0:00:05 Hi, everyone. Welcome to the A6&Z podcast. I’m Sonal, and this is our fifth episode
0:00:11 of 16 Minutes, our new news show, where we cover recent headlines of the week, the A6&Z
0:00:15 way, why they’re in the news, why they matter from our vantage point in tech, and share
0:00:19 our experts’ views on the trends involved as well. You can catch up on past episodes
0:00:25 at a6&z.com/16minutes or subscribe to it as a separate feed in your favorite podcast
0:00:30 player app. This week, we have two episodes, since we’ll be skipping next week. This episode
0:00:34 covers these two topics that came up in the news, a quick take on Barney’s filing for
0:00:40 bankruptcy and what that means in the context of the death of retail. But first, we go deeper
0:00:45 into the Federal Reserve announcing FedNow, which is a much bigger deal than it seems.
0:00:46 What, why, and how?
0:00:52 Okay, so the first segment this week covers some news that came out of the Federal Reserve,
0:00:56 which is that just this week, they announced that they are going to create something called
0:01:03 FedNow, a real-time payment service, so it would be open 24/7 days a week, that would
0:01:08 allow people to get access to their checks faster. And even though it was announced this
0:01:13 week, it actually is not out there in the wild yet. It aims to launch in a few years.
0:01:17 And just to give you some more context, this is really targeted for over half the population
0:01:21 who live paycheck to paycheck and need access to their money sooner. And right now, they’re
0:01:26 forced to pay a lot of late fees and overdraft fees. I mean, overdraft fees alone were $34
0:01:32 billion in just the last year alone. And of course, many big banks are lobbying to stop
0:01:37 this, and some of them have an alternative that they’ve proposed. Citibank, US Bank Corp,
0:01:43 and JP Morgan Chase have their own instant payment system, which was launched in 2017
0:01:47 and operated by Clearinghouse Payments. Now, let me introduce our expert, A-60s General
0:01:52 Partner, Angela Strange, who is on the Fintech team. Welcome, Angela.
0:01:54 Thank you. Happy to be here.
0:01:57 So let’s first talk about this news. Like, first of all, is it really news?
0:02:01 This is actually a very important announcement. So for the, you know, call it top half of
0:02:05 the population, like, from a personal day-to-day use, like, you probably don’t care. Like,
0:02:09 you use your credit card most of the time, you never hit zero in your bank balance. If
0:02:12 someone gives you a check and you’re waiting for it to clear, like, you probably don’t
0:02:17 notice if it clears in two days or four days. Like, that doesn’t matter. But for the other
0:02:22 half of the population, like, there’s more than 40% of Americans that don’t have $400
0:02:28 in savings. You’re living paycheck to paycheck. You care very, very much when funds hit your
0:02:33 bank account. And right now there are these totally unpredictable, untransparent delays.
0:02:38 Like, just for instance, your company decides to pay you and they send the notification
0:02:42 to the Federal Reserve. And if you’re a contractor and you’re getting paid by check, that check
0:02:46 could take two days to clear. If you’ve had a bunch of overdrafts in your account, it
0:02:50 could take seven days to clear. So everyone that lives like this is in their head doing
0:02:54 this juggling act of, okay, my paycheck is going to land in two days. I just put out
0:02:58 my rent check, but I posted for a few days. So maybe I can afford to pay my cell phone
0:03:02 bill. This check that I deposited, maybe that’s going to land. And oh, by the way, every time
0:03:07 you screw it up, it’s a $30 overdraft fee. Do you have this whole unpredictable juggling
0:03:11 act that every time you screw it up, it costs you money? And so I think we should very much
0:03:18 care because while this does sound like a nuanced regulatory issue, it’s probably the
0:03:21 biggest financial regressive tax that we have in the US.
0:03:25 Just for broader context, how does this compare to the rest of the world?
0:03:28 The UK’s had faster payments for the last 10 years. I heard somebody compare it to these
0:03:33 like, I’ve had 10 versions of the iPhone since faster payments came out in the UK and we
0:03:37 still don’t have in the US. It’s in Singapore and Canada and Mexico and so many, many, many
0:03:42 countries are just leap years ahead of the US. Now, if you look at what do the rails
0:03:46 look like in the US, obviously you’ve got Visa and MasterCard and they take a percentage
0:03:50 of transactions. Luckily, you’ve got all the peer-to-peer networks that have come out,
0:03:55 Venmo and SquareCache, and the likes and those actually operate fairly instantly, but they’re
0:03:57 using ACH.
0:03:58 What’s ACH again?
0:04:03 The Automated Clearing House. That’s basically what we have. And the best comparison I think
0:04:11 is comparing like ACH is snail mail to faster payments is email. And it’s literally almost
0:04:17 analogous. ACH batches all of the payments and this is great for banks because tiny payments,
0:04:21 small payments, it’s all sent off usually once per day. And the big innovation there
0:04:26 is, oh, sometimes we’ll batch them twice per day, which is a far cry from real-time payments.
0:04:31 Your point is that we might dismiss real-time as like a minor feature improvement if you
0:04:34 don’t really understand the scope of the problem, but actually if you do understand the scope
0:04:38 of the problem, this is extremely significant that you can actually go faster and current
0:04:39 technology is not serving it.
0:04:44 What’s interesting here, and you mentioned this, is that we actually do have a real-time
0:04:50 payment network of sorts in the US. So the 26 largest member banks own or are part of
0:04:55 an association called the Clearing House. And they launched real-time payments in 2017.
0:04:56 And why is that not working?
0:05:02 For it really to work, you need all 10,000 financial institutions on this network.
0:05:04 And that includes smaller banks?
0:05:09 Smaller banks, regional banks. If you think like who needs this most, it’s probably not
0:05:13 the people that are banking at the major parts of major banks. And this network does cover
0:05:21 50% of direct deposit accounts, but not broad enough. So then you ask, okay, so what’s stopping
0:05:25 all of the smaller banks from just joining the network? Because like definitely the Clearing
0:05:31 House wants everybody to get on board. And it’s two things. One, the Fed for a very
0:05:35 long time has been making noises that they are going to get into the real-time clearing
0:05:36 business.
0:05:37 Which they clearly just made a louder noise.
0:05:41 Which they clearly just did. And there’s a precedent. Like 40 plus years ago, they
0:05:46 got into the ACH business. So there’s actually two ACH networks. And the people that support
0:05:50 this say it’s good to have competition, and that this is such a critical service to the
0:05:55 nation that you would want not just a private network, you actually want the government involved.
0:06:00 So then if you’re a small bank, you’re like, okay, do I spend the expense to get involved
0:06:04 in this network? Well, I’m just going to wait to see what the Fed is going to do. And then
0:06:10 the other piece is just a lack of trust of joining a network operated by larger banks.
0:06:14 You’re like, well, am I going to get priced out of being able to do these real-time payments?
0:06:20 But the big policy debate is right now the Fed provides both a operational rule and a
0:06:25 regulatory rule. There are people arguing that just do the regulatory rule, and why don’t
0:06:30 you regulate that this technology run by the Clearinghouse that already exists can’t charge
0:06:35 exorbitant fees. You should regulate that everybody has to join. Like this technology
0:06:42 is already here. And so that could, if it was done, get this real-time network going
0:06:47 much faster than Fed now, which is now being called Fed five years from now because it’s
0:06:50 going to launch since 2023 and 2024.
0:06:54 When I hear that kind of conundrum of do you have them regulated or wait for it?
0:06:58 I’m sort of wondering, why would we do either? Why aren’t there other alternative technologies
0:07:01 that can solve this problem? I want to know where tech comes in in this.
0:07:05 You need both the technology, but the harder piece to do is you need to get everybody to
0:07:11 participate in this network. They should figure out a regulatory framework to get more people
0:07:15 on the technology that already exists and get this problem that we’re talking about
0:07:22 that penalizes half of our population fixed faster while also building their network. Could
0:07:29 a new startup come in and create a new real-time rail? Not in the same way because what the
0:07:33 real-time rail is saying they’re going to do is interconnect the 10,000 financial Fed
0:07:38 reserve institutions together. So we do have things like peer-to-peer networks, and this
0:07:42 is where PayPal and Venmo and those come in, but that’s very different from, I bank at
0:07:47 Community Bank in Kansas, and I need to have my checks clear immediately.
0:07:52 And so what FinTechs are doing is they’re figuring out how to solve point problems that
0:07:58 are very, very valuable to consumers. So for instance, if you’re living paycheck to paycheck,
0:08:03 you are watching by the hour when your paycheck lands. And what most people don’t know is
0:08:08 that banks are holding on to their paychecks or not delivering them as fast as possible.
0:08:13 So for instance, your bank will get the notification that your employer has told the Federal Reserve
0:08:18 that they’re going to pay you X dollars. Those X dollars won’t land in your bank account
0:08:23 for another two days usually. So there’s a startup that can see that is your bank and
0:08:29 they can see that your employer has said, “Hey, pay Sonal $500 and they’ll give you $500
0:08:33 immediately. You don’t have to wait two days.” Even beyond that, you could argue that if
0:08:39 you’re working eight hours a day at Panera Bread, for instance, it is somewhat anachronistic
0:08:43 that you can only get paid on the first of the month and the 15th of the month, even though
0:08:46 you’re earning eight hours times your hourly wage every single day.
0:08:49 If I’ve worked four days of that week and therefore I should be able to get paid at
0:08:50 least those four days.
0:08:52 Or if there was no cost in payments, like why aren’t you just getting paid at the end
0:08:53 of every day?
0:08:54 That’s a good question.
0:08:59 Exactly. So the reason that’s not the case is infrastructure. So startups like Ernin
0:09:04 are enabling people to get access to money that they’ve already earned in a much more
0:09:05 frequent manner.
0:09:08 So that was super helpful for understanding the nature of the problem. Tell me a little
0:09:11 bit more about why the Fed is even involved with checks in the first place, because every
0:09:15 time we talk about the Federal Reserve and checks, I’m so confused at why this cannot
0:09:18 just be handled at whoever holds the money is where the money comes. Why is there even
0:09:22 this player involved? I don’t know how a check is cashed.
0:09:27 So the Fed is involved in regulating most aspects of payments. Let’s say I write you
0:09:33 a check and I have $0 in my bank account. If your bank gave you that money, then they
0:09:37 would then pull it back from you and the whole system would just be a mess. So someone needs
0:09:42 to make sure it’s called good funds are actually available on both sides. And so it is for the
0:09:48 protection of both consumers across the side. The problem is that this system was invented
0:09:53 literally back in the days when people wrote checks and you would have to mail them to like
0:09:56 a previous instance to the institution where they were coming from to make sure that you
0:10:00 could actually check that the funds existed and then send it back. And so just the infrastructure
0:10:04 has not progressed to where it should today technology is today, like the big innovation
0:10:07 on checks is, you know, that bar at the bottom where now they can be electronically led and
0:10:11 you can, you can send it back and forth, at least the checks electronically, but we’ve
0:10:13 got a long, like we can progress a long way from there.
0:10:18 Okay. So that’s great, Angela, super helpful context. So bottom line it for me. How should
0:10:22 we think about this recent news announcement about Fed now? Or as you said, Fed five years
0:10:24 from now, how should we think about it?
0:10:33 I think we should be excited and push towards our industry making a much faster move towards
0:10:37 real time payments. And I think if the broader population really understood who this was
0:10:42 affecting most, which is the more than half the population that live paycheck to paycheck,
0:10:48 there would be more pressure on either banks to join the existing network and the existing
0:10:53 network to behave well and treat everybody fairly. And for the Fed, if they decide to
0:10:58 go their direction to move as quickly as possible, while also maybe regulating faster participation
0:11:02 in the existing network such that we can, to be honest, catch up with the rest of the
0:11:03 world who’s been here for over a decade.
0:11:06 Thank you, Angela, for joining this segment.
0:11:07 Thank you for having me.
0:11:12 Okay. Our next segment on 16 minutes on the news is about the death of retail, given the
0:11:19 news that iconic retailer Barney’s filed for Chapter 11 bankruptcy this past week. So just
0:11:23 to give the specifics and quickly summarize what the news is, Barney’s plans to close
0:11:28 15 of its 22 locations, which means it then only has seven remaining stores, including
0:11:32 its flagship on Madison Avenue. Barney’s, and this is what makes it even sadder, is
0:11:37 that it’s been around since the Great Depression and they were pioneers for trends such as
0:11:43 relaxed suits and menswear. So by bringing Armani to the U.S., putting perfumes in the
0:11:47 back of the store instead of in the front of the store and most iconic of all, building
0:11:51 windows instead of covering walls with extra racks. So these are some of the things that
0:11:55 Barney’s has done. And Barney’s has actually filed for Chapter 11 bankruptcy before in
0:12:00 1996, when they fell out with some of their investors. But this year’s filing is due to
0:12:06 higher rent, obviously, more online retail shopping and direct-to-consumer marketing,
0:12:12 all of which are connected to tech. So now, let me introduce our A6NZ expert, Jeff Jordan,
0:12:16 general partner, managing partner, and a deep expert on all of this. Welcome, Jeff.
0:12:20 Thanks. It was great to be here. So you’re the person I want to tell me how to think
0:12:23 about this news. Like, is this more of the same? Is it something new?
0:12:28 I mean, I should point out that Barney is also a dinosaur. And unfortunately, the offline
0:12:32 retail, a lot of them are dinosaurs. I mean, actually, I first started blogging about this
0:12:39 and I went back and looked today, 2012, about e-commerce, taking chair and being advantaged
0:12:46 over offline commerce. And so there’s just been a steady drumbeat of bankruptcies, restructuring,
0:12:49 closings. And unfortunately, I don’t think it’s going to stop.
0:12:50 Really?
0:12:51 I think it’s long.
0:12:54 I thought Barney’s had a chance because in this world of e-commerce, a lot of these
0:12:59 physical stores would have a really special role to play, especially in showrooming and
0:13:04 being able to really have a customer experience. And the trend is more now towards experiences.
0:13:05 So why Barney?
0:13:11 What retail chains, physical retail chains are really highly leveraged. They take enormous
0:13:17 amounts of capital and they have enormous, basically fixed costs, rents of fixed costs,
0:13:23 inventory is a quasi-fixed cost. And if sales start declining, they can go from profitable
0:13:27 to unprofitable extraordinarily quickly. And I actually watched this happen at the Disney
0:13:32 stores. When I was there, Disney stores were minting money. And then they did a different
0:13:37 strategy. The top line went down 5, 10% and they started hemorrhaging money.
0:13:39 But it wasn’t because of online or it was just a different strategy?
0:13:43 That was a different strategy. That for me was self-inflicted. New management came in
0:13:49 and tried a different strategy that didn’t really work. Just the 5, 10% change in the
0:13:54 top line made the chain go from profitable to unprofitable. So as e-commerce nibbles
0:14:01 away at share, all the stores in aggregate lose a little bit of sales and at some point
0:14:03 they just become unviable.
0:14:07 The flexibility and opportunity that software-based companies have is that they don’t have the
0:14:11 legacy of fixed costs, which is the dinosaur around the neck, the albatross around the
0:14:12 neck.
0:14:17 Yeah. I mean, now e-commerce has other problems, which is largely showrooming also happens
0:14:24 off online. If you want to price shop, you can price shop. And then competition for the
0:14:31 same consumer and that window shopping caps the opportunity for online players to recharge
0:14:32 a lot.
0:14:38 So one of the most baffling things is that there are only a few true winners in e-commerce
0:14:42 in the United States, but no one’s making money. They’re just all competing for the
0:14:44 same consumer with essentially the same product.
0:14:47 So nothing works? Is there any place where it does work?
0:14:53 So grocery is the largest single category of U.S. retail, more than apparel, more than
0:14:59 personal care, things like that. And it had historically been completely immune to digitization.
0:15:05 So Webvan was the iconic failure of trying to do groceries electronically. The big difference
0:15:10 in groceries is the inventory is better served being close to the consumer. And so what
0:15:14 grocery chains are essentially are distributed warehouses.
0:15:21 Physical grocery is a way to combine kind of a hybrid, both offline and online, helping
0:15:27 the grocery chains around the world deliver to people in their area. Fred Smith famously
0:15:32 said when the internet came, he didn’t think groceries could be delivered through the internet
0:15:38 because you put your eggs in a truck and it bounces around all day and it comes 10 hours
0:15:41 later or whatever. That doesn’t work. It does work if it’s the grocery down the street.
0:15:45 Okay. So bottom line it for me. How should we be thinking about all of this news that
0:15:49 the retail people have been talking about it for years? On one hand, I see lots of lots
0:15:53 of cars in the parking lot and all the malls. On the other hand, I see news of bankruptcy
0:15:56 and I also see a lot of internet shopping going on.
0:16:01 What you’re seeing is the best malls and the best stores continue to thrive. Now all the
0:16:06 marginal chains and the marginal malls are closing. I did a blog post years ago about
0:16:11 the demalling of America because if all the stores dies, the malls end up dying. And my
0:16:15 favorite quote was a REIT owner who said we’re not real estate investment trust. Yeah, real
0:16:19 estate investment trust. He goes, we’re not over-building malls. We’re just under demolished.
0:16:23 Malls are being repurposed. They’re either being torn down or they’re being repurposed
0:16:28 into town centers, but yeah, that’s changing. In a previous episode, we talked about how
0:16:32 eSports are now taking over certain malls. So who knows what the future here is. Yeah,
0:16:37 it could be. Yeah, that’s Stanford eSports Center. Thank you for joining, Jeff. It’s
0:16:38 a pleasure. Thank you.
0:16:48 [BLANK_AUDIO]

0:00:03 Hi, everyone. Welcome to the A6NZ podcast.
0:00:06 I’m Sonal, and I’m here today with the fourth episode
0:00:08 of our new short form new show, “16 Minutes,”
0:00:10 where we cover recent headlines
0:00:12 the A6NZ way offering expert takes
0:00:14 on the trends involved in more.
0:00:16 You can follow the show in its own feed
0:00:18 in your favorite podcast player app.
0:00:21 Our other episodes cover multiple news items and topics,
0:00:23 but this week, we’re doing two separate,
0:00:26 but short, deep dives connected to recent headlines.
0:00:28 One on eSports gaming and the future of entertainment,
0:00:30 which you can find in this feed,
0:00:33 or at a6nz.com/16minutes.
0:00:34 And this episode,
0:00:38 which is on a sad but important topic, the opioid crisis.
0:00:39 Just to quickly sum up,
0:00:42 the issue of the opioid crisis has been around for years,
0:00:44 which is at this prescription opioid epidemic
0:00:46 that resulted in nearly 100,000 deaths
0:00:50 from 2005 to 2012, and what makes it even sadder
0:00:52 is that it just proportionately affected people
0:00:54 from regions that are underserved economically,
0:00:56 for instance, Native American tribal regions,
0:00:58 towns in West Virginia, and so on.
0:01:00 For what opioids are, as a reminder,
0:01:01 remember the word opium?
0:01:03 There are a class of drugs that include
0:01:05 heroin, fentanyl, pain relievers like OxyContin,
0:01:07 Vicodin, Codine, Morphine,
0:01:08 and most of those are pain relievers
0:01:11 that are legal and available by prescription.
0:01:13 This crisis has been around for years, but here’s the news.
0:01:15 The Washington Post and the publisher
0:01:17 of the Charleston Gazette Mail,
0:01:18 which is a West Virginia paper,
0:01:21 one of the regions that’s most impacted by this crisis,
0:01:24 waged a year-long legal battle and won a court order
0:01:28 for access to the Drug Enforcement Administration’s database,
0:01:29 which is this Automation of Reports
0:01:32 and Consolidated Orders, it’s the ARCOS database.
0:01:35 And basically, the Washington Post’s work helps visualize
0:01:38 how much specific drugs went to individual states
0:01:41 and counties, and who the top distributors,
0:01:43 manufacturers, and pharmacies that were involved.
0:01:46 And according to the Post, high-level findings,
0:01:49 just three companies manufactured about 88% of the pills,
0:01:52 and just six companies distributed 75% of them.
0:01:54 And over the past couple of weeks,
0:01:55 a number of lawsuits have been filed
0:01:56 as a result of those findings.
0:02:00 Arizona just filed a case against a maker of oxycontin.
0:02:02 Unusually, they did it directly at the Supreme Court level,
0:02:05 while towns and cities are suing pharmacies
0:02:07 like Walmart, CVS, and Walgreens.
0:02:09 In fact, nearly 2,000 cases have been brought
0:02:11 as reported by the New York Times.
0:02:14 And their headline for that story, by the way,
0:02:16 was so perfect and so starkly sad.
0:02:21 3,271 pill bottles, a town of 2,831.
0:02:25 So that’s a high-level summary of what’s going on,
0:02:27 what’s in the news.
0:02:29 I’d like to now welcome A-6 and Z-Bio,
0:02:32 general partners Jorge Conde and Vijay Pandey
0:02:34 to talk about their views on this
0:02:35 from their vantage point.
0:02:36 Welcome, guys.
0:02:37 – Thank you.
0:02:39 – So one bit of color from that New York Times story
0:02:42 that is just so vivid and heartbreaking.
0:02:45 One county in Ohio resorted to a mobile morgue
0:02:47 just to handle all the corpses from people
0:02:50 who died from overdoses, which is so sad.
0:02:51 And as with all such things,
0:02:54 science and technology is not living a vacuum
0:02:56 and plays out against a broader structural context.
0:02:58 So I want to acknowledge that,
0:03:00 that we’re going to be focusing on a specific angle,
0:03:02 but really this is a huge problem
0:03:04 on so many different levels.
0:03:06 So first of all, can you just quickly summarize
0:03:08 the crisis from your point of view?
0:03:10 Why opioid? What’s going on here?
0:03:12 – Well, first of all, opioids, as you said,
0:03:13 are opium-based drugs.
0:03:16 And it’s probably worth a moment to talk about
0:03:19 kind of how they work and why there’s a problem.
0:03:23 Opioids basically target a receptor class within cells
0:03:24 called the opioid receptors.
0:03:25 And there’s three main classes.
0:03:27 And the three main classes
0:03:29 all have slightly different functions.
0:03:31 And by the way, as we learn more biology,
0:03:34 but I think identified another 15 or 20 subclasses
0:03:34 of these things.
0:03:36 So the biology as you can imagine is complex,
0:03:38 but essentially what happens with an opioid
0:03:43 is that it targets one or usually many of these receptors.
0:03:47 And that has the pain numbing or pain killing effect.
0:03:49 It also hits some of our,
0:03:51 essentially our pleasure-seeking centers.
0:03:53 So it has the addictive effect.
0:03:54 – Right, hence the addiction.
0:03:55 – And by the way,
0:03:58 it also hits other important receptors that are necessary
0:04:00 for sort of our physiological function.
0:04:02 Most notably, one of the subclasses of receptors
0:04:04 is responsible for sending the signal to your brain
0:04:05 that you need to breathe.
0:04:06 – Whoa, I had no idea.
0:04:07 – Yeah, no.
0:04:10 So a lot of people that overdose and die from opioids,
0:04:12 really what they die from is forgetting to breathe.
0:04:15 And in fact, like the recovery drug Naloxone,
0:04:18 it basically competes for the drug off that receptor.
0:04:20 So the person actually comes back and remembers to breathe.
0:04:23 So the drug itself is incredibly powerful.
0:04:25 And I think one of the important things to remember
0:04:28 is that addiction isn’t weakness.
0:04:30 It’s not lack of willpower.
0:04:32 It’s actually a weakness of the biology
0:04:34 that the opioids target.
0:04:36 In fact, I remember when I was in graduate school,
0:04:39 I took a pharmacology class and the lecturer
0:04:41 at the beginning said,
0:04:42 if I took this classroom,
0:04:44 a very accomplished, intelligent driven,
0:04:46 responsible graduate students, medical students,
0:04:48 and gave everyone a dose of heroin,
0:04:49 a significant proportion,
0:04:52 a significant majority of this class
0:04:54 would be hopeless addicts tomorrow.
0:04:55 So a big part of the problem here
0:04:59 is that this is a very, very powerful class of drugs.
0:05:01 And what’s really tricky about opioids
0:05:03 is that a more powerful drug
0:05:04 is not necessarily a better drug.
0:05:06 – First of all, thank you for acknowledging
0:05:09 that this is not necessarily a choice that people make.
0:05:11 That’s really important, that it’s biology.
0:05:13 But you also mentioned heroin in that example.
0:05:14 That one is an illegal one,
0:05:16 which is of course a class of opioid,
0:05:17 but most of these are prescribed.
0:05:20 So I’m curious for how that plays out.
0:05:23 – First of all, biology is a very dynamic system.
0:05:26 And so if you take a drug, any drug, really,
0:05:28 you start to, or you tend to develop tolerance
0:05:29 for it over time.
0:05:31 And it can happen via various mechanisms,
0:05:33 but one of the mechanisms that’s believed
0:05:35 to be the case in opioids is that
0:05:37 as you essentially take the drug,
0:05:39 your receptors essentially become accustomed to it.
0:05:41 And so it actually changes the dynamic of the receptors
0:05:43 and people describe it as, you know,
0:05:45 if you take opioids for a long time,
0:05:47 you are quite literally changing your brain.
0:05:51 And so the result of that is if you’re taking a drug,
0:05:53 and especially for relieving pain,
0:05:56 you may need more and more of that drug to relieve pain.
0:06:01 If that particular opioid also happens to target or hit,
0:06:02 one of the receptors associated
0:06:06 with what’s linked to addiction over time,
0:06:08 you’re gonna seek more and more of it.
0:06:11 So it just becomes a truly biological dependence
0:06:13 at the cellular level for these drugs.
0:06:14 – Well, you know, it’s important to consider
0:06:16 why patients are getting these in the first place.
0:06:19 – Right, quite honestly, if this is of kind of,
0:06:20 the biology of it is that you become more addicted
0:06:22 as you take it, why are they getting it?
0:06:26 – And there’s two reasons, which is somewhat of a shift.
0:06:29 So one reason is that there’s been a recent shift in policy
0:06:31 that essentially no pain is acceptable.
0:06:33 So, you know, they often ask you
0:06:34 if you’re in the ER or something like,
0:06:36 what’s your pain from zero to 10?
0:06:38 And it’s not that everyone’s saying 10,
0:06:40 and then they get fentanyl.
0:06:42 It’s the belief that no pain is acceptable.
0:06:44 And this is actually very much an American thing.
0:06:47 In other cultures, you know, you may be under extreme pain,
0:06:50 but you’ll get T or you’ll get maybe Tylenol
0:06:52 or something, something very different.
0:06:55 And it’s just understood that you have to sit with the pain.
0:06:57 The second thing that’s just the healthcare system now
0:07:01 is so strained that if, let’s say you have major back pain
0:07:03 and you should maybe be seeing physical therapy
0:07:05 or maybe you should be seeing a doctor
0:07:08 for musculoskeletal, it may take you four weeks,
0:07:09 six weeks to see that doctor.
0:07:11 It takes time to see an expert.
0:07:13 Yeah, but you could get the prescription immediately.
0:07:14 So some of this is tied to healthcare access.
0:07:17 Yeah, but then, you know, puts them in this bind
0:07:19 where they really should be getting physical therapy
0:07:22 or something like that, and they are on this path.
0:07:24 The third thing is that often the alternatives
0:07:26 are harder short-term, like physical therapy
0:07:28 is a lot of pain.
0:07:30 And so this is just, it’s available,
0:07:33 it’s thrown on you by a doctor and it’s easy.
0:07:35 You put those things together.
0:07:38 That’s the match on the, that lights the fire.
0:07:41 So this is very helpful for helping break down the biology
0:07:43 and the science behind this.
0:07:46 It plays out against broader structural factors,
0:07:48 cultural factors, political factors.
0:07:50 This is a really big important topic.
0:07:53 And I have to ask, who’s to blame?
0:07:56 Like the interesting thing is that the news,
0:07:58 there’s all these lawsuits happening to these pharmacies
0:07:59 and now the pharmacies and distributors,
0:08:00 they’re coming back and saying,
0:08:02 well, what about the impact of doctors
0:08:03 and criminal drug dealers?
0:08:05 Politicians, they are the ones who are trying
0:08:06 to hide the database.
0:08:08 There’s so many different players going around here.
0:08:10 I want you guys to tell me, like, who’s to blame?
0:08:12 I mean, embedded in the question is part of the answer.
0:08:15 I think really what we have is a massive systemic failure.
0:08:16 I mean, you talk about manufacturers,
0:08:19 you talk about distributors, you talk about pharmacies,
0:08:20 you talk about prescribing physicians.
0:08:22 And ultimately you talk about patients
0:08:24 and their families and their caregivers
0:08:27 and sort of the communities that support them.
0:08:29 And then you also talk about the politicians,
0:08:30 you know, the public health agencies.
0:08:34 I think the systemic failure here is pretty broad.
0:08:35 So we can start from the very beginning,
0:08:39 which is we do need better opioids.
0:08:40 We do need better pain killing drugs.
0:08:42 We need, as Vijay mentioned,
0:08:45 to be more thoughtful about how and when we intervene
0:08:47 with pharmacologic drugs, forward pain.
0:08:51 One of the things that you can do with an opioid
0:08:53 is you can try to design something
0:08:55 that is only hitting the right receptor.
0:08:56 This goes back to your earlier point about there being
0:08:58 15 types of receptors that are now being discovered.
0:08:59 You can get more and more precise.
0:09:00 Exactly.
0:09:01 So now that we can engineer cells
0:09:02 and we can work with cells,
0:09:05 we can find very precise ways to understand
0:09:09 what molecules are interacting with what parts of the cell
0:09:12 and design molecules that are hitting just the right notes
0:09:13 that are gonna be more targeted.
0:09:16 So there is the potential for a better opioid.
0:09:19 By the way, to date, most of the attempts to improve it
0:09:22 have been to address the ways to not tamper with it
0:09:24 so you can overdose on it.
0:09:26 But the reality is you can get a better molecule
0:09:27 if we understand what’s driving the biology.
0:09:29 So that’s the first step on the manufacturing side.
0:09:33 The second one is, yes, the distributors and the pharmacies,
0:09:35 I mean, the biggest problem is that this is a very ad hoc,
0:09:39 disjointed system that we have here in the United States.
0:09:39 Like healthcare system.
0:09:40 The healthcare system.
0:09:42 And so I think a lot of what you’re relying on
0:09:44 in terms of the crisis is that there aren’t really
0:09:47 the checks and balances and the alert systems
0:09:49 that one would expect in place
0:09:51 that doesn’t require sort of a human being to say,
0:09:54 this employees flag one particular shipment.
0:09:56 But that one particular shipment
0:09:58 or that one particular prescription obviously
0:10:01 doesn’t catch the systemic problem as it’s evolving.
0:10:04 And so you’re really missing the force for the tree.
0:10:05 – Is that a place that tech can help?
0:10:07 – It’s an absolute place that tech can help
0:10:08 because I mean, first of all,
0:10:10 a lot of this is by requirement
0:10:14 that you have to inform the public health agencies
0:10:18 if there is the suspected overuse of a controlled substance.
0:10:20 And so instead of requiring on people to voluntarily do that,
0:10:22 you could deploy technology-based systems
0:10:24 that essentially do that automatically.
0:10:26 – In fact, one of the quotes in the “New York Times” article
0:10:28 came from a Walgreens official who said
0:10:30 that he was the one who was tasked with monitoring
0:10:32 the orders said his department, I quote,
0:10:34 was not equipped for that work.
0:10:35 I mean, that seems like an obvious place
0:10:37 that tech could literally do what you’re describing.
0:10:39 – And it’s a place that tech could do it far better.
0:10:40 – Exactly, no, that makes great sense.
0:10:41 – You have to understand, I mean,
0:10:43 what’s going on in a lot of these places,
0:10:45 it’s post, it’s fax machines.
0:10:48 It’s something where the things that we take for granted
0:10:50 that sort of just coordinate our daily lives
0:10:52 could be put in here
0:10:54 and could really have a significant impact.
0:10:57 – Okay, so let’s go back to the systemic players and failures.
0:10:58 We have manufacturers, distributors.
0:11:00 Let’s continue breaking each one of those down.
0:11:01 – On the manufacturer side,
0:11:03 there’s really two issues here.
0:11:05 One is we do need better drugs as we talked about.
0:11:08 And number two, and I think this is a very important point,
0:11:10 is a lot of times in companies
0:11:13 as they’re commercializing drugs,
0:11:15 obviously the goal is to grow revenue.
0:11:18 And that can sometimes create perverse incentives
0:11:21 to drive usage where perhaps there shouldn’t be usage.
0:11:23 And I’m not saying that’s necessarily the case here,
0:11:25 but that’s something that I’ve seen happen,
0:11:28 unfortunately, across the industry over time.
0:11:29 The second issue is the distributors.
0:11:31 The distributors are obviously responsible
0:11:33 for moving product through the channel.
0:11:35 They of course have incentive
0:11:38 to move more product through the channel.
0:11:40 And so, if there are no controls in place,
0:11:42 if the right tensions aren’t there
0:11:44 between how things are prescribed
0:11:45 or how things are reordered
0:11:47 or how things are pulled through the system,
0:11:49 that could also create a perverse incentive
0:11:50 from a distributor standpoint.
0:11:52 And I think you show some of the concentration
0:11:56 of what happened in the case of this particular opioid,
0:11:58 episode of the opioid crisis as you’ve laid it out.
0:12:00 So we do need checks against the distributors as well.
0:12:02 When you get to the pharmacy,
0:12:04 the pharmacy is where the rubber meets the road, right?
0:12:06 Is these are where the prescriptions are getting picked up,
0:12:07 we’re getting shipped to at least.
0:12:12 And so, if you don’t have a manual control system there,
0:12:14 I actually think that the biggest problem
0:12:16 is just lack of an alert system.
0:12:20 If I go in today to pick up a prescription,
0:12:22 there’s no real system that would raise flags,
0:12:25 at least not efficiently, at the system-wide level.
0:12:27 It tends to happen very episodically,
0:12:29 as the story itself has shown.
0:12:32 And then finally, there’s the physician prescription challenge.
0:12:33 Because patients are in pain,
0:12:36 the physician may not want them to tolerate pain,
0:12:38 so it may be more likely to offer this,
0:12:39 to offer immediate relief.
0:12:41 Two, you get to the point where,
0:12:43 if you have to wait weeks and weeks and weeks
0:12:46 to see a specialist or to get therapy or to get treatment,
0:12:48 this is a fast-to-fix, short-term solution
0:12:50 that eventually might become a longer-term problem,
0:12:54 obviously, as addiction becomes an issue.
0:12:57 And the third one is, and these are all related points,
0:12:59 but physicians, for the most part,
0:13:02 don’t have the right control systems
0:13:05 to do really effective medication management.
0:13:07 So, my treatment of you is very episodic.
0:13:09 I come, I see you, you describe pain,
0:13:10 I will prescribe something.
0:13:12 I may look in the notes and go back
0:13:14 and see what had happened in the past,
0:13:16 but I’m not really following this day-to-day.
0:13:18 And this, by the way, applies across all health problems,
0:13:21 all health, medication management,
0:13:23 medication reconciliation is a massive problem
0:13:25 across the entire healthcare system.
0:13:26 The particular challenge here, of course,
0:13:28 is that this is the one area
0:13:31 where a more powerful drug leads to more usage
0:13:33 rather than less usage.
0:13:34 And that’s what makes it so difficult
0:13:35 when you can’t reconcile, you know,
0:13:38 patient usage is happening over time.
0:13:40 – Well, and there’s ways that we could work
0:13:41 within the existing system.
0:13:43 Like, one thing you could imagine is a PBM
0:13:44 that is more involved-
0:13:45 – A Pharmacy Benefit Manager.
0:13:46 – Yeah, Pharmacy Benefit Manager,
0:13:48 that’s more involved with clinical care,
0:13:50 where they’re just, they’re not the doctors,
0:13:52 but at least they’re better interfacing with the doctors,
0:13:54 such that you can at least have sanity checks,
0:13:56 like there’s no reason why a patient would need this.
0:13:59 And this way you can’t shop around to multiple pharmacies
0:14:00 because you’ve got the same PBM.
0:14:01 And it is that layer.
0:14:04 And I think as you start to get smarter PBMs,
0:14:06 these problems would be very naturally addressed,
0:14:08 not just for the opioid crisis,
0:14:09 but it would be true for patients
0:14:11 that have sometimes two or three drugs
0:14:12 to treat the same condition,
0:14:14 or three drugs that are actually
0:14:15 gonna interfere with each other.
0:14:16 Those are sometimes very difficult
0:14:17 because in the medical system,
0:14:20 you’ve got the endocrinologist and the cardiologist
0:14:23 and the psychiatrist, each prescribing,
0:14:25 or without really any coordination.
0:14:27 – And you know, to that exact point,
0:14:29 we have a problem in the healthcare system
0:14:30 of getting things deprescribed.
0:14:31 – What do you mean by that?
0:14:34 – Well, the patients might be taking a medication
0:14:35 for an acute condition.
0:14:37 And you know, I saw the physician,
0:14:38 and the physician told me to take this medicine
0:14:39 for a condition accident.
0:14:41 – You broke your arm and you need back again.
0:14:44 – Or you may have a heart condition
0:14:45 that is going through an acute episode.
0:14:48 Any number of things that I’m on 10 different medications,
0:14:50 it could be that the condition
0:14:52 for which this one drug was given to me
0:14:54 has since been alleviated, has since been addressed.
0:14:55 – But that information doesn’t get plugged back
0:14:56 into the system.
0:14:57 – Yeah, and I don’t know to stop taking it.
0:14:58 So I might be taking a medication
0:15:00 that I don’t need for a long period of time.
0:15:02 And if somebody doesn’t do the reconciliation
0:15:03 that we just described,
0:15:04 I could be on many medications
0:15:05 that not only interfere with each other,
0:15:06 which is a problem,
0:15:07 but that I may not even need,
0:15:08 which is a different problem.
0:15:10 – So that kind of addresses it
0:15:12 at the sort of structural logistical level
0:15:14 of the healthcare system.
0:15:16 Now, back to the point you brought up
0:15:18 about the biology and some of the pain management.
0:15:19 I mean, there’s obviously alternatives
0:15:21 like TENS devices and all kinds of things
0:15:23 that could potentially scale in the future to address pain.
0:15:24 But now let’s go to what the fixes are.
0:15:26 Obviously there’s social societal things
0:15:27 that need to be addressed,
0:15:30 but what can tech and science help with here?
0:15:31 Are there any other future directions
0:15:33 from your vantage point on the biocide?
0:15:35 Clearly there’s technology to address the transparency,
0:15:37 the pre-BMs, the pharmacy benefit managers,
0:15:40 closing the loop, everything from manufacturer’s distribution
0:15:41 to prescription.
0:15:42 What are some of the other things?
0:15:44 What are some of the interesting directions you see
0:15:45 to help address this?
0:15:47 – Well, there are efforts to develop
0:15:50 digital therapeutics, VR type applications.
0:15:51 – And by the way, digital therapeutics
0:15:54 is in like apps and things like technology
0:15:56 that can actually act as if a drug
0:15:58 in helping people to better outcomes.
0:16:01 – Exactly, that can help you get you into a state of mind
0:16:03 that might help alleviate the pain, right?
0:16:05 So, you know, if you can find different ways
0:16:06 to address the pain issue,
0:16:08 whether it’s physical therapies
0:16:10 or something maybe novel like, you know,
0:16:14 quite literally having a VR virtual reality type experience
0:16:15 or having an application on your phone
0:16:18 that helps you meditate or calm down
0:16:19 that might address some of the pain issues,
0:16:20 you may not be as dependent
0:16:22 on getting on the opioids in the first place.
0:16:23 – I’ve read a ton of papers actually
0:16:25 that VR has already proven to be effective
0:16:28 in helping with PTSD, post-traumatic stress disorders
0:16:30 with veterans coming back from wars
0:16:33 or, you know, people who are suffering severe depression.
0:16:34 It’s just, it’s really amazing that it can help.
0:16:37 – Well, you know, I think often we are worrying
0:16:39 about the consequences without thinking about the source
0:16:42 or you made a great point about how addiction
0:16:43 is a natural consequence.
0:16:45 There are other recent studies that talk about
0:16:47 sort of a little deeper about why this is so.
0:16:50 So the famous one is called the rat park study
0:16:52 where they actually had rats in a cage
0:16:53 which is kind of like in jail
0:16:56 and given the choice between food or opioid,
0:16:57 they’ll take the opioid
0:16:59 until eventually they kill themselves.
0:17:00 But if you give them access to rat park
0:17:01 where they can play and be social
0:17:04 and sort of just live their normal happy lives,
0:17:06 then actually given the same choice,
0:17:08 they would choose food and not the opioid.
0:17:12 We know that social determinants are a key part of healthcare.
0:17:15 It’s just not wrapped into a fee for service kind of system
0:17:17 where no one’s job is to take care of these things.
0:17:20 But we could take care of the root causes of this
0:17:22 which are beyond just about prescribing drugs
0:17:25 but thinking about healthcare as a societal issue.
0:17:27 I think then we can actually really have a huge impact.
0:17:31 – And there are several efforts ongoing now to use technology
0:17:35 to help try to pull in all of those stakeholders
0:17:37 in the community that can have such a big impact
0:17:39 on some of these social determinants of health.
0:17:42 Without that is another example of a fragmented system,
0:17:45 a very analog system is you’re doing this with call sheets
0:17:47 and coming up with referral names
0:17:48 and calling and trying to get appointments
0:17:51 and inbound visits and things like that.
0:17:52 And it’s all necessary
0:17:54 because this requires human intervention
0:17:56 but the coordination shouldn’t also be human.
0:17:58 So I think technology has an opportunity here
0:18:00 to have a massive impact on how we coordinate
0:18:02 all of these stakeholders to the people
0:18:03 that may be more susceptible
0:18:06 given some of these social determinants are more supported.
0:18:08 – Right and it just goes back to the bottom line for me though
0:18:09 which is technology is social
0:18:11 and it lives in a broader cultural context
0:18:12 that clearly plays.
0:18:14 Well, thank you so much Jorge and Vijay
0:18:17 for joining the A6NZ Podcast 16 Minutes.
0:18:18 – Thank you.

0:00:05 Hi, everyone. Welcome to the A6nZ podcast. I’m Sonal. I’m here today with the third
0:00:10 episode of our new short-form news show, “16 Minutes,” where we cover recent headlines
0:00:14 the A6nZ way, offering expert takes on the trends involved and more. You can follow the
0:00:19 show in its own feed in your favorite podcast player app. Our other episodes cover multiple
0:00:24 news items and topics, but this week we’re doing two separate, short-but-deep dives connected
0:00:32 to recent headlines. One on the opioid crisis, which you can find in this feed, or at a6nz.com/16minutes,
0:00:36 and this episode, which is on eSports, gaming, and entertainment.
0:00:40 So here’s the news. The Fortnite World Cup just happened this past weekend. It’s the
0:00:43 first time ever it was the inaugural World Cup, and it actually took place in the same
0:00:49 exact stadium in New York that the U.S. opened for tennis takes place. And the news was that,
0:00:53 besides the fact that this is a big new thing, was that a 16-year-old named Kyle Gearsdorf
0:00:59 won $3 million, and that is actually the largest prize ever for a single person in eSports history.
0:01:02 And by the way, his nickname or his player name is Booga, and that’s actually the name
0:01:05 he got from his grandfather calling him Booga Booga Booga, and he was a baby, which I think
0:01:09 is really cute. Just to put this in an even more context before I introduce our experts,
0:01:13 what’s also really interesting about this is that this prize money is not that different
0:01:17 from traditional physical sports. Everyone’s talking about how Booga earned more money than
0:01:22 Tiger Woods did for winning the Masters, and it’s not even the biggest prize pool overall.
0:01:27 Dota 2’s The International is the largest ever so far, with over $30 million. And that’s
0:01:31 what everyone’s talking about. To me, the real big news here is that 2 million people
0:01:37 concurrently live-streamed this past Sunday on Twitch and YouTube. My friend Angela Watercutter,
0:01:40 Wired, pointed out that this is not as big as Game of Thrones, but that’s a hell of
0:01:44 a lot, so it’s slowly mainstreaming. I’m going to introduce our A6NZ experts, Andrew
0:01:50 Chen, general partner, who covers our consumer vertical and Darcy Kuliken on the investing
0:01:54 team for consumer. I want to hear from you guys, what’s a broader category that this
0:01:58 fits in, what’s hype, what’s real, and how are you guys thinking about this in the context
0:02:01 of the future of entertainment and tech? That’s a big question.
0:02:05 Awesome. I think when we look at esports, the most fascinating thing about it is it
0:02:12 is the most publicly visible phenomenon of the much broader trend, which is the emergence
0:02:20 of gaming as a new form of entertainment at a peer level to TV and movies and music and
0:02:25 so on. It’s inevitable that it’ll get there. Just the hours that consumers are putting
0:02:29 in really show that. For years, people have said, “Well, gaming, it’s this hits-driven
0:02:34 business and you build a game and you release it and you get all your sales in year one
0:02:40 and then that’s it.” I think what we’re seeing is that in this new style of hyper-social gaming
0:02:45 properties that have esports leagues around them, that have multiplayer built in, that
0:02:49 these properties like League of Legends Riot Games is their flagship game has now been around
0:02:53 for 10 years. It’s still doing over a billion in revenue. There’s still a ton of people
0:02:59 playing EverQuest. There’s still a ton of people playing World of Warcraft.
0:03:04 This is a new way that consumers are coming together and interacting with each other in
0:03:08 a big way. Esports is the natural outcome of all that.
0:03:12 You’ve alluded to the fact that people have been talking about this for a while. Why now?
0:03:17 What’s different that this is finally starting to compete with TV and other forms of entertainment?
0:03:20 There’s a couple different trends that are coming together. I think the very first one
0:03:26 is that video has just become such a huge thing. Streaming has become such a huge thing.
0:03:29 That is very much to do with the fact that we have phones, we carry these supercomputers
0:03:34 in our pocket, we have the bandwidth ability to be able to do it. When you look at these
0:03:39 stats around Twitch and YouTube, there’s literally billions of monthly actives that
0:03:44 are consuming video. What that means is that creates this new medium for any product that
0:03:49 produces lots and lots of visual content to live on top of that video.
0:03:54 We often will talk about this in the context of gaming or the context of education or the
0:04:00 context of many other of these things. Gaming is clearly the one that has very much benefited
0:04:06 from that. That’s one really big piece. The second piece here is that there’s steam, there’s
0:04:10 all the new consoles, there’s cloud gaming that’s coming out. I think all of these new
0:04:16 trends really serve to bring gaming that maybe back in the day, you would have had to buy
0:04:20 a $3,000 PC rig in order to run the top end.
0:04:23 Fully load up all the graphic processors and all these different things to really enjoy
0:04:24 the game.
0:04:29 Exactly. Now it’s like, wow, actually, the iPad plays Fortnite pretty well. They have
0:04:34 to modify the controls a little bit and this and that. That is such an amazing experience
0:04:38 to be able to play one of these massively multiplayer games without needing to spend
0:04:43 thousands of dollars. I think those two things and we’re also just seeing that kids that
0:04:48 are growing up playing Minecraft and Roblox, they’re graduating to Fortnite and there’s
0:04:51 a very good question like, are they going to graduate from Fortnite and what else are
0:04:56 they going to do? Are these kids going to find that in a world where they’ve been immersed
0:05:01 with all of their friends in these insane 3D environments that they’re going to go to
0:05:07 a 2D feed with static images and think that that’s actually the coolest way to hang out
0:05:08 with their friends.
0:05:11 That’s new for us, but for the kids growing up like that with that native worldview, that
0:05:14 you’re right. That’s their new, that the baseline has shifted.
0:05:18 If you grew up on AOL Instant Messenger, you would not have been able to guess that a system
0:05:22 of profiles and feeds and this and that would be the dominant way to hang out with your friends,
0:05:27 not Instant Messenger. And now for many of us that are in the Facebook or Instagram kind
0:05:32 of generation, I think it’s going to be hard to extrapolate like, maybe actually the next
0:05:37 way that all the humans in the world want to get together isn’t going to be also feeds
0:05:41 and following and photos and all this other stuff. It might look more like Minecraft,
0:05:42 might look more like Fortnite.
0:05:46 Yeah, that’s so fascinating because it has interesting implications for where the future
0:05:48 social network comes from, which is from games.
0:05:52 Yeah. I mean, I think you’re already seeing this, like the product experience of a Facebook
0:05:56 or a chat group is now the product experience of a game itself and the social network layers
0:06:01 around it. Fortnite then becomes the place where people hang out. We say why now and
0:06:05 it’s this idea that games entered the cultural zeitgeist and that’s driven by a lot of technology
0:06:08 and it’s driven by video and it’s driven by bunch of other things. But then once your
0:06:12 friends are playing it, you want to play it. It’s kind of like reaches this gating point
0:06:16 and then it hits a tipping point and then everybody wants to be playing and then they
0:06:17 want to be where their friends are.
0:06:20 So just to bring it back to the news then, because that’s where the trends are going
0:06:24 and how to think about the big picture, let’s talk about eSports for a minute in particular.
0:06:27 So you guys are saying that this is part of the larger trend and what’s happening with
0:06:31 gaming, technology, social networks, the future of entertainment really. But first of all,
0:06:35 when I was at where I did an op-ed in 2013 that argued that eSports was quite a long
0:06:38 time ago is no different than other sports. It was from Kevin Morris who was at the Daily
0:06:42 Dot at the time. And it was really interesting because I had to fight the headline desk because
0:06:45 they were like, “What the hell is eSports?” They were like, “You can’t say that.” And
0:06:49 just to give people context who are not familiar with that category, eSports is big business.
0:06:52 What really struck me is that it has a lot of the same features as traditional sports.
0:06:56 You’ve got training, like Buga in particular was playing for only two years, but he played
0:07:00 six to eight hours a day. He’s been training for two years like entirely. He has a management
0:07:04 company. There are sponsors. There are fans. There’s all these things in the regular sports
0:07:08 ecosystem that play out with eSports. I’m actually curious for your thoughts in particular
0:07:11 around eSports about where does this fit and how to think about this?
0:07:14 So I actually think the eSports term is maybe a little bit tortured. Maybe not necessarily
0:07:18 the best term, but you can just think about this as like eSports is another form of entertainment.
0:07:21 Sports is one form of entertainment. You want to watch the people that are like the highest
0:07:25 skilled people at any particular sport. And it’s kind of like a performance-based form
0:07:30 of entertainment. You also have like personality-driven forms of entertainment. That’s everything
0:07:36 from like reality TV. You can call that like some sort of eSport in and of itself. I think
0:07:41 eSports sits somewhere in the middle of that kind of like performance-based entertainment,
0:07:44 personality-based entertainment. Like Fortnite is much more kind of cartoonish. It’s much
0:07:48 more driven off the personality of the streamers. Ninja is probably the most famous and the
0:07:52 most highly compensated streamer. And he’s kind of like personality-based.
0:07:57 That’s super interesting. How do you think about this along the spectrum of sports entertainment?
0:08:00 From your vantage point and tech and like the future of entertainment, like why does
0:08:01 that matter?
0:08:07 I mean, one aspect of it is that right now, when we think about sports and eSports, inevitably
0:08:11 it’s the player versus player competitive type genre. And I think what we’re going
0:08:15 to very quickly find is that, you know, if you just go to YouTube and search for Minecraft,
0:08:20 there are so many things that people want to watch that are not this PVP competitive
0:08:21 kind of format. And so I think-
0:08:22 Pillar versus player.
0:08:25 Right. And so I think what we’re going to see instead is we’re going to end up seeing
0:08:31 a, you know, vast set of, you know, new genres of very watchable, very streamable entertainment
0:08:36 experiences ultimately that have as much to do with, you know, creativity and creative
0:08:40 expression. You know, you can imagine playing rock band or, you know, dance sense revolution
0:08:41 or whatever.
0:08:42 Oh my God, I love-
0:08:43 Imagine that as a-
0:08:44 I’ve always loved dance sense revolution.
0:08:47 Or like, you know, even if you take the metaphor as game shows, right? Game shows are some
0:08:52 of the most widely watched forms of entertainment. We don’t call them sports, right? But people
0:08:55 love watching them. And there’s going to be competitive versions that aren’t going to
0:09:00 be about shooting somebody. It’s going to be like, who can, you know, make the best
0:09:04 virtual garden, you know, who can cook the best virtual recipes. That’s going to be
0:09:05 a thing.
0:09:07 You’re right. What I love about that is things that are very native to what people already
0:09:11 do and love, since like there’s a whole cult around the great British baking bake off.
0:09:12 Yeah, totally.
0:09:16 Imagine that and like to your point, and you’re like in sports form, that’s super interesting.
0:09:18 Yeah. Well, it’s funny because people are like, oh my gosh, I can’t believe people watch
0:09:22 other people play video games. But we watch like other people answer trivia questions.
0:09:27 We watch other people play real physical sports. We watch other people like fix homes on reality
0:09:33 TV in like quasi competitive situations. That entire world exists. And it’s just bringing
0:09:35 that world into a place where people can do that more digitally. And then you’re just
0:09:38 creating the entertainment layer that sits on top of that interaction.
0:09:43 So this is good to talk about Fortnite specifically. It’s made by Epic Games. It allows up to
0:09:47 100 players to play at a time. And some people argue that’s a thing that sort of made it
0:09:51 really work. And a lot of games are now adding, you know, a battle royale mode where people
0:09:56 can fight and compete in like a confined space, et cetera. Fortnite was a top rank free game
0:10:01 last year. It made $2.4 billion in revenue according to Nielsen owned super data research.
0:10:04 And I think people only focus on the fact that it’s been around for two years, but it
0:10:09 wasn’t really a sudden overnight success because it has a longer history. And I’m just curious
0:10:12 for your guys’s view on sort of this trend of a lot of these games starting to add a
0:10:14 battle royale mode in particular.
0:10:19 Yeah. One of the really fascinating patterns that’s been happening in the games world has
0:10:23 been that, you know, oftentimes there’s, there’s a whole ecosystem of modders. These are people
0:10:24 that, you know,
0:10:25 Oh yeah. Like I love the modding community.
0:10:26 Right. Yeah. Exactly.
0:10:27 Modify games.
0:10:30 Exactly. That’s right. They’re modifying games or adding new assets, adding new rules,
0:10:35 you know, et cetera, et cetera. And, you know, League of Legends was originally derived from
0:10:41 Dota, which was a mod of Warcraft three. And similarly, Fortnite had had a bunch of predecessors,
0:10:44 I mean, there was Part PUBG, there was, you know, a mod that was built on, you know, Arma,
0:10:45 you know, et cetera, et cetera. And so,
0:10:48 And modding goes all the way back to Doom and even before that.
0:10:49 Well, yeah, exactly.
0:10:54 And so I think what we see is that, you know, many of these genres are taking time to kind
0:10:59 of incubate and kind of evolve in the indie gaming community and in the moderate community.
0:11:04 And then you have a new entrepreneur that then comes out with a fully integrated AAA type
0:11:08 level kind of thing. And that kind of, you know, brings it forward. And I think what
0:11:12 they end up tapping into, especially this kind of new generation of games is bringing
0:11:13 network effects into the games industry.
0:11:15 What do you mean by that?
0:11:19 What I mean is that it used to be that game was just a piece of content and you’d play
0:11:20 it and then you were done.
0:11:23 Right. A lot of the times these games are great, the tradition you’re describing a modding,
0:11:25 it actually leads to quick games being built and then dying.
0:11:29 Right. Right. Exactly. And so what ends up happening is in a world where you can mod
0:11:34 and then also ultimately create these full games that are multiplayer intrinsically and
0:11:38 have competition, have these different elements, what these are tapping into is they’re able
0:11:42 to create video and streaming communities around the game that kind of keep it going.
0:11:43 Hence the network.
0:11:47 That’s one form of a network. Another form of a network has been the e-sports leagues
0:11:51 and the teams and this whole ecosystem of folks that that are…
0:11:52 Management, sponsors, everything.
0:11:56 Right. Right. Who all have this very strong incentive to like keep the game going and
0:12:00 continue marketing it, et cetera, et cetera. And then, you know, third one, which we haven’t
0:12:04 talked about is, you know, user-generated content in the context of games.
0:12:06 I’m actually very interested in that because that’s actually been a trend in every media
0:12:10 wave where there’s always like a central established player that makes the content and then there’s
0:12:13 a user-generated phase that kind of comes right after that.
0:12:16 That’s right. Yeah. And I think, you know, as much as we’re talking about Fortnite’s
0:12:21 Battle Royale, you know, a lot of what the company Epic has been, you know, emphasizing
0:12:26 is their creative mode, which is just being able to like make cool structures and new
0:12:31 types of gameplay, et cetera. And that’s another form of how you can build a network
0:12:35 effect, the same one that’s propelling Minecraft and Roblox as well as, you know, kind of this
0:12:40 entire modding community. That’s obviously been one of the most powerful forces in the
0:12:44 internet consumer product sphere. And I think it’s inevitable that that all makes its way
0:12:49 into the game’s world. That’s absolutely right. And I think the focus you’re seeing on games
0:12:53 companies trying to build, whether it’s eSports, whether it’s kind of Battle Royale or multiplayer
0:12:58 modes, whether it’s UGC, like user-generated content, user-generated content, you know,
0:13:03 like Epic didn’t get Fortnite, like the eSports of Fortnite right on the first try, right?
0:13:06 It took iterations. That’s to me the interesting story here. It’s not an overnight success.
0:13:10 It’s not an overnight success. And like the game itself is not an overnight success. Like
0:13:14 the eSports, it is not an overnight success. But the idea of building towards network effects,
0:13:18 I think you’re seeing more and more games companies focused on that as the kind of ultimate
0:13:20 end goal. So how does this play out with the real
0:13:23 world? Because another really interesting article that actually the Wall Street Journal
0:13:27 did this past week, and we’ve seen this as well, which is that real estate developers
0:13:31 all over the country are trying to convert malls, convention centers, et cetera, into
0:13:36 destinations for eSports. They’re doing stuff like adding locker rooms, like broadcast studios,
0:13:41 higher speed connectivity, massive LED video walls, like in Times Square. And some of the
0:13:45 cities involved here like Baltimore, Philadelphia, Arlington, Texas, Los Angeles, New York and
0:13:49 Las Vegas, of course. So how do you guys think about this in this context?
0:13:53 So I think that’s a really interesting trend, which is around this idea of like what’s happening
0:13:57 in real life versus what’s happening in the digital world. This division between like
0:14:03 atoms and bytes and gaming and this kind of genre is like this really fascinating transition
0:14:07 point. You literally have people sitting in New York in a stadium watching something happen
0:14:12 online. You also have people within the game watching the event happen within the game itself.
0:14:16 And then you have like these characters and it’s got this like Disney World feel to it.
0:14:18 But then you also have this stuff where they announced Marshmallow was going to do a concert
0:14:22 at the World Cup. And there’s this moment where you’re like, is that happening in the
0:14:26 game? Is that happening online only? Because like Marshmallow had that concert, you know,
0:14:30 a couple of months ago that had millions of people, the cell membrane between like what’s
0:14:34 happening in real life and what’s happening in the digital world in this game’s context
0:14:37 is getting super, super thin. People are now building stadiums for people to have eSports
0:14:42 competitions and it’s just this blending of the physical world and the digital world.
0:14:45 Yeah. Nathan Juergensen used to talk about this concept of digital dualism that it’s
0:14:50 kind of a false dichotomy to separate in real life, IRL and the online world in many ways.
0:14:54 You’re saying that games is the bridge between them, which I think is super fascinating.
0:14:58 The other thing that is happening if you look at it from the real estate end of things is
0:15:02 that, you know, what are we going to do with all of this mall space, right? And what are
0:15:05 we going to do with all these, you know, restaurants that are, you know, kind of the
0:15:08 three star Yelp restaurant is just there, you know, but like really you could order
0:15:13 from your favorite place on, you know, Uber Eats or DoorDash or whatever. And like, you
0:15:17 know, that’s even better, right? So it’s, you know, cities are changing a lot and there’s
0:15:20 a lot of space that’s opening up that we’re going to have to figure out what to do with
0:15:24 it. You know, that very naturally leads to all these new forms of entertainment, especially
0:15:29 when they’re things that can drive foot traffic. Consumers are going to go to these locations
0:15:34 when they’re deeply experiential, when they’re very Instagrammable, when it’s something that’s
0:15:35 fun to do together.
0:15:38 What’s going to drive people to go to the mall and these spaces versus doing it in their
0:15:39 home?
0:15:43 Yeah, I think there’s a bunch of different reasons why people will ultimately want to
0:15:47 go to these experiential places. The very first thing is, you know, if you’ve ever been
0:15:52 to Oracle Arena while they’re playing League of Legends in a group of like, you know, tens
0:15:56 of thousands of people, it is a very different experience than doing it at home. Or you’re
0:16:01 going with your family to a, you know, a sandbox VR, you’re putting on all the latest gear
0:16:03 and you have, you know, haptic feedback, you have like…
0:16:06 You can actually feel the moves, not just play it in VR visually.
0:16:09 And you have fans, you have this and that, you know, and you’re in a thousand square
0:16:13 foot space, like how many folks in San Francisco have a thousand square feet of playing space
0:16:19 and, you know, five VR headsets, you know, and all the gear and custom software and content.
0:16:22 When you’re talking about the highest end cutting edge experience, you know, that is
0:16:26 going to be something that, you know, you’re going to have to do outside in a system that
0:16:30 costs hundreds of thousands of dollars. We also are very excited about the in-home experience
0:16:35 as well, but that will always be a more casual type of, you know, experience than what you
0:16:36 can get out in the field.
0:16:38 Ultimately, I think it’s going to be both.
0:16:41 This is a very hopeful future. Sounds like we’re going to have a lot of fun and interesting
0:16:45 entertainment and it’s going to creep into other areas of our lives, education, et cetera.
0:16:50 So we’ve covered everything in this episode from, you know, the recent milestone, Fortnite,
0:16:55 gaming, eSports, the future of entertainment, real estate, bottom line it for me. Like,
0:17:00 how should we think about the recent news of Booga, Booga, Booga, Booga, making, you
0:17:04 know, $3 million and in this context of these larger trends.
0:17:08 So I think there’s three things I can bottom line. One piece of it is, you know, it just
0:17:12 reflects Fortnite’s kind of status within the current zeitgeist at the top of the stack
0:17:15 right now. I mean, obviously these things shift around, but for right now it’s at the
0:17:19 top. The second thing is it’s the importance of eSports competitive play to gaming more
0:17:24 broadly. You know, publishers are going to continue to push this, Fortnite push this,
0:17:30 you know, the importance of events like this, the publicity they get, live events, the retention
0:17:35 it drives, the kind of engagement it drives from players is just going to kind of continue
0:17:38 to grow and it’s going to be more and more important to publishers as they develop these
0:17:39 games.
0:17:43 The third thing is just it shows the size and scale of what happens when games meets
0:17:48 network effects, right? Which I don’t think is a surprise, but I think what these events
0:17:52 do is they crystallize it for the outside world. It gives you that point where you can
0:17:57 now compare it to, you know, how big is Booga relative to Tiger Woods or Roger Federer or
0:17:58 anything like that.
0:17:59 Exactly.
0:18:00 Exactly.
0:18:03 Yeah, you literally put it in the Earth or Ash stadium and now you have this nice contrast
0:18:07 point which for people outside of the gaming industry gives them something tangible about
0:18:10 how big this is as a force in the world right now.
0:18:12 Fantastic. Thank you guys for joining this segment.
0:18:13 Awesome. Thank you.