0:00:03 – Hi, everyone, welcome to the A6NZ podcast.
0:00:05 I’m Sonal, and I’m excited to do another one
0:00:07 of our co-hosted episodes with Mark Andreessen,
0:00:11 who joins me in interviewing MIT economist Andrew McAfee,
0:00:14 who we’ve actually had on the podcast a couple of years ago
0:00:17 on a great episode with his co-author Eric Brynjolfsen
0:00:19 on their book, “Machine Platform Crowd.”
0:00:22 But Andy’s new book takes a very different turn
0:00:24 from that previous series of books and focus
0:00:27 on the theme of bits to focusing on atoms,
0:00:30 the physical world, basically the environment.
0:00:33 It’s called “More from Less,” the surprising story
0:00:36 of how we learn to prosper using fewer resources
0:00:37 and what happens next.
0:00:39 And I think it’s a really important book
0:00:42 contributing to the important dialogue we’re having right now
0:00:43 on taking care of our planet
0:00:45 and also of taking care of human progress,
0:00:47 especially because these two don’t have to be
0:00:50 a zero-sum game of the two in conflict with each other.
0:00:52 So what does it take to go from that narrative
0:00:54 of extraction and destruction
0:00:56 to one of protection and progress?
0:00:58 So in this episode, we cover everything
0:01:01 from what capitalism’s role is in all this,
0:01:03 including what it is and isn’t,
0:01:06 to the global environment, including China and India.
0:01:08 And throughout, we discuss the technology
0:01:12 from energy use and types of energy to dematerialization.
0:01:14 And surprisingly, the idea of that
0:01:16 well before software was even invented,
0:01:17 stay tuned for that bit.
0:01:20 But we quickly begin with the technology
0:01:23 and effects of the Industrial Revolution.
0:01:24 – The industrial era kicked off
0:01:27 the Industrial Revolution and the James Watch steam engine
0:01:28 and all those other technologies
0:01:32 was this period of amazing human growth,
0:01:34 the growth of our economies, growth of our prosperity,
0:01:36 growth of our population.
0:01:39 And that was great in a sense,
0:01:41 but it really did feel like there was a trade-off
0:01:44 between improving the human condition
0:01:45 and improving the state of the world.
0:01:48 And in the industrial era, if you looked at the evidence,
0:01:49 you could make a pretty strong case
0:01:51 that we were increasing our growth
0:01:54 at the expense of the planet that we all lived on.
0:01:56 We took more resources from the earth every year.
0:01:57 We chopped down more trees.
0:01:59 We cleared more cropland.
0:02:01 We took more fossil fuels out of the earth.
0:02:03 We polluted more.
0:02:04 We either domesticated animals
0:02:06 or drove them to the brink of extinction.
0:02:10 And the reason I decided to write more from less
0:02:12 is I don’t think that’s true anymore.
0:02:15 The evidence supports the idea that in the richest countries,
0:02:17 and I’ve got the best data for America,
0:02:19 that that trade-off between the human condition
0:02:20 and the state of the world
0:02:22 is actually in the rear view mirror.
0:02:25 Because in almost all the ways that we could care about,
0:02:27 improving the human condition,
0:02:29 we’re taking fewer resources from our planet.
0:02:30 We’re polluting it less.
0:02:32 Some of the animals that we pushed to the brink
0:02:33 are coming back.
0:02:35 I didn’t hear that story being told.
0:02:37 And so hence the book.
0:02:39 – So one thought that struck me
0:02:41 in looking at the example of the Industrial Revolution,
0:02:44 which everyone points to is a greatest story of progress.
0:02:45 Do you point out that it ended slavery
0:02:47 but increased child labor?
0:02:49 – There were some pretty nightmarish situations
0:02:51 early in the industrial period.
0:02:53 There really were factories full of kids
0:02:56 under the age of 10 working 14 hour days.
0:02:58 And some of these kids weren’t even sent there
0:03:00 by their parents, they were orphans.
0:03:02 And this was what we decided to do.
0:03:04 I consider that a moral mistake
0:03:07 and different than what kids were doing on farms before.
0:03:09 But in most rich countries,
0:03:12 slavery ended early in the industrial era.
0:03:15 Child labor ended before the 20th century,
0:03:17 but we didn’t start dealing with pollution
0:03:20 and species that we pushed to the brink of extinction
0:03:22 until much, much later than that.
0:03:24 So we kind of looked after ourselves first
0:03:26 and then the rest of the planet afterward.
0:03:29 – So Andy, I wanna probe the conflation of capitalism
0:03:31 and extraction of resources
0:03:34 when it doesn’t actually have to necessarily be that way.
0:03:36 But one stat in particular that struck me on that front
0:03:39 is that research emerged showing that the US GDP
0:03:42 was closely intertwined with energy consumption.
0:03:43 You talk about this in your book.
0:03:46 Clearly there’s something about more energy consumption
0:03:49 tied with the success of an economy.
0:03:52 If you draw a graph of the US economy,
0:03:55 the real GDP of the US from 1800 to 1970,
0:03:57 and then you add one more line to that graph,
0:04:00 which is total energy consumption per year
0:04:03 from 1800 to 1970, those lines are really hard to tell apart.
0:04:06 They sit right on top of each other.
0:04:09 And there’s this whole stream of research
0:04:11 that turned into an assumption
0:04:14 that if you told me what your energy use per capita was,
0:04:16 I would tell you what your GDP per capita was
0:04:19 or the state of advancement of your society.
0:04:23 And we almost use those two things as proxies for each other.
0:04:25 One of the super weird things
0:04:28 is that that relationship has completely broken down
0:04:29 in the United States, where again,
0:04:31 I know the evidence really well,
0:04:35 total US energy consumption has been basically flat
0:04:37 since at least the end of the Great Recession
0:04:39 and maybe even before that started.
0:04:41 Now, in the old fashioned way of looking at things,
0:04:43 you say, “Oh my God, there was this massive recession.”
0:04:45 Absolutely not, it grew like crazy,
0:04:49 but we’ve divorced energy use from growing the economy.
0:04:50 And one of the broad points I make in the book
0:04:52 is that story is very broad.
0:04:56 We’ve divorced most other kinds of using up atoms,
0:04:58 using materials from our prosperity growth.
0:05:02 And that relationship is not unique to America.
0:05:04 It exists elsewhere and it will spread
0:05:07 as we spread capitalism and technology.
0:05:09 One of the things that I had fun with in the book
0:05:11 was trying to defuse tension
0:05:13 because there are a lot of audiences
0:05:14 where if you say capitalism,
0:05:16 they start throwing rotten tomatoes at you.
0:05:19 They just can’t hear the word, it’s so triggering.
0:05:21 So one thing I try to do is say like,
0:05:23 “What do I mean by capitalism?”
0:05:26 And I don’t mean cronyism, I don’t mean corporatism,
0:05:29 I don’t mean regulatory capture or financialization.
0:05:30 These are all real things.
0:05:33 These are all perversions of actual capitalism.
0:05:36 – Yeah, I hate that capitalism gets a bad rap.
0:05:39 And while we may argue for a better form of capitalism,
0:05:41 can you just break it down and sort of tease apart
0:05:43 the myth from the facts when it comes to
0:05:45 like what is capitalism?
0:05:46 I think sometimes people are using different labels
0:05:48 for different things, quite honestly.
0:05:51 – Yeah, and let’s be clear on what we’re cheerleading about.
0:05:55 Capitalism is the best way the earth has ever come up with
0:05:58 to get goods and services into the hands of people.
0:06:00 Now that’s a really important thing for a society to do
0:06:03 if you don’t want your people to starve or die of exposure.
0:06:04 And when I talk about that,
0:06:06 I mean a few pretty specific things.
0:06:08 First is that private companies are responsible primarily
0:06:10 for producing those goods and services.
0:06:12 That’s not the government, it’s not individual,
0:06:14 or craftsmen or artisans or anything.
0:06:19 Number two, they use prices that are not centrally set
0:06:22 or controlled and prices convey a huge amount of information
0:06:24 about abundance and scarcity
0:06:26 and where you should allocate your attention.
0:06:28 So we really need prices to be floating around
0:06:29 in an economy.
0:06:32 We need your property rights and your contracts
0:06:36 to be respected by a working court system
0:06:38 that believes in protecting those things
0:06:40 so that if you’re an upstart, if you have a good idea,
0:06:43 either the government or some big powerful company
0:06:46 or some billionaire can’t just come and take it from you
0:06:49 without compensating you and without your agreement
0:06:50 on that stuff.
0:06:52 One of the most important phrases for capitalism
0:06:53 is voluntary exchange.
0:06:55 You can’t force me to sign a contract,
0:06:56 you can’t make me buy a product
0:06:58 or forbid me from buying a product,
0:07:01 you can’t stop me from moving to another state.
0:07:03 So you just have this, it’s free flowing,
0:07:06 but there are these hard and fast constraints
0:07:08 and rules about it.
0:07:10 If you get those things right,
0:07:14 the goods and services will become abundant to people.
0:07:16 One of the things I loved writing the book
0:07:21 was that Adam Smith nailed all of these topics in 1776.
0:07:23 And yet here we are almost 250 years later
0:07:26 and we’re arguing about things that he kind of put to rest
0:07:27 a long time ago.
0:07:30 He said you need actual competition,
0:07:34 not cronyism for the benefits of capitalism to a crew.
0:07:35 Amen to that.
0:07:36 – He actually went further.
0:07:36 He actually called business people
0:07:38 the enemies of capitalism.
0:07:41 He’s got that famous quote that men of trade
0:07:44 seldom meet together even for merriment,
0:07:47 except it winds up in a conspiracy against the public.
0:07:48 – Yeah, he basically argued,
0:07:49 it’s like what modern libertarians actually argue,
0:07:51 which is basically to the extent that business people
0:07:53 like start to get involved in political policy,
0:07:55 they try to rig the political system in their favor.
0:07:56 And then that trips the line
0:07:58 between so-called capitalism and corporatism.
0:08:01 And then politically, that’s sort of the distinction
0:08:04 between being pro-business and being pro-market.
0:08:06 – Or being pro-incumbent and pro-market.
0:08:07 – Right, exactly.
0:08:08 What you want is you want to be pro-market.
0:08:10 This is what we run into in our business,
0:08:11 ’cause we launched these new companies
0:08:13 that don’t have any political power whatsoever.
0:08:14 And they go into these industries
0:08:16 that in some cases are heavily dominated by incumbents.
0:08:18 And invariably what you find is an intertwining
0:08:20 of the incumbents with the regulatory system,
0:08:23 often under the color of consumer protection,
0:08:24 that it actually turns out what’s happened
0:08:25 is the incumbents have rigged the system.
0:08:28 They’ve rigged the politics for their own preservation.
0:08:30 And the hypocrisy gets exposed in the form of like,
0:08:32 you just have a product that’s just obviously better.
0:08:35 And then the captured regulatory state
0:08:36 comes to try to shut it down and protect incumbents.
0:08:39 – Well, my favorite one of that was for a while,
0:08:41 I think France or Paris had the requirement
0:08:43 that a limo had to go back to its home station
0:08:46 for 15 minutes before picking up another customer.
0:08:49 Why on earth would that be?
0:08:50 – That’s right.
0:08:51 Well, this is always the absurdity of,
0:08:53 would you really rather like stand out in the rain
0:08:55 with your arm up, seriously, right?
0:08:58 And by the way, would you really rather have a system
0:08:59 in which the driver is able to like eyeball you
0:09:01 in the street and decide to not give you a ride?
0:09:03 – I was about to say because what people don’t talk about
0:09:05 is the disproportionate impact on people
0:09:06 who don’t look like there’s someone
0:09:08 who you want to give a ride to
0:09:10 and now you can get a ride anywhere by anybody.
0:09:11 – Yeah, exactly.
0:09:13 But then there’s this risk that you become the thing
0:09:16 that you hate, which is always a danger.
0:09:18 – We also need to acknowledge there are problems
0:09:20 that capitalism itself doesn’t solve.
0:09:22 People getting left behind,
0:09:24 inequality of some kinds of opportunity,
0:09:28 the lack of a safety net, pollution, species loss,
0:09:31 absolutely, these are well understood,
0:09:34 sometimes called failures, market failures,
0:09:36 and we need to be thoughtful about those things.
0:09:38 But again, Adam Smith, I don’t think he talked about
0:09:40 species loss and extinctions,
0:09:43 but he got these things right in 1776.
0:09:45 And it kind of frustrates me that there’s still
0:09:47 this big Marxist hangover going on
0:09:51 where people willfully or ignorantly misunderstand
0:09:53 this economic system that we have.
0:09:56 – So in the 20th century, were capitalist systems
0:09:59 or communist systems worse for the environment?
0:10:00 – Oh my God, there’s no comparison.
0:10:03 I think the single saddest and most tragic story
0:10:05 that I learned when I was researching the book
0:10:07 is about the Soviet whaling industry.
0:10:10 The Soviets signed up for all the treaties
0:10:12 to sharply limit the whale hunts.
0:10:15 And then they ignored the treaties that they signed,
0:10:16 which is bad enough.
0:10:18 And they killed about 200,000 additional whales
0:10:21 over the decades before they finally stopped.
0:10:24 The crazy part of the story is why they killed
0:10:26 200,000 additional whales.
0:10:28 And the answer is for no good reason at all,
0:10:31 they didn’t eat the meat, they didn’t need the blubber
0:10:33 ’cause they were already self-sufficient in oil.
0:10:35 The only reason they did it was because they had
0:10:37 Stalinist five-year plans for growth
0:10:41 in the fisheries industry and whales weigh a lot.
0:10:42 And if you kill lots of whales,
0:10:45 you grow your fisheries industry.
0:10:47 There’s this heartbreaking story about the guy
0:10:50 that was in charge of the fisheries industry.
0:10:53 And he was such a pro at executing
0:10:54 Stalinist five-year plans,
0:10:56 he was named a hero of the Soviet Union.
0:10:59 And one of the Soviet scientists went to him at some point
0:11:01 and said, “We have to stop this.
0:11:04 There will be no more whales for our children to see.”
0:11:07 And his reply was, “Our descendants will not be the ones
0:11:09 to fire me from my job.”
0:11:10 – Dan.
0:11:11 – So, you know, we can talk, the capitalist systems,
0:11:16 we made pollution mistakes, yes, and we corrected them.
0:11:19 What closed communist systems did was keep making mistakes
0:11:22 under cover of darkness for no good reason.
0:11:24 – I mean, this is very relevant to current events, right?
0:11:26 One of the things that is very common
0:11:27 in the United States right now
0:11:29 is the theory that capitalism is responsible
0:11:30 for environmental degradation.
0:11:33 And unless we convert to a socialist system immediately,
0:11:36 like the environment is doomed.
0:11:40 And therefore, the very clear assumption in the statement
0:11:42 is the shifting to a socialist command and control system
0:11:44 will lead to better environmental outcomes.
0:11:45 That’s a very common theme right now.
0:11:47 Like how do you address that in present times?
0:11:49 – Yeah, and it’s a tiny bit hidden, right?
0:11:51 Because the people who make that argument,
0:11:53 I hear them railing against capitalism
0:11:55 and saying we need to take better care of the planet
0:11:56 via some alternative.
0:11:57 And then they get kind of vague
0:11:59 about what that alternative is.
0:12:02 But I think they’re all either dodging the fact
0:12:05 or low balling that they want central planning.
0:12:07 They want a command and control economy.
0:12:08 And let’s call that what it is.
0:12:11 It’s something between socialism and communism.
0:12:13 And the thing that we need to keep in mind
0:12:18 is that the capitalists, the free societies of the West
0:12:21 were the ones that dealt with their pollution problem
0:12:23 earliest and best.
0:12:24 And what I consider the great triumph
0:12:26 of the environmentalist movement
0:12:28 that kicked off around Earth Day
0:12:31 was that we, the people demanded that we stop having
0:12:34 polluted air and dirty water and things like that.
0:12:37 And we got it via things like the Clean Water Act,
0:12:39 the Clean Air Act, the Marine Mammal Protection Act.
0:12:42 These were landmark pieces of legislation.
0:12:44 The single most important thing that happened
0:12:46 after the legislation was passed
0:12:50 was we got clever about how to reduce pollution levels.
0:12:51 The story of cap and trade
0:12:54 for reducing particulate emissions from power plants
0:12:58 and reducing sulfur dioxide is such a fantastic story
0:13:00 because we put together this coalition
0:13:04 of environmentalists and conservative economists
0:13:08 and we put in place a market system for trading pollution,
0:13:10 which sounds weird and bad,
0:13:13 except that it has cratered our levels
0:13:15 of SO2 and other particulate pollution
0:13:16 and done it for about one-fifth
0:13:18 of the originally estimated cost.
0:13:21 It was just this extremely efficient thing to do.
0:13:23 So the notion that capitalist systems
0:13:26 have no way of dealing with increasing pollution
0:13:28 is just dead flat wrong.
0:13:30 – When I was reading the book,
0:13:32 one thing that struck me was,
0:13:34 do you think that with developing countries today,
0:13:36 like India, China, I mean,
0:13:37 one would argue they’re more developed
0:13:38 than fully developing.
0:13:39 However, you define it,
0:13:42 that they even have to go through an extractive phase first
0:13:46 in their first phase of figuring out how to use their resources.
0:13:47 Like I guess my question is,
0:13:50 why couldn’t they leapfrog this extractive phase
0:13:53 and just go right to a more practical phase
0:13:56 when it comes to the acceleration of technology?
0:13:58 Do you think that extractive phase has to happen?
0:14:00 – It’s pretty clear to me that America and the UK
0:14:02 and I think most other super rich countries
0:14:04 are past peak stuff.
0:14:06 If you weighed our economy year after year,
0:14:09 it would weigh less year after year.
0:14:12 India and China and Bangladesh are not yet at peak stuff,
0:14:14 but they will get to that point
0:14:18 much early in their GDP per capita trajectory
0:14:20 because Nigeria is not gonna lay
0:14:23 an extensive copper telephone network across the country.
0:14:26 They’re not gonna build as many coal plants per capita
0:14:29 as we did because that’s just economically inefficient to do.
0:14:31 I’ll be surprised if the Chinese
0:14:33 have as many private cars per capita
0:14:35 as we did earlier in our history
0:14:36 because it’s really impractical
0:14:40 to have that heavy expensive asset sit idle 95% of the time.
0:14:42 So I do think that this technologically
0:14:45 very sophisticated economy is going to get countries
0:14:47 through this resource transition
0:14:50 much earlier than we went through it.
0:14:51 – So one of the things that’s so striking,
0:14:53 carbon emissions right in the US are falling.
0:14:55 And you tell me they’re starting to fall
0:14:56 in certain parts of Europe as well.
0:14:58 – Yeah, the EU in general
0:15:00 has been on a shallow downward trend.
0:15:02 – Yeah, there’s lots of advances being made
0:15:04 in energy efficient technologies of all kinds.
0:15:06 So I wouldn’t imagine like this will continue.
0:15:08 Let’s take the strong advocates for dramatic action
0:15:10 at their word that we’re gonna run into real trouble globally.
0:15:13 How do you not progress from there to believing
0:15:15 we have to take a very different approach
0:15:16 from a foreign policy standpoint,
0:15:18 in particular towards China and India,
0:15:21 potentially up to and including a course of actions.
0:15:23 Just because if you look at the graph
0:15:24 of global emissions growth,
0:15:26 it’s very clearly to like gigantic examples.
0:15:29 – So we’re going to invade them
0:15:31 to make them reduce their carbon emissions.
0:15:34 Like I don’t see how that plays out.
0:15:36 Let me give you a couple of softer ways
0:15:38 ’cause I think there are a couple of important ones.
0:15:40 One is they gave the Nobel Prize
0:15:42 to Bill Nordhaus last year
0:15:45 for his work about how to deal with global warming
0:15:47 and the notion of a carbon dividend.
0:15:49 When Nordhaus proposed his carbon tax,
0:15:52 and I like the phrase carbon dividend better
0:15:54 because it’s not a tax where the government keeps the money,
0:15:56 you pass through the government directly to people
0:15:58 and give them a carbon dividend,
0:16:01 hopefully skewed a little bit toward lower income people.
0:16:03 As part of that, you also do what’s called
0:16:04 a border adjustment,
0:16:06 where you look at all the imports into the country
0:16:09 and if they come from high carbon sources,
0:16:11 you tax them just like you would
0:16:13 if they were made in this country
0:16:14 with high carbon sources.
0:16:17 I think that’s really strong incentive
0:16:19 for our main trading partners,
0:16:21 and China’s probably exhibit A here,
0:16:24 to start literally cleaning up their act in this regard.
0:16:28 The other thing is, we have one source of power,
0:16:30 we have one way to generate power
0:16:33 that is scalable, clean,
0:16:36 somewhat economical and not intermittent.
0:16:37 And it’s called nuclear.
0:16:40 And there are a couple of countries like France and Sweden
0:16:41 that have cheap electricity
0:16:43 and the cleanest power in Europe.
0:16:45 And we’re running away from it in the rest of the world.
0:16:47 I find this completely perverse,
0:16:50 why not put together an international coalition?
0:16:54 And along with that, an international patent bank
0:16:55 so that it’s cheaper to produce
0:16:58 the new generation of nuclear reactor.
0:17:00 I’m pretty sure that will get the cost down
0:17:02 to the point where it becomes an economic no-brainer,
0:17:04 even for low-income countries
0:17:08 to start transitioning into a clean energy environment.
0:17:09 I would do both of those things
0:17:12 way before I would try to coerce other countries
0:17:15 into changing their energy profile
0:17:18 or doing it in a way that would slow down their growth
0:17:19 or impoverish their people.
0:17:21 – So I’m glad you brought up nuclear.
0:17:22 I was gonna ask you that.
0:17:26 So many groups just flatly rule out nuclear as an option.
0:17:27 So what’s going on there?
0:17:30 And what’s the way through that?
0:17:32 – I honestly don’t know the answer.
0:17:35 Why are they so stridently anti-nuclear?
0:17:37 There’s probably a bundle of things going on.
0:17:39 One is because of everything
0:17:41 from Hiroshima and Nagasaki to Godzilla
0:17:44 to Three Mile Island and Fukushima and Chernobyl.
0:17:46 I mean, I just finished watching
0:17:48 their Chernobyl mini-series on HBO.
0:17:51 So I have this kind of visceral ick reaction
0:17:55 to the idea of super widespread nuclear power,
0:17:57 but I think our homework is always
0:17:59 not to trust that initial ick
0:18:00 and to go look at the evidence.
0:18:02 And when you actually look at the evidence
0:18:04 and look at the issues,
0:18:05 I don’t know how you come away
0:18:08 and you can accept a nuclear advocate.
0:18:10 And we worry about things like nuclear waste.
0:18:12 And we should worry about nuclear waste,
0:18:14 but we don’t then say, well,
0:18:17 how much harm is caused by the pollution
0:18:19 from other kinds of power generation.
0:18:22 Worldwide, there are clearly hundreds of thousands
0:18:26 of deaths a year from people breathing coal dust
0:18:28 and people breathing the emissions from coal plants.
0:18:30 So the death toll, it’s not even close.
0:18:32 And this is backed up by very good research
0:18:34 published in The Lancet and elsewhere.
0:18:36 There’s a nice article in Our World and Data
0:18:39 about relative safety levels and death rates
0:18:40 from different kinds of power.
0:18:43 You walk away from that nuclear’s biggest cheerleader.
0:18:45 So I don’t quite know why the reaction
0:18:48 is so strident and visceral and negative.
0:18:51 All I can say, it is not based on evidence.
0:18:54 And I’m starting to see a coalition forming
0:18:56 that pushes back against that to say,
0:19:00 we’re getting this deeply wrong on an important issue.
0:19:02 – So, okay, so you were talking about cap and trade.
0:19:05 What made that so successful compared to other attempts?
0:19:07 Obviously, there’s a market-based mechanism,
0:19:08 but give me more details.
0:19:13 – Cap and trade, the basic idea is make pollution expensive,
0:19:15 attach a cost to it.
0:19:17 In other words, put it inside the market.
0:19:19 Pollution doesn’t naturally have a price.
0:19:21 And when that’s the case,
0:19:23 no matter what the press release says,
0:19:24 businesses have a strong incentive
0:19:25 to go pollute if it’s free.
0:19:28 Okay, put a price on it.
0:19:31 And then here’s the brilliance of cap and trade.
0:19:34 Allow companies to buy and sell that pollution
0:19:37 or more specifically that right to pollute with each other.
0:19:41 So if I’m super dirty and I can’t clean up quickly,
0:19:43 I gotta buy the right to pollute,
0:19:44 but I’m willing to buy that right
0:19:47 if it’s cheaper than the cost of me cleaning myself up.
0:19:50 Somebody will sell me that right and make some cash
0:19:52 because they’re already really clean
0:19:54 and they don’t need that right.
0:19:56 So this was a line of economics research
0:19:58 that got started with legendary
0:20:00 Nobel Prize winning economist Ronald Coase
0:20:04 and descendants of his ideas got put into practice
0:20:06 early in the Reagan administration
0:20:09 with the help of like the Environmental Defense Fund.
0:20:11 So this beautiful alliance forum to say,
0:20:13 hey, let’s try this market-based thing
0:20:15 for dealing with pollution.
0:20:16 They overcame whatever reluctance
0:20:20 was there from the incumbents again and they did it.
0:20:22 And then the research is pretty clear
0:20:24 that we can just look at what happened
0:20:26 to a particular admission from these kinds of plants.
0:20:30 America’s skies are just 90 plus percent cleaner
0:20:33 than they were when that legislation was passed.
0:20:36 And the cost of doing it is a fraction
0:20:38 of the original estimate of that.
0:20:41 So there’s a reason for these kinds of crazy fans of markets
0:20:42 for getting things done.
0:20:45 They work and when you can put things like pollution
0:20:47 in a market and you do this with cap and trade
0:20:50 and carbon dividends and things like that,
0:20:53 these are the most efficient ways
0:20:55 to deal with the problem.
0:20:57 – Don’t China and India have to sign up for the same thing?
0:20:59 – One of the problems with carbon
0:21:01 is that the harms from it are not local
0:21:03 and they’re not immediate.
0:21:07 So maybe the fast growing high carbon countries right now
0:21:10 will choose to ignore it for a while longer.
0:21:12 We have a couple of mechanisms to get them to not do that.
0:21:15 And like I said, if you do a border adjustment
0:21:17 for the high carbon products that we import,
0:21:20 that’s a really strong incentive to do things better.
0:21:23 If we can make it cheaper for them to be green.
0:21:25 And personally, I think nuclear
0:21:28 and a patent bank or cheap technologies around nuclear
0:21:30 is the path to do that.
0:21:34 We clearly have to help the currently low income world
0:21:36 get rich on a lower carbon trajectory
0:21:38 than they’re on right now.
0:21:39 That’s different than saying
0:21:42 that they can’t use more energy year after year.
0:21:44 I’m not gonna deny them that right to prosperity.
0:21:45 – Exactly.
0:21:47 – But we really want them to get cleaner quicker.
0:21:50 I think we have tools to do that.
0:21:52 And I don’t think that the Chinese and the Indians
0:21:54 are indifferent to the longer-term health of the planet.
0:21:56 I really don’t believe that.
0:21:58 – I mean, they’re living with it in a physical way.
0:22:00 Everyone there is facing it and experiencing it
0:22:01 in a very real way.
0:22:03 And we had this podcast a few years ago
0:22:05 with Evan Osnos at the New Yorker.
0:22:06 We were talking about China.
0:22:09 One of my favorite things that he talked about
0:22:12 is how because of the growth of the middle class in China,
0:22:14 that there is now a huge cohort of people
0:22:16 demanding a better environment
0:22:18 precisely because of the market dynamic.
0:22:21 No, not just that, getting a better environment.
0:22:22 So I found this great research
0:22:24 that I put in more from less.
0:22:26 A very good economist looked at what happened
0:22:28 when China finally got serious about urban air pollution.
0:22:30 And the reason they got serious about it
0:22:32 was people were leaving the cities
0:22:35 even if they didn’t have government permission to do it.
0:22:37 People were leaving because their kids
0:22:39 were just clearly getting sick
0:22:41 and gonna have stunted lives.
0:22:44 So China took action and they brought down
0:22:46 their country-wide particulate pollution
0:22:49 by 30% in four years.
0:22:50 And they did it what these draconian means,
0:22:54 but they did it and they took us in the United States
0:22:57 12 years to get that same 30% reduction.
0:22:59 So even one of the points I make in the book
0:23:01 is democracies are probably more receptive
0:23:02 to the will of their people,
0:23:05 but there are interesting exceptions in both directions.
0:23:08 And China was clearly receptive to the will of its people
0:23:11 not to choke off their children with pollution.
0:23:12 – Right, right.
0:23:13 I read a ton of Chinese sci-fi
0:23:14 and it’s literally the recurring theme
0:23:16 is basically about the end of the world
0:23:17 and like environment.
0:23:18 But Andy, I was-
0:23:18 – Is that right?
0:23:19 That’s cool.
0:23:20 – Yeah, it’s a really big theme.
0:23:21 You have to read a lot of different Chinese science fiction
0:23:22 authors to see this,
0:23:24 but that’s basically my genre this year.
0:23:26 One thing I wanna ask you,
0:23:28 I understand from the market dynamics point of view
0:23:32 why cap and trade was such a successful idea and example
0:23:33 and it’s been proven out,
0:23:36 but why couldn’t a government have simply mandated?
0:23:38 Like we will just simply put a limit on this.
0:23:40 Draconian measures like China did.
0:23:43 Why would that not be as effective?
0:23:44 – Sometimes we did.
0:23:46 That’s how we actually brought down CFC emissions
0:23:47 so drastically.
0:23:52 We just mandated that they be reduced by X% over time
0:23:54 until they got down to close to zero.
0:23:57 The reason that worked is that there’s a relatively small
0:23:58 number of industries,
0:24:00 a relatively small number of companies
0:24:01 and a relatively small number of products
0:24:04 that used chlorofluorocarbons.
0:24:05 And to be a little bit more cynical,
0:24:09 the other reason that ban worked was somebody eventually
0:24:11 whispered to the incumbent companies,
0:24:12 the CFCs you’re making out right now,
0:24:13 they’re off patent.
0:24:16 The new generation of coolants and propellants and whatnot,
0:24:17 those can be under patent.
0:24:19 This can be a big revenue source for you.
0:24:23 And so they finally got industry on their side.
0:24:24 Fiat can work.
0:24:27 For example, it is just flat illegal
0:24:29 to dump waste at sea in America.
0:24:30 We just did that via Fiat.
0:24:31 We didn’t put a price on it.
0:24:34 You cannot hunt animals in national parks.
0:24:38 You cannot hunt deer or duck outside their seasons.
0:24:40 So sometimes you wanna do things by Fiat,
0:24:43 but I kind of think if you can put it
0:24:46 in a market mechanism, and it’s appropriate to do that,
0:24:48 I think you’ll get better solutions quicker.
0:24:49 Maybe that’s not right,
0:24:51 but I’ve got this deep faith in markets.
0:24:54 Once you put things in them and price them
0:24:57 to deal with that price in a very fast way.
0:25:01 If you change a business’s cost structure quickly,
0:25:03 man, businesses will run from that increased cost,
0:25:05 like gazelle run when they smell a lion.
0:25:07 It’s just amazing how quickly it’ll happen.
0:25:10 – I will tease or torture Andy a little bit
0:25:11 in that as you’re probably well aware,
0:25:13 support for market-based systems
0:25:14 like cap and trade have collapsed.
0:25:16 – One of the points that I bring up in the book
0:25:19 is that sometimes the crazy side of the argument wins.
0:25:22 And I think the crazy is winning on nuclear these days.
0:25:24 I think the crazy is winning on GMOs.
0:25:27 I think the crazy is winning on vaccines
0:25:29 in way too many communities.
0:25:30 So as much as I love evidence
0:25:32 and trying to think through things,
0:25:34 we better be very good communicators about our solutions
0:25:36 ’cause the crazy can win.
0:25:37 – Can we quickly talk on GMOs
0:25:39 and the myths and misconceptions around GMOs?
0:25:41 And why did you think it was important
0:25:42 to talk about GMOs in your book?
0:25:44 – The reason I thought GMOs were important
0:25:47 to include in this book is they are great ways
0:25:48 to help us tread more lightly on the planet.
0:25:50 The crop yields will go up.
0:25:52 You can grow them in different places.
0:25:55 If climate, as climate change happens,
0:25:57 you’re gonna need plants that are hardier,
0:25:59 can survive heat waves and droughts and things like that.
0:26:02 The GMO toolkit is our best toolkit
0:26:03 for accomplishing those things right now.
0:26:07 And yet it’s stridently opposed by governments
0:26:09 and all kinds of groups around the world.
0:26:11 And even the EU itself,
0:26:13 in addition to the National Academies of Science
0:26:15 and just about every country that you can think of,
0:26:18 has reviewed the evidence and they’ve all come down
0:26:22 and said there is no evidence that GMO crops
0:26:25 are less safe for the environment or for humanity
0:26:27 than conventional techniques.
0:26:28 We can get past the point of saying,
0:26:29 well, it remains to be seen.
0:26:31 No, we need to go do these things.
0:26:35 And the reason I get exercised about this
0:26:37 is when I look at things like golden rice,
0:26:39 which is this strain of rice
0:26:43 that has beta carotene injected into it via GMO techniques.
0:26:46 So that you provide vitamin, is it A?
0:26:48 It’s a vitamin A deficiency.
0:26:52 Happens to babies who are weaned on rice gruel.
0:26:54 And it leads to blindness.
0:26:57 And that deficiency is responsible
0:27:00 for about a million deaths a year around the world.
0:27:04 Great, your anti-GMO, honestly, that volume of deaths,
0:27:05 that’s on you.
0:27:07 – So you discussed in the book,
0:27:09 the very famous at the time, I guess in the 70s and 80s,
0:27:11 a very famous debate between two at the time,
0:27:14 very accomplished people, Julian Simon and Paul Ehrlich.
0:27:16 And it’s largely been forgotten,
0:27:17 but it’s a highly relevant debate
0:27:19 and maybe even more relevant today than it was at the time.
0:27:20 And maybe you could describe their debate
0:27:21 in the famous bet.
0:27:24 – Yeah, my favorite bet of all time was the bet
0:27:26 between these two guys, Julian Simon,
0:27:29 pushed back against the dominant narrative
0:27:31 around the time of Earth Day,
0:27:34 which was that growth will come to a bad end,
0:27:37 that we cannot keep this headlong, uncontrolled,
0:27:40 market-based growth for a bunch of reasons,
0:27:43 primary of which was, they’ll become too many of us,
0:27:45 the Earth will not be able to feed everybody,
0:27:48 and we’re gonna crash into a massive famine.
0:27:52 And the prime exponent of that view was Paul Ehrlich,
0:27:53 who still is at Stanford,
0:27:55 and wrote a book called “The Population Bomb”
0:27:58 where he essentially said, look, nothing we can do
0:28:00 will prevent hundreds of millions of people
0:28:01 from starving in the years ahead.
0:28:04 But if we do things like force population control
0:28:06 and we take control of the means of production,
0:28:08 we might be able to stave off
0:28:11 the worst things that could happen.
0:28:12 And one of the things I learned
0:28:14 was that Simon agreed with that
0:28:16 and wrote things about population control.
0:28:17 Then he switched his view
0:28:20 in this wonderful instance of intellectual honesty
0:28:22 and humility, and he said, wait a minute,
0:28:27 we keep on not seeing famines happen, resource crises.
0:28:28 We just don’t see these things.
0:28:29 Instead, the evidence shows
0:28:31 that most things are getting better.
0:28:33 And he got laughed out of a lot of rooms
0:28:37 and Ehrlich kept on putting out this gloom and doom,
0:28:39 stripping the planet narrative,
0:28:41 and finally Simon challenged him to a bet.
0:28:45 And Simon said, pick any time period of at least a year
0:28:48 and pick any bundle of resources that you want.
0:28:49 And at the end of the time period,
0:28:52 if the resources are more expensive in real terms
0:28:53 than they are now,
0:28:56 which kind of means they’re more scarce than they are now,
0:28:57 I’ll pay you the difference.
0:28:59 If they’re cheaper, you pay me the difference.
0:29:01 I think this probably appeared
0:29:02 like a sucker’s bet to Ehrlich.
0:29:07 He picked five resources, Tungsten 10, Chromium Copper,
0:29:09 and I forget the fifth one.
0:29:10 And he said, all right,
0:29:12 let’s put a 10-year period on the bet.
0:29:14 By 1990, the real prices
0:29:16 of all five of those things had fallen.
0:29:17 The price of the total portfolio
0:29:19 had declined by more than half,
0:29:21 and Ehrlich mailed Simon a check
0:29:23 to acknowledge that he’d lost the bet.
0:29:24 I didn’t talk about it very much.
0:29:27 He didn’t attach any kind of note to that check.
0:29:30 So I love that episode so much.
0:29:32 And I’m trying to do round two of that.
0:29:33 I’m using the Long Bets website,
0:29:35 which is part of the Long Now Foundation,
0:29:36 started by Stuart Brand and others,
0:29:38 and I’m offering bets.
0:29:41 I’m saying, for example, that no matter what,
0:29:43 I’m saying that resources are gonna become more affordable.
0:29:45 I’m agreeing with Simon on that,
0:29:46 but I don’t stop there.
0:29:48 I say, in 10 years from now,
0:29:51 I bet we’re gonna use less total energy, not per capita,
0:29:54 but total energy America-wide in 10 years
0:29:57 after a decade of continued economic growth.
0:30:00 That’s how confident I am in the one-two punch
0:30:03 of capitalism and tech progress
0:30:05 to take costs out of the system
0:30:07 and energy and resources cost money.
0:30:09 That’s just my reasoning.
0:30:11 If you think I’m wrong, step on up.
0:30:14 With Long Bets, you both put the money up front,
0:30:16 you designate a charity that will get it at the end,
0:30:17 and we’ll see what happens.
0:30:19 – So there’s two historical figures in the book
0:30:20 who are heroes of mine.
0:30:22 – Julian Simon and- – And Bucky Fuller.
0:30:23 He came up with this idea, I think,
0:30:25 and I think you say it was 1927.
0:30:26 – Yeah, the ’20s.
0:30:28 – Yeah, maybe just explain his idea,
0:30:30 ’cause that was a remarkable insight
0:30:33 at a time when there was probably no actual
0:30:36 logical foundation to expect what he was saying.
0:30:40 – So Fuller was this crazy polymath,
0:30:45 and he popularized, for example, the geodesic dome.
0:30:47 That’s kind of what he’s best known for today, I think,
0:30:50 which is the structure that can bear a great deal of weight
0:30:54 and very heavy loads while weighing very, very little.
0:30:57 And Fuller thought that we would see more and more examples.
0:30:59 There were plenty of opportunities to do that kind of thing
0:31:01 all around the economy.
0:31:05 And I found this crazy book that he wrote in the ’20s,
0:31:07 and he said, “Look, I did a bunch of calculations.”
0:31:09 And he said, “I thought it might be possible
0:31:11 to satisfy all of our wants and needs,
0:31:14 essentially while using less stuff,
0:31:15 while using fewer materials.”
0:31:18 And he called the process ephemeralization,
0:31:20 making things more ephemeral.
0:31:22 That’s a real mouthful to say.
0:31:25 So we use the phrase dematerialization more often now,
0:31:28 but Fuller was the guy who said,
0:31:32 “Gang, we can do this in the 1920s,” which is crazy.
0:31:34 – That’s so crazy, that’s pre-software.
0:31:35 – Oh, here at the economy in those days,
0:31:39 it was what Joel McKeer calls the Wheaton-Steel economy.
0:31:40 That was during the era where GDP
0:31:41 versus became an economic metric,
0:31:42 and it was literally like tonnage.
0:31:43 It was like, how much–
0:31:44 – Yeah, we were weighing things around.
0:31:46 – You weigh your output, right, in tons.
0:31:49 – Yeah, and then we started counting dollars instead,
0:31:50 and that was a huge innovation.
0:31:53 So the fact that Fuller came up with that that early
0:31:57 was just this weird intellectual shooting star.
0:31:59 – So if I recall correctly,
0:32:00 and maybe I’ve made this up in my own head,
0:32:03 but I think that one of the lines he used was,
0:32:05 ephemeralization is the process of making,
0:32:07 making more and more with less and less.
0:32:09 But then he added a line, he said,
0:32:12 “Until eventually we are making everything with nothing.”
0:32:14 – I think he did go that far.
0:32:16 He also said in 1927,
0:32:20 he said it’s the number one economic surprise of world man.
0:32:24 And so here we are, you know, 90 years later,
0:32:26 and it’s still surprising to people.
0:32:28 – So one thing that just blew my mind,
0:32:30 ’cause I had not actually read that or known that,
0:32:32 how could he come up with that in 1920?
0:32:34 This is before software even existed.
0:32:35 Like what would give him,
0:32:38 ’cause I understand now, Mark, in 2009,
0:32:40 when you wrote “Software is Eating the World,”
0:32:42 like I could see someone making that now.
0:32:45 What gave him the hutzpah to say that in 1920?
0:32:46 Like that’s insane.
0:32:47 – I have no earthly idea,
0:32:49 and I don’t think we would have got
0:32:51 to this resource turning point.
0:32:54 I don’t think we would have achieved absolute dematerialization
0:32:57 without the digital world, without the computer.
0:32:59 I think what software is giving us back the world,
0:33:02 because it’s letting us slim, swap, optimize,
0:33:05 and evaporate our resource use.
0:33:08 And I don’t know how we would have got there in a world
0:33:10 where we’re still using slide rules and file cabinets.
0:33:11 Maybe we would have,
0:33:13 but in my multiverse,
0:33:15 we don’t get there in the universes
0:33:17 that don’t have the digital revolution.
0:33:19 A lot of people, when they talk about dematerialization,
0:33:20 they talk about it very literally,
0:33:22 like you’re replacing an object,
0:33:23 a hard object with something,
0:33:24 it’s software counterpart,
0:33:25 but we just make it clear.
0:33:27 It’s actually even deeper than that,
0:33:28 ’cause when you do think about ride sharing
0:33:30 and all this entire economies
0:33:31 that are growing off the mobile phone,
0:33:33 that is what enables the end of ownership.
0:33:35 When you think about the fact that today,
0:33:38 kitchens can be delivering food to you,
0:33:40 that is a thing that changes the shape of cities, et cetera.
0:33:42 I think a lot of times when people talk about dematerialization,
0:33:45 they take it very literally as like the one-on-one replacement
0:33:47 of something physical with something digital,
0:33:48 and it’s actually bigger than that.
0:33:51 It’s like a whole services economy reshaping things.
0:33:53 I talk about these four different vectors
0:33:55 for dematerialization.
0:33:58 Trimming out how much aluminum is in an aluminum can,
0:33:59 that’s slimming it down.
0:34:01 Swapping out one resource for another,
0:34:03 that’s when rare earths get expensive,
0:34:05 we walk away from them.
0:34:09 Optimizing, using the load factor for airlines
0:34:13 has increased from the mid-50s percent to 80% now.
0:34:14 You’re just making better use
0:34:17 of these resource-intensive assets that you have,
0:34:20 and then evaporate, replace it by nothing at all.
0:34:23 The smartphone has made me not print out maps
0:34:25 or print out film anymore.
0:34:27 We have these different vectors
0:34:28 for dematerialization to happen,
0:34:30 and the point that I make in the book
0:34:32 is they’re happening in obvious ways and subtle ways,
0:34:34 and big ways and small ways,
0:34:36 and the foreground and the background in every industry,
0:34:39 simply because stuff costs money,
0:34:41 competition makes you wanna save money,
0:34:42 and the digital toolkit offers you
0:34:44 these great opportunities to do that.
0:34:46 I think the story is just that simple,
0:34:49 and if that’s true, it’s not about to end.
0:34:50 – So if you take full-estought
0:34:52 and your thought to their logical extremes,
0:34:55 how close can you get ultimately some day
0:34:57 to making everything with nothing?
0:35:01 Like if we’re sitting here 50, 100, 200 years from now,
0:35:02 like what are the prospects for being able
0:35:04 to take physical inputs out,
0:35:07 either 99.99% reduced or taken out entirely
0:35:09 from many of the things we’ll be consuming?
0:35:12 – That depends on how many of us there are
0:35:17 primarily, I think, but I think we can go a lot farther
0:35:19 down the dematerialization curve than we are right now.
0:35:21 It’s not crazy at all to imagine that,
0:35:25 let’s say in 2100, that we’re primarily an urban species.
0:35:27 We live in these densely populated cities
0:35:32 that are a lot closer to Singapore than Delhi, for example.
0:35:35 We’re growing a lot of our food
0:35:39 in very vertical, energy-intensive environments.
0:35:41 When we need to build a new building,
0:35:43 we’re just recycling the steel and the metal
0:35:46 that we used for the previous generation of buildings.
0:35:48 We’re already doing that a lot right now.
0:35:51 And grow our textiles in weird vats
0:35:54 with Petri dishes of bacteria or something.
0:35:57 That’s no longer crazy to think about.
0:35:59 Will we be getting our protein from living animals
0:36:04 or from scaled-up Petri dishes in 2100?
0:36:05 – Lab-grown meat, yeah.
0:36:06 – And who knows about staple crops
0:36:08 if we’ll need cropland for that.
0:36:11 But I’m for damn sure that we’re gonna need
0:36:13 a much, much smaller acreage of cropland
0:36:17 for all of humanity in 2100 than we do right now.
0:36:18 So I don’t know.
0:36:19 I don’t have a good way to guesstimate
0:36:21 where those lower floors are.
0:36:23 They’re a lot lower than they are right now.
0:36:26 And I really think that, let’s take 2100 as the year,
0:36:28 we’ll be this species that occupies
0:36:31 a very small physical footprint on the planet
0:36:32 without depriving ourselves.
0:36:35 And then we go into nature kind of because it’s cool
0:36:37 and because we want to,
0:36:39 as opposed to because we need to strip it
0:36:41 to satisfy our growth.
0:36:42 – I have a question about R&D,
0:36:43 the role of research and development
0:36:45 and kind of delivering on the dream that you’re talking about.
0:36:46 ‘Cause obviously everything you’re talking about
0:36:48 is sort of dependent on future development
0:36:51 of advanced technology and creation of new knowledge.
0:36:54 The last like 20 years, I would say there’s been
0:36:56 basically like two dramatic events
0:37:00 in energy-related R&D in the US.
0:37:02 And one is this incredibly positive outcome
0:37:06 with respect to fracking and liquid natural gas.
0:37:09 There’s been all kinds of positives to come out of that.
0:37:10 And even in the energy industry,
0:37:11 like a lot of experts were shocked
0:37:13 on how well that stuff has worked.
0:37:14 The curves are amazing
0:37:15 ’cause it’s like energy production in the US,
0:37:16 falling, falling, falling, falling, falling.
0:37:18 And then all of a sudden it just like takes off
0:37:19 like a rocket ship, right?
0:37:20 When like nobody was expecting it.
0:37:22 – To the surprise of everybody.
0:37:24 – Yeah, so that was the good news surprise.
0:37:26 The bad news surprise was Silicon Valley
0:37:30 embarked on a very big push to do so-called clean tech,
0:37:33 green tech, particularly between 2010, 2012.
0:37:36 It was a huge push and there were a lot of extremely smart
0:37:37 and accomplished people here in the Valley
0:37:39 who thought that this was the new frontier
0:37:41 for American technology, for venture capital.
0:37:44 And with obvious, both huge potential positive benefits
0:37:46 for the world, but also a huge opportunity
0:37:47 to build new businesses.
0:37:49 And I think there were hundreds and hundreds,
0:37:50 possibly even thousands of companies
0:37:52 and a very large amount of money and effort.
0:37:54 And a lot of people put a lot of work into this
0:37:55 that the results were extremely disappointing
0:37:57 on a number of fronts.
0:37:59 I mean, there were maybe a few isolated cases of 6/7.
0:38:01 One might say we got Tesla and SpaceX out of that, right?
0:38:03 In which case, fair enough.
0:38:04 But even beyond that,
0:38:06 companies had a much harder time developing
0:38:08 and/or commercializing those technologies
0:38:09 or just ended up in dire straits
0:38:10 that people didn’t expect.
0:38:13 So I’m very curious of your assessment of what went wrong
0:38:15 in the Silicon Valley clean tech, green tech adventure
0:38:18 and what should we learn from that?
0:38:20 You know, both as an industry and as a world,
0:38:22 like how might we, if we’re gonna try that kind of thing
0:38:24 again, like if we’re gonna try to double down on R&D here,
0:38:26 like what lessons should we learn from that
0:38:27 in terms of how to do it better?
0:38:29 – I only know it from a great distance.
0:38:32 Here’s a super naive way to look at it.
0:38:34 If we think about solar,
0:38:36 solar has become dominated by China primarily
0:38:38 because it’s a flavor of manufacturing
0:38:41 that they were already pretty good at,
0:38:43 and it’s just a scale economies game.
0:38:45 And they’re quite good at scaling up huge factories
0:38:47 and turning out whether it’s a liquid crystal display
0:38:50 or a photovoltaic panel.
0:38:53 So I think that’s just very, very tough competition.
0:38:57 The other thing that I do believe about solar and wind
0:39:00 is that they have a place in the energy portfolio,
0:39:03 absolutely, but Germany’s experience
0:39:05 with trying to become much more reliant on renewables
0:39:08 has not gone very well at all for a couple reasons,
0:39:12 a deep one of which is it’s dark sometimes
0:39:14 and it’s not windy a lot of times.
0:39:17 We have this very serious problem of intermittency
0:39:19 with those renewables.
0:39:21 So they have to be backstopped with something.
0:39:23 And if you turn off your nuclear stations,
0:39:25 if you decommission them like Germany is doing,
0:39:27 you get backstopped in their case
0:39:30 with some very dirty cold powered plants.
0:39:32 So they’ve kind of got the worst of both worlds.
0:39:34 Their electricity prices are really high
0:39:37 and their carbon emissions per unit of energy are really high.
0:39:40 You look next door at France, which is very nuclear
0:39:42 and you see neither of those two problems happening.
0:39:45 So I think at the individual competition level,
0:39:48 going up against China in a scale game is really, really tough.
0:39:49 And I think there are some policy mistakes
0:39:52 that can make that situation worse.
0:39:54 Does that play at all with your experience?
0:39:55 – I think those are definitely big components.
0:39:58 You may know this, the sort of appendix
0:39:59 to that whole saga was, yeah.
0:40:02 So there was a huge push for solar panels,
0:40:03 including some very advanced.
0:40:05 We actually have here in the conference room,
0:40:07 we actually have an old cylinder solar panel
0:40:08 that I keep around just ’cause it’s such a great story.
0:40:10 It’s a cylindrical solar panel, right?
0:40:11 That would have the huge advantage
0:40:12 that it could basically follow the sun.
0:40:13 – Checking.
0:40:14 – It could track the sun.
0:40:15 The only problem with it was it ended up
0:40:17 being a four X worse value proposition,
0:40:19 price performance value proposition,
0:40:21 the conventional solar panels all in.
0:40:22 That was one of the trainwrecks out here
0:40:23 that actually took down the whole
0:40:25 US government DOE program to fund clean tech.
0:40:27 But the kicker on the whole solar thing is okay.
0:40:29 As you said, it became a mass manufacturing game.
0:40:31 And so it kind of became like memory chips in the 80s.
0:40:33 It lent itself to the Chinese ecosystem,
0:40:36 which is sort of is able to do mass manufacturing at scale.
0:40:37 – Quickly and well.
0:40:38 – Right, right, exactly, right, exactly.
0:40:40 And so the Chinese have been able to undercut
0:40:42 a lot of their American competitors.
0:40:46 The kicker to that is the pro environment administration
0:40:48 then reacted to that by putting tariffs
0:40:49 on imports of Chinese solar panels.
0:40:51 Therefore, making it cost ineffective
0:40:52 for Americans to deploy solar panels
0:40:54 that otherwise would have been much cheaper.
0:40:57 – So tariffs are, with the possible exception
0:40:59 of a border adjustment tariff,
0:41:01 because we got to bring down carbon, right?
0:41:04 Tariffs are just econ 101 bad idea.
0:41:06 – Well, it went beyond though, just the specific mechanism.
0:41:07 It was more an expression of values
0:41:09 in the part of the United States government,
0:41:10 which is in theory, we care about the environment
0:41:12 in practice, like we’re more worried about
0:41:13 like other things.
0:41:14 And so we’ll trade off the environment.
0:41:16 – So, you know, the mantra is all should be
0:41:19 let markets work to develop the goods and services
0:41:20 and let free trade happen.
0:41:24 And that’s where prosperity will come from and innovation.
0:41:25 – For me, I wasn’t the thick of that
0:41:28 ’cause we were at the heart of this whole clean tech movement
0:41:29 when I was at park.
0:41:31 We had a huge investment in photovoltaics.
0:41:33 I was my first big white paper.
0:41:35 My question is, why can’t it just be just a timing thing
0:41:36 like everything else?
0:41:39 Like it was just too early, the wrong time.
0:41:41 The ecosystem wasn’t built out for balance
0:41:44 of system components and services and everything else.
0:41:46 The subsidy models were wrong.
0:41:48 ‘Cause I actually hope that we can get some R&D
0:41:50 to the future with clean tech.
0:41:53 – We are getting cost declines with solar and wind.
0:41:54 The price of the installed price
0:41:56 and then the price per unit of energy
0:41:58 once they’re installed is going down
0:42:00 at a really attractive rate.
0:42:02 So it’s not that we’re failing with these things.
0:42:04 What I was trying to point out earlier
0:42:06 is there are just some basic problems
0:42:07 with that style of energy,
0:42:10 especially because we’re not getting the battery revolution
0:42:13 and the battery nerds that I talked to say,
0:42:15 look, there’s an energy density limit here.
0:42:17 So you’re pushing up against some physics.
0:42:19 And it’s not that we can’t do anything about it
0:42:21 or that we should stop research.
0:42:23 Of course we should continue that going,
0:42:25 but you gotta backstop it with something.
0:42:26 – With some portfolio, right.
0:42:29 – And if that’s something, in my view,
0:42:31 should also be clean, it should be nuclear.
0:42:33 And then let’s let the battle rage
0:42:36 for which is the cake and which is the icing.
0:42:38 I kind of think nuclear is gonna be the cake
0:42:41 and we’ll have a little solar and wind icing
0:42:42 if we get it right.
0:42:43 But maybe I’ll be wrong about that.
0:42:47 Well, I just don’t want us to keep putting huge amounts
0:42:49 of carbon in the air to generate electricity.
0:42:50 We don’t need to do that.
0:42:52 – So this is where, I don’t think environmentalism
0:42:53 for the most part is actually about the environment.
0:42:54 I think it’s about something else.
0:42:55 And the reason I say that is because,
0:42:56 exactly Andrew’s point,
0:42:57 I think we actually have the answers.
0:42:58 I think we have the answers.
0:42:59 And I think they’re nuclear,
0:43:01 which is just like in practice
0:43:02 and incredibly safe technology
0:43:03 contrary to what everybody believes.
0:43:04 – Plus one to that.
0:43:05 – And then I think, look,
0:43:06 it goes back to the tariff thing.
0:43:07 Like let the Chinese build solar panels,
0:43:09 let them ride the manufacturing cost curve down
0:43:10 and like buy their solar panels.
0:43:11 – Plus one to that.
0:43:12 – Right.
0:43:13 And we do have two magic technologies.
0:43:15 Like we have the box that generates power
0:43:16 by splitting the atom.
0:43:19 And we have the sheet that converts sunlight for free.
0:43:21 And both of those are like incredibly modern
0:43:23 production techniques for nuclear and solar.
0:43:26 Like would just be like spectacular what you could do.
0:43:29 If you engineered new nuclear plants today from scratch,
0:43:30 like properly with the technologies,
0:43:33 most of the functional nuclear plants in the West today
0:43:35 are like on average there.
0:43:37 Is it, are there any younger than like 30 or 40 years old?
0:43:39 Is the average just got to be over that?
0:43:40 – I think that’s right.
0:43:42 I don’t know when the last new one we built was,
0:43:43 but it’s been a while.
0:43:45 – And so if we took current technology and did that,
0:43:46 there are some really amazing ideas
0:43:47 of things that we can do.
0:43:48 I don’t think this has anything to do with the environment.
0:43:50 – Well, what I find hopeful though,
0:43:52 about what you just said is that we have the answers
0:43:54 and that’s really important.
0:43:56 And so a lot of these things come down to market
0:43:59 and other dynamics, regulatory, politics, all of that.
0:44:01 So it’s not a technological limit,
0:44:02 which I find very helpful.
0:44:06 – It’s also not a policy mystery anymore.
0:44:08 We have these essentially magic technologies
0:44:10 where we should be stepping on the accelerator
0:44:11 with them super hard.
0:44:14 If we really wanted to clean up the planet
0:44:17 and stop polluting it with greenhouse gases.
0:44:21 If we wanted a policy toolkit to reduce carbon, we have it.
0:44:23 It’s worked for other kinds of pollution in the past.
0:44:25 Carbon is not mysterious.
0:44:28 It’s just comparatively politically difficult.
0:44:30 Now, I think some parts of the world
0:44:34 will be more clearheaded than others.
0:44:36 And I hope somebody else will show us the way
0:44:37 and their evidence is gonna become
0:44:39 unignorable at some point.
0:44:40 – I also just wanna make one pitch
0:44:43 for the iPhone moment in clean tech,
0:44:46 which I know people think can be very much of a long shot.
0:44:47 But I think a lot of technology waves
0:44:49 do have their major iPhone moment
0:44:52 where there is a technological tip
0:44:53 that then drives everyone else
0:44:56 to make cheaper versions of that thing later on
0:44:59 once there is this desire and demand and pull and draw
0:45:01 to have the thing.
0:45:02 And I actually have to say one thing
0:45:04 that I did find promising about Tesla
0:45:07 and their move into solar for the home
0:45:10 and battery is sort of this back door, this Trojan horse
0:45:11 that the car is a Trojan horse
0:45:13 to actually powering your home.
0:45:15 That is a very powerful idea.
0:45:17 And over time, who knows where that can go, but.
0:45:17 – I will say one thing
0:45:20 that’s from a consumer psychology standpoint.
0:45:22 Elon making electric cars sexy.
0:45:23 – Yeah, that changed the game.
0:45:24 – That’s a big deal.
0:45:27 – It was way better than Leonardo DiCaprio driving a Prius
0:45:28 which is what I drive.
0:45:30 – That is an absolutely a big deal.
0:45:32 And Sonal, to what you said,
0:45:34 I’m thrilled that there are people willing
0:45:37 to make some pretty risky bets on things.
0:45:39 On the technology and the innovation front,
0:45:41 I agree with Mark, we have some magic bullets.
0:45:43 We also need, I’m gonna mix my metaphors.
0:45:46 We need lots of other shots on goal, right?
0:45:49 And the innovation and the entrepreneurship ecosystem
0:45:53 are a way for us to get more shots on goal, hallelujah.
0:45:54 – Yeah, and I’ll just say one last thing on that.
0:45:56 One of the things that I find really fascinating
0:45:58 is that there is this phase with a lot of technologies
0:46:02 where there is that very down moment where things go down.
0:46:03 It seems like it’s dead.
0:46:05 And in fact, the thing is being built out
0:46:08 under the very surface and you don’t realize that’s happening.
0:46:10 And so to me, the death of the clean tech boom
0:46:13 is actually promising because Mark, you alluded to this,
0:46:16 but it did fund, Elon Musk rode those subsidies
0:46:18 to fund Tesla in the early days.
0:46:20 And so who knows what can happen next.
0:46:23 – And I still think there’s a big place for government R&D.
0:46:27 Again, more shots on goal, more attention to this,
0:46:29 crazy ideas.
0:46:32 And the reason Paul Romer won the Nobel Prize last year
0:46:35 was he said economies grow on ideas.
0:46:37 Human capital is the gating factor
0:46:39 for increasing our growth and prosperity.
0:46:42 Let’s get more human capital out there.
0:46:43 Well, Andy, thank you so much
0:46:45 for joining the A6NZ podcast.
0:46:48 Your new book out October 8th.
0:46:50 More from less, the surprising story
0:46:52 of how we learn to prosper using fewer resources
0:46:53 and what happens next.
0:46:55 Thank you for joining the A6NZ podcast.
0:46:56 – Sonal and Mark, thank you for having me.
0:46:58 This has been a blast.
0:46:58 – Thanks, Andy.

0:00:05 Hi everyone, welcome to the A6NZ podcast. I’m Sonal, and I’m here today with the 10th episode
0:00:10 of our short form news show, 16 Minutes, where we cover recent headlines the A6NZ way.
0:00:15 This week, we cover multiple topics, Amazon’s virtual care, what it means for incumbents and
0:00:20 startups, and the future of healthcare. Then we do a quick take on Oculus Connect and where are we
0:00:25 with VR and AR. And finally, we discuss the leaked paper slash news that Google may have achieved
0:00:30 quantum supremacy. What does it mean? Where are we with quantum computing? But first, please be
0:00:34 sure to subscribe to 16 Minutes separately in your podcast app, just search for it there,
0:00:39 because we will no longer be dropping this show here, at least regularly, that is,
0:00:46 in the main A6NZ podcast feed. So go subscribe now. I always include links and relevant references
0:00:52 or background that’s mentioned in the show notes. And you can find those at A6NZ.com/16Minutes.
0:00:56 And finally, please note that none of the following is investment advice or intended
0:01:02 for investors. Please be sure to see A6NZ.com/disclosures for important information.
0:01:08 So the first segment of this week’s episode is about the news that Amazon just launched something
0:01:12 called Amazon Care, which was described as a virtual medical clinic for employees. And what
0:01:17 that really is is a combination of telemedicine and targeted in-home follow-ups. And I think
0:01:21 it’s really significant that it’s for employees because previously, Amazon joined up with JPMorgan
0:01:24 and Berkshire Hathaway. And the reason they did this is because they’re like, we need to move
0:01:29 the needle on how expensive healthcare is as employers covering this. They have 1.2 million
0:01:34 employees combined, so they basically banded forces to figure out this problem. And Amazon
0:01:39 had also acquired Pillpack, which is an online pharmacy. And so all these pieces are kind of
0:01:45 coming together. And so let me now welcome our A6NZ experts, A6NZ bio partners, Jorge Conde and Julie
0:01:50 Yu. It’s great to be here, Sonal. Thanks for having us. So let’s talk about this news. Why do we care?
0:01:54 Well, I think the reason to care about this is really, I’d say, as you pointed out, the cost
0:02:00 of healthcare continues to go up. They just published a report that the cost of employer-based
0:02:06 healthcare just topped $20,000 for a family plan annually. And employers bear about 70% of that
0:02:10 cost. So that’s one important sort of trend that is driving a lot of this. The other one, which
0:02:16 is to some extent related, is consumers are being asked to bear more and more of the cost of their
0:02:21 care out of pocket as well. So the average consumer is investing something north of $6,000 a year to
0:02:24 there in their family’s healthcare. And so I think what’s particularly interesting about this is you
0:02:31 have a large employer that also has the ability to deploy technology coming up with a solution
0:02:36 for their employees initially, but if history is any guide here, this is also testing ground.
0:02:40 I think another interesting thing of significance from the incumbent lens is we often hear from
0:02:44 whether it be payers or providers or even self-insured employers as they’re having strategic
0:02:48 dialogue about their healthcare operations. Oftentimes the question comes up, what does
0:02:53 Amazon’s presence in the healthcare market mean for me? And oftentimes those conversations end by
0:02:57 saying, well, at least Amazon’s not delivering healthcare. And so that excuse has now been
0:03:01 officially taken off the table. And by the way, it’s worth noting that Amazon is not the first
0:03:06 employer to do this. I think it’s more Amazon’s position in the market as a key consumer-facing
0:03:11 brand. That’s really what has been the source of fear for many of these organizations.
0:03:14 Well, even something like AWS, Amazon Web Services, was something they built internally
0:03:19 for their own use that then became something they opened up to a ton of startups. And so
0:03:23 what it ended up enabling was this whole new wave of companies being built. So if they do open up
0:03:29 these services in the future, who knows what’s possible. Exactly. There are at least two vectors
0:03:33 that you could see this taking. One is Amazon actually turning this into a direct to consumer
0:03:38 service or taking more of that AWS approach and going B to B and saying, we’re now going to be
0:03:43 selling a benefit. One of the things that’s really interesting here is that they’re providing care,
0:03:48 but they’re doing that through contract so that they haven’t hired nurses and physicians.
0:03:52 Is a company called Oasis or something? A company called Oasis.
0:03:56 So what you’re also winning out then with the partnering side is that they essentially right
0:03:59 now are buying versus building or at least partnering versus building. And that’s really
0:04:03 interesting because Amazon at core is a tech company. So why wouldn’t they be building this
0:04:06 tech themselves? Do you have any thoughts on this whole bill versus buy aspect of their moves?
0:04:10 There’s a virtual care component, which certainly is technology enabled.
0:04:14 There is a home visit component, which is human clinical services. And then there’s
0:04:19 the pharmacy component, which is really what people believe to be pill pack sort of repackaged.
0:04:24 And I would say the first and the third of that certainly are tech and Amazon has built the first
0:04:28 and then acquired essentially the third. I think it’s really that middle piece why people were
0:04:32 skeptical that Amazon was going to get into healthcare is that the clinical service delivery
0:04:37 operations is really the most complex part of that, you know, having on the ground services to
0:04:42 enable nurses to walk into people’s homes and have the right equipment. So that piece intuitively
0:04:46 makes sense for this organization to actually sort of bring through a partnership.
0:04:50 But that is also, you know, something that people will be watching very closely is
0:04:55 will Amazon actually backwards integrate into those services ultimately themselves?
0:04:58 I think there’s also an assumption one can make here in that tech and bucket that you lay out
0:05:04 really that there is an incredible lift that one could get from technology in terms of helping
0:05:08 with the coordination of care, scheduling it and scaling it. Yeah, because I mean,
0:05:12 I think one of the things that is incredibly true about healthcare is we know it’s very analog
0:05:17 still. And so the things that get down on the board. Exactly. So I think, I mean, it’d be
0:05:23 interesting to see how and if Amazon is helping to essentially supercharge or power oasis in this
0:05:28 whole delivery. I have a question though, just to push back, which is this is all very tech-centric.
0:05:33 What would the counterpart be to sort of saying the realities of how healthcare really works?
0:05:37 Yeah, it’s a great point, Sonal. And I think some of the challenges that one would kind of see
0:05:42 around a business like this are, you know, the very reasons why sort of tech only companies
0:05:47 haven’t been able to scale historically. So certainly one is how do you sort of integrate
0:05:51 yourself into the supply chain of the broader healthcare landscape? Because at the end of
0:05:55 the day, the services that Amazon is providing now are primary care. They’re not doing anything
0:05:59 related to specialty care, certainly anything that’s related to sort of procedural surgical
0:06:03 services that would require you to go into a hospital, et cetera. And when you look at actually
0:06:08 the distribution of spend, primary care is really a small component of that. And so in
0:06:13 order to truly get at the even the cost equation, let alone the overall, how do you manage a patient’s
0:06:17 entire healthcare experience? This is really only scratching the surface.
0:06:22 So then honestly, is there room when you have huge players like this, like for startups? I mean,
0:06:26 at the end of the day, we always say that every small niche in healthcare is at least a billion
0:06:32 dollars wide. It’s such a massive market. Primary care alone is a $220 billion market opportunity.
0:06:35 And so I believe that it will not be a winner take on market, especially given some of the
0:06:39 characteristics of how you need to scale a business like this. And when we look at, you know,
0:06:43 these sort of novel primary care models, there’s a few questions that we will ask, you know,
0:06:48 one is, how does this service get distribution? That is oftentimes the hardest part of building
0:06:54 businesses in healthcare is you’re really fighting against very, very heavily ensconced
0:06:57 incumbents. I mean, to get around those channels or build new channels is very, very difficult.
0:07:02 I love, by the way, Alex Rumpel’s line, which is that the game for startups is to get distribution
0:07:07 before the incumbent gets innovation that nails that. Exactly. I mean, so that’s, you know,
0:07:10 sort of one thing to think about. The second thing is, you know, how does whatever upstart
0:07:14 company sort of integrate itself into the broader supply chain of healthcare? And that could be
0:07:18 through referral relationships, you know, how do you build a referral network and sort of
0:07:22 overcome some of the barriers to becoming essentially a new market entrant? And then
0:07:27 the third piece is scale on sort of a geographic basis. And healthcare is one of those sort of
0:07:32 businesses where just because you have a contract with a payer in a given sort of market or state,
0:07:37 that means nothing for reducing friction as you’re trying to enter into other geographies.
0:07:41 And so I think that step by step, that brute force model of how you sort of build
0:07:47 reach is challenging. Amazon, if they were to bundle this as an offering with something like
0:07:52 an Amazon Prime, you know, distribution becomes a no brainer. I think the downside for them will
0:07:57 arise from, you know, what about all of the data and how will my privacy be affected?
0:08:01 What is a future that it takes us to, we’ve been talking about the news so far, like, what’s the
0:08:06 big picture of what happens next in healthcare when there’s things like this new virtual care?
0:08:10 I think it pretends what the future of healthcare might look like. In a lot of ways, it’s becoming
0:08:15 much more of a decentralized thing. And so you can get healthcare in a retail setting,
0:08:18 whether it’s a minute clinic, you can get healthcare at home, whether it’s telepresence,
0:08:22 whether it’s home visits. I think what we’re going to see is, you know, in many ways healthcare,
0:08:28 you know, is leaving the building, healthcare is leaving the pill bottle. And many ways healthcare
0:08:32 is leaving the traditional idea of, you know, having a medicine back in that, you know,
0:08:39 now we have technology like iPhones that can do an increasing number of ways to detect health and
0:08:44 disease. You know, an Apple Watch can now act as an EKG. And so, you know, there’s so many things
0:08:47 that are coming together, I think we’re going to hopefully have a very positive impact on our
0:08:51 healthcare system. Healthcare is leaving the building, the bag and the bottle. So bottom line it for
0:08:55 me. Yeah, I think what Amazon is doing will be what, you know, large employers will start to do.
0:09:00 I also think that it is a sort of a forcing function for people to recognize that this
0:09:04 is now a thing, that this will be a category of how care is delivered, certainly at the lower
0:09:09 cutie ends of the spectrum, versus more specialty care and higher need. And startups have plenty
0:09:14 of market opportunity left across the service area of healthcare to innovate in similar ways
0:09:18 from the bottoms up. Well, thank you guys for joining this segment of 16 Minutes.
0:09:22 Okay, so for our next segment, I asked Asics and the General Partner, Chris Dixon, for his quick
0:09:27 take on Facebook’s annual developer event, Oculus Connect 6, which just took place this past week,
0:09:33 and what it means for VR virtual reality and AR augmented reality. And Dixon, as you go through
0:09:36 and just quickly summarize the news, quickly share the broad implication of each.
0:09:42 Yeah, so Oculus made a number of announcements. To me, the TLDR is they continue to advance
0:09:48 VR and AR at a very rapid rate. There’s the Oculus Quest, which is their marquee device right now.
0:09:52 It’s really kind of a game changer. And I think really has the potential to go mainstream. And
0:09:55 they actually said that the event that they are selling them as fast as they can make them,
0:10:00 they announced support for the Quest will now run PC VR games, which unlocks a whole bunch of
0:10:04 sort of new content. On the technical side, they’ve gotten full hand tracking working,
0:10:09 which means in the future won’t need to have the controllers in your hands. And also we’ll
0:10:13 have a much more granular ability to interact with the virtual world. I think of this in the
0:10:16 larger theme is what you’re going to see over time as you get rid of the controllers. And then
0:10:21 you see the headset shrinking and shrinking and eventually just simply be glasses that can do
0:10:26 both AR and VR functionality. And this is an important step along the way. They also announced
0:10:30 the Oculus Quest has some simple AR functionality where you can see through it’s called pass through
0:10:33 and they announced the pass through plus, which is kind of a more advanced version of that.
0:10:37 I think kind of signaling that they are thinking very much about kind of AR and VR converging
0:10:41 really they’re very similar technology where, you know, VR is when the real world is fully
0:10:46 occluded and AR is when you can see partly the virtual and the real world. Just a break
0:10:51 pass through down. So when you’re playing like VR game or just in a VR environment right now to
0:10:55 see the physical world, you actually have to take your headset off and then put it back on.
0:11:00 And so the significance of that is that when you talk about blending VR and AR, your point that you
0:11:04 actually can be immersed in the world and also have virtual world overlaid over the physical world.
0:11:08 Yeah. So one of the limits of VR now, like I’m a fan of VR, but like after an hour, there are some
0:11:13 things that are not optimal comfort wise. And so as you chip away at all those things, I think it
0:11:16 becomes a much more, first of all, much more social, like that’s one thing about VR. Like right now,
0:11:19 they have this cool thing where you can screencast and so people can see on their phone what you’re
0:11:24 seeing. And that makes it more social, but make it more inclusive, make it more open. So people
0:11:27 feel like they’re still in the room, but they’re having the full immersion. I mean, it’s, it’s,
0:11:31 there’s two sides of the coin. On the other hand, the whole benefit of VR is the deep immersion. So
0:11:33 you want that, but you also want, I think you want to balance. So that’s what they’re trying
0:11:37 to do with like the AR features and just the obvious things. They also announced some more
0:11:41 futuristic stuff. So for example, one thing that they’ve been working a lot on are what are called
0:11:44 verifocal lenses. Can you safely explain that? Yeah, just very briefly, it turns out there’s a
0:11:49 number of ways in which people see in 3D because, you know, you have two eyes and your brain puts
0:11:53 together the difference in what you see it. And VR is able to replicate that very well. If you want
0:11:57 to try it, it’s an app called Big Screen, which we’re investors in, where you can watch 3D movies
0:12:01 and you get a much more richer 3D effect than you do in the movie theater because you have true
0:12:05 eye separation. But it turns out there’s other ways in which your eyes see depth, not an expert
0:12:10 on this, but I’ll try. So what your eye expects is that when an object is farther away, the light
0:12:13 bends in a certain way. And right now in VR, it doesn’t happen that way, right? Because your
0:12:18 screen in front of you, it has an infinite focal distance is what the technologist would say.
0:12:22 And so one of the things they’ve now gotten working in the lab is something where you actually
0:12:27 can have a many dozens of layers of focal distance in the same headset. I would expect the next device
0:12:31 to have what’s called foveated rendering, which is basically fracture fovea, which is where your
0:12:36 eye is looking and render. So it turns out the way you look in real life is when you’re looking at
0:12:40 something, you see high res and the thing directly in front and then low res around it. And this is
0:12:44 your way of your brain kind of saving compute cycles. And so VR will do something similar where
0:12:49 you only render the center. Wait, so foveated rendering, if I understand correctly, it basically
0:12:55 trades off the broader field of view with higher resolution for where your eye is actually focusing
0:13:00 and not for focusing on things in the periphery as a way to trade off the available processing power.
0:13:05 Yeah. So for example, the Oculus Quest is running on a mobile processor, unlike the Oculus Rift,
0:13:09 which you have to physically plug into your PC and has much more GPU power. And so as a result,
0:13:15 if you look, you can see like less lighting effects, just simpler textures, things like that.
0:13:19 And that’s because the GPU is running at full speed. And it’s a mobile GPU. It’s amazing
0:13:22 that they could do this on a mobile GPU. The GPU is doing both inside out positional tracking,
0:13:27 which is itself a hard machine learning problem. And it’s rendering a full game engine and everything
0:13:31 else. And that’s just one of many things that are being advanced. And so a big question when you
0:13:36 have a new technologies, are you kind of following a linear or exponential path? And I think we’re
0:13:40 following an exponential path. We will be soon once we get the developer system really going.
0:13:48 The missing piece right now is enough users that developers can invest right now, the major kind
0:13:52 of game studios and other software developers don’t see it as a big enough platform. At some
0:13:56 point, we’ll hit that tipping point. There’s probably 10 million active users or something.
0:14:01 It needs to be in the billions and tens of billions. But all signs point to this technology
0:14:05 really getting rapidly better and Facebook driving the vast majority of it. There are other
0:14:09 companies doing cool stuff like Valve is doing some very cool stuff. Microsoft tested the HoloLens
0:14:12 and AR and things. I think they’re kind of betting more on enterprise use cases and AR.
0:14:16 Okay. So that’s a quick update at the device level and where we are, where we’re not in the trend.
0:14:21 Bottom line, for me, Dixon. The bottom line is this is going to be a major new platform,
0:14:24 I believe, and we’re seeing evidence of it. I think we went through the Trophotus
0:14:28 Illusion in VR and we’re coming out of it. And the rate of improvement is very quick.
0:14:34 I get the feeling watching Oculus Connect the way I used to watching the Steve Jobs Apple
0:14:38 Keynotes like today. It feels more incremental, frankly, on the mobile phone side. But here,
0:14:42 there’s like sort of genuine big breakthroughs. Fantastic. Well, thank you for joining this week’s
0:14:46 episode of 16 minutes. Thank you. So in this last segment, we’re going to talk about the
0:14:50 recent news. And honestly, I wouldn’t normally put this in the news because it’s really journal
0:14:54 article, but enough media headlines covered it that I want us to talk about it, which is this
0:15:01 paper apparently Google claims quantum supremacy. But here’s the funny part. The paper was accidentally
0:15:05 released by some of their collaborators at NASA who put it on their public website. So then it was
0:15:10 really quickly taken down. But in that period, a ton of media headlines hit about it. And just
0:15:15 to quickly summarize the news, so a group at Google achieved so-called quantum supremacy with a 53
0:15:21 qubit superconducting device. And a qubit just for definition is a quantum bit. And they’re doing
0:15:26 this with a quantum processor called Sycamore. And just a quick definition on what generally
0:15:30 people may define as quantum supremacy is just very simply put, it’s a point at which a quantum
0:15:35 computer surpasses classical computers for some specifics that are problems in a given domain.
0:15:38 And then there’s also some other recent news and movements. But what we really want to talk
0:15:43 about today is tease apart the facts from the fiction. Scott Aaronson, the professor at UT
0:15:46 Austin, who writes a lot about quantum computing, a blog post he wrote about the Google News. He had
0:15:51 this line that said, “Fact-free pontificating about what it means has predictably proliferated.”
0:15:56 So we’re here to unproliferate that. That voice you just heard is ASICS and Z-Bio General Partner
0:16:02 Vijay Pande, who has a PhD in physics, which is very relevant here, but also early in his lab at
0:16:07 Stanford did pioneering work on a distributed computing protein folding project called Folding
0:16:11 at Home. And it’s pioneering because it really pushed the boundaries of computing and was very
0:16:16 early to using GPUs. And by the way, just to quickly define what quantum computing is,
0:16:22 simply put, it’s a type of computing based on nature’s operating system of quantum mechanics.
0:16:28 So unlike classical computers, which are limited to human style binary code, quantum computers can
0:16:32 do things that classical computers can’t do or can’t do fast enough. And this is really important,
0:16:37 especially as Moore’s Law continues to achieve in seemingly impossible feats. At some point,
0:16:40 it really hits its limits. And that’s where quantum computers come in. But people have been
0:16:45 talking about them for ages, and they also always tend to go right to the saying, “Oh no,
0:16:49 once this happens, all our cryptography will break too.” So what’s your quick take there, Vijay?
0:16:52 So what’s interesting here is that there are some people who think that this is nothing,
0:16:56 and that’s wrong actually. And then some people think this is in the world, and that’s wrong too.
0:17:02 So is quantum computing real? Is it here? Yes. Now, does this mean that cryptography is broken?
0:17:07 Does this mean that classical computers aren’t useful? That part is not true. And I think
0:17:12 supremacy is a term that really maybe is a little bit grander than it needs to be.
0:17:15 Yeah. Actually, can we talk about this? Because people get really caught up in it. And I think
0:17:19 it’s one of the funniest jokes I’ve heard about the term quantum supremacy. Someone once told me
0:17:23 that it’s a way for Google to convince management that they’re doing good work. Because it gives
0:17:27 like the managers like, “How do you even do milestones and really cutting edge work like
0:17:31 quantum computing?” But the other thing that is, you’ve actually coined this concept of a quantum
0:17:35 intercept when we wrote about our investment in reggae computing. And I’ve also heard the term
0:17:40 quantum in imitability. And also like reguettis use the term quantum advantage. I think quantum
0:17:47 supremacy is a big way to say that you can run a calculation on a quantum computer faster than
0:17:51 whatever that calculation would be on a classical machine. It doesn’t have to be
0:17:56 a calculation that any of us would ever want to run or need to run. It can do it better basically.
0:17:59 And just to be clear, this can be very different for very different types of problems in different
0:18:03 domains. That number of qubits required to do it is very different across all of them.
0:18:08 Absolutely. You told me about the part that isn’t type. Can you tell me the part that doesn’t work
0:18:12 about this? Okay, so here’s what you can do. It definitely isn’t a general purpose machine. You
0:18:16 couldn’t run any sort of calculation on it. But you know, GPUs are like that too, in a sense. And
0:18:20 then the second thing that it isn’t is that people have been saying, “Oh, now cryptography is broken
0:18:28 and Google can do this and that.” That is not the case. When people talk about a quantum computer,
0:18:32 they mean different things. And this is part of the problem. And so when some people talk about
0:18:38 quantum computers, they mean error correcting or noiseless quantum computers. And what Google
0:18:43 and IBM and Raghetti are working on is sort of near intermediate sort of noisy quantum computers.
0:18:46 Are you talking about NISC, like noisy intermediate scale quantum?
0:18:47 Yes.
0:18:52 And in layman’s terms, is it basically the idea like how to basically get useful information
0:18:53 out of a crazy quantum machine?
0:18:56 It has a little bit of noise, but there’s a lot of things you can do to work around that.
0:19:01 And so in that sense, it’s maybe almost a little bit more similar to analog computing in the early
0:19:05 days where noise doesn’t have to be a problem, but you have to have clever algorithms.
0:19:08 And there’s several clever algorithms that run on these NISC-style machines,
0:19:10 but cryptography is not one of them.
0:19:14 And so here’s why this is interesting. You talked about the early folding home days.
0:19:19 When we first coded on GPUs before CUDA or languages for GPUs were common, we were one
0:19:24 quarter the speed of a CPU. And a lot of people in my lab were kind of disappointed about this.
0:19:29 I was excited because what happens is that when you have two curves and one is going faster than
0:19:33 the other with the GPU curve going faster in the CPU curve, just the fact that you could
0:19:37 get this to work means that in a relatively short period of time it will become dominant.
0:19:41 It’s interesting you mentioned from CPU to GPU because people have talked about also
0:19:46 TPUs like tensor processor unit, but then after that a QPU, a quantum processing unit.
0:19:48 Well, the QPU and a quantum computer are one of the same.
0:19:52 So quantum computers are a very different approach to computing in that instead of doing
0:19:57 calculations with a typical processor, you’re essentially running a quantum experiment
0:19:58 with these multiple qubits.
0:19:59 And why would you bother?
0:20:03 So just concretely, what are the early applications where this might play out?
0:20:07 Yeah, the early applications that people are thinking about are one in areas of actually
0:20:12 doing quantum mechanics calculations, but also there’s a whole burgeoning area of
0:20:18 quantum machine learning. Basically, the non-linearity of quantum mechanics allows a much simpler
0:20:22 version of quantum machine learning to reproduce what you normally have to do in a much more
0:20:25 complex way with classical machine learning. And of course, you know, in the world I care
0:20:28 about engineering biology, now we can finally engineer it in some aspects that we can’t
0:20:32 today. So quantum mechanics is the world of molecules as it is. And so being able to finally
0:20:37 calculate that is entering to a world where we can apply engineering like principles
0:20:39 into areas that we just can’t right now.
0:20:42 So then let’s go back to this idea of quantum supremacy. So give me your quick take on, do
0:20:45 you think it’s just BS and some hypey thing or is it like a real thing?
0:20:50 I think it’s real that they’ve been actually able to run a bonafide algorithm on a machine
0:20:54 of that scale. So I think that’s impressive. And I think what this hopefully does is take
0:20:58 people who are quantum skeptics and make them realize that there actually is something here.
0:21:02 The other part that I think is really, really important to emphasize is that
0:21:07 it’s not like we’re jumping from one Moore’s law curve to another that’s going a little faster.
0:21:11 If Moore’s law says the power of the machine doubles like roughly every year, the quantum
0:21:16 machine, its power is exponential in the number of qubits for certain types of applications.
0:21:21 And so we’re GPUs, we just had a faster version of Moore’s law from CPU to QPU is the paradigm
0:21:25 shift. It’s a completely different game. This is something like it’s a completely different law.
0:21:29 Well, to break down concretely with the implication for people building software and anything that’s
0:21:35 relying on computing, it means that if that law plays out, the surprise of when people hit that
0:21:40 moment of quantum supremacy, intercept, advantage, whatever label we put it will happen much faster
0:21:43 when you think nothing happens all of a sudden. Oh my God, it’s there.
0:21:48 That’s exactly right. You know, people are making analogies for this to Sputnik. You know, Sputnik
0:21:53 was just a very simple satellite, but there was a lot more to come. Scott Aronson actually
0:21:57 likens it to the Wright brothers and it’s the perfect example. This is exactly what you said.
0:22:00 It’s not here, but it’s also not not here because the Wright brothers, there was all these false
0:22:04 starts, but then they actually did learn how to fly. You and I just talked about this a couple
0:22:08 of weeks ago on 16 minutes. There’s always a hybrid phase when you’re doing really cutting edge stuff.
0:22:11 Absolutely. So we talked about these different types of machines. There’s like the noiseless
0:22:15 machine. There’s the NISC machine. You could actually think about a third type of architecture
0:22:20 where you combine some aspects of quantum and classical. Anyway, when you run on a GPU, you
0:22:24 never run just on the GPU. It’s a GPU and the CPU working together. Exactly.
0:22:29 And some parts are there on the CPU, some parts on the GPU. So a CPU-QPU hybrid makes a ton of
0:22:33 sense, especially now. Fantastic. Thank you for joining the segment. Great. Thank you.

0:00:05 The content here is for informational purposes only, should not be taken as legal business
0:00:10 tax or investment advice or be used to evaluate any investment or security and is not directed
0:00:14 at any investors or potential investors in any A16Z fund.
0:00:19 For more details, please see a16z.com/disclosures.
0:00:21 Hi everyone, welcome to the A16Z podcast.
0:00:26 I’m Sonal and today, General Partner Chris Dixon and I are chatting with Kevin Chu,
0:00:31 CEO and founder of Forte, which is focused on building a more collaborative future for
0:00:37 gaming by realigning the economic relationship between players and developers and others.
0:00:41 Kevin was formerly CEO of Kabam, which was an early leader in online and mobile gaming
0:00:42 before it was acquired.
0:00:46 So he’s seen it all when it comes to the major shifts in gaming from then to now and
0:00:48 what’s coming next.
0:00:53 So today’s episode covers everything from what those platform shifts were and are to
0:00:59 what it means to evolve the business models for gaming, specifically coming to and from
0:01:02 the idea of free to play.
0:01:06 And we also touch on where blockchain and crypto economics come in.
0:01:10 But first we began by quickly touching on Kevin’s early history in gaming and especially
0:01:13 what changed during the first decade of the odds.
0:01:19 I started playing games on my dad’s 8086 and so back then there was no hard drive, you
0:01:23 had to load in the floppy disk and change the config.sys files to make sure everything
0:01:24 all worked properly.
0:01:34 So I started playing games on PC and fast forward and I played games all throughout college
0:01:37 and started playing some competitive games.
0:01:44 And then in 2006, I ended up starting at Kabam and at that time, the world was moving from
0:01:49 going to the store and buying a copy of a video game to be able to go onto the internet and
0:01:55 be able to load up a game either in a browser or download a game through Steam or other
0:01:57 digital distribution platforms.
0:02:02 And so what was starting to happen was the convergence of cloud computing, even though
0:02:07 we didn’t quite call it that back then, and this new model called free to play and kind
0:02:09 of a third trend, which is social.
0:02:16 And so Facebook was taking off, they enabled applications to be built on Facebook and games
0:02:20 just ended up being the dominant category by far on the platform.
0:02:25 And we all started building games in the cloud that lived on Facebook and then back
0:02:27 then on Myspace.
0:02:29 So that’s how it got started in games.
0:02:30 That’s awesome.
0:02:33 Can you break down for us why free to play was such a big deal?
0:02:35 I think a lot of people take it for granted.
0:02:40 I mean, I get the obvious pro, which is that you don’t have to pay to start to play.
0:02:44 But then how did we get to this world where it’s actually changed, like that’s kind of
0:02:45 a given now.
0:02:51 So free to play introduced games to probably the billions of people that played today.
0:02:57 So today in 2019, there’s roughly 2.4 billion people who play games on a global basis.
0:02:58 Wow.
0:03:01 It basically 10Xed the player base, right?
0:03:02 More than 10Xed.
0:03:03 Yeah.
0:03:10 I think back in early 2000s, it was a couple hundred million people that played games.
0:03:13 That was mostly consoles and hardcore PC gamers.
0:03:14 That’s right.
0:03:20 So the rise of mobile games and free to play became kind of the 10X movement.
0:03:22 In the beginning of mobile, it wasn’t free to play, right?
0:03:28 As I recall, you were like these little 399 games and it took a while for game developers
0:03:30 to figure out that that wasn’t as good of a model.
0:03:31 Is that right?
0:03:32 Yes and no.
0:03:36 So the traditional game developers like Sega, who built on the iPhone as one of the very
0:03:42 first apps on the iPhone, made their games as traditional 399 or 499 games.
0:03:48 From the very beginning, the Zynga, the Kabams, we were looking at the iPhone app store and
0:03:53 we were all in conversations with Apple to say, “Hey, enable in-app transactions.”
0:03:58 It was really the Facebook era of what we called social games, but really the convergence
0:04:03 of free to play and cloud-based computing that enabled kind of all the games on Facebook
0:04:07 to explode and everyone knew mobile would make the market massive.
0:04:10 Free to play is also intimately connected with multiplayer, right?
0:04:14 Because the way I think about it, too, is if it’s 399 and it’s only fun if your friend
0:04:17 plays it, what are the odds that all of you, for the same reason that social networks are
0:04:21 all free and monetized through other advertising, et cetera, it’s very hard to get that network
0:04:23 effect going, right?
0:04:26 If it’s not free to play, you need a graduated engagement kind of strategy where you start
0:04:31 off light and then get heavier as your friends get on and you get right.
0:04:35 There are free-to-play single-player games, but a lot of the big one, dominant ones are
0:04:36 multiplayer.
0:04:37 They’re all multiplayer.
0:04:38 That’s right.
0:04:42 That aspect really comes in because you don’t have to worry about having everyone in the
0:04:43 exact same console.
0:04:44 That’s right.
0:04:45 The exact same.
0:04:46 I mean, that’s really what the next is.
0:04:47 Well, and asynchronous is important, too, right?
0:04:50 Like, the Facebook game’s very asynchronous, meaning you don’t have to be on line at the
0:04:51 exact same moment.
0:04:52 Same time.
0:04:53 Is that a person?
0:04:54 Right.
0:04:55 And in fact, they encourage you not to be, right?
0:04:56 A lot of those games encourage you to get off, only play for 10 minutes, and you have
0:04:57 to wait a day.
0:05:02 So when you say multiplayer, there’s asynchronous multiplayer and then there’s real-time multiplayer.
0:05:06 Facebook started with asynchronous multiplayer, but Kabam’s, you know, our entry strategy
0:05:10 into the market was we’re going to make real-time multiplayer games on Facebook because we were
0:05:12 fascinated by that type of game.
0:05:15 Is that harder to get the network effect going because they have to be on line at the
0:05:16 same time?
0:05:17 It is.
0:05:22 So it is generally a more core type of game, but in the game industry, those types of games
0:05:27 have much deeper economies, much higher revenue per user, kind of metrics, and probably most
0:05:30 importantly, it’s the time played is just much, much higher.
0:05:31 Okay.
0:05:35 So the big shifts so far were that Facebook opened up its platform for developers to build
0:05:38 applications on top of back in 2007.
0:05:40 And the first iPhone came out that year as well.
0:05:43 And the App Store entered the picture when?
0:05:48 So the App Store, I believe, came out in 2009, the year after the second year of the iPhone.
0:05:54 And that first year, you can only do a transaction, you know, before the download.
0:05:57 And I can’t remember exactly how long.
0:06:03 I’m tempted to say two years before they allowed sort of in-app transactions to really
0:06:07 work and tap into the Apple credit cards that were stored, et cetera.
0:06:08 And that’s when the market just blew up.
0:06:12 And so when we launched, we launched our first game in 2012.
0:06:19 But then you moved from Facebook to iOS, like focus solely on mobile rather than over social?
0:06:22 We were the first social gaming company to really embrace mobile.
0:06:27 So we started our kind of major R&D projects in 2011.
0:06:28 Nobody knew what the technology would be.
0:06:32 So we tried building on Adobe Air because you couldn’t, you know, App, you know, Steve
0:06:35 Jobs famously banned Flash from iOS.
0:06:39 And so we were trying to, and all of Facebook was Flash.
0:06:42 And so we were all trying to figure out what kind of client technology we would use.
0:06:47 So we kind of, we had three different projects, HTML5, Adobe Air, and of course, native.
0:06:49 This was on top of the payment issues.
0:06:54 It was just in dealing with the network latency and drops and so forth.
0:06:59 And so we launched our game in 2012, Kingdoms of Camelot, which became the number one grossing
0:07:01 game in 2012.
0:07:04 We saw just how powerful mobile was going to be.
0:07:09 And we basically stopped any new game development on Facebook and developed all of these.
0:07:11 I think of 2012 was a watershed year.
0:07:13 That was when Facebook did their pivot to mobile.
0:07:18 Remember, before that, Facebook had the kind of janky HTML5 mobile app, and then Zuckerberg
0:07:20 declared we’re pivoting to mobile.
0:07:21 Oh, right.
0:07:24 Zuckerberg’s famous statement that the biggest mistake they made as a company back then was
0:07:29 betting too much on HTML5 versus more, the more native like iOS.
0:07:33 It’s interesting because a lot of times when you’re in the middle of a exponential growth
0:07:37 curve, you don’t know you are because at that, at that moment, like you look at an exponential
0:07:39 growth curve, beginning kind of looks somewhat linear.
0:07:42 And then, you know, that was sort of the moment where it hit the kind of knee of the curve
0:07:46 and really just everyone was like, whoa, we all knew mobile was a big deal.
0:07:50 And 2012, I think it was when it hit people in the technology community that it’s not
0:07:51 just a big deal.
0:07:52 It’s the deal.
0:07:57 It’s no longer the secondary to the desktop, it’s now the primary, and it just flipped
0:08:01 everything and everyone, you know, it was sort of this really kind of jolting moment,
0:08:02 right?
0:08:04 I feel like there was a second inflection point, which is Android.
0:08:06 2012, nobody built on Android.
0:08:08 It was incredibly fragmented.
0:08:13 Every carrier, every handset, you know, there are entry strategy was you go to the carriers
0:08:19 who don’t have iPhone, like in the US, it was, you know, AT&T singular.
0:08:22 You go to the other guys who don’t have it because they had an exclusive and you say,
0:08:24 hey, don’t you want functionality like that?
0:08:26 And so they basically gave them this free operating system, but they let them customize
0:08:27 the heck out of it.
0:08:32 And that was the way to get in there and appeal to the carriers, which got them distribution
0:08:34 and was a very good strategy, but also led to incredible fragmentation.
0:08:39 So you had to build like, essentially custom versions for like, whatever, we would have,
0:08:44 we have testing banks of 200 different phones that would eventually try to, you know, install
0:08:46 every update, you know, and QA test on those devices.
0:08:49 At one point, Google put the hammer down and forced it.
0:08:53 That was when the second sort of inflection point in mobile came was when that fragmentation
0:08:57 started to consolidate and you could sort of build on just, you know, Samsung and, you
0:08:58 know, a few other…
0:08:59 When was that?
0:09:00 Like 13 or 14 or something?
0:09:03 Probably more like 14 or 15.
0:09:06 So that took us from 2007 to 14.
0:09:08 The question I have is what didn’t work about free to play.
0:09:12 I mean, it worked on one hand, obviously, but then there’s obviously things that didn’t
0:09:14 work about free to play also.
0:09:16 Well, there’s certainly bad implementations of it.
0:09:21 I remember, I was a big Plants and Zombies one player and Plants and Zombies two.
0:09:27 Plants and Zombies one was a, you paid download and two, they did free to play, but they just
0:09:31 like everywhere you go, it’s like buy, buy, buy, and it just ruined the experience.
0:09:32 It was all these notorious.
0:09:37 I think it’s in Star Wars, just have battle, battlefront, just had a debacle kind of thing.
0:09:39 And it’s, the world is kind of bifurcated a little bit.
0:09:43 I’m simplifying a little bit, but free to play is bifurcated and to pay to win, which
0:09:50 is there’s functionality that you have to pay for and you can either spend an incredible
0:09:55 amount of time and be lucky to get the things or you can just open up your wallet and pay
0:09:56 for it.
0:10:00 And so generally those bifurcated and to pay to win where the top players are paying thousands
0:10:05 or tens of thousands of dollars, you pay, you get a significant advantage and whereas
0:10:12 Fortnite is and League of Legends, they’re religious about not letting you pay to win.
0:10:15 It’s a remarkable thing that League of Legends, two billion, three billion in revenue and
0:10:18 it’s literally all cosmetic items that can’t actually help you win, right?
0:10:20 That’s more true in Fortnite today.
0:10:24 I was about to say, I think of trading skins because to me Fortnite trading skins is the
0:10:25 best example.
0:10:26 That’s not.
0:10:27 That’s right.
0:10:28 I would think of for that.
0:10:29 That’s right.
0:10:34 League of Legends, nobody knows exactly the division of revenue, but they release new
0:10:39 characters and the new characters are infamously a little overpowered and then you pay for that
0:10:42 and you get, you get to use that character in competitive matches.
0:10:43 So it’s relatively.
0:10:46 So small, less pay to win, but there’s some, okay.
0:10:47 That’s right.
0:10:48 That’s right.
0:10:52 But it does a remarkable job of keeping it not paid to win and really the only way that
0:10:57 that model works based on the economics of free to play is that you have to get massively
0:10:58 free distribution.
0:11:03 And today what that means is that people on Twitch and YouTube creators and so forth need
0:11:07 to love your game and create all sorts of content around your game such that you’re basically
0:11:12 getting just this groundswell of content and marketing for your game.
0:11:16 Because the actual revenue per user is low enough that you couldn’t support paid marketing.
0:11:17 That’s right.
0:11:21 You can never support paid marketing for those types of games.
0:11:24 And then on the other side, you have, it is paid to win games, it’s become a science in
0:11:29 terms of understanding LTV to, you know, CAC ratios by cohort, by channel.
0:11:33 So they have a much higher, the paid to win have much higher LTV so they can support paid
0:11:34 marketing.
0:11:36 So it’s a very different acquisition channel as a result.
0:11:37 Okay.
0:11:40 In Facebook, you’re buying, you know, Google ads and so forth and you’re sort of tracking
0:11:41 down to cohorts.
0:11:46 Whereas in League of Legends, you’re saying, “Hey, great, I’m going to spend $5 million
0:11:52 to host this, you know, Esports League tournament, you know, an event and tournament.
0:11:55 And you know, I don’t know exactly what my cost per user is.”
0:11:59 And frankly, I think Esports today is much more about retention of users than it is about
0:12:00 new users.
0:12:03 But certainly in the beginning of the life cycles of a game, it’s all about new players
0:12:05 coming in and then staying ideally free.
0:12:08 And the games where you can’t pay to win tend to have more longevity, right?
0:12:09 Like the League of Legends.
0:12:13 I mean, it’s been around now 10 years and still going strong.
0:12:18 And it’s, you know, League of Legends was a fascinating pioneer for you to play because
0:12:22 they wanted to focus on infinite skill level.
0:12:26 So they really wanted to create a game where the best in the world were playing that game
0:12:30 just entirely differently than how a very good player in that game would play, which
0:12:33 was entirely different than how a new player would play that game.
0:12:34 That’s fascinating.
0:12:38 So infinite skill level means you can essentially play for the entire lifetime or you can become
0:12:39 like a major power user.
0:12:44 I think of it as if there’s a graph, which is how good you are in the y-axis and how
0:12:45 much time you spend on the x-axis.
0:12:50 It’s like it keeps going up as opposed to, you know, I don’t know what tic-tac-toe, like
0:12:51 that’s right.
0:12:55 You hit your peak at age eight or something, you know, or whatever, or a lot of our k-games,
0:12:59 you know, where you, once you play 10,000 hours, you can win Pac-Man or something.
0:13:01 Whereas here you can keep going and coming up with new strategies.
0:13:07 So if you think about, you know, tic-tac-toe at a very basic level or checkers, there’s
0:13:09 only so much skill you can put into that game.
0:13:13 Chess seems to take it up and then Go takes it up significantly more than that.
0:13:18 And so the whole idea is that you can, if you’re, you know, the most talented grandmaster
0:13:23 in Go, you’re playing that game at just a skill level that is dramatically different.
0:13:29 So esports has taken Elo, what’s been used in, you know, for chess matchmaking and so
0:13:31 forth to, to game make, to game matchups.
0:13:35 And so those are the scores you get assigned to chess, like your rating, right?
0:13:36 That’s right.
0:13:42 Your game rating and it allows for, you know, near infinite level of skill depth, you know,
0:13:43 to those games.
0:13:48 Now, now one of the challenges with the, for all of these models, like the free to play
0:13:53 is they don’t, they mostly tend to be whale based, meaning there’s a very small number
0:13:54 of users.
0:13:55 Yeah.
0:13:56 They subsidize the entire game.
0:13:57 Is that true?
0:13:58 That’s true of most of them or all of them?
0:13:59 Yeah, that’s true.
0:14:06 So the, in 2009, you know, roughly 2% of all free to play games players would actually
0:14:10 pay that number today for games like Candy Crush and so forth is in the, you know, much
0:14:15 higher is probably 10x higher actually today, but you have still a relatively small number
0:14:21 of, of users generally less than a percent that pay for 80% of the game’s total revenue
0:14:23 is how the free to play market generally works.
0:14:25 I don’t see that as a problem, is it?
0:14:27 Cause it feels like they’re just subsidizing like any freemium model.
0:14:29 Like why is that such a bad thing?
0:14:33 It becomes bad when those games become real time multiplayer or even synchronously multiplayer
0:14:34 in their competitive.
0:14:39 So as a game designer, you’re constantly trying to think, how do I make this game fun and
0:14:44 interesting for the person who’s paying, who’s not paying, who’s paying maybe five to $10,
0:14:49 you know, you know, a year and then the person who’s paying $10,000 a year, it becomes near
0:14:54 impossible to, to balance that economy after, you know, a year or two.
0:14:59 So what happens is by the time you get to your three, four, five of those games, the
0:15:04 economies are incredibly lopsided and you generally have lost most of your free players
0:15:05 by then.
0:15:08 And you’re just trying to, you’re trying to balance an ever smaller and smaller community
0:15:13 to say, Hey, here’s this person who’s spending $10,000 a month with me and then here’s this
0:15:15 other player who’s spending $100 a month with me.
0:15:17 How do I make it fun for both of them?
0:15:20 It actually becomes an incredible challenge as the years go by.
0:15:24 So that’s why I think that, that type of free to play, you know, system and not every developer
0:15:30 falls into that trap, but certainly the ones that are eventually venture backed and trying
0:15:34 to think about their growth and so forth, you know, fall into that trap more, more than
0:15:37 I’m speaking, partially from experience here, there’s, there’s so much good in it in terms
0:15:42 of it lost so many players to come in and enjoy a game, play with their friends and you’re
0:15:47 not being forced to pay up front, you’re not, you know, you’re not sort of, you know, tricked
0:15:51 by a sizzle reel that says, Oh, okay, great, I’m going to open my 60 pay $60 before I even
0:15:56 know if a game is good or not, which used to happen quite a bit to now, okay, great.
0:15:59 You can come in, you can play with your friends and then if you find value, you can start
0:16:01 paying the trouble comes.
0:16:05 How do you balance that and keep that a great economy for yours to come and keep everyone
0:16:08 coming back and enjoying the game and participating in the community.
0:16:12 So then just a shift a little bit forward because you talked about the period from 2009
0:16:18 to 2014 pretty much, where are we now, before we go into the future, what sort of the latest
0:16:22 shifts in gaming today, like as like sort of the big hit list of trends that you’re
0:16:26 seeing that are the important ones to pay attention to the equivalent of mobile social
0:16:27 cloud gaming, free to play.
0:16:32 So we’re, I think we’re, we’ve sort of been at a plateau for a little while in terms of
0:16:39 business models, certainly in terms of technology, we’re kind of on the cusp of VR AR is something
0:16:41 that the whole game industry looks at.
0:16:44 The other one is cloud streaming.
0:16:47 So instead of, you know, putting a CD into your computer or downloading the client onto
0:16:52 your computer, the client literally sits in the cloud and you’re streaming just the video
0:16:55 file to whatever screen you’re using, and then the input gets streamed back into the
0:16:56 cloud.
0:17:01 And then of course, the one that I’m fascinated by is how can blockchain technology and kind
0:17:07 of creating these peer to peer trustless networks get incorporated into these incredibly
0:17:09 complex gaming economies that now exist.
0:17:15 And it kind of maps, I think the like VR kind of maps to, to me, it’s like a new device,
0:17:17 new form factor maps kind of to mobile.
0:17:21 And then the crypto kind of maps to the new business model, free to play, right?
0:17:26 So the game industry historically is new devices, new technology, new delivery mechanisms for
0:17:27 sure.
0:17:30 Like used to go to this, you know, the arcade and then the store and then, you know, and
0:17:35 then download its steam and now streaming, so new delivery mechanism, new devices and
0:17:36 new business models.
0:17:38 So sort of three tracks of innovation.
0:17:43 And the business model ones, I guess it’s not just true of gaming, but true of all technology.
0:17:48 Business model innovations tend to create the most startup opportunities.
0:17:49 Oh, interesting.
0:17:50 Yeah.
0:17:56 So for example, mobile was far less “disruptive” to incumbent technology companies than the
0:18:00 internet was, because the internet was provided a new business model, whereas mobile did a
0:18:04 little bit with payments and things, but companies like Amazon and Facebook and Google did quite
0:18:05 well on mobile.
0:18:09 It didn’t re-rank the ordering of the companies the way that the internet did.
0:18:13 So it can maps onto the play Christiansen kind of concept of sustaining versus disruptive
0:18:14 innovation.
0:18:19 So let’s dig in a little bit more to blockchain crypto and how it relates to gaming.
0:18:27 So at Forte, we are just incredibly excited about what it means to build a natural economy
0:18:34 or we’re trying to think about it as how does a real community work in terms of the economy?
0:18:37 And what does that mean in a gaming ecosystem?
0:18:41 And so games like the ones that we build at Kabam or many of the other ones that are popular
0:18:44 today, they really command and control economies.
0:18:49 So the developer or the publisher controls all of the items in the game and they control
0:18:50 the pricing of it.
0:18:57 They control the inflation rate of the economy and they prohibit, generally, players trading
0:18:58 with other players.
0:19:02 I mean, just for context, for those who are not only in gaming, but just in the real world
0:19:07 economy, it’s a little nuts if you think about it that a single entity, the game publisher
0:19:13 is like the market maker, the central bank, the sole supplier, the one who coordinates
0:19:16 all the activity between players, like that’s freaking nuts.
0:19:17 You really think about it.
0:19:20 It’s like central light, central planning to the worst degree.
0:19:26 For some games, it may make sense, but I think there’s a lot of games today where you have
0:19:30 individuals in the game really creating a lot of value in that economy.
0:19:36 It could be somebody who’s taking a lot of time to farm and create new items and new skins
0:19:42 and new cosmetics for a game and generally, they’re locked into that platform.
0:19:48 There’s really not an ability for that person to build a business and make a living from
0:19:51 what they’re doing in that game economy and realize the value.
0:19:56 So part of that is we see that mirrored across, if you’re an Instagram creator, you’re sort
0:20:01 of creating a lot of value for the platform, but you’re sort of forced to make a living
0:20:06 through other means, whether it’s a parallel or merchandise, et cetera, versus making a
0:20:08 living on the platform itself.
0:20:13 And so all of that creates all this unnatural, it makes sense from a business model standpoint
0:20:17 in terms of protecting the revenues for the developer, but it makes it really challenging
0:20:22 in terms of how players interact with other players in a game from an economic value standpoint.
0:20:26 And so I think there’s a potential sea change for what the whole industry will go through
0:20:27 in the next 10 years.
0:20:31 So can you walk us through an example like in a couple of years, what would the game
0:20:33 experience be like using blockchain technology?
0:20:37 So I’ll talk about a few of the implementations and these are all potential directions for
0:20:39 how gaming is going to go.
0:20:40 The first is just a loyalty system.
0:20:45 And so game developers have always been thinking, how do I keep a player coming back the next
0:20:46 day and the next day and the next day?
0:20:53 And so once a game becomes a reasonable business and a good hit for a game developer, you sort
0:20:57 of want to, as we started this conversation, you want to make that game last for as long
0:20:59 as you can possibly make it last.
0:21:04 And so one way that a lot of game developers are working with us is to say, hey, we’re
0:21:08 going to create a new blockchain asset and you get some of these assets every time you
0:21:13 log in, every transaction you make, it’s sort of like the equivalent of airline miles or
0:21:17 hotel loyalty points, except there’s real value on it, right?
0:21:20 And players can earn a little bit of value every day.
0:21:27 Other players will say, hey, I need all of these loyalty points to craft my next sword.
0:21:31 And of course, if I haven’t earned enough myself, then I’m going to go into the marketplace
0:21:34 and I’m going to buy $100 worth of these loyalty points.
0:21:39 So all these other players who log in every day and get their $0.10, $0.20 worth of loyalty
0:21:40 points can sell them.
0:21:45 And what do you say to the cynics who say, you could do this without blockchain, you
0:21:47 could just have centralized loyalty points?
0:21:50 I think the interesting part comes from a couple of things.
0:21:54 One is that once you create that item, the item itself can also live on the blockchain,
0:21:55 right?
0:22:00 So then you can have trading of the items that are crafted through these blockchain rewards.
0:22:03 Game developers can participate every time there’s a secondary trade of an item as well.
0:22:09 And I think this is a really important point for game developers because this kind of peripheral
0:22:12 trading of items in games have always happened.
0:22:13 Gold farming.
0:22:17 There’s lots of sort of dark markets where people trade accounts, boosting.
0:22:22 There was a famously like World of Warcraft had these huge, you know, gold farming things.
0:22:26 And then some games like Counter Strike do allow secondary trading.
0:22:32 And in those markets, the secondary markets are orders of magnitude larger than the in-game
0:22:33 economies.
0:22:37 That’s why we’re so excited about it is that we see this behavior happening in the kind
0:22:39 of periphery of what happens in a game.
0:22:43 I think with blockchain, there’s an opportunity to bring what’s on the periphery into the
0:22:48 mainstream and align what the developer is trying to do from a business standpoint, align
0:22:52 the players that are investing their time, energy and money into a game.
0:22:55 Generally the game developer is not making any revenue whenever that item is trading
0:22:59 on an eBay or Craigslist or whatever on a forum.
0:23:03 So they get the benefit of getting some portion of the revenue and benefiting from it, but
0:23:09 then also the benefit that blockchains bring, which is the openness and interoperability.
0:23:13 So you’ll have a bunch of exchanges popping up, you’ll have games interoperating with
0:23:14 each other.
0:23:18 And I think another thing is just as we’ve seen with Bitcoin is that if, you know, you
0:23:20 could argue, why didn’t you just start Bitcoin Corp?
0:23:23 The answer is no one would actually think it has value.
0:23:24 No one would trust it.
0:23:32 The centralized creators could break the sacred rules like there’s only 21 million bitcoins.
0:23:35 So people wouldn’t value it in the same way.
0:23:39 So I think the hope is you’d get a similar kind of effect here where people would feel
0:23:42 like the same way they really feel like they own a Bitcoin, they really own this object,
0:23:45 they can do what they want with it, they can take it different places, they can use it
0:23:51 in different systems, different exchanges, different games, you know, it survived beyond
0:23:55 the life of the game developer, all those kinds of benefits, right?
0:24:00 Which if you did a centralized system, you know, it would just be like just another sort
0:24:03 of, you know, point system like a lot of games have today.
0:24:05 It’s a portable data unit and good.
0:24:09 Can you answer one thing I’m very curious about because it’s almost obvious to me what
0:24:16 happens when you have publisher to player payments and player, even player back to publishers.
0:24:19 What’s new and what’s possible when you have player to player because that’s not really
0:24:20 been possible before.
0:24:23 So I don’t think people really think about like what it means.
0:24:26 They use the word peer to peer in gaming, but what does that actually mean?
0:24:31 Well, it just means that a player is directly transacting with another player.
0:24:37 And you know, in the past, there’s been games like the auction house and Diablo to, you
0:24:42 know, what happens on eBay for World of Warcraft and kind of the gold, the gold economy and
0:24:43 World of Warcraft.
0:24:48 But it means that there’s players interacting with trading with other players in a game.
0:24:53 And generally game developers hate this because it creates all sorts of number one economic
0:24:55 imbalance in a game.
0:24:59 Number two, there’s always some weird form of, you know, people hacking the system to
0:25:01 try to.
0:25:05 So for example, World of Warcraft, you design, you know, the number of hours you need to
0:25:06 play and the amount of gold you need to earn.
0:25:09 And you can sort of say, okay, I’m going to design this progression for players.
0:25:15 But as soon as the player is able to go outside and pay $100 for a huge pile of gold, now they’re
0:25:18 sort of chewing through the content so much faster.
0:25:22 It means that when they’re paying, when they’re $15 a month, you know, renewal, subscription
0:25:23 renewal comes up.
0:25:26 They’re like, well, I’ve, I’m done with the game already, so I don’t need to continue
0:25:27 my subscription.
0:25:31 So it puts the player base sort of at odds with, you know, developer, right?
0:25:37 So somebody else can make a great business, like Brock Pierce famously, who is now in
0:25:42 crypto, you know, created these gold farming businesses and employed tens of thousands
0:25:47 of people all throughout the world to play these games, basically for other players.
0:25:51 And it’s just the designers, you know, couldn’t, you know, you couldn’t manage the design
0:25:55 of the game and the amount of content in the game and how the players were, were actually
0:25:56 transacting.
0:26:01 And it just made the misalignment between what the developer and their players and these,
0:26:05 these other businesses that were trying to build marketplaces and other functionality,
0:26:07 it just put them all at odds with each other.
0:26:11 How would you respond to the folks who say blockchain, the only thing about infrastructure,
0:26:12 not for really changing the game itself?
0:26:17 I mean, I guess what’s the thing that kind of drove you to sort of think about this instead
0:26:20 of like, this is not just another case of like blockchain inside.
0:26:24 There’s been a few other gaming projects started with black chamber in mind.
0:26:27 The core problem in my mind has always been, how do you make it such that the developer
0:26:31 participates as a network, just as much as the players.
0:26:34 This is like realigning the assentums in a big way than what’s happening right now.
0:26:38 We’ve seen it from both being lifelong players of games, but also having to think about how
0:26:39 do I create a business?
0:26:45 How do I, how do I make payroll the next month, you know, and make sure that it works for everyone,
0:26:50 just subtracting away a lot of the complexities of what making a smart contract and a security
0:26:53 around that, you know, would look like.
0:26:58 And so I’m just creating a toolset in a system that game developers are more used to and
0:27:02 doing that from the perspective of somebody who’s been making games for a long time.
0:27:03 Yeah.
0:27:06 On the peer-to-peer market stuff, one question is like, doesn’t it mean like more fraud and
0:27:08 like security concerns?
0:27:09 Like, how do you think about that aspect of it?
0:27:13 There’s another reason why game companies typically don’t want to enable this is because
0:27:15 of all the fraud, et cetera.
0:27:17 But we’re building it right into the platform.
0:27:19 We’ve put together world-class security experts.
0:27:24 There’s a lot of things that, you know, the security of a public blockchain enables and
0:27:27 we’re building the platform in a way that would inherit that security.
0:27:32 And so it’s security, compliance, regulatory aspects are a big part of what we’re helping
0:27:35 game developers tackle.
0:27:37 It’s like sort of making the economy as a service, actually, because you don’t have
0:27:39 to reinvent the wheel every single time.
0:27:42 You can actually focus on really being the creator who’s really thinking about the creativity
0:27:46 of the game and the community of the game, but not the necessary, all the mechanics of
0:27:49 how to set up this alignment, a realignment of incentives.
0:27:53 And this is something that a lot of free-to-play game developers still struggle with, which
0:27:55 is what is actually going on in my economy.
0:27:59 So, you know, not everything’s locked down in a central database or you can query everything.
0:28:04 But the actual stats of how many of these items are sold, what happened when I changed
0:28:09 the price of these items, these are all things that game developers still struggle with really
0:28:12 deeply understanding and having, you know, good models for.
0:28:16 And so we kind of think about all these things and how we package it up and make it easy for
0:28:17 game developers.
0:28:21 Blockchain technology is still hard to use, but I think we’re making a lot of progress
0:28:25 in terms of rapidly iterating on the technology and the usability for developers.
0:28:32 And do you think this could change the distribution of, you know, we talked about earlier about
0:28:38 how these games are driven by whales, this kind of technology could change that distribution.
0:28:39 And so it would be more evenly distributed.
0:28:43 I mean, presumably it would also increase the revenue of the game makers, maybe even
0:28:46 also by the way, you know, and provide an interesting way for the users to generate
0:28:49 revenue in a way they couldn’t before.
0:28:54 And then also potentially kind of smooth out the revenue distribution, right?
0:28:55 There’s a lot of benefits.
0:29:00 So, and then there’s going to be some things that we won’t know until we actually get it
0:29:01 out there.
0:29:05 So, for example, if a game developer says, hey, I’m going to let this item trade in there,
0:29:08 that item could trade on eBay, Craigslist, you could trade outside of the game.
0:29:12 And let’s say I put a 20%, you know, tax on that every time that trades.
0:29:17 Well, if the item sells more than five times, right, then the game developer comes out ahead.
0:29:18 Right.
0:29:20 We won’t know that until we actually get items out there.
0:29:24 We don’t, you know, different game developers are playing with different ways to create
0:29:25 these economies.
0:29:30 And so part of it will be this idea that when you truly give the user and the player value
0:29:34 in the game, how will that person trade that item?
0:29:39 And so just like GameStop has provided a very liquid market in the past for used games, there’s
0:29:42 never been the equivalent of that in a digital world.
0:29:44 We’re going to unlock that, you know, for games.
0:29:47 And then game developers are, you know, give them a whole set of tools to explore the economics
0:29:52 behind what happens when players and the developers actually own these items.
0:29:57 I think another thing that we may see happen with this when you run this experiment is
0:30:01 one of the things that’s happened in crypto in the last 10 years is that there’s been
0:30:07 a lot of really large and passionate communities built around various cryptocurrencies.
0:30:12 And I would argue in some cases, some which is really the cryptocurrency itself has no
0:30:16 really novel features, but the community is very large and passionate.
0:30:20 If you go on the Reddit or Twitter or whatever, you can sort of look at that cynically as
0:30:22 like, okay, there’s a bunch of overvalued stuff.
0:30:27 The sort of positive way to, which I like to look at it as is this thing of owning a
0:30:32 token and being part of a community is a really powerful way to bring people together.
0:30:36 So if you go to some of these, you know, subreddits, you’ll see that they actually know each other.
0:30:38 They help each other with problems.
0:30:42 They often, they have meetups, in-person meetups, it’s a real community and it’s a very powerful
0:30:43 kind of community, right?
0:30:48 It really kind of turbocharges the community aspects that the internet had prior to cryptocurrency.
0:30:53 And so I think one of the unexpected upsides you might see in this is just a level of passion
0:30:54 and commitment.
0:30:57 And you get sort of these people that go out in the van, you know, they own the token in
0:30:58 the game.
0:31:00 They own a bunch of objects.
0:31:01 They have big Twitch and Twitter followings.
0:31:08 They become even more passionate, evangelist, and, you know, effectively from a business
0:31:11 point of view for the publisher, what that does is it dramatically lowers the cost of
0:31:12 acquisition.
0:31:15 I think, you know, we talk about why can’t you do certain things in fiat?
0:31:18 It’s a very common refrain in blockchain.
0:31:22 The reality is if you were to design a system where players earn a little bit of value every
0:31:26 day, that value is pretty much locked into that system.
0:31:30 You would say, okay, that person to earn, you know, 20 cents in my game and they want
0:31:31 to cash it out.
0:31:34 Are they really going to write, you know, cut them a check or send them a wire or how
0:31:39 am I going to pay that player actually 20 cents versus in a, you know, with the right
0:31:46 blockchain, assuming that we solve the scalability problems and other, you know, challenges that
0:31:50 that becomes a really an easy, a more trivial phenomenon to say, okay, we’ve got millions
0:31:55 of players in this game that have earned, you know, relatively small balances and create
0:31:58 ways for them to really feel like they’re participating.
0:32:02 And if it’s, they’re paid in the token, the token, you know, and they go and they help
0:32:08 evangelize the game or build new objects for the game or build new Roblox levels or whatever,
0:32:11 the 20 cents can become worth much more, right?
0:32:14 So they really, they become true stakeholders in the game.
0:32:17 Some of these games will have tens of millions of players, hopefully during that, and then
0:32:21 you’ll have, you know, hundreds of thousands of players, I think that will figure out how
0:32:25 to make a living, you know, from providing, you know, valuable services, maybe they’re
0:32:30 designing the next cosmetic that, you know, they’re able to sell, they’re gathering a
0:32:33 bunch of materials from other players and then maybe, you know, kind of channeling that
0:32:34 to the right.
0:32:40 One of the things I think is unfortunate with the current systems we have, both gaming
0:32:44 and non-gaming technology, it’s well understood that the way that we, you know, the way startups
0:32:47 work, right, is early employees get equity and the earlier you are, the more equity you
0:32:48 get, right?
0:32:51 And so if the company does really well, the earliest people do better and then as things
0:32:54 go on that, and that’s in crypto, we call that a bonding curve.
0:32:59 And like, what if you had a similar kind of bonding curve for the end users, right?
0:33:03 Or the, you know, markup dispense, I’ll say, so like what if the early Uber drivers got
0:33:08 Uber tokens and then they, when Uber IPO, they actually made a lot of money off of it.
0:33:11 Now, you know, the person who just joined last week probably shouldn’t make a lot of money,
0:33:13 but the person who joined seven years ago should.
0:33:14 Took on more risk, exactly.
0:33:18 And then they become real stakeholders and they also, by the way, they would also probably
0:33:21 behave differently, they probably would have been more loyal and that would have helped
0:33:24 the economics of the business because they were worried about switching costs of the drivers
0:33:25 or something.
0:33:28 They would have become evangelists, they would have felt like they’re business owners, right?
0:33:29 That’s right.
0:33:30 I mean, it works.
0:33:33 It’s one of the great secrets of, or not secrets, but one of the, I think the real advantages
0:33:39 that startups have against kind of non startup companies is that the employees have real ownership.
0:33:42 What if you did the same kind of thing with your, with your customers?
0:33:43 So that’s a big part of our vision.
0:33:48 Every game will go through that same type of a network explosion and then swap famously
0:33:53 sort of put it all in code in a smart contract, you know, but it’s a, it’s something that
0:33:56 we’re going to make really simple for game developers.
0:34:00 And this idea that if you come into a game early and you’re playing and you’re earning
0:34:05 what may be a few, you know, tens of, of cents or a few dollars, that infamously, you know,
0:34:08 that person who bought a pizza with Bitcoin, you know, at the time he thought, oh, maybe
0:34:11 I’m only paying, you know, 10 bucks for this pizza.
0:34:15 But the whole point is that we’re going to make it such that early players in the game
0:34:17 can really feel like they’re part of the community.
0:34:20 And if that game does well and that economy does well, they’re going to do well.
0:34:25 And the other effect you’ll get, I think, if you look at most financial markets, you
0:34:26 have multi, you have different types of participants, right?
0:34:29 And I think you’ll get the same thing here, which is you’ll have some people who are just
0:34:34 enthusiasts, and they’re, they, they become the first thousand players of a game because
0:34:35 they’re enthusiasts.
0:34:39 But as we see this process happen more, they’ll enter people with a financial motive, which
0:34:43 I think will be a good thing because they will provide more capital into the system.
0:34:48 And the two kind of mutually reinforced, and that’s how a lot of things work and, you know,
0:34:50 I don’t know, the stock market or the art market or other kinds of markets.
0:34:55 Yeah, commodity markets are a great example where a lot of the buyers are users and other
0:34:56 buyers are financial buyers, right?
0:34:59 And the two kind of play a symbiotic role.
0:35:02 And I think you can get that here in a way that you couldn’t pre-blockchain.
0:35:07 When there’s assets in a game that are worth hundreds or thousands of dollars, then you
0:35:11 have a really interesting, you know, real economy where you have some other people who
0:35:16 are going to build businesses to help, you know, facilitate liquidity in that market,
0:35:20 help, you know, match buyers and sellers the right way or improve upon those items in a
0:35:24 way that people who, you know, want a more rare version of that or a more customized
0:35:25 version of that would want.
0:35:29 And so I think there’s going to be a whole new marketplace that emerges once people can
0:35:32 actually own these items that they’re already spending thousands or tens of thousands dollars
0:35:33 on.
0:35:41 And by making them an actual asset that other people can customize and modify and for buyers
0:35:46 and sellers and other participants to come together, you have a real economy.
0:35:49 And so I think that’s the exciting thing about these games is that you have 10 million
0:35:53 people playing these games, but it’s not a real economy.
0:35:54 It’s a fake economy.
0:35:58 I mean, one thing that I personally love about this vision is the idea of microclans, because
0:36:02 right now you can only have like communities, think of clans as communities.
0:36:05 And in gaming, this is not possible in the real physical world as easily, but if you can
0:36:11 actually organize like more micro communities on games that can transact with each other,
0:36:14 that enables things that are not even possible in the physical world, let alone the current
0:36:15 gaming world.
0:36:19 So one of the cool things we’re going to enable is this concept of, let’s say you’re a part
0:36:23 of a guild, and you can buy into that guild, you can literally, you know, that guild creator
0:36:27 can say, I’m going to create shares of this, of this guild, and we’re going to go on a
0:36:28 bunch of raids together.
0:36:33 And as everyone knows from these raids, maybe this type of item drops that a certain class
0:36:37 of character can use, but not everyone can use anyway, you have these very complex, you
0:36:42 know, charts that get set up around if this type of loot drops, who gets it next and who
0:36:46 owns a share of this like whole, you know, the treasury of the guild and so forth.
0:36:50 I mean, there’s real value in that people, you know, people go crazy about this, you
0:36:55 know, kind of these, these really interesting social systems and economic systems that exist
0:36:56 today.
0:37:00 And so what if you could actually own a share of that guild, and then if you want to leave
0:37:04 the clan, you could sell that share, and then somebody else can buy a part of your shares
0:37:07 and participate in that clan economy.
0:37:11 What are some of the things you’ve learned on the early days of thinking about managing
0:37:12 crypto economies?
0:37:15 I mean, granted, it’s kind of early, but like, what are some of your big kind of surprises
0:37:17 or aha moments, things that have surprised you early on?
0:37:22 I think the biggest surprise is when you wrap your head around what a central bank does,
0:37:24 it’s actually a mind blowing exercise.
0:37:28 And so a big part of what we want, you know, a big part of what we’ve dealt with in in
0:37:33 game making is we’re making our own game economy, but it’s always tied to US dollar or some
0:37:35 other, you know, currency.
0:37:38 But once we start removing, once we remove that, and we say, okay, what does it mean
0:37:44 to design a network where every participant, including the developer and the players are
0:37:48 participating in that, that doesn’t have a fixed money supply?
0:37:50 What does that, what does that mean?
0:37:51 How do you design the number of tokens?
0:37:56 How do you design the increased number of tokens on a per period basis, such that you
0:38:00 have a healthy network and a healthy economy, and this is basically getting into the realm
0:38:05 of what central banks do, which is a fascinating discipline to study.
0:38:06 That’s fantastic.
0:38:09 Another aspect, I mean, one of the fascinating things about blockchains is there’s so many
0:38:12 different lenses you can look at it through another lens you can look at it through is
0:38:17 crypto network built on a blockchain as a community owned and operated digital service.
0:38:22 So for example, you can imagine, you know, this, this will require solving some technical
0:38:27 problems that aren’t solved yet, but over the years, having a Twitch or YouTube that’s
0:38:33 owned by the streamers via tokens, owned and controlled, I should say, they decide on sort
0:38:39 of democratically, what are the rules, you know, what can, what, who gets kicked off?
0:38:40 What can you do?
0:38:42 And also participate in the upside, right?
0:38:45 Instead of it all going to a few centralized companies.
0:38:50 And eventually, you know, you can imagine the extreme version of this is the games themselves
0:38:52 are, are dows, right?
0:38:56 I mean, they’re truly owned by the community and they, they hire a game development team
0:39:00 who, you know, has extra incentives, of course, you know, you’re going to still need to do
0:39:01 that, right?
0:39:05 But you can truly have games that are in virtual worlds and all sorts of things.
0:39:11 And then you combine this going back to earlier talk with VR and metaverse and sort of ready
0:39:15 player one style, like imagine if in, you know, I don’t know, I’m a big fan of ready
0:39:16 player the movie.
0:39:17 Oh my God, me too.
0:39:18 I love that movie.
0:39:22 The interesting part is that there’s an entire virtual world with so many different types
0:39:26 of digital goods and services, like an entire economy in that, inside that world.
0:39:28 But how will that world get built out?
0:39:32 Like it could be built out by one company, kind of like Facebook could build that whole
0:39:34 world, which seems like a really hard thing to do.
0:39:38 And frankly, kind of boring, it’s going to be like kind of like Disneyland or it could
0:39:42 be kind of like the web where each world is like a website and there’s like, there’s
0:39:45 like ways to links to travel in between them.
0:39:48 And there’s an economic model where you can own your own website and you can build it
0:39:49 up.
0:39:52 One thing, it’s interesting when you watch ready player one is you can take, you know,
0:39:56 like there’s this orb power orb or whatever it is and you can like take it from one world
0:39:57 to another world.
0:40:00 And there’s some interoperability standards between them.
0:40:03 So you can build, bring the orb from one place to another, for example, right?
0:40:07 But you, you get what I think is you get something that looks more like New York City instead
0:40:08 of Disneyland, right?
0:40:09 Oh, I love that.
0:40:10 It’s more organic.
0:40:11 Yeah.
0:40:12 It’s more organic, right?
0:40:16 I mean, if you look at all the great cities, like, you know, they’re, they grew organically
0:40:17 like that.
0:40:18 It’s a bit of both.
0:40:21 Like Jane Jacobs, like a more bottom up thing, but also a bit of a top down, but a good balance
0:40:22 of the boat.
0:40:23 Yeah, totally.
0:40:28 And I think in the same way that social and mobile and new business models like free to
0:40:33 play, reinforced each other, we’re in the cusp of it where we could see kind of cloud, you
0:40:40 know, kind of huge back end scaling, new, much more immersive devices like virtual reality,
0:40:43 like the Oculus Quest, I think it’s a breakthrough device.
0:40:48 And then new breakthrough business models that let people truly own their goods and let
0:40:50 services be operated by communities.
0:40:53 And if you see the three converge in the same way mobile, social and cloud did in the last
0:40:55 decade, boom, right?
0:40:57 That’s why I’m so excited about this.
0:41:01 You know, we’re also at a, at a day and age where the number of people would are trying
0:41:07 to create new experiences on, you know, Roblox and Minecraft, and there’s just an explosion
0:41:09 of creativity inside of these.
0:41:14 So once you make it easy to just get right to the creative aspect of game design, there’s
0:41:16 actually a lot of people with great ideas.
0:41:20 And it’s just been so hard in the past because you need to have a team of artists and a team
0:41:21 of engineers.
0:41:25 And then you finally get to do some of the creative stuff, which we’re sort of now at
0:41:32 a stage where, you know, the building blocks, whether it is the devices and we’re kind of
0:41:36 on the edge of right now is the economic models that make it such that all these different
0:41:41 participants want to be building towards this kind of organic community that’s online and
0:41:44 people can create your cosmetics and the stuff that I’m wearing in the game.
0:41:47 Other people can be, you know, owning the land and developing land and making the, the
0:41:53 visual, you know, aspects of that game amazing and everything can get linked together.
0:41:57 I think we’re, we’re sort of not too far away from that world of snow crash or ready
0:41:58 player one.
0:41:59 And it’s a very exciting time.
0:42:03 Well, you guys, Kevin, thank you for joining the A6NZ podcast.
0:42:04 Thank you for having me.