SPEAKER_04: Hey Dara, how are you?
I'm doing great, how about you?
SPEAKER_04:
Pretty great, pretty great. Looks like I'm stuck on another pod with two lunatics.
SPEAKER_04: I don't know what's happening here. I was asking about this.
SPEAKER_02: This is a real thing now. It's amazing. It's an experiment, it's an experiment. Let's just say.
SPEAKER_04:
It's an experiment, it's just a couple guys.
SPEAKER_02: It's like it's a thing that Bill, the girl in here is an experiment. I love it.
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SPEAKER_04: All right, everybody, welcome back to this week in startup slash BG squared. It's a little bit of an experiment we're doing here. Last week, we got such a tremendous response to having two of my besties on the program and two legends here in Silicon Valley, two of the greatest investors in the history of Silicon Valley, of course, Brad Gerson from altimeter, and of course, legendary venture capitalist, Bill Gurley and friend of mine, welcome back to the program.
Thank you. We decided this week, we would try something new. We decided we'd look for, you know, some operators, people operating businesses, maybe businesses at scale, and see if there's anything we can learn from them. And we thought, you know, interesting business that all three of us were involved in
as investors is a taxi company called Uber.
And their CEO, Dara Khosrowshahi is here with us. How are you doing, Dara?
SPEAKER_03:
I am doing very well, although I am quite nervous. This is a very dangerous group to be talking with.
SPEAKER_04: Knowledge is not my friend right now,
SPEAKER_03: but we'll see how it goes.
SPEAKER_04:
Well, easy to go up against a journalist, right? They have partial information, you can use your charm, but here you actually have quite paradoxically in some ways, I was the third or fourth investor in Uber, in the seed round, Bill Gurley, of course, did the series A. And Brad, I'm not sure when you came in, but I think it was when it was a private, yeah?
SPEAKER_06: Yes, we came in a couple of rounds before they went public, and then also were involved in the IPO, and then have been very involved in the company ever since.
SPEAKER_04: This has been quite a journey for this company. We all backed it knowing that there was something special here, all of us had a different thesis about it, but let's set the stage right now for Uber going into 2024. The company had been pitched, I think, as it will never make money, it's impossible to make money on this, and great job, I think, Dara, in shepherding the company to profitability. So maybe, Brad, it would be good for you to maybe just talk a little bit about the Uber free cashflow story and pull up the slides while we set the stage here.
SPEAKER_06: You know, the interesting thing about Uber is they were forced to get fit before everybody else, because it's a travel company and COVID hit in March of 2020. And Dara, I'm sure, can tell the story, but gross bookings turned upside down, we still had excess capital and competition in the world. And so if you look at this slide one, Uber free cashflow generation, I think it really tells the story. The company went from losing over two and a half billion, or around two and a half billion when Dara took over, to profiting over three and a half billion, and we're talking free cashflow. This is not a bunch of manipulated, you know, kind of numbers, you know, last year. And if you look at the consensus forecast for the business, which is pretty mind boggling, it's estimated by the consensus that it'll reach almost 10 billion in free cashflow just a few years from now. And then if you look at the second chart, just on stock price, and then, you know, kick it back over to DK, but you know, the stock price has reflected that. There was a lot of questions, Jason, as you talked, I mean, listen, how many times did you and I and Bill and Dara talk about the fact that these headlines were that this was an impossible category, it would never be profitable. But what really happened was this, you know, capital being used as a weapon of economic destruction, destroying profits. And so the second chart shows when that stopped happening, when interest rates got real, and Dara's changes that he put in place kicked in, you saw massive separation in terms of performance between Uber and Lyft. And so maybe just Dara, take us through one or two of the key levers and what part of the story maybe hasn't been told.
SPEAKER_03: Yeah, absolutely. So I do think that the, listen, the early years
with Uber, we were engaging like everyone else, especially private companies and private companies at scale
and growth at all costs, because you had this free money regime,
everybody was doing it. And all valuations were based on growth rate and no one cared about profitability, as long as you had some theoretical business model that you could show to investors and who knew when that would happen. It kind of reminded me of, I think it was Chuck Prince, he was CEO of Citibank. He's like, when the music starts, everyone has to get up and dance. I think it was pre the real estate crash, et cetera. So I think the music was like really loud in the free money era and everybody was dancing. And for us, the music stopped earlier, which was COVID and literally overnight, 85% of our business disappeared in terms of our ride share business. That was the profit generator at the time. And it was a complete disaster and nobody knew when it was gonna come back. Now, our Uber Eats business actually grew and grew very, very quickly, but it was unprofitable business at the time. It was much less mature, et cetera.
So that was a toughest time in my career.
I never thought that I would come to Uber to do a mass layoff, but we laid off over 25% of our workforce. When you lose 85% of your revenue, you can't take kind of casual actions, so to speak. And more importantly than just cutting costs, we actually completely got out of certain businesses or we decided to get out of certain businesses. We were developing our own autonomous technology. Bill was not a fan of that, I remember, and we totally got out of that business. Bikes and scooters, hardware, we really had to decide what our core skillset was. And our core skillset is to build marketplaces, matching supply and demand at great scale with the best matching and pricing technology than anyone else on earth, because we've got the most data. And so we really had to restrict back to our core. And while it was very, very painful, and while I never want to go through that again, one of the things that I swore to myself and my team kind of, we talked about it is, we never ever want to have another layoff. So post-COVID, while a lot of companies
started spending again, when things started coming back, we were actually very, very disciplined in terms of costs. And I think since 2019, our gross bookings have doubled, but we've added about only 10% in terms of headcount. And to your words, Brad, we stayed fit. And listen, it hasn't been easy
because there are a lot of demands on the team to do more and to grow the business. And in the end for our business, the first thing is growth, right? So if you look at this chart, I won't comment on the expectations, but since 2017, we've more than doubled our audience. This is even with COVID, right? More than doubled our audience. Trips has grown about two and a half times. Gross bookings has grown, basically three and a half times as well. But we have the discipline as a company to keep headcount flat, to be very, very disciplined in investments that we're making, to stay in the area where we have clear advantages, which is this marketplace science and a great consumer, set of great consumer apps and a great set of earner apps and not getting out over our skis. And then very kind of having discipline on every single cost center, right? It's like credit card costs, customer service costs,
like every single cost center for us has an owner, there's real pride. And I think that the heroes that the company aren't the people who are growing from 50 headcount to 100 headcount to 150 headcount. They're the ones who keep driving and keep building
and keep innovating with small teams. The definition of heroes change within the company. And I think the nice thing is that with success comes kind of the positive reinforcement that people are looking for. And we definitely, because we are multi-product and our rides business can help Eats in terms of demand, the Eats business can help our rides business in terms of supply, the platform that we have, the scale that we have, the stock is definitely outperformed competition and hopefully we can keep it up.
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Okay, so Bill Gurley, this is an incredible segue into when you hear Dara and this level of competency and discipline and getting the company to this point, it wasn't always that way. It was a high growth company, as we both know, having had a seat at the table watching this massive ZURP environment, massive investment, global takeover. It was really inspiring, I think, what Travis did in terms of building out the company and the speed at which he did it. But you were intimately involved in Dara getting selected for the slot. Can you take us back to the competition for the CEO slot at Uber and maybe give us some inside information and take on what it was you were champion of Dara, et cetera.
SPEAKER_00:
And technically I was on the outside. I wasn't on the board at the time. Matt Kohler had taken my spot.
But I would tell you this, because I remember the conversations we had internally. And there were really two issues or two characteristics that we talked about that you would want in a CEO for this business. And the first one was someone that could help put out the fire. And there were a lot, it's easy to forget because of how far the companies come under Dara's, just how many fires there were at the time. But there were many states attorney generals that were upset with the company. There were issues in London. We were losing market share because of what was going on with the brand. And so it wasn't an easy decision, I'm sure, for Dara just because there was so much work to do. And then the second part was if someone could successfully put out all the fires, how would you go about growing the business and would someone be great at that? And around that time, around that time, I had for some reason decided to tweet that I felt the business could be worth 100 billion one day. And I've taken a lot of heat over the years for that assertion.
But when I look- That was your 420 tweet?
SPEAKER_04: Yeah, when I look, and look, I think the pandemic
SPEAKER_00: made the timing, it took a little longer. But when I look at where we are today and the company is today and $130 billion market cap, I'd have to give Dara, he's right here in front of us, but I have to give him a plus on both of those initiatives or characteristics that we're looking for. So clearly the company made the exact right choice. And it wasn't easy. This idea of competing when capital's free,
we talk about the game on the field or zipper, cash being everywhere. I can remember being in it at the time and having the thought, and I even had a chance to talk to some of the best business people in the history of the world. They've never been through it. Like you could have grabbed, Warren Buffett and Jeff Vinson, you could grab all these people, they haven't seen that game where your competitor's willing to lose $2 billion. That was the first time in the history of business that people had faced something like that. And so I think the degree of difficulty was, it was super hard and it created enemies of the company just for the burn alone. I can remember how painful it was the morning of the IPO, two legendary people from Silicon Valley were on CNBC, just throwing shade for like three hours while they were trying to open the stock. And that was what was in vogue at the time. So it's really, anyway, massive hat tip Dara, it's really incredible how far the company's come. Who was the close second, Bill?
SPEAKER_04: Who is the close second? If there was somebody-
SPEAKER_00: I think Meg and Jeff and all the names that were out there. So. Yeah.
SPEAKER_04:
Dara, when you hear Bill Gurley's sort of recap of that time period, when you had to make the decision and you're like, this is gonna be hard. There's a lot of fires and let's face it, you needed a wartime CEO to make Uber even exist. The fact is you had to take on every city, you had to take on a lot of corruption, medallions, et cetera, people who were incumbents didn't want to do this. Travis did an exceptional job of that, but yeah, it was pretty expansive and it was spending money.
So take us through your decision. Were you ever thinking, this is not, the juice ain't worth the squeeze here, or this is just too hard. I'm being set up to be the fall guy, taking this company over. There's just the chance. And what did you think the chances were that you could get it to where it is now?
I'll give you a little bit of a victory lap here.
SPEAKER_03:
It's actually funny that, and by the way, we don't count as a victory. Every day can be a victory failure, but I do remember, I got a call from a headhunter at that point and my first reaction was like, hell no, no way. I'm CEO of Expedia, love what I'm doing. It's a great company. I've been in the company for 12, 13 years, worked for a person who I really admire, Barry Diller. So the initial answer was absolutely not, but I actually had drinks with a friend, Daniel Eck, who runs Spotify and he's like, Darry, I recommended you for this job. I don't know where, and I recommended you to this headhunter. Did you say yes? And did he call you? I'm like, yeah, but I said, heck no. And Daniel gave me a really hard time and I still remember, he's like,
I said, I'm happy at Expedia. He's like, since when is life about happiness? He did his founder pitch, right? Since when is life about happiness? It's about impact and Uber is one of the most impactful companies in the world. And I would say that this is the magic of magical product.
SPEAKER_03: If I hadn't used Uber myself, if I didn't love the product and what it did for me and how it improved my life personally and how it was an everyday part of my life, no way I would have taken the job.
But the fact is that Travis had to fight
and do a lot of good and a lot of things that were actually cost his job in the end. But he built a company and he had to fight to build that company. And yes, there were messes that had to be cleaned up, but the service was a magical service. It continues to be magical service. And it was that impact in the end and it was that product in the end that convinced me, you know what?
I think I can put out these fires. I did not know everything. That's probably one of the reasons why I joined. It's always harder on the inside, but it's been one of the greatest experiences of my professional life. And I'd say like of my life, it's been a great ride. It's been a hard ride, but I would never second chance that decision. It was a great decision.
SPEAKER_04: You seem like you wanted to add something there.
SPEAKER_00: Oh no, I was thinking we owe Daniel a hat tip too, I guess. Absolutely. I'm just upgrading to the family plan on Spotify.
SPEAKER_06: The random walk of life.
SPEAKER_06: One of the lessons I think, perhaps to come out of this, I think at the time I was talking to Dara, I was talking to Bill and others. And whenever people brought up Dara, it was like, oh, he's running another globally complex travel business. He's running Expedia. So that's why he mapped to potentially a good CEO. But when you talk to Bill Gurley at the time, Bill's like, that's not the most important thing.
And I had done an interview with Dara probably four or five years before that. And before we did the interview, Dara, I don't know if you remember this at Summit, I asked you to take the Enneagram.
And Dara on the Enneagram is a number nine. He's a peacemaker.
SPEAKER_06: And lots of presidents and CEOs. So CEOs tend to fall in a couple of buckets, either a nine or an eight. Eight is kind of the Frank Slootman model of CEO. Nine is kind of the peacemaker model. And at that moment in time, having a high integrity CEO with a North Star that Dara had, who had dealt with really tough customers. I mean, yes, Barry Diller is extraordinary, but everybody knows Barry is tough. And Victor Kaufman were tough. When you were CFO of USA Networks. And then you took the handoff from a very popular Rich Barton Expedia and doing that founder to CEO handoff, which he had done before. And we knew he was going to have to take the baton from an incredibly popular Travis at Uber and be the CEO who came in after him. So I would say that was the first thing for me that was the most important, was who he was as a person and why that fit the needs of the company so much. And the second one was, which I think was deeply underappreciated, but Bill and I talked a lot about, which was capital markets, right? Dara understood capital markets. He understood the value of capital assets, both good and bad. He understood the need to raise money and how to raise money. He understood capital deployment. He understood efficiency and delivering profitable growth and free cashflow because Barry was so instrumental in driving that. In 99, 2000, when the world melted down, it was Diller who found his way through the door and Dara was the CFO of that company. And Uber at the time was hemorrhaging cash, needed to get rid of some divisions, needed to focus on the core. And so I think there was also a lot of confidence and a great fit in terms of your capital markets background and the needs of Uber.
SPEAKER_06: The private kind of spending as much as you can
SPEAKER_03: to put off competition,
that was not my comfort zone. I was running a public company for 13 years and the public markets instill a discipline, instill a kind of return on invest the capital discipline that I was quite comfortable on. So I did have to play the game.
I did have to dance to the music, et cetera, but this is a great environment for me personally, that I'm quite comfortable with. And I'm glad that we made the transition. I'm glad that we're in this environment, but the free money environment, some people had a party, but it wasn't a party for me. I'll tell you that.
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Gurley, I think this is sort of interesting for you and I to discuss having been there since the early days. It wasn't clear to everybody until they used the product that it was magical. I remember when I helped Travis raise the first million dollars for the company. I had 21 people at an event in San Francisco. And I said, OK, Travis, he says, what do I do? I said, just demo the product and then tell them how much you're raising. So he demoed in front of 21 investors. And the demo, Dara, you don't know the story. So he took out his phone and he just said, I'm ordering a cab.
And then he said, hey, everybody come to the window.
And everybody went to the window and they looked out the window and the cab was there.
And then three people, I said, who wants to invest? And three of us raised our hand. First round, Sian, Banister, myself. 19 people said no. It wasn't clear that this product was as incredible as it was until you used it and actually started building it. I'm curious in having watched the ZURP environment bill, it seemed obvious to me when I watched Uber go public and they were reporting, oh, we lost a billion dollars this quarter. We did a billion rides. And I just thought to myself, well, if you raised it $2, would anybody stop taking Ubers? The answer was obviously no. So why do you think there was such a messaging problem, Bill, in terms of could this company ever be profitable?
Wasn't it obvious to you, Bill, that it would be?
SPEAKER_00: Well, there's a really interesting kind of mental math puzzle, which is I used to talk with Mike Mohsen about, which is a game theory question. But if you had two companies who both believed in network effects and they were going to compete against each other, how much would you spend to try and win? And I think if you talk to game theorists, you'd spend right up until you die. Because if you think it's winner take all, that's how it's going to play out. And so to a certain extent, Mike and I had had that conversation prior to this environment showing up. And then the real world example played out. In the middle of it, there were all kind of rationales that I think were wrong. But one of them was people would say, oh, this is a natural duopoly or triop. It was just like airlines. With no actual rationale behind it, they would just state that. And so it was an effort, I think.
But what finally happened, I think, Dara mentioned moving into an environment he's more comfortable with, interest rates finally came up, money quit being free. Thankfully, all the competitors went public, I think, because that helped. And everyone decided that they wanted to see profitability. And now I think you get into a position where you can see the power of the model. And David Sachs did that great napkin drawing years ago that I put in several of my blog posts on Uber of why there would naturally be network effects. Because the more users, the more drivers, the more drivers, the more coverage area, faster pickup times. It was meant to do this. And it was meant to be profitable. But when companies are losing shit tons of money, and it was record levels of money, it's very easy for the press or whoever else to say. And look, there have been plenty of businesses, especially in e-commerce and stuff, where they lose a ton of money and they are selling dollars, are selling dollars for 90 cents, and they can't get to profitability. So I think it's natural that people would have taken that mindset. But it's been, I would tell you, just as both as a shareholder and as a kind of an intellectual business strategist,
I'm thrilled to watch this day finally arrive. It is what I expected, but boy, it took a long time and it was frightening along the way.
SPEAKER_03: And Bill and Brad, I'm curious, just one comment. And this, do you think that the valuations got into the mind of the finders or the founders of the companies? Because this is something that we were guilty of dancing as well, right? And part of it came from, Bill, when you said,
this company can be worth 100 billion, right? And this is pre IPO, et cetera, and a lot of people made fun of you and it's proven to be true. But that goes into the back of my mind, right? And I'm like, how big do I have to be
in order to prove Bill right? And then you actually start to do things to fit the valuation that someone made up for you. And can that create poor behavior? Oh my God, I've got to invest more in this business or, oh my God, I have to be an autonomous and I can't depend on an autonomous kind of environment like the way that we are doing right now. So is there this like double loop, which is not only is money free, but then founders and or CEOs have to do stuff to justify that elevated valuation so they actually lose discipline too. 100%.
SPEAKER_05: That is the negative reflexivity of an overpriced round.
SPEAKER_06: I just posted in our other thread, Jason, this clip from Silicon Valley that's going viral, where they're sitting at the bar and they're talking about- I could have raised less money. I should have raised at a lower price. He's like, oh, if I had raised a lower price, I'd still have my job, the company would have survived, I would have never had to lay anybody off, I wouldn't have had to spend money like a fool, da, da, da, da, da. They nail it yet again. The negative reflexivity that occurs when you have a headline valuation, which by the way, barely saves any dilution for most of these companies. Like if you actually do the dilution math on it, it's really driven more by ego than it is by dilution because most of these companies aren't raising that much money.
SPEAKER_06: But what it does is it forces the business strategy to fit that outcome. And worse yet, Dara, not only do you have to get to that number, you have to double that number. So if the number is 100 billion, you have to get to 200 billion. If the number is a billion, you got to get to 2 billion in order to raise your next round. So I think it's one of the most nefarious things that occurred in the ZURP environment. And in 20 and 21, I remember talking to founders and I would say, you're going to snatch defeat from the jaws of victory here, you're overpricing your company. When interest rates go back up, which they will as soon as COVID's over, multiples will adjust down. At that point in time, you're going to be forced to do a 30 to 50% down round and very few Silicon Valley companies, even the best ones, survive the morale hit and all of the challenges associated with the down round of that size. And we've seen it happen. And in fact, we have over a thousand unicorns that are trying to work that out right now. A lot of these really good companies, but it's very tough when an Instacart has to go from 39 billion to six and a half billion.
SPEAKER_00: So another way to frame this, and even before this all happened, this issue would come up, and people that have been in public companies know this, but stock prices represent discounted future expectations. And so if you raise a huge round, the expectations in front of you are huge. And to your point, Brad, if you compound at a cost of capital of 15% over five years or whatever, it's a doubling. Like that's what you got to get to. And too many, I think, founders lack of understanding. It's really partially just financial, like understanding how financial markets work, right? And understanding, you know, and if you don't have that experience, you don't have that education, there's no way to know. Another thing that really complicates that this issue is secondaries. If founders are taking money off the table, I have found them to be remarkably singularly focused. Let's say that. And not thinking about- It can be a distraction.
SPEAKER_04: It can be a massive distraction.
Yeah.
SPEAKER_00: Yeah, well, and they just get very price sensitive. Like it's all about the price, all about price maximization. And it's harder for them to think about these other issues that might affect the company in the future.
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SPEAKER_03: Do you guys think secondaries are gonna be a thing of the past? Like when I grew up and I was not in the tech space, but in investment banking, et cetera, like the founder didn't sell
and then it became okay for the founder to sell. Do you think in this more expensive environment, et cetera,
that's gonna go the other way or not?
SPEAKER_00: When we went through the zipper world and there were people raising billion dollar funds
left and right, and they were begging their way into rounds, they were encouraging secondaries because the current investors didn't wanna part with ownership and everyone was dilution sensitive. So it was the only way to get in the company.
SPEAKER_04: And it was even more nefarious, Bill. There were people who would use the secondary Dara
to win the deal. So imagine you're coming into a deal, Brad's offering, whatever, a hundred million out of billion dollars post. And then I come in and say, I'll give you a hundred billion, a billion dollar post, but I'm also gonna allow you to sell 25, the founders to sell 25 million in secondary. And then those two things being in the same term sheet
was insane when you think about the conflict of interest. Right, Bill, Gurley, I think.
SPEAKER_00: Yeah, and look, I think it's still an issue today. I think it is still very common across a broad array of companies. I think it's the number one thing that allows a company to stay private for a very long time because the thing that eventually causes a founder to almost be forced to go public is the employees eventually say, hey, what about me?
But some of these companies are doing broad-based secondaries across the entire employee base almost on an annual basis.
SPEAKER_04: Yeah, SpaceX would be the prototypical company for this or Stripe. And Dara, I think to your question,
SPEAKER_04: when it's fair and it's, I guess, Pari, Paru, and everybody gets to participate and it's modest and controlled, I think it's a benefit to the company because people will stay long-term, right? You're in year six or seven and you got to buy your house or put a down payment on it, it's great. The problem was like, Brad, you saw this up close impersonal with Poppin, which the founder took out 200 million and yeah, that was peak zerp and then the founder wasn't motivated. I want to go to two issues.
SPEAKER_00: I've seen that a lot. Like when founders get too much off the table, I mean, the bird example is a great example. How much did that Travis take off the table in bird?
SPEAKER_04: I think 50, I could be wrong.
SPEAKER_00: I got to tell you when the number
SPEAKER_04: starts equaling private aviation or second home, that's when I was super distracting. Whenever you start thinking about private aviation or a second house, it's very hard to focus at work.
SPEAKER_04:
Darla, let's get to two really important questions for you. Number one, I think one of the myths about and the attacks that Uber just constantly, even to this day, to a certain extent, there's some people going after this, oh, they're abusing drivers. Oh, the drivers are making $6 an hour, it's below minimum wage, all this nonsense. And it was really people, I remember during the private days, it was people of such bad faith because they would say, oh, somebody in this on-demand world who's sitting at home waiting for a ride, they waited for a ride for three hours, they did a $10 ride, therefore four hours divided by, you know, $10 equals this, which is not how the on-demand economy works. But despite that, the hourly rate has gone up,
15, 20, 30, et cetera. There are minimums in certain markets. And the number of people choosing to work for Uber on a global basis is extraordinary. And companies like Apple, Walmart, Target, Starbucks are losing their employee base to people who want to work for Uber or DoorDash or any other on-demand because it gives them flexibility and the rates have kept going up. So what's the truth, the honest truth about what drivers are making
and how many drivers are in the network now when compared to Starbucks, Walmart, Target, and those places? Because you've spent a lot of time with drivers now. That was a big part of your peacetime initiative was to empathize with drivers more.
SPEAKER_03: Yeah, and it helped us build a better product. Like the service doesn't exist without drivers. And actually, I'd say drivers are the number one growth driver for the company. As we get more drivers, the network becomes more liquid, ETAs come down, surge comes down, just the demand almost shows up. It's not that simple, but that's the most important element of our growth formula. So it wasn't just peacetime. It was like, I need to understand what it's like to drive Uber. And by the way, it's a lot harder than it looks. Don't take the job that your drivers are doing for you for granted. And I think for us, the truth is drivers are making about 30% more than they were making five years ago, but so is everybody kind of, so that is the spot cost of labor. It's gone up, but drivers are absolutely doing better. Our take rate, it's affected by revenue recognition and kind of merchant versus agency, et cetera, kind of the true take rate of the mobility business has stayed flat around 20 to 21% for the past five, six years. And we want to grow the business without taking take rate up because it forces a discipline on the company in terms of cost structure, et cetera. Bill, if he wants to talk about that, rake too far, take too far, so to speak. So we've kept that take rate flat. And while I do think we've got flexibility to take it up, we don't want to. That's a last lever that we want to use. Now, what is happening in the US, two things are happening in the US that I do think are affecting driver perception and how they feel, which is real, that we haven't done a good enough job managing through
and we have to do better. One is that on the driver side, instead of drivers getting paid a flat rate based on distance and time, in order for us to show drivers the upfront destination, we now essentially algorithmically price a specific ride. So we tell you exactly where you're going and we price out the ride. And for example, if you're going to the suburbs and the boondocks, we will price more than what would the normal rate be because you're going to come back, your utilization is going to be low, you're going to have a bunch of empty miles. If you're going from the airport to the center of SF and it's going to be really busy, we take a little bit off that rate for the driver to fund the other route. So our average revenue margin stays the exact same, but by pricing these two trips differently, we're actually bringing in more demand into the network. And one of the things that we haven't handled well is for that trip into the city, a driver may notice that that price is lower than they're used to and our take may be higher for that price out into the boondocks, our take rate is lower, our average take rate is exact same. People tend to, there's this, I think investors like they remember pain more than they remember doing well. Drivers tend to remember the trips where our take is might be higher than the ones that our take is lower. So for example, we show drivers what's been our take rate for the past week, et cetera, to remind them that our take rate has stayed the same, but we've got to do a better job. Like if drivers feel some- How many drivers now and what's the longevity of drivers?
SPEAKER_04: Is it a transient job or are people kind of sticking with this as a third of their income, part-time income? How would you describe, I know it's not one thing, but I know there's millions of drivers who are active. So how many drivers are active and how do they fall into buckets of sort of participation
in the network as it were?
SPEAKER_03: We've got six and a half million drivers globally. Active drivers? It has active drivers globally. Our driver base has grown over 30% on a year on year basis. So we have a lot of drivers coming into the system. It's a great flexible work opportunity. The majority of drivers are part-time, but that changes. That's a different geography to geography. So in England, where it's harder to become a driver, the regulatory burden is higher. A higher percentage of drivers tend to be full-time. In Brazil, a lower percentage of drivers tend to be full-time. So you do have a mix of full-time, part-time. The majority of drivers are part-time, but there's a core of full-time drivers that are very valuable to us who really understand the system just as well as our top engineers do. Now, the other issue that I do want to make sure that I cover too is the cost of commercial insurance in the US has gone up significantly. It's been a disaster. There was like a Wall Street Journal article about people not being able to get car insurance, home insurance, et cetera.
SPEAKER_03: So in the US, our take rate, net of those insurance costs are less than 20%. They're 15, 16%. If you include that insurance cost, which is really just the pass-through, they're north of 20%, and that is a pain that drivers are feeling. So in California, for example, commercial insurance costs have increased by over 60% over the past two to three years. It's a huge increase. We've passed that on to riders. Most of that cost. Why has it gone up?
SPEAKER_04: Are there more accidents and there are more claims?
More litigious or?
SPEAKER_03: It's more tort reform. People are incredibly litigious. Lawyers find people on Facebook, et cetera. So I think that there is work to be done in terms of these litigation costs are sky high for everybody, and we need to essentially get some control of that, and it does involve some regulations, et cetera. In Florida, for example, those costs are just too high, and they're unfairly high, and a bunch of tort lawyers are getting that benefit. And if we can bring that cost under control, then prices for riders are gonna come down, demand is gonna come into the system, and drivers are gonna make more. But that is absolutely one thing that's affecting perceived take rate in the US. And it's a bad trend that we're doing everything that we can to reverse.
SPEAKER_04: Is there a concept of self-insuring to a certain extent, or because Uber is such a scaled business, could you buy an insurance business or somehow do this internally? We self-insure a majority of the liabilities,
SPEAKER_03: but the liabilities are still there.
SPEAKER_04: Got it, awesome.
Gurley, you had some thoughts, I think, just on Uber as a global company.
SPEAKER_00: As you scale Uber in as a truly global company, probably more global than even some of the magnificent seven,
and you're also simultaneously driving down costs, I'm curious how you think about employment, and specifically employment in Silicon Valley. And I was at a conference recently, and a bunch of enterprise CEOs were talking, and they said, the Valley's a great place to start a business, but a horrible place to scale a business. And they actively discussed moving headcount away from the Bay Area. And then I work with startups who have a lot,
ironically, their headcount, they're having the hardest time coming into the office, are the ones in the Bay Area. And if you were gonna hire a hybrid worker, the last place on earth you would hire is in the Bay Area, because it's so expensive. So I'm just curious how you think about that big picture question.
SPEAKER_03: Yeah, the majority of our engineering headcount, our technical headcount is in the Bay Area, SF, Sunnyvale, et cetera. And the fact is that there is great frickin' talent
in the Bay Area. And despite what some people say, it's great talent who works hard. Our engineers, I have to be careful. If I ask them a question on a Thursday, they'll be up Saturday, 3 a.m. answering the question. And it's awesome, right? So the power and the talent that we have is great. That said, the majority of our growth in headcount
is coming outside the Bay Area. And there are incredible townhubs, India, for example, in Brazil, Sao Paulo for us, in Amsterdam. So we are actively looking to diversify our technical talent with a core of rockstar ninjas in the Bay Area. It is an excellent core. But just like we diversified our business globally, we should diversify our talent base globally. And sometimes having talent outside of the Bay Area can actually help you build better product. And for us, product touches, drivers, riders, it's very, very local. It looks really different in Brazil. So having an engineering team in Sao Paulo who sees how our product translates there makes a lot of sense. I have an important question about,
SPEAKER_04: you know, this cleanup work you did and divesting from a bunch of businesses.
Well, that then leads to innovation and new businesses and new business lines. Right now, Uber, I believe we refer to as a three-legged stool, maybe not a four-legged one. Obviously you have rides, mobility, you got food delivery. And then of course you have Uber Freight. And there's this fourth one. I noticed you ran a test and you and I talked about it. I was super excited about it of maybe workers and having Uber, you know, I called it Uber exec,
but I think you guys are calling it something else in this test and you've been public about the test.
Maybe you could talk about, is there going to be a fourth leg to the stool? And then how do you think about innovation? Is now the time to think about launching new innovative products or is there just still so much growth left in terms of rides and food delivery and the competition with DoorDash and Grab and other places around the world that you should just stick to the three legs of the stool?
SPEAKER_03: So I think that there might potentially be a fourth leg, but I don't have an agenda. Listen, I want growth, I want innovation, I want to build cool shit, right? And so the majority of the growth that you see, for example, in our mobility space, we have a bunch of new verticals, taxi, reserve, Uber for business, low cost, high capacity vehicles. All of these businesses have been built in the past five years. It's about $9 billion worth of GPs that literally has been built in the past five years by our engineers, by our product folks, et cetera. That kind of innovation, which is kind of adjacencies that you have natural rights to win at, we, you know, who would have thought that Uber would now be powering New York City taxis, but that's a very natural adjacency for us, right? Like we have, you've got to tune the product. Now there's really important tunings, which is for taxis, they might be full, et cetera. So we send a blast dispatch for taxis. We don't do a one-to-one match like we do with our drivers because we know when a driver is, when a car is open or not. With taxis, we don't. So we send a blast dispatch there. The taxi who's open says yes, the taxi who's not open. And we will work to integrate by the way, with the taxi dispatch system so we can be smarter about that. But that's, it's exciting, it's scales, it's much less expensive to go into, et cetera. Same thing with Eats, getting into grocery or getting into the direct business where we deliver for an Apple or a Walmart. These are great adjacencies. And the great thing about Uber is they're big, right? Groceries are five plus billion dollar business. It could be a $50 billion business. Direct is billion dollar business,
multiple billions of dollars. So the reason why I'm a little neutral
as to the fourth leg is there are very large opportunities right in my backyard. So that's the stuff that we are focusing on. But what you're talking about, which is this work platform, we do have a global work platform. It's better than any other work platform. And what we found is the more flavors of work
we can offer someone, the more engaged they get with our platform. For example, in India, it's actually pretty cool. We have some of our drivers now working on artificial intelligence labeling, right? Work from home or drive for Uber during the day. Oh really, you have a mechanical type business
SPEAKER_04: in AI labeling? Yes, high quality mechanical Turk business
SPEAKER_03:
that we're building. It's a nice little adjacency. I'd love for it to get to a nice big adjacency. And so we are definitely working on different kinds of work because we do have this work platform, flexible work platform that's absolutely second to none.
SPEAKER_04:
This is fascinating that I think, in terms of a framework that I hadn't considered,
there's one side which is customers have the app and they have the super app experience. But on the other side, six and a half million people who you've vetted and have done jobs and have been rated, hey, what else could they do? And some of them might wanna work from home. Hey, I'm dropping my kids off. And then I do a couple of Uber rides or deliver some food, but there's this other opportunity. Hey, I'm home, my kids are doing homework or my kids are asleep. I can't leave the house, but I could do two hours of work. The Uber app gives me an alert. Hey, do you want two hours at X dollars per hour? Wow, that's quite brilliant.
SPEAKER_03: Our driver app is the closest thing, I think to a Western super app there is, but not that many people see it.
SPEAKER_04: Most people don't see the driver. Most of the investors don't see it, yeah.
SPEAKER_04: No, let's talk about super apps for a second. I know Uber had, we have Uber one, right? A membership. I think that's like an incredible product, but I don't hear too much talk about it from the company or from individuals. So maybe you could just talk a little bit about Uber one and then how that fits into everything that we're seeing.
SPEAKER_03: It's not exactly rocket science, which is what we find is people who use more of our stuff tend to engage with our platform more, they tend to stay longer, they tend to spend more. And so we actually have Uber one, which is our membership program. It's growing very, very well. We'll have more to say about it and Ernie's coming up. So I don't want to say too much, but. Have you ever released the number of subscribers,
SPEAKER_04: the number or no?
SPEAKER_03: I think the last time it's 15 million and it's grown since. And more importantly, I look at the percentage of gross bookings that come from Uber one members. And for example, with eats is getting to that 50% mark. And it is, it's priced the same exact as our competitors. And we have more content, which is there's, you not only get delivery benefits, but you get mobility benefits. So over a long period of time, we think that'll be a winning strategy, but at the same time, we're constantly upselling people from a regular Uber ride to a reserve ride, for example, or from a ride to eat, you just got home, why don't you have dinner, et cetera, we'll give you $5 off. And what's fun about those kinds of upsells is, it used to be a bunch of people kind of sitting around table having ideas, let's do this upsell, let's do that upsell. And then it's like, let's put this percentage of our inventory to upsell on safety, et cetera. All of that is now being driven by AI. All of it is being targeted. So, we have algos figuring out, is Bill, will he take that upsell going to work for a coffee and will Brad take that upsell, which is, hey, if you order, cause he's got a family, he's got kids, $50 order, you get 10% off, et cetera. So, it started with like a bunch of people with ideas, now it's all algorithmic. And again, I have no idea what the algorithms are gonna come up with, but we got more consumers, more services than anyone else, more upsells than any other player. That combination is a potent combination, even outside of membership.
SPEAKER_04: Is that happening with AI right now, or is it? Oh yeah, the team is,
SPEAKER_03: and you always start with simple algorithms and the algos get more complex, but the idea is what's the next best thing, right? What is, here's Jason, what is the next, what's that pixel that we can optimize? Because any pixel that upsells you something takes away from your base experience. And ultimately, where we came from the realm of design and opinion, we're going to a realm of data and it's just a much better place.
SPEAKER_00: Hey, Dar, with your mentioning AI, we've been through this period where I think everyone got super excited, right? And Nvidia stock went up and everyone dove in and everyone told every CEO, you gotta do it in every department and all this. And I think we're moving towards a more rational mindset of like, where's this stuff really fit? Where does it really add value? Where do you really get ROI? What's happening inside of Uber and where do you think the big early wins are?
SPEAKER_03: So I think one no-brainer win is developer productivity. So we are in, listen, it's actually,
it sounds easier than it is because we have a bunch of developers and they're like, listen, I'm working hard enough. Don't tell me to use this thing. Don't tell me how to do my job. Just let me do my job. Let me get my diffs in, et cetera. So we now have a subset of our developers who are power users of GitHub co-pilot and it is excellent. And so the job now is to, and it's truly adding productivity, but we now have to sell it from like 20% of those power users to 50%, to 80%. And you shouldn't take that for granted. Like, why can't you do that tomorrow? Because we want developers to do their day jobs while they're training on how to get more productive. That's one angle it's absolutely gonna happen. It will be a home run for everybody. And it takes some of the kind of BS work away from developers so they can truly be creative. So I do think it's a win-win win. Next for us is customer service, which is actually for Uber, right?
When you call in, we have to know what kind of customer you are because there's a lot of fraud in the system. There are a lot of people taking advantage of the system. Second, we have to understand the context. What happened to Bill in terms of his food didn't, he said he didn't get his food. Is that true or not? And the third is what's the policy? And the policy is gonna be different place to place although we're trying to make that more consistent.
A human being has to go through all that. Now, essentially, and we take into steps, right? First step is AI summarizes all of it. So it's in a nice little package. Now the AI not only summarizes it, but gives the recommendation to the customer service agent. We look at those recommendations, are they right? Are they wrong? And eventually we'll be able to move much more of the customer service to AIs as well. So that's another one. We are building out customer facing products as well for eats some cool stuff. My instinct is the next 24 months are gonna be much more focused on backend stuff. On the customer facing side, it's still too slow. Like, you know, our responses have to be in milliseconds even very small delays can cause drop off, et cetera. But I'm confident that the customer side is gonna come in. And this is a big wave. It just may be a little bit slower than some people expect, but the backend stuff is dynamite.
SPEAKER_06: And Dara, are you building custom models to help drive these? I mean, you mentioned GitHub Co-Pilot, obviously a Microsoft product, but are you, I'm just curious, there's this debate in the LLM land whether everything's gonna be large frontier models. What I hear from a lot of companies is that those are very expensive and they have to figure out how to do this within the context of a expense side of their business that makes sense. So I'm just curious, are you using open source? Are you customizing or are you doing a combination thereof? Right now, all of the buffs.
SPEAKER_03: So we have an application layer that is our own AI layer and we can plug in public models, open source models,
and we work with all of the larger players. And I actually think the answer is gonna be all the above. There are certain highly idiosyncratic use cases
where a smaller custom built model will be the right solution. And then for, I think, a GitHub Co-Pilot, et cetera, it might be you want more general models than some of these larger models. So I don't think it's gonna be an if, if or, it's gonna depend on the circumstance. I think we're gonna use all of them. Like they are, and when you're dealing, we're a little bit of a unique beast, which is our data sources are changing and are so variable so quickly that these AI models are quite powerful with data sets that generally don't change. And for us sometimes, like we're gonna have to layer models on top of each other in order to get that right customer
SPEAKER_04: interaction. Moving down the docket here as we go, Bill, I saw on the Twitter that you are taking a board- Isn't it called X now?
SPEAKER_05: Oh yeah, sorry, on X. I haven't seen it. I'm gonna take a little time. Yeah, exactly.
SPEAKER_04: Your post on X, I reposted your post, but you're gonna join the board of Zillow. That's interesting, Rich Barton, obviously a friend of everybody here on the pod. What you're thinking there, and is this gonna be the trend? You're gonna go back on the Uber board or are you gonna just start being public boards again?
SPEAKER_00:
As the world knows, cause I've announced it like a couple of years ago, I stopped doing new investments. So I've taken boards historically as part of my day job and as part of investing. And as I look towards the future, you say, what board would you take just because it's interesting to you as an independent, human and not as a venture capitalist. And here's a board that I've had an experience on, Rich and Lloyd and the entire team are just remarkable. The level of the strategic conversations that are had in that boardroom are very different from other places I've been. They are both engaged as founders, despite being a decade in, they're hungry. They look at the, we're talking about the magic of the Uber app. My partner, Matt Kohler used to say that the smartphone's a remote control for your life and the phrase one click, like can you one click something. And one clicking a Uber ride, or an Uber meal to you is a magical experience. But the real estate industry is still far from a one click. If you've been through a transaction, all the different pieces of paper you have to fill out and visit, things you have to schedule, there's still quite a bit of opportunity for innovation. And so I'm excited to be back in the room with that incredible team and board, but also because I know Rich and Lloyd are so hungry still at this point in their career, it's an exciting problem to go work on also.
SPEAKER_03: Where are you on the board? You may not be able to, sorry, you may not be able to talk to this, but do you think this realtor, the antitrust case,
SPEAKER_03: is that a good thing or a bad thing for Zillow?
SPEAKER_00: My gut, and I'm not a lawyer, but my gut is that if anything, it's probably a positive. I think the NAR operates as a pseudo monopoly that had been accused of that a lot by the different governmental agencies and can create constraints. And if you look at countries where there's not a NAR, I think you typically see more innovation and more market cap per home
for the leading real estate player than you do here in the US.
SPEAKER_04: Yeah, and for people who don't know, National Association of Real Estate is NAR, and they just had a giant $1.8 billion judgment against them based on-
SPEAKER_00: As an example, the ridiculous document that you're handed by a realtor every time you wanna buy a house, that is a creation of NAR. And the primary objective function of that document
SPEAKER_00: is to protect your realtor from liability. And that's why you have to sign it on all 35 f***ing pages and initial five different times inside the 35 pages. And that's all about the realtor and it's not about the consumer. And so that's the kind of thing that I think you could see innovation that would be pro-consumer and better for the industry.
SPEAKER_04: It was extraordinary to think, I don't know if you guys have ever done a private market transaction, but I bought a home in a private market transaction. It was $12,000 initially, and then there was like a $3,000 upsell from my real estate attorney. And this was for a non-insignificant home,
my primary residence. And I am now hated by real estate agents everywhere in my location, because what would have been hundreds of thousands of dollars in commission, I just bought the house from my friend.
I spent $15,000 total, total on the purchase of the home.
And there was no commission, zero commission.
SPEAKER_00: Going back to even before I invested in Uber, I looked at a lot of the companies that were starting in taxis. And because of the presence of the taxi and the taxi authority, your flexibility around price and how you get the app in the car, all that was regulated in a way that prevented flexibility of innovation. And so I just think if anything, less NAR means more innovation.
SPEAKER_06: Yeah, the other piece of this, and I was on that board with Bill and Rich, and for probably between 2005 when we led the Series B in 2010, or shortly before they went public, as soon as Chat GPT came out, and this is, Bill said that they'd been at this for a decade. They've actually been at it for two decades now.
It's extraordinary to see founders in the case of Rich Barton and Lloyd Frank, who care as much. And why do they care so much in this moment? Chat GPT comes out, Rich Barton text Bill and I and said, hey, I want you guys to come to an executive offsite with me. We're going to red team, blue team AI. What is the impact that AI is going to have on 10Blue links? What is the impact that AI is going to have on vertical search? We're a major vertical search engine that lives in this larger ecosystem, and we think that this might be changing everything. And so I tweeted about this at the time, and Rich gave me permission to do it, but the blue team was this idea, how do we make our existing team better? How do we just go through the list of all the things we do, customer service, all the things Dara talked about, code generation to make it better? Red team was this idea is if we were starting today
with the power of LLMs, and we wanted to put the magic of the world's best realtor in your pocket, what would it look like? And that to me, that story just captures the founder led journey of a company like Zillow with Rich. He's not 20 years in resting on his laurels thinking, I've done great and now it's just time to serve. We are all enthusiastic to see what AI is going to do to actually put the power of that one click, the power of that remote control in everybody's pocket.
SPEAKER_04: And for those of you who don't know, red team, blue team, that's like generally a cyber, I think the origin is cybersecurity. Blue team tries to protect, red team tries to attack and you get both teams making a company more secure. Brad, maybe we could wrap here since we have Dara and talk a little bit about markets and just where we're at in terms of, I saw the interest rate print was a little bit hotter, I think, I'm sorry, the inflation print was a little bit hotter than people thought it might be concerning, not concerning. And then we will go over to you Dara, just in terms of how does this stuff impact you as a CEO?
SPEAKER_06: It's amazing as we look over the last five years, I think all of us spend our time thinking about technology, super cycles, internet, mobile, cloud, AI, how that's gonna change the world. But really since the start of COVID, we've all been overwhelmed by macro, right?
Like Dara had to lay off 25% of the company, not because anything idiosyncratic about marketplaces or mobile or anything else, but we were fighting a global pandemic and rates went negative. And so as we come out of this, I think it's important for us to keep our eye on that prize and understand, Dara and I talk about this often, is the world look normalized or not? And I think if you look at that first chart, that I shared with Nick, just the CPI glide path, there's really nothing to see here today. There was some noise this morning that it came in a little bit hotter. But I mean, if you just look at this longitudinally, right? Where the dotted line represents the consensus forecast of where inflation is gonna go. And Bill and I talk about this all the time. Of course, nobody knows with any degree of accuracy exactly where it's going to go. But I think it's important to understand what's baked into the cake. If you go to that second chart, Nick, we've talked about this a lot, tenure tips. This measures the restrictiveness in the economy. So effectively think about what is the future interest rate less the future inflation rate. And as you can see, we're as restrictive really as we've been since 2008 and 2009. This is above the Fed's neutral rate. That's why the third chart I sent you, which is what is the Fed funds projection? We expect rates to come down this year.
So if you just look at the Fed's own forecast, a point and a half, the 1.5% positive growth on GDP, that inflation is gonna follow that consensus curve and that rates are going to come down. That to me is the backdrop for a very healthy economy. Now, of course, there's a lot of stuff that can go wrong. But yesterday, I think it was Fed's, Williams was out and he said, listen, I think rates are high enough, restrictive enough. Remember, every month that inflation goes down, the effective restrictiveness of the economy goes up, holding all else equal. So you got to take rates down just to keep it at the same level of restrictiveness. And so I think that's where we're seeing, we started the year, MAG7 was down 10, 15%. There was a bunch of jitters around interest rates. They popped up from 3.5% back to 4 plus percent. So we're coming out of this from my perspective, from the cheap seats. It seems like we're on the glide path, things are normalizing. And that for a CEO like Dara, there's a lot of predictability in the world, hell of a lot more than there's been over the last four years. And I guess I'll kick it over to you, Dara, is that the way that you see it relative to the challenges you've had trying to manage the business through the ZERP period of the last few years?
SPEAKER_03: Very much. I mean, I can't comment on rates and where they're going, but we had to fight, we felt inflation hugely post COVID,
which is the cost of bringing drivers up, the cost of labor. And we had to translate that into a more expensive rides, et cetera. If you look at this year, we have actually actively been trying to keep the cost of rides lower. And essentially it's been flat. We've been working with our restaurant partners. If the economy weakens, building out a tool set of kind of merchants able to fund promotions to bring prices down. So like the focus of our business is how do we create a win-win and try to keep prices down for riders and keep prices down for eaters and really drive volume through the system as much as we can. And I say so far so good. We haven't seen, let's say inflation rearing its ugly head again, but I've seen a lot of very fast changes in the marketplace. So I take nothing for granted.
SPEAKER_00: By the way, I wanted to give a little nod to Brad. I thought using the word glide path in his CPI slide is very suggestive of the soft landing. Like a really good word.
SPEAKER_04: Very subtle language.
SPEAKER_04: Yes.
SPEAKER_00: I mean, listen, listen, listen, let's be clear.
SPEAKER_03: He's hoping the Fed listens to this. Just please listen. I know that there's some people who told us
SPEAKER_06: to go into cash at the beginning of last year. Some people in our group who said hard landing, Mike Wilson, Q1, go into cash. And then surprisingly, even at the end of the year, they thought that that was a good decision. 5% on cash versus 30 to 40% in the market seems like a pretty bad decision to me. And I think it will be a bad decision again this year. That's not to say that there aren't risks in the world, but when I look at the balance of risk, I would say that these seemed like pretty decent environments, whether it's soft or medium or whatever. I think it's a pretty decent environment for Dara to build the business this year.
SPEAKER_04: So with that, thanks so much Dara for coming on and being so candid with us. Gurley, Gerstner, you're incredible. And none of this is investment advice. Make your own decisions, do your own underwriting. Disclaimer, disclaimer, disclaimer. We all are absolute degenerate gamblers at the poker table and thoughtful betters on public markets. That does not mean you should do what we do. I have watched Gurley lose his entire staff with bottom set to lunatics who hit runner runner. I've seen Gerstner lay down pocket aces to people with seven high. Do not follow us in making bets.
SPEAKER_03: Make your own goddamn decisions. Remind yourself, don't go to Vegas with any of this group. Thank you.
SPEAKER_04:
And Dara, do you have an interest in learning poker? Cause we know you have a little bit of money to put to work now.
SPEAKER_03: My daily job is a gamble, kind of running this company called Uber. So after that, I like to just stay still.
SPEAKER_04:
Oh, you know, one thing I didn't ask you. It's one more thing there. This is my Columbo after I do the outro. Drizly Postmates, you did a couple of acquisitions years ago. The market's been closed for acquisitions. Do you just put that out of your mind or are bankers calling you about acquisitions? What do you think is going to happen in the next two or three years? Or do we have to wait for a regime change? Lina Khan to get out of there for maybe acquisitions to happen again. Is it even on your radar? Do you think about it?
SPEAKER_03:
Listen, it should always be on a radar. But one thing that I've learned with Uber is running a business and trying to integrate
other businesses into a two-sided marketplace is really hard. And the organic path for the company is great, unless I screw it up, but it looks great. So the cost of an acquisition in terms of just the distraction from the daily grind, which is a wonderful grind that we love, it's pretty high. So it would have to be awesome for us to look. We should, it's part of my job to look, but it's not the baseline
of what the next three years is going to look like.
SPEAKER_04: Do banks pitch you like regularly, hey, buy this, buy this startup, buy this startup? Is it like a constant stream? And especially, listen, the public markets are closed.
SPEAKER_03: So the only M&A is the way forward. So I get a lot of pitches and free drinks and leave it there.
SPEAKER_06: Well, the public markets aren't closed. They just think that you're dumber than the public markets and that you'll pay a bigger price. But I think what they're finding, the reason we don't see a lot of M&A is because folks like Dara aren't willing to pay the big bucks and the public market is sober. And the reality is, if you're trying to sell a business today, you got to get on the same page as the public market. Your multiples going to reflect your growth rate and your profitability that's demanded by the public markets and all those people still living in make-believe land, that there's some strategic inherent value to their business that's losing money. And it's just not going to end well. I think we've seen it this week, a bunch of layoffs again at Amazon, at Google and others. And what it tells me is, if 2023 was the beginning of time to get fit, I really see it kicking into high gear right now. And you heard it from Dara, they're not growing headcount a lot. Amazon's not, Apple's not. They're doing more with less. AI is enabling that. And to me, M&A is only going to happen for those companies that are accretive and profitable. And they're going to have options. They could go public today or they could sell their business today. But the broken things that are still expecting high prices, I don't think are going to find a home.
SPEAKER_00: I agree with that. I think you had another year of people getting in touch with the reality that exists, which is the real issue that prohibits both of those two transactions.
SPEAKER_04: Yeah, accepting reality. That could be a theme for 2024. All right, we'll see you all next time on this round table. Bye bye.
