Full transcript: NYU business school professor and L2 founder Scott Galloway on Recode Decode

On this episode of Recode Decode, hosted by Kara Swisher, business intelligence expert Scott Galloway talks a mile a minute about advertising, brands, the change in retail and how the job landscape is becoming “three million lords and 350 million serfs.” Make sure you stick around for the final third of the conversation, where he does lightning evaluations of the biggest internet-era businesses.

You can read some of the highlights from the interview at that link, or listen to it in the audio player below. We’ve also provided a lightly edited complete transcript of their conversation.

If you like this, be sure to subscribe to Recode Decode on Apple Podcasts, Google Play Music, TuneIn or Stitcher.

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Kara Swisher: Today in the red chair is Scott Galloway, the founder of the business intelligence firm L2. Since 2002, Scott has also taught brand strategy and digital market at NYU’s Stern School of Business, and from 2008 to 2010 he served on the board of the New York Times Company, and he’s a very funny guy. I saw him appear at DLD in Munich, and I’ve seen many of his videos and they’re very sharp about where brands are going, and especially internet brands. You talk quite a lot about that. Welcome to the show.

Scott Galloway: Thanks Kara. I’m a big fan of the show.

Thank you. Let’s get started. Just tell me about your background and what you do. Explain for the people what you do.

Sure. Product of big government, UCLA and Cal. Two years at Morgan Stanley, was awful at it.

What were you doing there?

I was in fixed income. It was a soul-crushing, awful place for awful people. Realized I couldn’t be successful in a big firm, went to business school. Got very inspired, started a company called Prophet Brand Strategy. Sold that to Dentsu. Started a company called Red Envelope and then decided to change my life. Moved to New York, started teaching.

Red Envelope the internet company?

The internet company.

Wow. I didn’t realize that. What were you thinking when you started that?

I was thinking it was the ’90s, and I had a shaved head, and it was an era of e-commerce. It just felt like a natural fit.

Explain what Red Envelope did.

Red Envelope was a multi-channel retailer. I saw a huge opportunity to take merchandising, a sense of voice, to online, because at that point it was just all about low price.

There was no merchandising.

I connected with some really smart people, was really inspired. Was working a lot with Williams-Sonoma and The Gap, and thought there was an opportunity to bring voice to the internet. Hired a bunch of intelligent, interesting people, raised a ton of capital.

How much?

Oh gosh, I’d say with the IPO and everything probably raised $150 million to build a fantastic company worth 60 to 80 million.

Then what happened?

It was great until it wasn’t. It was a great company as long as we had access to cheap capital, and we got to breakeven, maybe made a little bit of money. It’s a terrible tale. I think that the sum of all bad things came to pass at Red Envelope. We had a lot of dysfunction at the board level, which I played a role in as a crazy founder; our venture capitalists were very heavy handed. I generally think the board ruined the company.

Really? How so?

Oh gosh, getting to the dirty laundry early.

Yes, please.

We had a weak board that was all trying to figure out what the master of the universe, the venture capitalist billionaire in the room, wanted to do, and get there first. Although he had no background in brand or retail. We made a series of missteps, I got very angry. Tried to replace the board. It just created all sorts of dysfunction.

Yeah, meanwhile Amazon.

We literally ruined the company. We shot ourselves in the feet and then took the gun and put it in our mouth. In the interim there were great players with cheaper capital who were doing a better job than us. 2008 came along, some very smart analysts, credit analysts at Wells Fargo, figured out retail was going to get its turn at the woodshed, cut our credit line and we were Chapter 11 seven months later.

What happened to it?

It got sold in the auction. All the employees got to keep their jobs which was the good news; all the vendors got paid; and it was sold to Liberty Media.

Oh. John Malone.

Then sold again to the company that operates I think Pro Flowers. Then I think it was finally shut down about a year ago.

Wow. Amazing. How did you feel from that experience of your entrepreneurial?

Even just talking about it, now if I go to conferences and people introduce me they have the same reaction you just had, they say, “Oh, Red Envelope?” You seem to perk up and feel some goodwill towards me and towards the company.

Not really, but go ahead. I was just being friendly.

It generally got a good reception from consumers. When I talk about it I start feeling pain in the back of my eyeballs, and my lower back starts sweating, and I feel nauseous. It was a 10-year failure for me. I lost a lot of money, went to war with a lot of powerful probably good people.

Sounds like most startups, actually.

We romanticize entrepreneurship, it was a difficult 10 years. It didn’t end well.

You have since rebounded spectacularly. Explain what you’re doing now. You’ve started a firm.

Thanks for that. I started an intelligence business, L2. Developed an algorithm at NYU.

Who is the L2?

It was originally called Luxury Lab, and in academia you can’t get anywhere unless you do research, so I thought okay I’ll do research around the luxury industry, which has actually probably created more wealth than any industry maybe with the exception of tech or finance. If you look at the wealthiest people in Europe they’re all either at LVMH or Hermes or whatever.

I thought, there’s no real rigor around this, so developed an algorithm of 1,250 data points across site, digital marketing, social and mobile, and then applied it to 100 luxury brands, and then produced it thinking it would be a paper on academic research to be published in an academic journal. About 40 of the 100 brands called and said, “Who are you and why are you doing this?” Recognized there was a commercial opportunity in exchange for some stock to NYU, spun out the IP, and that was the birth of L2.

Then about two years later as we worked with effectively every luxury brand in the world, and then benchmarking their digital competence relative to each other, subscription model, recurring revenue versus services. Wanted to do what I’d done at Prophet for a fraction of the cost, but do it every year and have it be recurring revenue. I noticed that my friends in the software business got multiples of revenue whereas me in the services business was getting a multiple of EBITDA, and wanted to get out of that business. Then two or three years into the business Procter & Gamble and Unilever called, so we changed our name from Luxury Lab to L2.

Right, so it wasn’t anything ...

Just to try to broaden the position.

Any brand and how have they figured out the internet. It’s interesting that you had a failed internet company.

Oh no, I’ve had several.

Okay. You were trying to bring the concept of how they can be successful on the internet.

Yeah, the notion is the greatest reallocation of capital in history is going from analog to digital, loosely speaking, but while there are great metrics for television viewership — you’ll probably get pretty robust metrics for how this show does — there aren’t a lot of metrics that attempt to boil a brand’s digital competence down to a number. That’s what we’re trying to do. We’re trying to paint the innovation curve.

Why is that? People don’t care or they just sort of throw money at the wall?

I think it’s hard to do. We’ve raised a ton of money to try to figure it out and there wasn’t anyone focused specifically on digital competence, and most of the players who could do it had downstream businesses they didn’t want to threaten or compete with.

Mm-hmm, which is typically the case, the problem with retailers.

If you’re a Conde Nast, or a Nielsen, or whoever it is, you have great strategists and you have the ability to tell them how they’re doing, but the end result is going to be spend more money on consultants, print media, or on measuring TV. There weren’t a lot of startups benchmarking digital competence. Just better to be lucky than good.

We were coming out of a recession, employees were inexpensive, office space was inexpensive. I think I’ve started nine companies; if I try to correlate the winners versus the losers, the one correlation that really holds true is when I started the company. When you start a company coming out of a recession they almost, for me, almost won, we’re successful; and companies that I would start in an economic time such as now almost always failed. You imprint this DNA ...

Too much.

Yeah, easy capital, people are expensive, you enter into this consensual hallucination with the marketplace: You have a good idea when you may not. Whereas if you start a company coming out of a recession and it works, as soon as the economy comes back you’re going to have the wind at your back.

Talk about digital competence. What does that mean? What are you benchmarking for them?

Everything from the speed of the website to how many clicks it takes to get to the product, to how visible is the site, to how well they’re doing bidding on key terms in the long tail, to how well does the content render on a mobile device, the engagement growth of their brand presence on social platforms. About 1,250 data points and every day there’s data points added. Mobile used to be 20 data points, now it’s 200. Then once every site has site search or auto-fill in-site search we kick that data point out. The great thing about digital is every day the goal posts keep getting moved back.

Where they’re searching, which would be mobile right now, or wherever they’re doing their business. What do they then do with that information when they have this digital competence? If you declare them competent at certain things or here you need to do ... How do you decide what is competent?

We typically look at a benchmark of who we think is doing the best. Multi-channel, look at Home Depot or Sephora, and have anecdotal empirical third-party evidence on who’s doing this really well. Then we’ll say, okay, it makes user-generated content on the product page, seems to be resulting in increased conversions so we’ll say that is a good thing. Some things like faster load times are a good thing. Then we’ll start measuring that stuff. We try to make it as quantitative, not qualitative, as possible. Then just in a numerative and no-malice way tell people where they stack up against their peer group, and then give them a list of recommendations.

Of what they need to do?

Yeah, based on where they want to be. Everyone says, “I want to be a genius.” We call every brand genius, gifted, average, challenged or feeble. Everyone says I want to be a genius.

Who’s feeble?

There’s a lot of feeble. It’s typically a resource issue, not a competence issue, but everybody starts off the conversation ... I had breakfast with the CEO of a large athletic company this morning and he said, “I want to be genius.” I said, “Okay, you need to upgrade your vendors; take your e-commerce group from 30 people to 120.” Then they’ll sit back and say, “Okay, I want to be gifted.” We have what I would refer to as a series of adult conversations steeped in benchmarking data around where you are on the innovation curve and realistically what you need to be.

Can you, overall, talk about how the retail industry — because you focus a lot on retail though you talk about other brand issues too but a lot on retail — how seriously are retailers taking ... You’ve written a lot about the concepts around how retail is over, and one of the things that attracted me to having you here is we had the CEO of Walmart at Code a couple years ago, and he was talking about the idea that there was going to be a 10,000 ...

I covered retail for seven years when I was at the Washington Post, so I know a lot about retail. He said something that I thought was very striking, that nobody was really paying attention to, about 10,000-square-foot stores. I was like, “What?” That changes everything. It changes economics, it changes their business, it changes everything. I was surprised he said it, and I was surprised he meant it. I’m not sure if he meant or he knew quite what he was saying, but I thought there’s someone who really does understand where things are going. One of the things you’ve written about is how retail is over, kind of, essentially. I mean, you’ve said it in so many words and you’re hedging it a little bit, but I think you have essentially said that.

Stores are going to be around a long time. Retail is going to be around a long time, just as newspapers and magazines will be. They’ll just be difficult places to invest or work. We have this perfect storm in retail right now, and that is we’ve known for a long time that we’re overstored, we have about seven feet of square feet per capita, about two or three for every one the Canadians have. Middle-class wages stagnant. I mean, the engine powering all of this is just firing on three cylinders instead of eight. Amazon, people spending more money on coffee and experiences. You have this perfect storm of bad things and the reckoning is here because we’ve known about these things for 10 years. It seems like retail chugged along and they did it through constant promotionality which is like a payday loan, it comes back to haunt you.

Right, prices.

We’re seeing it now. I think you’re seeing this great reckoning or unwinding of retail. Now there’s going to be winners, Sephora’s going to open more stores and do really well. I actually think Walmart is going to do pretty well. People always say Walmart versus Amazon, I think the two don’t really compete that much against each other. I think Walmart will continue to serve the rural consumer. You always wonder who is that consumer that doesn’t have broadband or a smartphone, it’s the Walmart consumer.

Mm-hmm.

Amazon is really more urban. There’ll be winners but on the whole ... It’s like some people just have to be doctors, they grow up and from the age of eight they’re playing doctor and they just know “I have to be a doctor,” so telling them that it’s going to be a more difficult profession is no use. Some people just have to be in retail, but if you don’t have to be in retail I say it’s going to be a very difficult business over the next 10 years.

Explain why. What is it? One, Amazon.

One, Amazon. Well, there’ll be an increasing number of fewer winners garnering more and more of the profits. Amazon will be one of them. Fast fashion is a great place to be, but the majority of the retailers will face the triple threat of stagnant wages in the middle class, a transition away from typical retail goods to more experiences, you know, Starbucks. Amazon, fast fashion and stagnant middle class wages. Also just the overstoring of America. We could lose a third of our retail space and probably not miss it.

Mm-hmm, because no one’s using it.

We just have too much of it.

When you’re talking about this idea of digital competency, do they recognize what is coming in terms of getting to be digitally competent, or is it just don’t even bother?

Oh no, they get it. These are smart people, and a lot of them early and often. You live in San Francisco, right? Williams-Sonoma was an early innovator.

Absolutely.

They’re doing pretty well, and about 44 percent of their sales are now online. Urban Outfitters, — full disclosure, I’m on the board of Urban Outfitters — does about 40 percent of their sales online. To a certain extent you could argue retailers are the highest-margin e-commerce players in a while. They got it early and often.

Basically I would argue what Amazon has done is Amazon is conspiring with 600 million consumers, infinitely cheap capital offered by fanatical groupie-like investors, an incredibly deft execution and understanding technology. That they’ve collaborated with all of these entities to basically starch the margin out of brand and retail, and they’re doing it pretty effectively. The winners are consumers, the winners are Amazon shareholders, but the losers are the retail ecosystem, which includes 11 million cashiers, which includes the 40 million households that have a share of Gap or Walmart. You’re effectively seeing this giant sucking sound out of the entire retail ecosystem into a small number of players.

Right, with Amazon pushing forward with things like Prime, and things like that.

Again, I don’t have inside information here, but I would speculate that where Amazon is headed, where I would be thinking if I were Amazon, is to run a trial in a college town called Prime Squared where using artificial intelligence, a fulfillment network that has a warehouse within 20 miles of 45 percent of the U.S. population and really 75 percent of the disposable income. Your purchase history, your credit card information, and they’re going to start sending you two boxes twice a week.

Right. You’ve talked about this, yeah.

One box full of the stuff they think you want, one box is empty. You send the stuff you don’t want back, they learn from it, and you calibrate using Alexa. “More beer. I’m leaving town for a week. Barbecue for six people. Send me three quotes for auto insurance for a 2014 Toyota Camry via email.”

I think they’re going to say to you, “Tell you what, we’ll give you an amazing deal, all kinds of fun stuff, but you’re going to shop at one retailer and one retailer only.” I think that they’re going to take those households form $1,300 a year, which is what Prime subscribers spend, to seven or 8,000; and I think it’s going to send a massive chill through the entire ecosystem, and we’re going to have our first trillion dollar company. I think it’s going to be Amazon before it’s Apple, even though Apple’s in striking distance. I think the whole business world, and to a certain extent society, is going to stare at their navel and say, “What does it mean when we have one retailer?”

Exactly. It’s fascinating what’s happening because I really only buy on Amazon now. I think about it and I buy very little not on Amazon.

It’s bifurcating into their stuff. There’s what I call joy and there’s the mundane. Joy is buying a Porsche, a pair of Manolo Blahniks, or you have a pair of what look like Ray-Ban aviators; that stuff’s kind of fun. There’s some joy in shopping. I would bet 90 to 98 percent, depending on who you are, of retail is not joyous, it’s tedious. I think Amazon’s going to take that off the table.

You talked about their batteries, I thought that was really interesting, the concept behind their Basics. I don’t buy a lot of their Basics but I’m starting to.

It’s not unusual and there’s nothing hugely insightful to talk about a retailer leveraging their power to build private label. J.C. Penney built a billion dollar ...

Sure, Giant Goods. They all do, Safeway.

They all do the same thing, Sam’s Cola. What’s interesting though about voice and Amazon, let’s go one step. Online is typically a place that brands harvest as opposed to build their brands because they lose a lot of the magic and the mystery of fun brand, and packaging feel, etc. When you go to voice you lose almost everything. You lose packaging, you lose sometimes even the brand name. The number of queries on Google and the number of commands on Alexa that have a prefix of a brand is declining every day.

It doesn’t say Duracell batteries, it just says batteries.

Just says batteries. It says Lagunitas IPA Beer, then it goes to IPA beer, then it just goes to beer because Alexa knows what you want. We have Alexas all over our office and we’re constantly asking them things all day to try and see if we can see trends. One of the trends we see is the following: That you can get products for less when you order them on Alexa than if you go to the Amazon website. Clearly Amazon has decided to take some of that ...

There is some merchandising there.

They’ve made a conscious decision to take infinitely cheap capital and encourage people to start buying via Alexa. When you start buying via Alexa you’re effectively obviating or rending almost useless the billions of dollars and decades brands have spent on things like eye-level packaging. They can’t even control pricing. A lot of people don’t even hear the pricing or know the pricing when they order on Alexa, and Alexa’s trying to build this confidence that if you buy it here it’s even cheaper than on Amazon. If you ask Alexa for batteries it recommends Amazon Basic batteries. Then you say no and it recommends another package of Amazon Basic batteries, and then it says, “That’s all I have.” If you go on Amazon, that’s not all they have.

No, you can see everything.

They have several brands.

Yeah, they have lots of brands. Right.

Just as Apple will probably use voice to go into media, Google will figure out a way to turn voice into opportunities for more advertising, it makes sense that Amazon wants to move people towards buying. One-click revolutionized retail, we’re going to zero-click and it could literally just change the game.

All right. We’re here talking to Scott Galloway who runs the business intelligence firm L2, but he also teaches brand strategy and digital marketing at NYU. We’re going to talk about brands when we get back.

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We’re here with Scott Galloway. He is a professor of digital marketing and brand strategy. He also runs a business intelligence firm called L2. He writes a lot about retail and internet brands. We were just talking about brands. I want to get to the internet companies in the next section but let’s talk about brands right now.

Sure.

You’re talking about a decimation of brands which has been at the heart of the American ... not just the retail, everything business system for consumer goods forever. There’s some great brands, like Apple, who many feel just can’t go away, and others that maybe can, like batteries you were talking about. Talk a little bit about where brands are going and what they need to do to stay relevant in the digital age. It sounds pretty much like they’re gone.

I don’t think they’re gone. I just think, again, it’s going to be a difficult industry that doesn’t garner nearly the shareholder value it used to. I think the sun has passed midday on the era of brand. It was signaled with the rise of Google.

Brand has effectively served as shorthand for getting you from the unknown to the known faster than you could on your own, because you couldn’t do the diligence. I’m going to London on Wednesday. If I was going on an expense account I’d stay at the Four Season or the Mandarin Oriental because on a scale of one to 10 they always do an eight. Then I’m on Instagram, I see a tribute to David Bowie. I see him at a hotel that looks cool. I go on TripAdvisor, I go on my social graph and within two minutes I have the diligence and the confidence to book ...

A hotel you never would have heard of.

I never would have heard of. All of a sudden the importance of brand as shorthand ...

Well, David Bowie’s dead so you don’t want to do that.

I know, but that’s why I saw the ... Other than that, he’s doing great, though. The new tools of diligence, Google, Amazon reviews, TripAdvisor. What’s your favorite brand? It’s the brand that Google tells you is your favorite brand at that moment.

Even HotelTonight.

I love HotelTonight. That’s a great example. What you have is you no longer need to immediately defer to the shorthand of brand, and the number of people who can name their favorite brand across luxury, across hotels, across retail, has declined 20 or 30 percent just in the last five years because people now have the ability to find unique and special, and disposable high-margin income wants special and it wants new. It used to want Dannon, then it wants Yoplait, then it wants Chobani, now it wants some special kefir yogurt that they say Beyonce likes that is curdled in Brooklyn.

The long tail has new life, that’s the good news in consumer. In technology, it’s the short tail, fewer and fewer players. In consumer, in the world of beauty and the world of food, the long tail has new life, but brand is eroding in terms of importance. The algorithm for value post-World War II was the following: An average shoe, an average soda, and then wrap it in these outstanding brand associations to feel more American, feel hotter if you drink this beer, feel more elegant in your appearance ...

Through advertising.

If you use this hand lotion. Right, pound away with these associations. Marginal product, stuff it in the channel. Product is the new black again. A truly great product that usually leverages some sort of technology, or has some sort of farm to table, or organic, or specific indication at a great price can find, can breakthrough now. It used to be a tree falling in the forest; now wonderful breaks through.

Give me an example of that.

Oh there’s just so many outstanding little brands. Headphones; Etymotic is this great little headphone company started by people who initially did hearing aids. I found them I think on Amazon reviews. Look at the packaged foods you purchase, the big brands are struggling. Ninety of the 100 biggest CBG brands last year lost share, and two thirds lost revenue.

Which is why they’re buying so many.

At huge prices.

Right.

It’s a great time to be a little brand that has a great product in the consumer world.

Like Bai. I don’t know how I found out about the water.

Oh really?

The Bai water. Do you know the B-A-I?

I don’t know the Bai water.

Something like that. It’s suddenly everywhere and I think it was just bought by Coca-Cola or one of them.

Yeah?

Yeah. It’s interesting. I don’t know why I heard of it before, I probably did see it on social media.

There’s a ton of opportunity but I do think the industrial advertising complex of broadcast media ... I mean, the other thing that’s killing brands here, Kara, is that we’re no longer watching advertising. I believe advertising has become a tax that the poor and the technologically illiterate pay. Advertising sucks. I’m about to go to the Cannes Creativity Festival. It should really be called the What Advertising Sucks Less Festival. If someone said to you at this moment I’ll let you give up all advertising, would you do it?

Yeah.

Yeah, and you’re starting to. When I go home tonight I’ll be in Florida. I’ll watch “Modern Family” as I do on every Thursday night. I can download it at ABC.com or I can download it on iTunes and pay $2.99 for 21 minutes uninterrupted. I’ll pay the $2.99. If you are wealthy, a signal of that is that the advertising in your life is going down, so the traditional advertising industrial complex is crumbling, which means traditional brand equity built via broadcast advertising is declining. What does that mean for young people if you’re going to work in the media? Make sure you’re going to work for something that’s not ad supported or that has some large subscription component. You want to go to work for HBO, not ABC.

What do those people do then? The ABCs and others.

I think that’s a much larger question. Lifting up to more societal issues, we’re destroying jobs a lot faster than we can re-create them. What we do see though is this app economy is re-creating all these low-price jobs. While I think employment will be super strong I think in an app world, and I’ll be curious to get your viewpoint on this bit ...

I agree 100 percent.

I think in an app world we will delude ourselves into this cold comfort that unemployment will be low, but will arbitrage people down from middle-class jobs to part-time temporary TaskRabbit jobs.

To servants. No, there’ll be servants and people who can pay for servants.

We’re becoming the Philippines in the 1970s, where expats will have servants, we’ll have three million lords and 350 million serfs. I think that’s what our economy looks like.

When you think about that, the idea of a destruction of brand, there are brands that are maintained. Give me some examples you think do a good job of doing that. Will Apple be one of them?

Apple’s blown the notion of core competence out of the water because they do so many things well, but they do it not only through great advertising. I think the biggest innovation, the one business decision that created more shareholder value than any other business decision in the last 10 years, most people would say Apple and the iPhone. I think they’ve got the brand right but the decision incorrect. I think the biggest, the most value-creating decision in business in the last two decades, was Apple’s crazy decision, irrational decision to forward integrate into something they knew nothing about, and that was retail. To build 500 temples to the brand because the pre-purchase branding, the sort of broadcast, is getting duller and duller. That Valyrian steel is getting duller.

Nice, Valyrian steel. I like that.

Do you like that?

Yeah I like that. Yeah.

Enormous “Games of Thrones” fan. Go buy a Samsung phone in a Verizon or an AT&T store, it’s awful.

It’s a terrible experience.

It’s a terrible experience, soul crushing, confusing, uninspiring. You go into an Apple Store you just kind of want to hangout.

They still have to reinvent that too. They’re busy trying to figure that out.

No one’s safe, right? I would argue Apple has a 10-year lead on Samsung. What you want to do, I think, in the digital world to maintain value is you want to get fast and get valuable using a kind of digital technology. Cloud, network effect, etc. Then you immediately, once you have access to cheap capital, want to build analog moats that take years to overcome.

Right, like a store.

It’ll take Samsung 20 years to come up with these types of stores.

If they can.

If they can. Facebook’s now laying, what is it, pipe across the Atlantic. Google’s trying to build fiber. If I’m on the board of one of these companies, I think okay, let’s just get cheap capital using digital technologies and let’s immediately start building some sort of brick and mortar that’s just hard to overcome. You can’t buy the time.

Talk about those Amazon stores, which I find fascinating.

It’s strange, though if you actually look at the number of stores relative to their PR there’s hardly any of them.

No, they’re just starting.

Think about the outsized reaction here. They announce one store, Amazon Go, artificial intelligence to take out cashiers. Probably three of the 11 million cashiers in the U.S. got fired that day, they just don’t know it yet. There are more cashiers in the U.S. than there are teachers. Now, I’m in a lot of boardrooms of retail companies, they’re all using the term “optimize their stores” which is code for “fire people.”

Everyone looks to Amazon for leadership and I’ve been predicting they were going to go into stores for five years. I can’t even really legitimately say I’m right, because they don’t have a lot of stores yet. They haven’t found a model that works for them yet. I still believe they’re going to buy a Macy’s, or a Carrefour or something like that. I can’t imagine why they wouldn’t buy Whole Foods, for example, just because of the urban locations. They could close them down and just turn them into warehouses and I think they could justify the price.

Where would we get our $4 tomatoes?

There you go, or $18 bunch of grapes. You gotta love Whole Foods, though. You could just hang out there.

I don’t know what I do. I don’t know why I go there.

So far, their PR has well outpaced their actual store openings.

There’s two things I think Amazon’s doing fascinatingly, one is these stores and how they create them. The lack of cashiers I think is a big idea. I’m not just talking about self-checkout, it’s that you walk into a store and they know you; they know your history and they know what you buy. It starts to get super smart about you.

I’ve been complaining to Apple for years. I’ve spent $100,000 easily in Apple over the years, why can’t I walk in a store they know that, they know just what I bought? The minute I walk in with my phone I allow it to activate and I get in the line ahead of the teenagers sexting in front of me. You know what I mean? Why does that teenager get to sext when I want to look at a new product? Then people come and pet you and give you champagne. Whatever. I want some action in the Apple store and I don’t understand why they don’t do that from a digital perspective.

My mind’s a blank after you said sexting and petting. I think it’s going to go further than that. I think Apple has the credibility. I think Apple — with people like you and me who are Apple fans — I think they should just start sending us stuff.

Yeah, just give me the stuff.

I think they should just send me a box and say, “Scott, you clearly love the latest greatest computer that’s overpowered and ...”

Instead of you going out and grabbing it.

Just send it to me. Say, “This is what we charge. If you don’t want it, text here and we’ll pick it up.”

That’s Stitch Fix. That’s a Stitch Fix box. Have you used them?

The model makes sense.

Yeah, they send you and then you send it back. It was quite enjoyable, I have to say. Although they sent me all young hip things and I’m 100 years old so it was a little bit of a mismatch on my brand, but if they had old soccer mom’s option it would be great.

I don’t buy that. I think you’re like me, I dress like an aging skateboarder. My wife says I look ridiculous.

Let’s just talk briefly in this section, because I do want to get to some of the internet brands. I want you to sort of judge them for me because you’re real good. I like all your videos where you judge people, which I enjoy a great deal.

You mean I’m obnoxious?

Yes, exactly. When you’re talking about this idea of who does well, and if there’s no brand, say, does that mean like a Disney? I’m trying to think of the big brands. A Disney does mean something still.

Oh yeah, and it will for a long time. I don’t think brands are going away I just think it’s going to be a difficult place to invest or work. Disney has a superior product and they wrap a great brand equity around it.

You have to have a super product with it?

Even look at their characters, their animation; go to Disneyland and you see ...

Marvel.

What they do with little girls, and the princess thing, and the castle. It is a superior product and it all lends itself to an unbelievable brand. Brands are still going to be important, but this notion that you can create a Don Draper-like genius campaign and wrap associations around a crappy product and get 60 points a margin, which describes probably two thirds of CPG right now. Do you really need to pay four bucks for that detergent when it’s probably 1.89? Basically Amazon is conspiring — with the help of 600 million consumers — to say, you know what? That 60 points a gross margin? We think we can starch it out for you.

Right, and get rid of that, and just rely on them.

Yeah.

When you think about the idea of what a retail store then looks like, or where people buy things, or how people find out about things, paint that for me. What does it look like?

I think it’ll be smaller and I think the way to make money in retail, and the retailers that are doing well, is what I would call zigging while Amazon’s zagging. Everyone’s trying to figure out a way to invest in technology to take people out. I think the best ROI for retailers right now is an investment in organic intelligence. What do I mean by that? Best Buy and their blue shirts program, Home Depot and their Gold Aprons; I think the people in Apple are fantastic, Sephora and their cast. These are people who are passionate about beauty. People are no longer going to stores for product, they’re going for people. If they’re going to go in a store they want amazing service, amazing expertise, insight, navigation to the right product right away.

Right, they want to be petted.

Yeah, or quite frankly they can just get it online for less. If I’m going into a store I want to be informed or I want to be inspired.

Or entertained.

Or I want a warehouse that’s more efficient than the 57 minutes I can get with Amazon now. Meaning, you’d better get it to me fast and get me out. But the notion that we’re going to just go to stores for products it’s just gone.

Wander around grabbing them off the shelves? I agree.

Yeah, and then looking around for help, and then waiting in line. Consumers have gotten so impatient, and rightfully so.

Waiting in line, yeah.

They just won’t do it.

They won’t do it. Automation, I think, is fascinating, and people aren’t paying enough attention to it. Whereas regards Amazon particularly, a lot of the companies they bought, Kiva and others, are all around automation and how that changes everything. More job loss, in other words.

Well look, Amazon can do with one person what Macy’s and other retailers, depending on the retailer, need five or 11. If Amazon grows it’s top line 20 or 30 billion this year, that means basically you could fill up Madison Square Garden, the Meadowlands and throw in the Rose Bowl with cashiers, merchants, buyers and say, “Congratulations, here’s your pink slip courtesy of Amazon.”

I’m not saying it’s Amazon’s fault. Jeff Bezos will say that Amazon didn’t happen to bookstores, the future happened to bookstores; but Amazon is bringing the future really fast. Look, it’s a great time to be a software engineer who knows how to program robots. We’re trading off these low- and middle-class wage jobs for fewer and fewer very high-paying jobs. It’s more the “Hunger Games,” really, that the winner gets a lot, gets a fabulous lifestyle, but everybody else meets an ugly end.

Gets to be a TaskRabbit.

There you go.

We’re here with Scott Galloway, he’s the founder of the business intelligence firm L2. He also teaches brand strategy and digital marketing at NYU’s Stern School of Business. We’re going to talk about the brands of the internet and I want to get his take on everything. He was on the board of the New York Times.

Mm-hmm.

I want to hear what he thinks about that too when we get back.

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We’re here with Scott Galloway, who is a business intelligence person. That is someone who’s apparently intelligent about business, but he also teaches brand strategy and digital mark at NYU, Stern School of Business. I want to go through in this last section all the brands and what you think of them.

The brands or the people, the companies? What do you mean?

The brands that are on the internet right now. You talk about a lot of them. Let’s start with Netflix. We know you were talking about Amazon. You think Amazon’s clearly killing it.

Yeah.

Just killing it.

Running away with it, will probably cause a lot of huge indigestion as we realize it’s going to run away with almost everything in retail.

Anything. Do you see any problems for them? Strength and weaknesses.

I think the only thing in the way of Amazon right now is a governor or district attorney wakes up in the morning, looks in the mirror and says, “Hello, Mr Governor,” and thinks that the clearest blue-line path to the gubernatorial mansion is to go after Amazon; or somebody in Brussels or D.C.

Trump has.

Yeah. I’m not even going to go there. I think regulation is probably the only thing that gets in the way at this point. By the way, when people like me start saying that usually is when they start to hit speed bumps of their own making, so we’ll see, but I just don’t see anything that can threaten them.

Now, when I can’t sleep I watch the History Channel, which is all about war. At the end of the war the Germans had better equipment, better soldiers, better morale, but we had 38 gallons of gasoline for every one they had. Amazon is the retailer that shows up with 38 gallons of gasoline. They can just overwhelm every category with brute force. They go into video streaming and they show up with a $5.5 million content budget. ABC, NBC will spend $4 billion on content this year, HBO with spend 2.5. Here’s Amazon, a retailer that goes into it ...

To sell paper towels.

A non-adjacent category.

To sell paper towels.

That’s crazy.

I was talking to one of their creators who’s coming to Code this year, Jill Soloway, and she goes, “Am I helping sell paper towels?” I go, “Oh, you sold a lot of paper towels, Jill.” She goes, “Do I get a piece of that?” I’m like, “No you do not.” It’s an adjacent but important adjacency, I think. It gets you in there, it gets you in the Amazon ecosystem.

Yeah, more hooks.

Absolutely. Google.

I think Google is God. It’s probably got the least robust business in that it’s 120 percent of their profits and 90 percent of their revenue, and you’re going to forget more about this than I’m ever going to know, but I think it’s replaced God for us. That is, as societies become more wealthy, more educated, God tends to play, or religious institutions tend to play, a smaller role in our lives. Yet our modern-day anxieties and questions grow, so there’s this enormous spiritual void for a divine intervention, and when you typically pray “Will my kid be all right?” you’re sending information into the atmosphere hoping there’s divine intervention, and it comes back with a better answer. Now it’s symptoms and treatment of croup.

I really do believe that Google is a modern man’s God and it fills that role. One in five queries posted to Google have never been asked before in the history of humankind. Think of a cleric, a rabbi, a priest, a teacher, a coach that has so much credibility that one in five questions posed to that individual have never been asked before.

Have you been to the headquarters where you see the queries come in? They take out the dirty ones but they show the queries as they come in and some of them are the most bizarre combinations of questions.

Yeah, it’s strange.

It’s like horses, grass, sneakers. You’re like, what do they want? Literally. I always say it’s the catalog of humanity’s intentions.

The ones that are most queried are actually very depressing. Why did God make me ugly? Why does God not like me? It’s some really disturbing stuff when you start to look at search volume.

Humanity is disturbing, Scott.

Pardon?

You haven’t figured that out? You watch “Game of Thrones.” Humanity’s disturbing.

Yeah, I know.

There’s a dismemberment every five seconds on that show.

I hate my life less and less every day.

Yeah, okay.

I think it’s getting better.

So Google, and what’s the problem they face?

Google, arguably, has the least robust of the businesses because Apple has five or six businesses that could be $100 billion market cap companies and has created this ecosystem. Google has one amazing business.

And a lot of kooky ones.

You’re sort of one click away from Google and then it feels like adult supervision showed up, Ruth Porat ... Is that her name?

Yes, Porat, she’s coming to Code too.

Said, “Okay, we’re not going to cure death, stop spending money on that.” Google arguably has the least robust of the businesses but has the best single business.

It’s a pretty good one.

Yeah, it’s a really good business. As far as being blessed with only one business, that’s probably the business you want. The biggest threat to Google right now is the biggest threat to almost every other business, and that is Amazon. What is it, 58 percent of product searches now begin on Amazon versus 23 to 28 on Google?

Facebook on the other side, squeezing the other side.

I don’t think Facebook’s much of a threat around search. I think search has been a head fake so far, but Amazon, if you think about the things that should garner high bids for the keyword ...

It’s products.

Products, right? Amazon has slowly but surely become the second or third most valuable search franchise.

Amazon has long invested in search. Actually, one of their search people went over to Google. They’ve been doing it for years, they’ve been trying to do it for years.

Talk about incestuous. Who’s Google’s biggest customer?

Amazon.

Amazon. It’s strange but the safety in all of this, they’re all getting so powerful but the safety in all of this is they all hate each other and they’re going after each other, which is kind of nice to see.

Yeah.

They’re ignoring each other’s borders and they’re going after each other.

Absolutely. Getting into that one, by the way I always say, someone always complains about all their moonshots and this and that, and I say, “It’s like saying those drug dealer’s restaurants in Bogota didn’t work but sure their drug businesses are doing great.”

Yeah, it’s working.

It doesn’t really matter. They can do whatever they want.

It’s working.

Although it does take focus away when they start doing kites and invisibility cloaks.

What a franchise, though.

Hovercrafts.

Everyone’s complaining that their average cost per click was down 11 percent, but what people fail to realize is that Google got so much better for advertisers in the last year. All their products got better and they managed to lower prices 11 percent.

Right, which is ... nothing wrong with that.

Which means that they’re just that much more competitive relative to other media companies.

Nobody can keep up. They suck up most of the money, as does Facebook. That’s the other one, Facebook; strengths, weaknesses. And their brand.

I think Facebook is love. I think one of the wonderful things about our species is we have a need to be loved and a need to love others. I think the strongest indicator of whether you live to 100 — and this isn’t my research, this is a great book called “Blue Zones” — is how many people you care for and how many people you feel empathy for. I think Facebook does help us connect, have more interaction and feel empathy for other people. I think Facebook is “love.” I think it’s probably the best-managed company in the world right now. I think the best visionary, if you will, the best storyteller is Amazon. You just hear him talk and I want to buy the stock. He’s sort of the next generation Warren Buffett.

I think in terms of a visionary with adult supervision, and great management with Sheryl Sandberg, an ability to attract really thoughtful talented people, I just think they’re an outstanding organization. They’re also responsible for the most agile move I think in the last 20 years in business, and that is 0 percent of our revenue from mobile, what was it four years ago, and within 36 months they’re at 80 percent mobile. Yahoo saw mobile coming, The Wall Street Journal saw, all of us saw mobile coming. It wasn’t a shocker, but one company was able to pivot and get 80 percent of their revenues from it. This is arguably the most agile, nimble company in the world.

Google did, too. Google also did.

Has Google? What percentage of revenue is from mobile now at Google?

Large. I think they were saying it the other day, it was large.

Yeah? Again, super impressive. There’s some fatigue on the core platform, the levels of engagement of content on your newsfeed have gone down 30 percent, 17 percent of the content on your newsfeed now is ad supported and it looks like we’re sated. It looks like we’ve reached our limit in terms of advertising. However, they were super smart and they bought this growth platform which quite frankly I think is the most powerful ...

Instagram.

Most valuable social media company in the world, Instagram. If you look at the user base times the level of engagement as evidenced by the percentage of people that like, share, or comment on a piece of content, Instagram has 10 to 15 times the engagement of Facebook and 25 times the engagement of Twitter. I would argue that Instagram is potentially going to be worth more than Facebook.

Yeah, the founder is pretty sorry about that, selling.

Yeah. Only sold for a billion.

Yeah, only.

Cry me a river.

He’s a little crying about that.

You think?

Oh yeah. Oh, I know. I’ve heard it.

Gosh.

We’re going to have him on the podcast, I will ask him directly. I would cry if I were him, a little bit. One of I think their big weaknesses though is around these Facebook Live murders, and things like that, and especially fake news this year. I always say that this beautiful suburb where everything feels good, you’re seeing a little glass on the ground, a little trash.

Sure.

It feels a little useless. You know what I mean? I think that’s one of their big issues is they’ve got to really modulate that a little better. Mark talks about it. Mark’s recently talked about it.

I think Facebook and Google both face the same issue, and that is they want to sell advertising against content and then say, “But we don’t have the responsibilities of a traditional media company.”

That’s right, they’ve abrogated the responsibility.

It’s total BS.

Thank you for saying that.

What if I were McDonald’s and 80 percent of the beef I was serving before the election day was fake beef, and people ended up getting encephalitis and making bad decisions?

Right. You’d get sued out of existence.

I said, “Wait, wait, wait. Hold on, I’m not a fast food restaurant. I’m a fast food platform, so I can’t be responsible for the beef I serve.”

I adore you right now for saying that. They abrogate their responsibility like the 12-year-old they pretend to be. Then suck up all the money.

“We’re a platform, not a media company.” No you’re not. You run content, you run advertising against it. Boom, congratulations, you’re a media company.

Right, and they have the responsibility.

You have some onus of the wonderful things that come along with being a media company, including 90 percent gross margins, influence of unbelievable magnitude, but there is a level of responsibility and wow have they let us down.

They really have. I agree. Thank you. We are in the same club. What’s interesting is they pretend they can’t fix it. “We don’t understand. It’s so hard.” They suddenly become stupid.

They can’t fix it in a cheap automated way. That’s what they’re saying.

Yeah.

If the Washington Post can fix it. What, Facebook doesn’t have the resources of the Washington Post?

I agree.

Unfortunately it involves humans, which aren’t as scalable as bots.

They just hired 3,000 people. It was interesting because before they started Facebook Live, when we were talking about it, I said, “Someone’s going to kill themselves or someone’s going to kill someone on the platform.” Literally they were like, “Kara, you’re so negative.” I’m like, “No.” I said, “What are your plans for that? What are your tools?” Now they’re back-filling that, which is a typical internet company thing to do. Like oops. Uber does that, and others. Uber? That brand. What would you do, Scott, with Uber right now?

You’ve got to kick the CEO upstairs. These companies all wrap themselves, smartly, in a progressive pink or rainbow blanket because progressives are seen as nice but weak, and conservatives are seen as smart but mean. If a smart but mean person was running one of these companies, regulators would step in. It’s the reason that regulators stepped into Microsoft. Bill Gates or Steve Ballmer are infinitely less likable than Sergey or Larry or Mark or Sheryl. I believe that just from a shareholder standpoint, having frat rock running your company is a bad idea. Being likable is hugely important for a company. Hugely important, because people aren’t threatened by them. Apple has this incredibly likable CEO. I think that guy is impossible not to like.

Yeah.

As a result, I think we’re less inclined to break them up, or to move in, or to boycott them. Whereas when you see the behavior of a CEO, and he’s a young guy, I think he deserves a second chance.

He’s not that young.

What is he, 39?

No he’s 43.

43? That feels young. I’ll take that. Anyways, first thing is I think they need to bring in what I’d call adult supervision. I used to think Uber was going to be the 5th horseman and now I believe it’s probably going to endure perhaps the mother of all write-downs because what’s happened is with all this controversy we’ve seen there’s quite a few substitutes. Was it that hard to delete Uber and still get a car from LaGuardia?

No.

Is anyone getting rid of their iPhone? I can’t imagine what would be required for Apple to get me off their products. Tim Cook could literally announce he was joining ISIS and I’d be like, “Oh, that’s awful.”

I love this.

“Give me the iPhone 8. I’ll Tweet about how awful it is off the iPhone 8,” or the new one.

It’s 7 now.

The Gorilla Glass, whatever it is. Whereas I do think Uber has a decent amount of substitutes. Also 5.5 billion and $3 billion in losses.

I know.

The marketplace has decided to replace profits with vision and growth, and Uber has a lot of that. Boy, you’d hate to be them when the music stops.

Yeah.

I think Uber, first off, personally, changed my life more than any of these things. I have an Uber car waiting downstairs for me. I just think it’s fantastic. I think they do an amazing job. Is it worth more than Audi, Volkswagen and Porsche combined? Which is right now valuation in the private marketplace. It’s an amazing company. Is it worth as much as Airbus? I don’t know.

First step, dump the CEO.

We’ll see. You got to have the ...

They’re not going to do it.

The way for doing this is to have an infinitely likable and progressive, at least the perception of a progressive.

At this point in its growth.

A progressive running tech companies is the right algorithm because they’re seen as nice and weak. That’s how we’re seen. As a proud progressive we’re seen as too nice to be Darwin and Ayn Rand and take over the world, which is what these four companies are doing. If you had a hardcore Republican running any of these companies, it wouldn’t work. It just wouldn’t work.

Okay. Good to know.

It just wouldn’t work.

Just two or three more. Then finish up. Netflix.

Could be the fifth horsemen. All of these companies are effectively operating systems. Amazon’s an operating system for consumption; Google, operating system for information; Apple, media; Facebook, operating system for what I’ll call our connections. Netflix could be the operating system for joy in our lives. Millennials are spending more time on Netflix than all of cable TV combined, so arguably Netflix is worth more if you believe millennials are the future in terms of disposable income and their sheer size, then Netflix should be worth more than every cable and media company on television combined. Even at its extraordinary valuation it’s still not. I think an interesting test to get to know somebody is just to look at their Netflix home screen. It kind of says who you are.

Right.

I think this company could be, if they control the all-important ... everyone’s so focused on controlling the mobile phone screen but if they control the TV screen that is pretty staggering also. I think Reed Hastings is probably the most underrated CEO. He’s pretty quiet.

I agree. He’s also coming to the Code conference.

Oh, he is?

Yeah.

There you go.

I got everybody.

All the players. I think they’re just an incredible company. I think they’ve done an amazing job.

Negatives?

Their biggest threat? Amazon.

Amazon.

$5 billion on original content.

They can still sell paper towels and Netflix has nothing else to sell but the content.

Yeah, and Amazon can somewhat compete and start hiring basically anyone with HBO creative on their resume column and say, “We’ll pay 30 or 50 percent more.”

All right. Last two, I think. Snapchat. You said a lot about Snapchat, which I think is interesting, and you said it weeks and weeks ago.

Yeah. First off, I don’t understand. There’s certain companies or some reason I just really don’t like, and I think some of them might be just jealousy. I don’t understand the platform, I can’t seem to figure it out. I feel like I’m going to slip and break a hip every time I’m on the platform. I just don’t get Snapchat so I think I’m inclined not to like it, but I think that our idolatry of youth and innovators has gone haywire here, and we have basically created an entity that is irresponsible to invest in. The CEO, I think he’s 26, and the CTO have 89 percent voting power of a company that’s now worth more than Williams-Sonoma, Tiffany, Abercrombie and Fitch, and throw in the New York Times. I said a few weeks ago that I thought it was irresponsible and like driving drunk to invest in Snapchat. I think a company doing 400 million in revenue ...

“Driving drunk to invest in Snapchat.”

It’s something you should never do, is what I meant. I’m not in any way saying they’re committing a crime, I just think it’s something no one should ever do. 450 million in revenue, 500 million in losses. I listened to the earnings call, I think the 26-year-old has the business maturity of a 36-year-old, which is super impressive, but not of someone who should be managing a responsible fiduciary for that many employees, or that much money. Competition’s been a great thing for young people; it’s been a great thing for people of color and women, because basically we’ve broken the cartel and the monopoly of old white guys, but in certain instances we’ve swung so far to the idolatry of youth and innovators that I think we mistake youth for vision. I think that’s the case here, and what worries me about it, I think it could be the canary in the coal mine where this thing literally loses half of its value in one day. It lost 25 percent I think yesterday, or 22 percent. It’s the spark that torches the market.

Right.

I think Snapchat could be the canary in the coal mine.

What about Airbnb in comparison?

Airbnb has about a $25 billion market cap. Airbnb to me has challenges because a lot of apartment owners don’t like it, but Airbnb has accomplished something pretty exceptional in that it’s created liquidity on a global level. Uber needs liquidity in a city level, it needs buyers, it needs people who want rides, and it needs drivers. Airbnb needs buyers globally because people come into a city from all over the world. I think what they’ve been able to pull off actually has more moats, and I think the hotel industry, I don’t want to say was ripe for disruption but I don’t think the hotel experience has changed a hell of a lot in the last 20 years. When you see companies like Morgan Stanley putting Airbnb on their official travel log, you can now stay at an Airbnb. To me, at $25 billion, I’d much rather be Airbnb than Snapchat right now.

Right. Last one, the New York Times. We’re having Dean Baquet and we’re talking to him. We’ve talked to him, and others. I interviewed Carolyn Ryan from there today and Rebecca Blumenstein was onstage at the event we were at.

Yup.

Their digital subscriptions have risen heavily. Lot to do with politics, Trump and everything else. You were on the board.

Yeah.

Troubled time you were on the board.

Yeah.

What’s the fate? I’m using New York Times/media companies like the New York Times.

Difficult time to be a newspaper. New York Times plays a hugely relevant role in our society, a big fan of the Times. I think the truth matters. I think the New York Times has never been more relevant. The question is, does relevance translate to shareholder value. I hope the same thing happens with the New York Times that happened with the Washington Post, and that is, a benign billionaire shows up and decides ...

Jeff Bezos, in this case.

Jeff Bezos, yeah. I would describe him as a benign billionaire. I think that newspapers need to be like football teams, where instead of a white guy Republican who wants to take his friends to the football box, instead it’s a white guy, Democrat usually, who buys a newspaper. I think newspapers are public goods. I don’t think they make great shareholder vehicles, but the New York Times continues to be in my opinion the most robust evangelist for Western values, and is just a hugely important institution.

Democracy dies in darkness. Do you like that? That’s a good branding. Did you like that branding?

I think it’s fantastic.

Yeah, ours was “shut up and listen.”

That’s good too.

That was our motto.

That’s more you.

Very last question. What is the greatest unsung brand right now, would you say?

The greatest unsung brand?

Unsung, that you don’t think gets enough attention.

Oh gosh. I love little brands. I like this little brand like La Roche Posay, they make great sunblock. I’m trying to think of something really thoughtful here and I can’t come up with anything. Canada. France. Liberte, égalité, fraternité.

Freedom fries.

I think France is making a comeback. Who would have thought it was France that was going to be the firewall of rational thinking, and freedom, and common sense. I’m going with France.

All right, but that brand, that guy was just in ... Someone was joking, he was on the beach a year ago.

I’ll take him.

You’ll take him?

I’ll take him.

As long as he’s not a right wing?

Literally, we do a lot of events in Europe and I want to do more in France, because I appreciate the leadership they’ve taken around this stuff, so I’m going with France is the most undervalued brand.

Scott, this has been delightful. Thank you so much.

Thanks very much Kara.

Scott Galloway from business intelligence firm L2, you should hire them, and he teaches brand strategy and digital marketing at NYU, Stern School of Business. Do you have a book that people should buy, Scott?

October 1st, my book “The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google” is coming out. Thank you for asking.

Where it’s available at Amazon, of course.

Of course.

All right Scott. Thank you so much for coming by.

Thank you.

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This article originally appeared on Recode.net.