The Exchanges

Q You had said something about language too, where you said, it's not just about you write language that will describe it to your customers. First, you're, you figure out the words because you're describing to yourself what you should be building. And it basically gives you clarity as a product builder. Do you have any stories or examples that kind of drive that home?

A Yeah, we had a, we had a company, I don't know, two decades ago, we had a product that was allowing you to store your digital photos. Digital photography was new, and we're like, store your digital photographs here. And people would come, but not very many people were coming, because it wasn't a multiplayer game. I store them there, I retrieve them there, single player game. So I said, okay guys, We're just going to change the homepage to say, share your photos. And I just changed the name. I changed the word. Right. On the homepage. And my team said, but James, our product doesn't let people share photos. We're lying to people. Right. That makes me really uncomfortable. And I said, so fix it. And so three days later, they had figured out how to put in features that allowed you to share your photos. And within six months, we'd registered forty seven million people virally.

AI assessment note: “We're just going to change the homepage to say, share your photos.”

Q Can you do the quick explainer? So, for somebody who doesn't know what network effects is.

A Yeah, a network effect is every new person who uses your product Makes the product more valuable for the other users of the product. And the great example is Twitter. The more people who are tweeting, the more valuable Twitter becomes for everyone. Facebook. Microsoft operating system. More people using Microsoft operating system, the more it's more valuable for WordPerfect to build their software on top of Microsoft so that more people can use it. And the more people that are using WordPerfect, the more I can share my WordPerfect, um, you know, file with other people. So these are all network effects. So if you look at the top, you know, uh, seven companies in the world in terms of market cap, Five or six of them have network effects at their core. And that was not true. 30 years, 20 years ago. Uh, and so most of the big things that dominate our life, whether it's Comcast or whatever, these all have network effects businesses. And so we've studied them. We invest in them. We have spent the last 20 years becoming sort of the world's experts at them. We've identified 17 of them. They're mathematical principles. Right. And in talking these through with Eric and others, He started to get these wide eyes like, oh, that affects how I'm dating. Oh, that affects where I should live. That affects what happened to my dad. And I was, and he was realizing that the analysis of networks and…

AI assessment note: “a network effect is every new person who uses your product Makes the product more valuable”

Q If you were the CEO of OpenAI, what would you do?

A I would, I would try to build an operating layer and get everybody to sign into my operating later in the same way that Microsoft has their operating system layer. And then I would create two or three applications, uh, the way Microsoft did in the nineties, like office or whatever. And then I would just go buy up other companies, just like Microsoft did, just run the Microsoft playbook. The problem is that Microsoft's main product was the operating system. So they had the network effect from day one. Whereas open AI does not have a network effect at all. Um, the, the main thing they have right now is distribution and the subscriptions, but the consumers are fickle and SMBs are fickle and they'll move off to something for 10 bucks or five bucks or as long as it's good enough and maybe it'll have some other thing they like better because it's for their vertical or who knows.

AI assessment note: “I would try to build an operating layer and get everybody to sign into”

Q Oh, so what, what's the story there with Messi?

A The basic story is that in the, it was funny because this was before he went to, uh, Miami. Right. Um, I said, um, you know, PSG offered to give him that much amount of money and some tokens cause they were doing these like crypto tokens and, uh, they still aren't paying him enough. Like everyone was outraged at how much they were paying him. And I said, they're still not paying him enough because he moves the licensing for TV rights and he moves viewership and he, he is going to bring so much more attention to the French Soccer system so that every comp, every, um, game that Messi plays around the French system is gonna be watched three or four times more by the world than it would have been last year. Right. And the value to them of that is way more than they're gonna end up paying him. Right. And so, you look at Tiger Woods, if Tiger Woods plays, the PGA makes one and a half billion dollars more per year, and if he's not playing, it's like, These nodes in these networks, and so if you could get Tiger to go over here, and you could get this, and this, and that, if you did the right vampire attack, you could actually create a higher status, better thing. Right. But it's literally about measuring the nodes, and measuring their effects, and then having a strategy for the order in which you get them, what you compensate them with. Right. You can compensate them with money, you ca…

AI assessment note: “The basic story is that... PSG offered to give him that much amount of money”

Q And what do you think about people who leave California, leave San Francisco, because they don't want to pay taxes?

A I think it's short-sighted. I, look, anyone can move, it's very sensitive, very emotionally sensitive to people about their choices, about where they want to live, and, um, you know, if you don't like it here, or somehow you feel like everyone's smarter than you, and therefore you feel bad every day because you have low status and whatever, like, go get a therapist. Don't, like, don't move out of the state just because you're feeling bad all day, but a lot of people don't like it, uh, for whatever reason. I, I can't imagine why, but They don't. And so they'll leave or they'll think I can go be a big fish in a smaller pond somewhere else. Um, but generally they're moving because their husband's mother is nearby and they can help raise the kids. There's a network, we call it network gravity that pulls you away from, from the Bay area. And you just have to fight all the network gravity and just go there and be in that ecosystem. And if, if I can earn, you know, 20 times more here and pay 13% extra tax versus New Hampshire or Florida, Then isn't that worth it? Right. And, and if I'm not smart enough and good enough to earn 20 times more, or even two times more, Uh, then yeah, I should leave. If I'm, you know, if I'm not good enough to play in the NBA, I shouldn't be in the NBA. Right. But this is the NBA.

AI assessment note: “I think it's short-sighted.”

Q Is that what you're talking about? Like you're taught things, you learn things, but then as an adult, there's almost like these five, seven things. I have to unlearn these things. What are those?

A And this is, I mean, there's so many things. It's about speed. It's about, um, you know, the emphasis on human communication relationship versus the actual product. Like everyone focuses on to build this and do, no, dude, you've got to talk to people. You've got to talk to your customer. You've got to think about that communication. We have these mindsets that, that get bred into us by the normies. And if you want to do something extraordinary, you have to get out of those mindsets. I mean, why is it that sort of 85, 90% of all returns in tech have come from the Bay Area? It's because the mindsets here are slightly different from New York and London and LA and other things. And as a result, things just happen a lot faster. And things happen a lot better.

AI assessment note: “emphasis on human communication relationship versus the actual product. Like everyone focuses on to build”