B (2:55)

Links, paying the processes, costs for one link.

A (2:59)

I know, I know, it's crazy. And the essential intellectual.

B (3:03)

Actually, we need to use AI for this and we need to.

A (3:08)

No, no, no. That's actually what's going to happen. So basically right now it's like the, like, if I'm. I'm the. I'm the App Store, I'm Apple, I have the App Store. You have your own app and you have your own, you know, stripe account and you want to pay, you want to accept payments your way. Apple, you know, even though we're. Yes, you are checking out on your payment. Rails, it's your app. Like, I created the link and the technology that creates links within iOS and that is helping you. So you got to pay me an IP licensing fee. Typically it was like 27% of whatever you make, which doesn't make any sense because obviously my. As Apple, my, my costs don't scale proportionally to your revenue. It's linear with regard to my cost. So like, yes, if Apple probably.

B (3:54)

These are pricey links, John. These are pricey links.

A (3:56)

Like, you're laughing, but like, realistically, like the iOS team that has been working on just links, like, they get paid a lot. It's probably in the millions.

B (4:06)

If you're a successful mobile developer, you've been paying millions of dollars to Apple forever and you're talking about millions. Like relatively fixed opex for Apple. That again, doesn't.

A (4:16)

And they make 30 billion a year or something. The idea is like justifiable costs should be like 10 bucks, maybe like 100 bucks for reviewing an app and just saying, okay, we ran our software. We understand. Is this violating any rules? We maybe had a human pop by and look at it for a couple minutes, make sure that this is compliant with the App Store. And then there will obviously be other costs. But should it be millions of dollars? Should it be proportional to revenue? Should be 30% of revenue. A lot of people have been arguing no, but of course this will go back and forth and Apple will probably try and make the fee as high as possible, of course, because they have every incentive to. Oh, the other interesting thing is that in Pepper versus Apple, there was this question of, you know, like, where in the chain is the monopoly pricing having an effect? Like, where is it increasing the price of the good? This Illinois Brick Company versus Illinois, the state of Illinois. This was in 1977, and the Supreme Court held that only direct purchasers of illegally priced goods had state. So the Illinois Brick case, this is pretty interesting. He says the value chain was very straightforward concrete block makers, including the eponymous Illinois Brick company. Great name for a company that makes concrete blocks.

B (5:38)

Illinois.

A (5:39)

They were accused of colluding, colluding to fixed prices of concrete blocks, which were bought by masonry contractors. Masonry contractors, in turn, submitted bids to general contractors for construction projects, which were ultimately paid for by the state of Illinois. And so the state of Illinois sued for damages, alleging that the higher prices resulting from the price fixing had been passed through to the state of Illinois. So even though the masonry contractors were like, okay, yeah, like the Illinois Brick Company is with all the other brick companies, they're jacking up prices. It doesn't really matter because they just passed that through. And so there's a question about, like, well, you didn't actually pay the higher price directly, State of Illinois, but it was passed through. And so that harm gets passed through. And so he says, in this value chain is obvious who the direct purchasers were. Masonry contractors. To the extent the state of Illinois suffered harm, it was indirect pass through harm. Thus, the Supreme Court ruled that the state of Illinois did not have standing, so the state of Illinois could not sue. Then if every party in the Value chain were to sue, the infringing party could be the subject of duplicative recovery for damages. And parsing out the share of damages would be extremely difficult. In Apple versus Pepper, there's this question of who is harmed by Apple's alleged monopolistic practices. According to the plaintiffs, the Value chain looks the same as the concrete block manufacturers. Basically, there's developers who sell their apps to Apple who sell those apps to consumers. But Apple said, whoa, whoa, no, we're not a retail store. Even though it's called the App Store, it's not a real store. We don't buy.

B (7:13)

Buy inventory and sell them.

A (7:15)

Yeah, exactly. We're more. We're. We're an agent. The developer agreement confirms that Apple acts as an agent for app providers in providing the App Store and is not a party to the sales contract or user agreement between the user and the app provider. Thus, respondents concede that the Direct sale is actually between developers and consumers, facilitated by Apple as an agent and conduit. And that sort of makes sense. You know, you go to a grocery store, they buy the apples from the farmer, they sell them to the customer, they take possession. A real estate agent facilitates a transaction.

B (7:45)

Takes a fee, Takes a fee. If Apple was actually going and like buying licenses and then reselling them, you know, they'd be negotiating like crazy and be like, we'll give you a dollar and then we're going to sell it for $10. You could argue it would be even worse for developers in that situation.

A (8:00)

The interesting thing about this, just how much the reality of the shape of the app store and the business of the services narrative changed the entire financial story of Apple over the last, I guess, decade and a half. Look at the price to earnings ratio, because back in 2011, it was 9.7, let's call it 10x price to earnings. Today it's 37x. So obviously the business has grown, but the value of the earnings is so much higher. Why is that? It's because it's so much stickier. And it's because they've developed this, this services monopoly, essentially, toll road for your life. It's not a toll road. That's a great thing. It's a. There is a difference between a toll and a tax. And a toll is something that you pay that is directly from. Linked to the, to the service that you're getting.

B (8:52)

Okay, so you're going to be more like a toll road now.

A (8:56)

Now, yes. Now it will be a toll road. And we should celebrate that. Or developers should celebrate that. Tim Sweeney should be celebrating that. Because a toll road is something where it's like, it's like, I'm paying for $5 to drive down this road. That money goes directly towards this road.

B (9:11)

Yeah. The tax structure applied to a toll road is like, what economic value are you creating by driving?

A (9:16)

Exactly.

B (9:17)

We're going to charge you 30% of that.

A (9:18)

Exactly. Oh, you're. Oh, you're. You're transporting a shipment of televisions on this road. Those are high margin. Or, oh, you're, you know, oh, you're a rich person driving.

B (9:29)

You have some gpu.

A (9:30)

You're hiding your truck.

B (9:31)

You have some gpu's on your truck, are you not? Yeah, yeah.

A (9:33)

Oh, oh, you can certainly break us off more as opposed to saying, you know, every time someone drives on this road, it takes a dollar of depreciation. We need a million dollars to repave it every year. And so we need to link the cost of using the service with the actual underlying cost of operating that service.

B (9:52)

My question with these changes is what is the consumer experience going to be when trying to cancel subscriptions? Because the one aspect of the App Store that I've always appreciated is the ability to one click cancel from within the App Store. And so I do wonder as soon as you let payments live outside of the App Store, everyone has experienced any type of software or retailer making it hard to figure out how to cancel a subscription. Will Apple keep that kind of one click cancellation ability within the app or will they actually have to let.

A (10:27)

I mean this already exists because like you can go put your credit card down in Fortnite. The thing is that I think the subscription revenue is not as much as you think. It's not as much of a driver like the in app payments. The one off clicks like those are much a much bigger driver of overall economic activity. But I don't know on the subscription side it would be interesting if there's like some sort of reaggregation at like the stripe level or something that the interesting thing is that like so Apple's price of earnings goes from 10 to 40 basically like massive run up. And this is all on the back of like the services narrative that that Luca Maestri, the CFO sort of outlined in I think 2016. He said each quarter we report for our services category, which includes revenue from itunes, the App Store, Apple Care, icloud, Apple Pay licensing and some other items. Today we would like to highlight the major drivers of growth in this category which we have summarized on page three of our supplemental materials. The vast majority of the services that we provide to our customers, for instance apps, movies, TV shows, are tied to our install base of devices rather than to current quarter sales. And so he's saying like you need to stop thinking about our financial performance as driven by how many phones did we sell this quarter. You need to think about just how many users we have broadly and start valuing us more like Google, more like Facebook. So Luca Maestri went on to say, for some of these services, such as content, we recognize revenue based on transaction value. For some of these services, such as App Store, we share a portion of the value of each transaction with the app developer and we only recognize revenue on the portion that we keep. To fully comprehend the scale of the services that we are delivering to our installed base and how fast this business is growing, we look at purchases in addition to revenue when we aggregate the purchase value of all the services tied to our install base during fiscal 2015, it adds up to more than 31 billion. Basically what's going on is Luca Maestri is the CFO of Apple and he's having trouble in the market because it's 2015 and what's happening, you're eight years into the iPhone. 2007, the iPhone comes out. It's expensive, it doesn't have 3G. It's got a lot of rough edges.

B (12:41)

They have copy and paste, but it's.

A (12:43)

Cool and it's interesting and there's lines out the door for them and people at the higher end. Like a cell phone back then was like 100 bucks or you'd get it for free. You get it as part of a, you know, every bundle. Yeah, yeah, yeah. Every two years you'd get, you get a new, you get a new phone and it was free, basically. Then the iPhone comes in, it's. It's $600, very expensive, very upmarket. Then a year or two in, they start figuring out how to bring down the price. It comes down to like 300, 400. There's these incentives for signing up for a year long plan. There's a whole variety of things that make it, you know, the App Store comes out, there's like, there's just more functionality. You don't, you no longer are like, well, my BlackBerry still does this, but Apple doesn't. It's like, no, they do the enterprise stuff. They checked all the boxes and so it's growing, growing, growing. But eight years in, everyone who has one, like, they won the game. And so device, like actual, the device install base device sales are starting to flatline. Then they need sort of the new, a new narrative for the stock because it's sort of getting beat up because Apple's basically winning the sold everyone an iPhone, but it's over. Like the trade's over, right? It's like, yeah, we get it. Everyone has smartphones now. IPhone revenue is basically or unit sales are slowing significantly. Of course they're able to raise prices still because people are locked in like it's a good business, but it's not this like incredibly high growth thing anymore. So Luca Maestri needs to come in with a new narrative and that's the services narrative. And so the services narrative is saying, hey, for a long time you've been looking at this bucket of basically like other revenue. We have device sales, which you've been obsessed with as the investor, as the Wall street. You've been obsessed with, you know, how many iPhones we're selling, how much we're selling them for our margins on those iPhones, how many we can make all of that. And then we've had this other bucke, which is like itunes, app store, Apple care, icloud, Apple pay license. There's a bunch of stuff.

B (14:38)

They were kind of treating it like the storage feature on the iPhone, where it's like, hey, you have like photos and these other things that are taking in apps. And then like, don't worry about other.

A (14:46)

Yeah, don't worry about other. Don't worry about other.

B (14:48)

We're just gonna throw everything in there.

A (14:50)

Don't worry about other. Because we don't really know how it's growing. Is it that high margin? We don't know. Then all of a sudden it became like, don't just not worry about other. Like, in fact, focus entirely on because it is the best revenue. That's super high margin. And it's growing really fast. By the way, if you zoom out and you look at the economic activity that is driving on top of the app store, yes, our take rate's 30%, but on top of it, just in 2015, it's $31 billion of economic activity in that ecosystem. But Ben Thompson was not a fan of it. I mean, he was a fan from the stock price perspective, but he had some really, really harsh words he said at the time. It seems incredibly worrisome to me anytime a company that predicates its growth story on rent seeking, it's not that the growth isn't real, but rather the pursuit is corrosive on whatever it was that made the company great in the first place. It's like, whoa. It's sort of like, okay, they're going like private equity mode. Like the beautiful art. The creativity is gone at this point.

B (15:48)

Tim Cook has effectively done exactly that going forward.

A (15:51)

The growth story of Apple has been someone else innovates, someone else creates an app and we'll take 30% and we don't need to do the innovate. The innovation. That doesn't need to happen here. Yeah. And that's a big shift in the narrative. Whereas before, all through 70s, 80s, 90s, 2000, it was like the innovation comes from.

B (16:06)

They're like, we're going to make the iPhone 1700. It's going to be newer, lighter, better, faster, stronger, and they're going to buy it. Then we're going to take, take our cut from everything on top of it.

A (16:16)

Exactly, exactly.

B (16:18)

Megan in the Wall Street Journal has a scoop. OpenAI ended a policy earlier this week that required employees to work at the company for six months before their equity vested a few months ago. XAI shortened their waiting period, known as a vesting cliff from 12 months to six.

A (16:32)

The change to the vesting cliff announced by applications chief Fiji Simo is designed to encourage new employees to take risks without fear of being let go before accessing the first chunk of equity. Interesting. So they had a problem where people would come in and say okay, I gotta just do politics for the first six months because I don't want to get fired before. That's a crazy culture.

B (16:57)

I feel like I think this has to be more reactionary to Meta and obviously some of the other OpenAI short.

A (17:03)

Companies has shortened its vesting period for new employees to six months from the industry standard 12 months in April. Let's see. Elon Musk's X AI and OpenAI competitor made a similar change in late summer. People familiar with the matter with the matter said the decision to loosen or do away with restrictions meant meant to ensure new hires stick around. Referring to reflects the frenzied competition for top tier technical talent within AI. Within the AI industry, tech companies typically have a one year vesting cliff. That's what I'm certainly familiar with for new employees, preventing them from having to give away stock to hires who leave quickly or don't work out. But with AI companies including Meta platforms Google anthropic wooing top researchers with pay packages that can be worth $100 million or more, researchers and engineers have been able to hold out for the most attractive terms and in many cases have been quick to leave jobs they have found not to their liking.

B (18:00)

I also could see it them trying to kind of rehab their employer brand. You remember there was a bunch of. This was probably six, eight months ago at this point. OpenAI had a bunch. There were some articles surrounding they had some like really restrictive exit agreements.

A (18:18)

That's right.

B (18:20)

Yeah. A lot of people pretty frustrated.

A (18:22)

I feel like that was over a year ago. That was maybe if you left and did maybe didn't sign a non disparagement agreement or NDA.

B (18:29)

Yeah. If you didn't sign it they could claw back your equity. And then they were saying that was important during the whole like Ilya ousting thing. Yes, a lot of the employees left after that but then they couldn't talk about it.

A (18:38)

I always thought that like the bull case for that was well if you're going to be whistleblowing on something that's like a true AI doom scenario, well then money doesn't matter so you shouldn't matter about Them clawing back.

B (18:51)

Your equity company expects to spend 6 billion this year on stock based comp almost half of its projected revenue. A company that creates however many hundreds of billions of dollars in value in a year and then has 6 billion of a non cash expense. It doesn't seem that crazy.

A (19:11)

The, the SpaceX IPO if they raised 30 billion will be lower than the 40 billion that OpenAI raised.

B (19:19)

Yeah, in this private, in the private markets.

A (19:21)

And so there's been this big question about like, like are the private markets tapped? It appears it's the David Goggins thesis market.

B (19:29)

There's always David Goggins thesis for life.

A (19:31)

I mean if you, if you went back, you know, I don't know, five years and you were like, yeah, like do you think you could raise $40 billion in the private markets or would you have to go public for that? They're like, you know the Saudi Aramco level of funding, yes, you'd have to be public, but turns out you do not have to be public.

B (19:47)

Finbarr says okay, but seriously, why is everyone leaving Meta? People are speculating in the comments. Jane says vest. Finn says, but if you stay longer you vest more true. Someone else says no direction for the company. Several major unannounced RL project canceled. The hundred million boys reportedly do zero work because they know that if Zuck fires them, he'll look for foolish. I don't know. I think, I think some of these $100 million men and women just that do they are about that life. They do want to pursue greatness. They do want to do the biggest run. So who knows, I'm sure there's some instances of that Zuck, you know, overpaid for talent is to try to catch up no PMF on their consumer AI products even though they forced everyone on Instagram to see it. I think we got to wait a little bit for the Christmas season to come and go and see how, see how these things are selling.

A (20:46)

It is a tough position to be in because they don't have like a public cloud, they don't have a cloud service even though they are a hyperscaler with Google, like even if they, even if Google gets completely smoked by OpenAI and ChatGPT and ChatGPT winds up being like truly like the Facebook of chat apps and it's like 99% people use it captures 99% of like the consumer AI value. It's like having a Gemini API is still extremely valuable because like you have cloud services.

B (21:16)

Brett Adcock okay, what's going on with Brett. Party over the weekend with deadmau5. He posted earlier today that that figure is looking quite cheap.

A (21:25)

Yes.

B (21:26)

In comparison to SpaceX.

A (21:28)

Okay.

B (21:28)

Right. Because there's a. There's a new biggest line on the private markets chart.

A (21:32)

Drinking on here. What is he drinking?

B (21:36)

I think he's having a. I think he's cracking open some cold ones. This is my crazy. So my theory is that they have done billions of dollars in sales.

A (21:45)

Okay.

B (21:46)

And this is kind of their way of signaling if, you know. You know. Because of course it would be absolutely insane to have a party like this. Yeah. You still hadn't shipped a product if you still were kind of a sort of. I don't know if they're pre revenue but. But certainly being valued on. On Vibe. So yeah. There's no way they would throw a party like this.

A (22:05)

SpaceX has 30. 30 billion in revenue. Right?

B (22:08)

Yeah.

A (22:09)

So. And it's going out at 1.1.5 trillion. So it's at like 50x revenue. He probably trading at like what, 20x revenue? Something like that.

B (22:18)

That was my theory at least. And then so they're at around 40.

A (22:21)

That's their 40 billion.

B (22:22)

They're at around 40 billion.

A (22:24)

So yeah, they could be doing like 2 or 2 to 4 billion in revenue potentially.

B (22:27)

This is very much a.

A (22:28)

On a price to sales ratio.

B (22:30)

A wink wink moment. Because seriously, you know. No, no. I don't think any CEO would throw this crazy of a party if you weren't. If you weren't really. This is really printing. So expect an announcement soon. I would.

A (22:41)

Data centers in space. It might not be economically rational, but it might be physically possible. I'm trying to bring some quantitative structure to a conversation that's been mostly big number vibes. So we have sort of dueling, dueling math equations at this point. What is he. This is Vibe coded from public from. So maybe we need to have a debate. Maybe we need to have them both on. But he says tl Dr. The analysis is actually far more favorable than I thought. It's a close thing. I desperately want a Kardashev level civilization, but we've got a lot of work ahead of us. Delian's been saying like it's impossible. It is not gonna happen anytime soon. It's not gonna. It's not gonna. Not gonna be a thing. But Andrew McCallop says there just might be a chance.

B (23:22)

Gal, says my dealer, I got some straight gas. This train called Space Data Centers. You are going to effing fry. LOL. Me. Yeah, whatever. 20 minutes later Dude, WTF? We just need to radiate the heat and then we can totally bypass terrestrial regulations, my friend. Pacing. I should buy magnet stocks to get ahead of all the rail guns. What is there's smoke in space Data centers, John.

A (23:47)

Anthropic has ordered $21 billion worth of TPUs to train. To train large, Claude. Is that really what they're calling it? Texas? From yesterday's Broadcom's earnings call. The scale at which we see this happening could be significant. As you are aware, last quarter Q3, we received a $10 billion order to sell the latest TPU Ironwood racks to Anthropic. This was our fourth custom that we mentioned. In this quarter, we received an additional 11 billion order from the same customer for delivery in late 2026. Kaiju fights are the best kind of fights. From October. This is from Andrew Curran. He says Anthropic is in discussions with Alphabets, Google about a deal that would provide the artificial intelligence company with additional computing power valued in the high tens of billions of dollars, according to people familiar with the matter.

B (24:33)

Fermi, which is the energy company that went public at a $20 billion valuation, they talked about getting. Getting their kind of facilities online, I think, in the 2000 and 30s. And people were a little bit bearish about that. They've traded down almost 75% since their IPO. So it seems like, yeah, we've basically seen this kind of rolling correction across every single AI. Pure play.

A (25:02)

You could even say that.

B (25:03)

But nobody's done volcano data centers.

A (25:05)

No one has done those.

B (25:06)

Where are you going? To where the chat's asking, where do you put the heat? Just show. Shoot it up into the air. That's what.

A (25:12)

Yeah, volcano data centers is funny because immediately they're like, but don't you want the chips to be cold? You need cooling, not heating.

B (25:20)

Yeah, the heat dissipates with the lava.

A (25:22)

It would be great to just hard light, but the heat's free. Heat's heat's free. Data centers are hot. And in this one, we're getting the heat for free. What happens after a correction? You're corrected. I think we're corrected. I think it's possible that the market is cracked. It's perfectly valued.

B (25:36)

I saw somebody saying that. The BG2 interview with Sam, they were claiming, like, it's very possibly helped us avoid a 2000, 2001 style.

A (25:48)

Yeah, things could have gotten a lot crazier.

B (25:49)

So maybe that was Brad's play. The whole time. He was like, hey, we just need a little reset.

A (25:53)

He's a hero. He's a hero.

B (25:55)

I'm gonna look like. I'm gonna look like, you know, I'm gonna look like maybe a bad guy for two weeks. But now he looks like a hero.

A (26:01)

I mean, even. Even in the moment, he didn't look like a bad guy.

B (26:03)

No. No. He asked. If he didn't ask that question.

A (26:07)

Yeah.

B (26:07)

There would have been, I think, some rightful criticism was wondering. It was an important question to ask. Jim Carrey offered to return his $20 million Grinch salary and was going to quit the movie amid panic attacks over the makeup. Then a guy who trained the military on enduring torture was hired to help him. Whoa. Richard Marcinka was a gentleman that trained CIA officers and special ops people how to endure torture. Kerry told the Vulture. He gave me a litany of things that I could go, that I could do. When I began to spiral, like, punch myself in the leg as hard as I can. Have a friend that I trust and punch him in the arm. Eat everything in sight. Changing patterns in the room. If there's a TV on when you start to spiral, turn it off and turn the radio on. Smoke cigarettes as much as possible. There are pictures of me as the Grinch sitting in a director's chair with a long cigarette holder. I had to have the holder because the yak hair would catch on fire if I got too close. Later on, I found out that gentleman had trained me to endure. The Grinch also founded SEAL Team is. So the only. My only kind of question here is I feel like all these things, if you're being tortured, they wouldn't exactly be like, oh, let him turn the TV off and on again. Let him turn the radio on.

A (27:17)

Oh, yeah, that is interesting.

B (27:18)

So I think. I think these are probably great things to do if you're not getting tortured and you're just developing an anxiety attack.

A (27:25)

Yeah.

B (27:26)

I did resonate with this because when we had the Halloween makeup, I mean.

A (27:30)

To be fair, it could be, like, metaphorically being tortured in a foxhole as a member of Steel Team 6. Like, oh, you're staking out some place and you're in a muddy pit and it's a hole, and you're not actually being directly tortured by an enemy, but you have to deal with a really hard situation. And so you sit there chain smoking, and I don't know why you have a TV in this scenario.

B (27:51)

This just resonated because when we were three hours into our Halloween episode and I started to realize that didn't resonate for me. I was like, I am fully. It felt like very suffocating having, you.

A (28:03)

Know, I was fine with it.

B (28:04)

2Cm surrounding everywhere. Brown says ChatGPT is the only consumer app with regular pop ups asking if I want to downgrade my subscription.

A (28:13)

This is hilarious. It's a testament to the they're running.

B (28:16)

This as they're like, we tell people they can pay less and they don't. They enjoy giving us money.

A (28:21)

Maybe the pro plan results in more permanent churn. And so this is actually ltv. A downgrade is actually LTV positive. No way to prove that that's true. But it'd be very funny if that was the case. The polish around the product is potentially like the way you win consumer. I really think we're in the era of like of productization more than the.

B (28:46)

Latest model, the product, the product managers are the heroes. Now I want to see a product manager getting a four year, $1 billion package.

A (28:55)

It's not completely over for the AI researchers. Like the models are important. They do get better and there's functionality under the hood that's research driven, that's valuable. But if you believe in the Ilia, we're in the age of research, then what is the AI researcher doing? They are doing experiments that you have no idea the timeline. You're not just doing engineering. You can't just put one foot in front of the other and get easy wins. It's actually going and doing science and discovering new ideas, new ways to create new capabilities. And so in the age of research, the researchers should be off doing research and the user experience designers are the heroes, basically. Goodbye, we love you.

B (29:37)

See you tomorrow. See you guys.