Selby. He is AZ VC founder Managing partner, his longtime managing director of billionaire entrepreneurs Peter Thiel's family office. And he said the euphoria around AI may have led to the biggest bubble yet in private technology investing. And so sounding warning bells that a correction started valuations is in the cards. Now, we understand when you throw AI there's a lot of different players, but behind it all is the data center spend. And we have had a lot of conversations about the hyperscalers making, you know, multiple duplicate arrangements with power providers that they're not going to use all of them, but they just want to make sure they've got the power where they need it. Is there any signs to you that there's exuberance that the spend is, is slowing down, starting to, will start to slow down maybe next year. You're seeing it. You've got a front row seat.
- [22:28]
Adair Fox Martin
Yeah, I guess we believe in the enduring nature of the transformation that AI and the technology associated with it can bring and can bring to businesses. I mean, as I said, we support manifold workloads of our customers. You know, not just AI workloads, but, you know, standard business process workloads. And we really are about that being that connectivity engine. So, you know, I think in many ways our business model is, is, you know, somewhat protected from any, any potential.
- [23:01]
Tim Stenovec
Before we let you go, as I mentioned some headlines on TikTok from the wall Street Journal. The deal would create a new US entity, Oracle, Andreessen, Horowitz, Silverlake. Are you involved in this at all?
- [23:11]
Adair Fox Martin
Well, we partner very closely with Oracle, so it would be through that partnership that we would be supporting.
- [23:16]
Tim Stenovec
So you think you will support an.
- [23:17]
Adair Fox Martin
Independent TikTok potentially with Oracle?
- [23:21]
Chris Miller
With Oracle, yes.
- [23:22]
Adair Fox Martin
A very key partner.
- [23:23]
Carol Massar
One last question. Your stock's down. Why? If it's so. I mean, I know there's also an incredible spend in what you are doing. You've got to spend in order to meet the demand, you know, and so maybe that is why there isn't some reward from some of your investors. Is it kind of a conflict?
- [23:42]
Adair Fox Martin
Well, we're very focused on long term value creation for our shareholders. And you know, we announced that we are going to bring on as much capacity in the next five years as we have done in the previous 27 years of our operations. And so we're very focused on executing against our strategy. We believe in the opportunity that we see in the market and hope to deliver proof points to that to our investor community very soon.
- [24:05]
Tim Stenovec
That was Adair Fox Martin, president and CEO of Equinix.
- [24:08]
Carol Massar
We should point out that we talked to Adair. That was ahead of President Trump's visit to the UK where we know a lot was talked about when it came to the tech CEOs that was with him. That were with him, excuse me. And that also talked about investments over there in the UK when it comes to the tech world. We should also point out that it was also before we got news of Nvidia's big investment in intel, have to say when it comes to tech, tech world, semi world, there's a lot going on but nonetheless an interesting conversation because it really plays into the bigger section, bigger story, if you will, of why all of this is going on. Because of the AI spend and then the spend on data centers. It's all kind of connected.
- [24:48]
Tim Stenovec
Yeah. To that end, Carol, something else that's connected is the news that we got on Thursday morning that Huawei is unveiled new technology from memory chips to AI accelerators, outlining publicly for the first time its multi year plan to challenge Nvidia's dominance in a growing market.
- [25:03]
Carol Massar
Yeah, Huawei's approach seen as a significant milestone in China's AI chipset industry, reflecting breakthroughs in system design and interconnect technologies. And it really signals a stronger push toward self reliance and resilience in the face of export restrictions. This again reporting all done by our team on the ground at Bloomberg News. But it's just, this is what it's all about. We go back to, I feel like when we talk so much about the war that's out there, it's not just geopolitical, it's really a tech war. Right. Tech dominance. And you're seeing China making some moves. You and I talk about the EV space and how advanced China has, has really become in that world and dominating it feels like electric vehicles.
- [25:46]
Tim Stenovec
I think one thing that's important to keep in mind is where Huawei sits in the tech sphere in China and globally. It's, it's actually China's most advanced chip designer. It's the strongest contender to build alternatives to Nvidia's industry leading AI hardware. And as you mentioned, Carol, it also is part of a bargaining chip when it comes to trade negotiations between the US And China. And to that end, we did get news Thursday morning as well when we record, when we're recording this, that the call between President Trump and Xi Jinping is set to happen at 9am on Friday. So before we put this to bed.
- [26:21]
Carol Massar
Yeah, and what's interesting too, I want to just say from a market perspective, Chinese tech stocks have surged in past weeks driven by a perception that the nation's industry leaders are making steady progress in developing homegrown AI and chips. So Alibaba Baidu are among the companies that have secured important clients for their in house designs and others. But we've just seen kind of a big spend there.
- [26:43]
Tim Stenovec
For the latest, head on over to Bloomberg.com and check out everything on the Bloomberg terminal. Still ahead on Bloomberg businessweek. He's a trader who helped transform the way commercial properties are financed and now.
- [26:53]
Carol Massar
He'S launched a bid to become California's next governor. Ethan Penner is next. This is Bloomberg.
- [27:01]
Bloomberg Announcer
This is the Bloomberg Business Week daily podcast. Listen live each weekday starting at 2pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa. Play Bloomberg 11:30.
- [27:19]
Carol Massar
The gubernatorial race in California definitely picking up momentum just a little bit more than a year away. We featured a few possible candidates on air and our next guest launched his own bid to become California's next governor, targeting voters disillusioned with Democratic rule. But Tim not ready to vote Republican.
- [27:34]
Tim Stenovec
Our next guest launch his bid to become California's next governor. He's here in the studio with us, Ethan Penner. As we mentioned, he's 2026 candidate for governor of California, also founder and managing partner of Mosaic Real Estate Investors. Ethan, welcome. How are you?
- [27:47]
Ethan Penner
I'm. I'm very busy.
- [27:49]
Tim Stenovec
Well, you're.
- [27:50]
Tim Allen
You're.
- [27:50]
Tim Stenovec
Why you're going to run for governor of California. But you're in New York. Why are you in New York? Because you're here talking to us. Well, why do you. Why do you want to run?
- [28:00]
Ethan Penner
Well, I really didn't see anyone who was qualified to do the job raising their hand, and so I decided I would do it. I feel that we're in a desperate place. I think that California has been so grossly mismanaged for so long, all the statistics bear that out. The quality of life has deteriorated so amazingly over the last decade and even two. And it's time for somebody with the real qualifications to do this job to step up. And that's what I decided I would do.
- [28:28]
Carol Massar
What would you do differently? What don't you like? What needs to be changed that you think would change the course of California in what you would perceive as a good way?
- [28:35]
Ethan Penner
There are a number of things, but the most obvious thing, the starter, is that we've repelled people. So we've been last in net migration for five consecutive years, which means people in the United States have preferred to live anywhere but California, which is shocking considering it's California.
- [28:53]
Carol Massar
Right.
- [28:53]
Adair Fox Martin
Pretty gorgeous.
- [28:55]
Ethan Penner
And I think that we need to be more welcoming and inviting to businesses. We need to grow our economy. Our economy is important for everyone. It's important to create opportunities for our young people. But it's also important so that we have the funds to make good on the retirement benefit promises that people are counting on. So. So I would do. The first thing I would do is change our tax policy.
- [29:21]
Carol Massar
Well, let's talk about this, because our understanding is you are releasing a tax plan that would turn California from one of the least friendly tax states to one of the top five. So what? Details. That's a big, broad statement. The devil's always in the details. So what specifically?
- [29:35]
Ethan Penner
So the Tax foundation ranks all 50 states by their tax policy. We're currently ranked 49th. And pro forma, my policy would move us to third according to the Tax Foundation.
- [29:49]
Carol Massar
How do you do that? How do you do that?
- [29:50]
Chris Miller
Well.
- [29:51]
Carol Massar
And what do you do specifically? Because you also talked about needing revenues for things. So I'm just curious how you do that.
- [29:57]
Ethan Penner
Yeah. So it would Be, and importantly, Carol, it will be a revenue neutral to revenue growth plan. So everyone else, everyone that talks about changing our tax plan, talks about cutting taxes, and I understand kind of the intuitive appeal to some people, but of course that, that really doesn't. The math doesn't work. We need to actually pay for the things we need in California to support our society. So mine is a revenue neutral. That will ultimately be a revenue growth idea. It's about replacing income tax with a consumption tax. Fundamentally, that's the plan.
- [30:30]
Tim Stenovec
So explain the details there.
- [30:32]
Ethan Penner
We will eliminate all state income tax, both corporate and personal. Wow, amazing. We will replace all state sales tax, including our horrible gasoline tax. And all of that will be replaced by a single 15% consumption tax on goods and services.
- [30:50]
Tim Stenovec
But does, does California. Okay, so you're coming at this from the angle where California has been a net loss when it comes to migration.
- [30:56]
Ethan Penner
Yes.
- [30:57]
Tim Stenovec
Do you want, can California handle more people? Because the real estate prices there. Well, in so many places and very desirable places to live are out of control.
- [31:06]
Ethan Penner
It's a phenomenal question.
- [31:08]
Tim Stenovec
But, but the challenge is on a local level because you have all these people that say, yes, we want more affordable housing, but do not build that multifamily house right here.
- [31:16]
Ethan Penner
Our problem has really nothing to do with having too many people. It has to do with too few housing units. So the Rand Corporation published a paper last year that showed that it costs $110,000 more to build an apartment unit in the state of California than in the neighboring state of Arizona or most.
- [31:38]
Tim Stenovec
Other states for regulatory reasons.
- [31:40]
Ethan Penner
It's all driven by regulatory red tape. That's the second thing I'd have to do, is really streamline our regulatory approval processes. So the tax plan is stage one. Stage two is the streamlining of regulatory processes.
- [31:54]
Carol Massar
How do you think about it? Against a backdrop where climate change is certainly impacting California neighborhoods in a big way. And so the build back has also got to think about how do you make it safer?
- [32:03]
Ethan Penner
So environmental greatness is really at the foundation of California. I mean, you're from California and you know this. I, I take all of my vacations hiking in the nature of California. It's amazing.
- [32:16]
Tim Allen
Right?
- [32:17]
Tim Stenovec
And so first trip to Yosemite a few months ago for Carol Massar.
- [32:21]
Ethan Penner
It's incredible.
- [32:22]
Carol Massar
Gorgeous.
- [32:23]
Tim Stenovec
She was blown away.
- [32:24]
Ethan Penner
Everything's incredible.
- [32:24]
Carol Massar
Yeah, blown away, exactly right. And passing a massive wind farm to get there. So certainly embracing.
- [32:30]
Ethan Penner
So I think that we have to be as vigilant as we've ever been about protecting our natural beauty and our Resources. But we don't need 19 different organizations that a developer of an apartment has to go through an approval process for. We need one, one very good one, powered by AI with great responsiveness. Rather than five years. How about five days to get your feedback? How about 15 minutes to get your feedback? There's no reason that we can't use technology intelligently, and there's no reason we can't have both. Both the things we can have environmental beauty and environmental soundness and make it easy for people to build the units that we actually need to drop costs and make living more affordable.
- [33:16]
Carol Massar
One of the things you're talking about too, when it comes to housing and Tim, see it, you know, we see it when we've been to Seattle. We live in New York City. Go anyplace where it's warm.
- [33:24]
Tim Stenovec
Where it's warm. And there's a high cost of living, high cost.
- [33:26]
Carol Massar
But the homeless populations, and it's, you know, I went to college here in New York many, many years ago, and it was a homeless problem. And here we are again in 2025, and we haven't figured this out. What you are looking to build some communities, from my understanding, in rural areas for homeless people to live in. How would you fund that? How long do you. Would you expect it to take to get that done? How do you roll that all out?
- [33:51]
Ethan Penner
So it gets back to the original question of bringing true competence, the required competence to lead the state at this moment. We need the skills that I bring to the table. We need an understanding of how to build things. We need an understanding and appreciation for how to have transparency. It's not that we don't have the money. We've spent $25 billion in the last state money in the last four years, and all that's gotten us is nothing but 25% more homeless. So nothing's been solved. We have systems that don't work. We have a management system that's failing us. We don't know where the money is. There's no accountability.
- [34:28]
Carol Massar
So how do you do this then? You're saying that with this consumption tax, you'll have the money to do this. And how do you get. How quickly can you get it built?
- [34:34]
Ethan Penner
Well, so it's a combination of things. One is, yes, the money is there, although we squandered so much money already, the money is there for this. Second of all, we have to use smart building. We. We don't have government. We need private, public, private partnerships. And my government will lean very heavily on private excellence to work in tandem with public oversight to get things done fast. And I think that modular housing is definitely one of the answers. Yeah, but we have to combine competence, a commitment to safety, and a love for our fellow people. Right. Especially I'm proud to be in California. We care for our most vulnerable neighbors. That will never change. But we need to do it the right way. These people, unfortunately, with all the money we've spent, still sleep on the pavement.
- [35:24]
Tim Stenovec
We're speaking with Ethan Penner, 2026 candidate for governor of California, also the founder and managing partner of Mosaic Real estate investor investors. On the homelessness question, it obviously has to do with housing. It has to do with mental health. There's no easy solution, as we've learned on the regulatory side of things. You said for building housing, you want to streamline regulations, get rid of red tape, but how specifically do you do that? Because it's an easy thing to say. But as we're learning in the wake of the fires in Pacific Palisades and the waste removal going to New Calabasas and the landfill, there's people are not happy about that. Like, how do you do this in a way that satisfies these constituents?
- [36:05]
Ethan Penner
Well, I think it's top down, actually. So I think we have to set a standard from the governor's office in Sacramento. And that standard has to be, look, if I get elected, it will be with a mandate for change. Right. I'm the consummate outsider. I don't belong to either of the main parties. I've never had a day in political office. So I'm running for a mandate for change with specific policies in mind. And I believe the people's will will be heard through me, and that will empower me to actually make change.
- [36:36]
Carol Massar
But you understand, I mean, I do understand.
- [36:39]
Ethan Penner
I understand bureaucracy very well. I've worked in big companies.
- [36:42]
Carol Massar
But I'm just thinking about Elon Musk, Doge, even in the federal government. And yes, USAID dismantled, other offices or other departments dismantled. But it's not easy to kind of, you know, all of these regulatory checkpoints. I mean, how do you really do it when it gets down to it? How do you do it in.
- [37:02]
Ethan Penner
You know, I'll tell you two things. One, I am not willing to accept that it's hard or impossible to do. And I'm going to commit myself fully to doing that. And I know for sure if people like you and I don't commit ourselves to positive change, the answer is 100% bad. So I'm going to commit myself and I'm going to do as, as good a job as I can. Second, I really do believe that most people in government, in state government in California go into their jobs wanting to do the right thing for their people. I really do believe that. And I think that as a nonpartisan and a non career politician who's not trying to advance my career at all, I think I'm going to be very uniquely well received by the legislature because I won't be viewed as oppositional in any way.
- [37:50]
Tim Stenovec
We got to talk property taxes. Do you think something has to change with property taxes in California? And the context is that somebody like my parents who've lived in the same house since the 1990s pay basically nothing in property taxes thanks to the passing of a certain proposition many years ago. But if somebody were to buy that house, like you know, the next family to own that house, the property taxes would be debilitating and it makes it so people stay in homes for a very long time and contributes to the housing crisis, some critics say.
- [38:19]
Ethan Penner
You know what? I don't believe that's true.
- [38:21]
Tim Stenovec
Why?
- [38:22]
Ethan Penner
I don't accept that. I think that, I think that we are, our society, our community is served well by continuity. And I think that having people be forced out of their homes because of appreciation, it denigrates our community. It denigrates the continuity of our community. So I would, I would not try to change that policy. I think that's a wonderful policy.
- [38:46]
Carol Massar
Got to ask you about Governor Newsom, his feud with the president, the president's attention on California, on many states. How would you posture yourself toward President Trump?
- [38:55]
Ethan Penner
Well, I think that both parties are busy fighting with each other about the president pro or against the president. And I feel that it's a gigantic distraction from the incompetence that they've brought to the table in actually doing their job for the citizens of California. I will not be engaged in that distraction. For me, I'm laser focused on serving the needs of the people in California who would be electing me, who I care for.
- [39:24]
Carol Massar
But what do you do though, Ethan, if President Trump you, you do a policy and you are a social media Post at 7am in the morning of something he doesn't like and he says maybe we're going to go down to California and talk to Governor Penner. Well, what do you do?
- [39:42]
Ethan Penner
I think that every leader, Carol, has to approach their job with humility and I don't see that as often as I would like. So Governor Penner would remember that Governor Penner is a servant for the people and Governor Penner would understand that whatever he says or does, he has to take in mind, is this in the best interest of the people who he's serving and fighting with? The President of the United States? It's not in the best interest of the people. Okay. This is definitely not so. I would try to have a workable relationship with both the legislature that I would need to work with, but also the federal government. Because as you point out, that's a very important relationship, whether it's this president or another president. It's not about my personality and the personality of another, which I think, unfortunately we see today becoming the story. I don't need to be the story. My personality is not that important to me. My job as serving the needs of the people who elected me is the only thing I care about.
- [40:45]
Carol Massar
Well, stay in touch as this year progresses. Love to see how things are going. Ethan, thank you so much.
- [40:50]
Ethan Penner
Thanks for having me.
- [40:51]
Carol Massar
Yeah, I really appreciate Ethan Penner, 2026 candidate for governor of California, Founder and Managing Director of Mosaic Real Estate Investors we did not get to talk about the CNBC markets. Maybe next time around.
- [41:02]
Tim Stenovec
Next time, Ethan.
- [41:02]
Chris Miller
Thank you.
- [41:07]
Carol Massar
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Carol Massar
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Bloomberg Announcer
Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [43:17]
Carol Massar
Plenty ahead in our second hour of the weekend edition of Bloomberg Business Week, including how artificial intelligence is making the grade big time with the dean of the Kogod School of Business.
- [43:27]
Tim Stenovec
Plus, speaking of AI, is AI helping or hurting the language learning business at Babbel? The CEO joins us later on.
- [43:34]
Carol Massar
First up this hour, you might recall a story earlier this month from our Bloomberg News team. It was about Apollo Global Management being poised to launch a $5 billion strategy to invest in sports deals, marking another major asset manager targeting the booming sector.
- [43:49]
Tim Stenovec
It's about long term lending of strategic capital to sports leagues and clubs. Apollo's strategy is set to specialize in lending long term strategic capital to sports leagues and clubs. It will also consider owning stakes in teams, though this wouldn't be a priority and may hire new staff. Our next guest too is investing in sports teams for his investors.
- [44:09]
Carol Massar
He is indeed. Jeff Luno is CEO of bluecrow Sports Group. He's also former Houston Astros president of baseball operations. He joined us from our Dallas News bureau alongside Bloomberg News Texas Bureau Chief Julie Fine.
- [44:22]
Jeff Luno
Well, you rightly pointed out there's a lot of interest in sports. A lot of American investors are investing in European football, etc. We started as a startup four years ago. We wanted to pick our niche. Our niche is to find, own and operate clubs in desirable locations that have big growth opportunities. So we invested in Cancun FC in Mexico, Club Deportivo Leganes in the suburbs of Madrid and Louvre in the Normandy area of France. And those are the three teams, one in first division and two in second division. And the key for us is to operate those clubs well and allow them to make money and to win games.
- [45:03]
Carol Massar
Jeff, you talk about the key is to operate them well and to win money in games. But really, what's the long term plan? Are you looking at other sports? Do you want to stay in the from in the soccer world? What's next?
- [45:15]
Jeff Luno
Well, we've got A lot of work to do in football. We want Legioness to get back to first division. We want Luof to establish itself in second division. And now that promotion, relegation is coming back to Mexico, we'd like Cancun FC to get into Liga Max. So I think our to do list for the next five years is pretty busy and pretty filled. But I think over time we will certainly look at other sports. But right now our focus is football.
- [45:38]
Carol Massar
I want to talk a little bit. You were with the Houston Astros. You were fired after a baseball scandal. You have denied any wrongdoing, but you are going now and asking people for money. Has there been any issue when it comes to trust?
- [45:51]
Jeff Luno
No, not at all. In fact, many of the investors in Blue Crow are people that were either investors in the Astros or knew me from that time. If anything, it's been an advantage because people knew of what happened with the Astros after we got involved in. In getting the world series in 2017 and reaching it in 2019 and, you know, doing. Making money for the club and its investors. So we have a very diverse group of investors, people from private equity entrepreneurs, technologists, etc. And they're all very bullish on what we're building.
- [46:21]
Carol Massar
Does it ever come up, though? I am curious, Jeff. Like, I know we all have our past and histories and I just think, you know, sometimes when it comes to money, people, people do at least be like, well, just let me just talk to you a little bit about this before maybe I think about investing.
- [46:36]
Jeff Luno
Well, I think a lot of people want to know about my time in baseball and what we did and how it relates to football. It's never come up as a negative. I was telling Julie earlier that in Europe, baseball is not a very big sport. So people don't even know who the Astros are or who Jose Altuve is. So they, they really just care about whether we're going to win on Sunday and, you know, whether we get three points or one.
- [46:58]
Carol Massar
Hey, one thing I want to ask you too, though, Jeff. When it comes to owning a team, is it a buy and hold strategy or because you have investors, is it buy, hold, build up and then sell for a premium so that there are returns to your investors? I'm just curious.
- [47:12]
Jeff Luno
That's a great question. And the way to make money in football, as you noticed, is you can either hold and sell for more than you bought, but usually have to cover losses in the meantime. But we're trying to run these clubs to win and grow revenue and eventually be profitable so that we can potentially Return some money to our investors as we go along. We're not looking to buy and flip. A lot of the things that we do in our clubs require three or four years, five years for them to start working. And that's, that's why for us, we're talking about more long term holds.
- [47:44]
Carol Massar
Talking about long term and working. We talked earlier about technology and analytics. What role is AI playing in all of that?
- [47:53]
Jeff Luno
Well, the world of football has lagged baseball and basketball and other major sports in terms of the use of analytics and technology. But that's changing. And part of the reason it's changing is in football you have 11v11. So there's a ton of data and there's a ton of games all over the world and it's hard to analyze that with just a few data scientists. So AI allows you to analyze a much, much larger volume of data and to generate insights from it. So I think it's going to be increasingly important in our world.
- [48:24]
Tim Stenovec
Jeff, we talk a lot here in the US about ballooning sports team valuations. I mean, you're certainly familiar with this. We just had, you know, the deal news about the New York Giants, for example, with American football. And I'm curious if you think the growth here in the US will start to slow down and the real opportunity for valuations to grow as they did here in the US in the last two decades. That opportunity is outside of the US Now.
- [48:51]
Jeff Luno
I think that. Well, first of all, I've always been skeptical about valuations of major US sports, but I've always been wrong. I've been saying that things are overvalued for the last 30 years and, and they keep selling for more and more down the road. So I'm not good at predicting that. I do think that buyer beware on European football because there is relegation in promotion and you have to do things well in order to increase value. And there's a lot of investors that are losing money in this sector as well. So we're hoping to be one of the, one of the winners, but we're being very cautious about what we invest in and how we do it.
- [49:25]
Tim Stenovec
What makes you skeptical about U.S. team valuations? You know, it's a, it's a supply and demand question, right? Is it, is it more complicated? Complicated than that?
- [49:33]
Jeff Luno
Well, I think that generally the revenue is driven from TV contracts for most of the sports and I just can't see those continuing to grow at the rate that they've grown. But I know it's happened. So like I said, I'm not a. I'm not a good predictor of that. But I think ultimately everybody's going to want to consume sports on their mobile or on, on their, you know, their handheld and that, that changes the dynamic a little bit. And some of these bigger contracts, you know, may not get renewed at the increases that have happened in the past.
- [50:04]
Carol Massar
This is going to be a very big time for football. Coming up with the World cup we have here in Dallas, we have the most matches. Houston, your hometown, has a lot of matches as well. What do you think this attention on the sport in the United States will do for it overall?
- [50:20]
Jeff Luno
I think it's going to be great for all of North America. Mexico, Mexico, United States and Canada. I'm very bullish on North American football. I have been since the beginning when we invested in Cancun and you know, I lived through the 94 World cup and everybody was expecting football to suddenly become one of the big four sports. I think it has grown, but I think it's poised to continue to grow. It's never going to beat NFL, it's never going to beat MLB or NBA. But I think it can continue to grow its fan base base and I think it can continue to produce good results.
- [50:52]
Carol Massar
You know, you are now in soccer, you came from baseball. I want to know what your future is.
- [50:58]
Jeff Luno
Well, like I said, we're just at the beginning. We've been doing this for four years. We've got a lot on our to do list. I'm going to be focused on building Blue Crow for the foreseeable future.
- [51:09]
Carol Massar
Is there an investor that you would love to have with you for the ride? Is there a team that you, you would love to go after? And I know who is going to talk, right, because you don't want to kick up the valuation. But I am just curious because. And anything you can share on your investors or who else you'd like to have with you?
- [51:25]
Jeff Luno
Well, we have a great cap table. We've got some people that have in the NBA and the NFL and MLB etc. I don't like to disclose who they are because that's, that's their business. But we're well funded. We all of our investors for offered to put more money in if they need to. So, so really at this point I think we have an all star cap table. We've got a great plan and now it's just a matter of going out and continue execute.
- [51:51]
Carol Massar
Jeff, 20 seconds. Women's sports. How does that play into it? It's kind of popular. I don't know if you've heard that really quickly.
- [51:57]
Jeff Luno
It is. And there's a lot of money going into women's sports. We have a female team in Spain. We're looking at the sector very closely and trying to figure out what our strategy is. But it's growing in the US a lot and it's growing in Europe quite a lot. And I think it's going to continue to grow.
- [52:14]
Carol Massar
All right. Well, you're always welcome to come back and share some more, Jeff. Thank you so much. Jeff Leno, CEO, Blue Crow Sports Group, along with our Bloomberg News Texas Bureau chief, Julie Fine. This is Bloomberg Businessweek Daily.
- [52:26]
Bloomberg Announcer
This is the Bloomberg Businessweek Daily podcast. Listen live each weekday starting at 2:00pm Eastern on Apple CarPlay and Android Auto with the Blue Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa. Play Bloomberg 11:30.
- [52:43]
Carol Massar
All right, so we've talked a bit about the resistance to artificial intelligence in classrooms here on Business Week, with some educators raising concerns on how to effectively integrate AI into their teaching practices, students overly relying on AI for homework, and of course, the effect that AI is going to have on the labor market. There's a lot of play here, Tim.
- [53:02]
Tim Stenovec
Our next guest is looking to infuse more AI across the classroom by helping students collaborate with the technology. David Marczik is dean of the Kogod School of Business at American University. He also served in different capacities in the Biden and Clinton administrations, as well as spending a dozen years at the private equity giant Carlyle Group.
- [53:20]
David Marczik
So I'm not a techie person, but we had the president of Google, Kent Walker, who basically said that AI was going to be as profound as fire or electricity. And I said, well, that seems like a strong statement, but Even if it's 0.1% true, it's big. Then we had a fellow named Brett Wilson, who's a CEO of an AI venture capital firm, and a student raised his hand and said, am I going to be replaced by AI? And Brett said, you likely won't be replaced by AI, but you could be replaced by someone who knows AI if you don't. So at that moment I said we need to infuse AI into everything we do to protect, prepare our students for an AI workforce. And we've done that over the last three years.
- [54:02]
Tim Stenovec
So what does that actually look like in the classroom?
- [54:05]
David Marczik
So when you start at Kogod School of Business, if you're an 18 year old, the first day is you do.
- [54:11]
Tim Stenovec
Undergrad and graduate, undergrad and GRAD the.
- [54:14]
David Marczik
First day of orientation, we tell you you're going to use AI every day. Most students were prohibited from using AI in high school, but they did it anyway. So we want to teach students how to use it properly. We actually start by teaching what's wrong with AI before we teach them what's right with AI. And then over the four years, or if you're getting an mba, we want them to learn how to underwrite an investment, how to do fundamental research, how to develop a marketing plan, how to learn to negotiate, all using AI because they'll be expected to use AI in the workforce.
- [54:47]
Carol Massar
That's what we keep hearing increasingly is the people who know and understand how to use it as a tool will really do well going forward. Okay, so talk to us a little bit more though, about. Because I think one of the things that we're playing around with, David, is that we use it too. And then it's like, okay, but then we kind of check it out because we just don't totally trust all of it. So tell us how you guys teach that aspect of it, like what to trust, what not to. How do you fact check some of this information that comes across still?
- [55:21]
David Marczik
So we have a professor, Ed Wassell, who teaches advanced data management, data analytics. His whole class is used to show how AI comes up with wrong answers, incorrect information. So he has students analyze data sets, come up with predictive analytics, and he shows that AI makes mistakes all the time. That's as valuable as learning what's right with AI. So I can be a powerful tool, but you need to be skeptical, you need to test it, you need to probe, and you need to be able to shape it to produce the right answers.
- [55:53]
Tim Stenovec
You know, I want to talk about your background a little bit and then talk more about AI and perhaps why you approach it this way. You have a really interesting background, a lawyer. You served in the Clinton and Biden administrations in very different capacities. You did more than a dozen years as a managing director and member of the management committee at Carlisle. You've written a book, co authored a book on presidential transition transitions. You don't have the traditional background of a dean, like traditional academic background of a dean.
- [56:20]
David Marczik
I also had poor grades and was not the best student that wasn't in.
- [56:24]
Tim Stenovec
The bio that I read.
- [56:25]
Carol Massar
So.
- [56:26]
Tim Stenovec
But I'm glad you're bringing us that color. How does that perhaps make you think differently about the workforce and what they need to be prepared to do once they leave the academic world?
- [56:37]
David Marczik
So I had the best boss ever who actually hosts a Show at Bloomberg, David Rubenstein. David also was probably the least likely person to run a private equity firm. He had no private equity background. What I learned from David is surround yourself with people that are better and smarter than you in each of their areas and empower them and you can do anything. So what we're basically focused on is ensuring that our students are prepared for the AI workforce. The AI economy, which is changing rapidly. Stanford just put out a study that shows that AI exposed jobs for 22 to 25 year olds are shrinking between 13 and 20%.
- [57:18]
Carol Massar
It's terrifying.
- [57:19]
David Marczik
It's a very hard time. My daughter graduated last year. It was very hard for her to get a job. We see it every day. And so what we're trying to do is make sure that our students have a leg up when they apply for jobs. Which means you need to have the fundamentals of a business. Education, marketing, accounting, management, finance, et cetera, plus know how to use AI in everything you do. And we're also doubling down on what used to be considered soft skills. Communication, teamwork, the ability to think on your feet. Those skills are more important today than in an AI economy. Look at your jobs. You have to think on your feet and every day react to news.
- [58:02]
Carol Massar
Sometimes it works, sometimes it doesn't. Just.
- [58:04]
David Marczik
But having an entrepreneurial mindset and being able to think and create is essential for today's economy.
- [58:10]
Carol Massar
How do you, as an educator, but also somebody from the business world think about how important it is though when somebody their first couple of jobs or their first job out, they're learning so much. The learning curve is so much. But it, it teaches their brain to think, think and maybe different ways that they maybe didn't get when they were at university or at college. And so I'm just wondering like, are we, are we cutting that out of younger generations that ability to mess up, learn? I learned so much from mistakes I made in kind of my first couple of jobs. And I'm just wondering, are we getting rid of that?
- [58:45]
David Marczik
So I think you, we are getting rid of that in some ways because I will replace some jobs. In my view, it's incumbent on universities and educational institutions to be able to foresee that and to give students the skills that you may have learned in your first job. We're trying to give them those skills at the university through, in classroom and out of classroom experiences. So we have a lot of competitions for students to learn how to pitch where they have to answer questions on their feet. We have investment clubs where students are investing actual money and they need to present and define fend and investment ideas. The ability to give a pitch, to communicate orally, to work in teams, is as important as ever.
- [59:29]
Tim Stenovec
How do you have to think about the admissions process differently as a result of what happens now or what you want to have happen in a school right now?
- [59:38]
David Marczik
Traditionally, and maybe this is why I wasn't a great student. A teacher stands in front of a classroom and communicates, disseminates information which a student absorbs. And then the student is assessed on how good they are by how much they can retain and regurgitate. AI replaces all that. You can get any piece of information at your fingertips. So now the best students are going to be ones that are most curious, that have an entrepreneurial mindset. They're going to be able to take risk, they're going to be able to figure out stuff on their own. And so we're looking for that in the admissions process.
- [60:13]
Tim Stenovec
You know, it's funny, Carol and I talk about this a lot because one of the things that we found these LLMs are so good at is if you prompt it properly, it can essentially write you a paper to answer a question. And that a teacher, I mean, I'm not giving anyone any news here that they don't already know.
- [60:28]
David Marczik
And students are way ahead of us.
- [60:29]
Tim Stenovec
Students are way ahead of us here. I mean, for me, as somebody who graduated from what, like 20ish years ago, this is like kind of crazy. But I think back to my own experience in college. I went to a liberal arts school and some of those aha moments that occurred for me were like late at night when I was trying to write a term paper or trying to write some sort of analysis of a book I read. And those are the moments that stuck with me. Those are the moments where I learned how to make those connections. Do we lose the ability to make those connections because of this technology?
- [60:58]
David Marczik
I don't think so. I think it actually aids you. So you were probably a better student than I was. But when I was writing an essay, I had a hard time figuring out topic sentences, structuring an essay, structuring an argument. AI can help you do that. It's a collaborator. And so those aha moments are still there. They're just different. Also, the ability to work in teams is going to be much more important today than it was when we were growing up. And I have students come to me all the time and say, boy, this teamwork is hard. This one student is a show off. This one doesn't do their work. This one has Views that I can't understand and they don't change. And I'm like, welcome to the real world. I have that every day in my job and I've had it every day in my job for the last 40 years. So teaching students not only the fundamental basic skills that you learn, reading, writing, reasoning, plus AI skills and these soft skills, which I call power skills, that's the future of education in my view.
- [61:58]
Carol Massar
But are we also losing, though, the ability of people kind of struggling, David, through something and like, maybe having to work a little bit hard and understanding the idea that, okay, maybe spend a little bit more time with it, dig a little bit deeper, I don't know, look at some different sources and like, figure something out versus going like. I'm blown away by some of the stuff that you get off of ChatGPT and other other chatbots, if you will. And I'm just kind of wondering, are we losing something?
- [62:26]
David Marczik
Maybe they're still struggling. But let's say I were a 22 year old and I wanted to be your research assistant. You would expect me to be able to find any piece of information at my fingertips any day and deliver it to you. You'd expect me to have much more advanced skills today than if I were applying 20 years ago, or in my case, 40 years ago. So it's just a different type of struggle. And the students today need to learn how to do the stuff that's required in an AI economy.
- [62:57]
Carol Massar
Can I ask you about teachers, how they've had to reset how they teach? Because that's something you guys have had to deal with as well.
- [63:02]
David Marczik
That is a great question. Faculty traditionally are very resistant to change. We have faculty that have taught the same thing over and over again. We've actually created a very entrepreneurial culture among our faculty, where we started with a few early adopters, then we had some others that we dragged along. Today, 90% of our faculty are infusing AI into their classroom. At the end of the spring semester, it was 50. So over the summer there was just a cultural change where everybody said the parades leaving either need to get in front of it or I'm going to be left behind.
- [63:36]
Carol Massar
So what do you think, David, is constructive for we as communicators and having guests and we're talking about, I feel like every conversation somehow, you know, all roads lead back to AI.
- [63:45]
Tim Stenovec
Are you trying to get him to give us advice about how we prove ourselves?
- [63:48]
Carol Massar
No, no.
- [63:49]
Tim Stenovec
Because I would be open to that too.
- [63:50]
Carol Massar
I'm just thinking about the smart way to deal with with it because I think it's really easy to get caught up in the exuberance around it. There's so much spending that's going on and we're trying to like we even today did kind of a reality check about where we are in AI.
- [64:02]
Tim Stenovec
Like it's kind of a wild world where we're talking about $200 million salaries for people who are poached and brought to Metta platforms for a specific technology.
- [64:10]
Carol Massar
Just trying to understand what do you think is constructive based on kind of the experience you have had reorienting your approaches there.
- [64:19]
David Marczik
So I think what we're seeing is a technology revolution in a much more abbreviated version than we've seen it before. It's the fastest technology ever to be adopted. So ChatGPT has acquired the same number of users, five times as fast as Netflix or Amazon, 20 times as fast as Facebook. So when the mobile revolution took place, which we all lived through, it took 30 years for us to revisit, really use the phone for everything. AI is changing that in a matter of months. So I do think this is a transformational change that we're seeing. It's going to change everything in the economy faster than any technology change that ever has happened.
- [65:00]
Carol Massar
Do you think we know if yet it's good for the economy?
- [65:03]
David Marczik
I don't think we know. I think there's big pluses and I think there's big minuses. My view is that there will be winners and losers and my focus is taking care of the students that are at my school to help them prepare.
- [65:16]
Tim Stenovec
Well, let's talk a little bit about the outcomes that you've seen thus far. You're really still early into this experiment. Three years ago, as Carol mentioned, was when you set out to become the first AI, first business school in the country. What can you tell us about graduates who are finding full time employment on the undergrad side, then also on the MBA side?
- [65:34]
David Marczik
It's helping them. It's helping them have a leg up in me more, be more competitive. One of the things I'm most excited about this year is we're offering an AI minor to non business school. So let's say you're a student that wants to go to med school. You've done what traditionally a student does, taken a bio degree, you have some labs, you're applying to med school. If you have an AI minor, you're going to be much more attractive because AI is going to transform healthcare more than perhaps any other field. If you want to be a policy major and go work for a United States senator. And that senator or the chief of staff says, okay, you're a policy major from a good school and you have an AI minor. I know you're going to be able to do research for me for any hearing, for any questions, for anything I need to know much faster. And you're going to be able to analyze data much better than others. So I think it's a huge leg up for both business students and non business students.
- [66:28]
Carol Massar
Do you ever envision a class where it's just someone talking to you, like ChatGPT or whatever version might ultimately come out? Like you just think about the. Like we always talk about a great conversation, how much we can learn, I think to ask the right questions. But I think about that back and forth.
- [66:43]
Tim Stenovec
I think Duolingo CEO has said that I could replace teachers.
- [66:48]
David Marczik
I could disintermediate the whole education system. Okay, and we're experimenting. I'll give you an example. We have a professor named Tommy White. He runs our entrepreneurship program. He's incredible. One of those popular professors. He created a class this year using all AI to create the class. It has no books, no reading. The only assignments are prompts. Prompts plus teamwork. We'll see how it goes. Will it work? I don't know. But we're trying, so maybe. So maybe. I mean, we're experimenting. And that's one of the things that we've done to create this AI first culture is we've told our faculty it's okay to fail because nobody really knows what's going on or what we're doing because it's so new. So try something. If it doesn't work, try something else.
- [67:35]
Carol Massar
Really interesting stuff. Hopefully you'll find some time to come back to us and catch this conversation. Love, love, love. Maybe we talk to some students at some point.
- [67:43]
David Marczik
That'd be great. We have some incredible students.
- [67:45]
Carol Massar
Yeah, I think that would be a lot of fun.
- [67:46]
Tim Stenovec
Should we get on the road? Go to dc?
- [67:48]
Carol Massar
I'm happy to do that.
- [67:50]
David Marczik
Come teach a class.
- [67:52]
Carol Massar
Try that. Good stuff. Thank you, David.
- [67:55]
David Marczik
Thanks for having me.
- [67:56]
Carol Massar
Really appreciate it. David Marczyk. He is the dean of the Kogod School of Business at American University. Really fascinating conversation. If you missed any of it, please be sure to check out our podcast. You can download it a little bit later on. How can you grow your business from idea to industry leader. Bring your vision to life with smart business. Buying tools and technology from Amazon Business. From fast free shipping to in depth buying insights and automated purchase approvals. They deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to amazonbusiness.com for support.
- [68:37]
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- [70:08]
Bloomberg Announcer
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- [70:22]
Carol Massar
All right, so earlier we talked about AI's role as a tool in academia and how it can help students better prepare for the future of work. On the other hand, certain AI tools can be seen as a real competitive threat to companies in the language learning space.
- [70:35]
Tim Stenovec
Apple unveiled its new AirPods 3 with a live translation feature, giving us a glimpse into a future where global communication might be seamless. What does that mean, though, for the way we actually learn languages? And how does AI fit into that picture?
- [70:48]
Carol Massar
So to help us answer some of those questions, we were joined by the CEO of Babbel, Tim Allen.
- [70:53]
Tim Allen
You know, language learning is the oldest software known to man, so it's not going anywhere. What I love about what Apple and Google have done is it actually generated generates more interest in this space. So what we find interesting, especially on our product, Babel, is when users or learners go to take a trip or go into a foreign country, they actually come back and they're more interested in learning the language. So we see all of this as a tailwind because we think that ultimately, you know, I think the technology is really cool as well. Right? It's so interesting. Put in AirPods, you can go from one to the other, but what people will then do is adopt and go, oh, I really want to get into the language. I really want to belong in the language.
- [71:31]
Tim Stenovec
That's happening right now because volume well, so Tim, I get that that's happening right now because that technology isn't widespread, but I can just imagine in a few years, you know, we won't even need, maybe we won't even need another device. We'll have it just, it'll be a wearable and then it'll be even more seamless. Do you see that continuing to drive demand?
- [71:50]
Tim Allen
What's interesting about that is like I think short of a neural impact plant, people are going to always be learning languages, right? So that in a universal language, those are the two things that could disrupt the market. So what will end up happening is that the iPhone, when it came out, everyone declared the death of language learning, right? Because you could hold up your phone, you could do the same translation that the AirPods are offering today. Even a wearable can do it. The difference is that people actually want to live and breathe inside of the language. In fact, we just launched a part of our new technology that, that explores AI that brings both the pedagogy and the human learning aspect of it together with AI called Babel Speak. And what that does, it allows people to actually practice the language of the learning with, with an AI coach and AI tutor. So there's predefined conversations you can practice with. It does small corrections. But we see this as a compliment, we see this as a way for people to actually learn and accelerate the transmission of the language. I think the new technologies are really going to allow for dabbling inside of a language. It's going to be great on the go, it's going to be great for those one time use cases. But people will always want to learn and live inside of a language themselves.
- [72:55]
Carol Massar
How do you view them more generally, Tim? Kind of the landscape of learning apps? With the introduction of GPT5, we saw the team create a custom language learning app in minutes during the demos.
- [73:08]
Tim Stenovec
That's cool.
- [73:09]
Carol Massar
I mean, it's kind of amazing. How quickly all this is happening and how quickly you can do things. Do you view AI products like this as a real competitive threat? And what can you do to keep your user base and sustain growth?
- [73:21]
Tim Allen
Yeah, I watched the same demonstration. It was a cool friendship that they created. It has limitations.
- [73:26]
Carol Massar
Were you like, oh my God, this is going to be what was difficult, what was cool?
- [73:33]
Tim Allen
No, definitely not an oh my God. It was a cool. Because it was created so quickly. And what I think is so cool about it is people are starting to learn on demand. What the difference is though, is I think that people will want pedagogy, they'll want lessons, they'll want content, they'll want to be able to actually know that they're getting a trusted guide to through the language learning process. Large language models, as you know, are good at many things. They're good everywhere. They've been declaring for now almost two years that they're going to take away all of the jobs and, you know, just really disrupt all the markets. But I think what ends up happening is when you start to get into really narrow spaces such as language learning. People want to know that they have a real lesson plan, that they have really the transmission of the language in a way that's going to adapt to them. And that's what we think AI is going to empower Inside of Babel, we think it's really going to allow for the product personalization of your individual learning plan. But with the content, the pedagogy, the transmission, so you retain, you're able to speak it, you feel fluent and you actually feel comfortable with it. So I think from a build perspective, it's really interesting. We look at it as a tool to really help facilitate and go to market a lot faster. I think for a transmission and a trusted content, it'll actually end up being niche markets with real players such as ourselves.
- [74:43]
Carol Massar
All right, so the truth will probably be in usage or the stickiness. And I'm assuming then you're signing up more, more people. You're very enthusiastic amid all of this potential competition. So give us an idea of customers, usership, people sticking to the platform. Give us some metrics.
- [75:00]
Tim Allen
We're, we're growing, we're going on, we have large demand. In fact, September is one of our larger months. Just give it the back to school and back to office after the summertime that in New Year's, as you can tell, the New Year's resolutions tend to be really heavy periods for us. What I can say is we have to millions of subscribing customers. We're signing up thousands every single day. Demand has not waned on this side of the equation. We're really excited about the future. I actually get more excited about more of the players showing interest and actually saying, hey, look, this is cool. Understand a language, play with a language. But when you want to go really learn a language, go to the providers you trust.
- [75:35]
Carol Massar
Tam, you say millions. It'd be great if you get 1 million is a lot different than 10 million or 20 million. So just give us an idea if you could. And how much is corporate versus kind of individual? And what are folks paying for a subscription? And how long do they stay with you?
- [75:49]
Tim Allen
Yeah, no problem. We have over 2,000 business clients, B2B clients. So I can tell you that we just signed Inter Miami Football Club. They're using it for their players, their coaches, their teams. In order to teach them the languages and what they need to be. We've created custom content for them as well, which gets really exciting. But I can tell you is millions of consumer customers. And I can tell you it's more than 1 million and it's more than 2 million and it's more than 3 million. So it goes on up from there. Yeah. So.
- [76:12]
Carol Massar
And what do people pay? Corporate versus individuals?
- [76:16]
Tim Allen
Yeah, yeah. So on individuals, there's a variety of packages, as you can imagine. There's a variety of price points. We have a lifetime price point that we can. That users can subscribe for life and they get all of the features and all of the things that we actually upsell to. And then, you know, there's monthly plans. It is the normal subscription model for what users want from any moment in time.
- [76:37]
Carol Massar
All right, but give me an idea. So Tim wants to learn what language?
- [76:41]
Tim Stenovec
Spanish.
- [76:42]
Carol Massar
Spanish.
- [76:42]
Tim Stenovec
Practice my Spanish.
- [76:44]
Carol Massar
He just wants to kind of learn Spanish. So give us an idea. So he signs up and what would he be paying, like on a monthly basis or. If you wanted the lifetime.
- [76:50]
Tim Allen
Yes. Yeah, yeah. So if Tim, you came to the site and signed up and downloaded the app, you could pay 199 for the lifetime. And then there's also discounts available, as all good subscription sites have. But then there's the monthly fee of $29.99 that you. You could be paying as well.
- [77:06]
Tim Stenovec
So, okay, so I could do 199 for life. Yeah, That's a lot less expensive than competitors such as Duolingo, which is, you know, that plus some, I think, per year. So.
- [77:16]
Carol Massar
No catch. Come on. No catch. So Tibs ends up, I mean, and that's provided you stick around. No, I'm not trying to say. But right. Like you got to be around. Right?
- [77:26]
Tim Allen
Yeah. Look, with any language learning there has to be a real commitment to it and you have to actually practice and utilize it.
- [77:32]
Carol Massar
Right.
- [77:32]
Tim Allen
But we see. But life happens, right? The families. You know, I have kids. I'm learning German right now. Right. I've moved to Berlin for the job. I knew very little German altogether. But what I could tell you is I have life come up. The kids have school, the kids have activities. I will pick up, I will put down. I will pick up and put down. But the 199 is our life.
- [77:51]
Tim Stenovec
Okay, Interesting. We I'm curious about duolingo and the competition that you see there. I'm wondering if you've considered moving outside of languages. We, we use duolingo at home, but more so for chess and reading with our kids. I don't know if it works, but it's great. The six year old has fun. Then we do for Spanish right now.
- [78:15]
Tim Allen
Yeah, you hit the core market there which is the games are great and they're great learning transmission, especially for the younger audiences. Right now our specialty is language learning. We really focus on that. We focus on the transmission of language learning. We want to make sure that you have the most effective means in order to go from a zero to one conversation. And the way we look at that is you feel confident walking into a room and being able to know that you're speaking the language in which you're looking to speak. So we focus all of our linguistics, all of our teachers, all of the human centric pieces and then we actually use AI as the tool to facilitate that in order to help make that happen faster. So Babel speak is a good example of that where we continue to allow you to practice speaking, continue to you the conversations. But we're hyper focused there. We really think that the games really to other people. We're focused on the languages.
- [79:05]
Carol Massar
You are. Okay, so that's a no like moving outside of languages. Okay.
- [79:10]
Tim Allen
Yeah. Languages are sweet spot when it comes.
- [79:12]
Carol Massar
To the AI spend. It's something we talk about a lot. Right. I'm curious about what you guys are spending. What are you spending it on? Is it on engineering talent is a data centers? Is it content? Is it something else?
- [79:23]
Tim Allen
Yeah. We've been cash flow positive since 2011. It's a private company so we're not out there raising capital. We are well funded, we're doing very well. Where we reinvest on our capex is we look for engineers we're looking on AI talent, we're looking at the infrastructure, we're investing in what's going to actually transmit and actually forward the future. We actually think that this is an exciting time to be really looking at product features with our proprietary data set and our proprietary moats that we have inside of our ecosystem. You know, we have hundreds of millions of lessons completed a year. That's very rich data to be taking into proprietary LLMs and data models and really working inside of the AI to work towards the most effective product in terms of transmission, the language.
- [80:03]
Tim Stenovec
Are you at this point able to use AI to create language courses? Are you able to use AI to do what humans used to do?
- [80:13]
Tim Allen
In recent years, we actually married the two. You know, where the real sweet spot was is not in removing people from creating the languages, it's facilitating the people to create the languages. So we do just answer your question directly. We do use AI, but we use it with the human centric piece. We've always found that our linguists and also our teachers are the the best to formulate all of the content so it can transmit better than anyone else and more effective. And so what we find is we marry the human with the AI tools. So we're using the blend of both girls. We haven't replaced jobs in order just to replace jobs.
- [80:47]
Carol Massar
All right, I've got one really, really important last question for you, Tim. How's the German going?
- [80:51]
Tim Allen
Sure.
- [80:52]
Carol Massar
How's the German going?
- [80:53]
Tim Allen
You know, I beat back in the Deutsch, so using my babble every day, very little, but I'm learning very slowly. So.
- [81:02]
Tim Stenovec
Okay, maybe next time. He's on. We do the interview in German. We get Matt Miller in here.
- [81:06]
Tim Allen
I'm on game.
- [81:07]
Carol Massar
Matt would definitely do that really, really well. All right, Tim, thanks. So much fun to talk with you and get some time and hear what you guys are doing, especially when it comes to AI, to incorporate and get in. Tim Allen, Chief Executive Officer of Babel, joining us from Berlin, Germany.
- [81:22]
Bloomberg Announcer
This is the Bloomberg Business Week daily podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live weekday afternoons from 2 to 5pm Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg terminal.
- [81:52]
Carol Massar
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