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I walked in and the first thing I saw was the bottom of the big crane boom arm with the weights And I was like why are there Olympic weights here? And then I was like oh because we've got a professional Boom arm camera. This is amazing. Alright, let's do it. Welcome to season 11, episode 6 of Acquired. The podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle based Pioneer Square Labs and our venture fund PSL Ventures. And I'm David Rosenfall and I am an angel investor based in San Francisco. And we are your hosts. There's an incredible property of the universe where electromagnetic signals can be broadcast and travel through space at the speed of light to be received at a different point in the universe. Now, a tiny fraction of these frequencies are detectable by humans as visible light. Some other frequencies can be dangerous like X-rays or gamma rays. But there's a part of the spectrum that is not detectable to humans and it's not harmful at modest doses that can be used to transmit invisible messages all around us all the time without any of us having any idea. It's like magic. Yeah, these frequencies have been used for over a century to broadcast TV and radio shows, presidential messages and important news updates. In the last 50 years, humans have gotten tremendously clever at proposing some parts of the RF spectrum to be used for cell phones. But the story of how we got from transmitting small messages on a single frequency to having billions of humans concurrently sending megabytes or gigabytes of data every minute has been an incredible journey of invention and entrepreneurship. The company most responsible for the mind bending system of how it all works today is Qualcomm. And today we will dive into their entire history and strategy unpacking their products which to the outside observer is really best described as a layered series of magic tricks. And spoiler alert for listeners, this is an incredible story. I had no idea before we dove into the research like this one is up there with like Nvidia TSMC. There is so much stuff you can't make up in this story. It's incredible. Largest fabulous chip company in the world indeed. The other thing we should say listeners. This was super fun to do this episode live in person in Lisbon. Our huge thank you to the Solana Foundation for hosting us at Solana break point many long time listeners will know Austin Federer from the Slack. He was kind enough to invite us and and really fun to do it there, especially given Solana's tie to Qualcomm with Anatoli having worked there for over 10 years indeed. Well, for our presenting sponsor this episode we are back with Fundrise CEO Ben Miller has more to share with us on how they came across the idea for their new growth tech investing arm the Fundrise Innovation Fund. I think people have loved throughout this season hearing the Fundrise story itself and how you guys raised $155 million from the retail investing public without actually going public yourself. Can you remind everyone how you did that a and then be how you're now opening this up to every private company? When we started Fundrise in 2012 like the mission was to give individual investors direct access to real estate because we saw when money's intermediated problems happen. Intermediaries don't have the same interest as the owners. So we scaled that business of democratizing real estate investing having sort of a direct to consumer model. And then when we went to raise we said, well, why don't we walk around and talk? Why don't we raise money directly from the individual investors in the same way we do for real estate. And that was 2017. It was extremely uncertain like no one's ever done it before. We didn't know if it was going to work. And so we launched it. We think we raised $17 million in the first like 24 hours. It was like very successful. And we said, OK, this is the future. This is the way to do it. And we scaled up raised $155 million for 35,000 investors for Fundrise itself for the tech company. Not just for the real estate. So we said, what's the next thing that we should do for other tech companies. And we should wrap it in a structure that so that all the company has to do is what they normally do with an institutional investor. Right. One company on your cap table. But behind it is like a mutual fund with millions of investors. And if you're a private company, you should want to have retail investment from the masses as soon as possible because it's going to increase your brand awareness. It's going to smooth your transition to public markets. And it's going to get you a lot of customers. Our thanks to Fundrise. If you want to join the over 350,000 people investing with Fundrise, you can click the link in the show notes. And if you're a founder who wants to get in touch about the innovation fund participating in your next round email not VC. That's no TVC at Fundrise.com. After this episode come talk about it with us. There are 13,000 other smart kind people in the Slack acquired.fm slash slack without further ado onto our live show. That's a lot of break point. And listeners know that this is not investment advice. And I may have investments in the companies we discuss in the show is for information and entertainment purposes only. Well, one small bit of a do before we dive into the story is we owe a big thank you to Dave mock the author of the incredible book the Qualcomm equation, which is not well known but is the definitive history of Qualcomm and ranks right up there with among the best business books that business histories that we've used as a source on acquired. Throughout the whole history of the show it's awesome and books not even really published under like a real publisher it's published under an industry association. There's no audiobook. There's no kindle you have to read the physical book. Yeah, it's you it's amazing. I literally the other day texted been a photo that I noticed on the back cover and then of course it's seen it too. Of one of the blurbs I'm going to read it here now says Dave mock helps uncover the single most important business story single most important business story that has yet to be told how Qualcomm came to rule the wireless industry. Think of it as a recipe book of for one of the most innovative and leveraged business models of all time. Who's words does that sound like been that sounds like a deep business model thinker and someone who who truly appreciates capitalism and its finest and is willing to go find the rare gems the rare diamonds and the rough that is written and said by none other than Bill Gurley of benchmark capital for this almost unknown book. I bet it's going to be a lot more known after this episode. Yep. Well Dave starts the book and it's such an apt place to start with a quote by Edwin land who I was not familiar with until recently when David center on the Founders podcast familiarized us with Edwin Edwin was the founder of Polaroid and Steve Jobs's hero. And he had this quote that Dave starts this book with true creativity is characterized by a succession of acts each dependent on the one before and suggesting the one after. So with act one of the Qualcomm story we start in Austria here in Europe in the mid 1930s in the pre World War II era as Hitler and Mussolini and the Nazis were rising to power and we start is this the first time we would say here in Europe on acquired. It is the first time it is the first time and we start you might think if you know anything about Qualcomm history I think in mid 30s like oh I didn't know Erwin Jacobs co founder and CEO of Qualcomm was born in Europe he was not he was born in New Bedford mass to sits we start with somebody very different we start with one of the most famous film actresses Hollywood film actresses of all time a woman named Eddie Lamar. And side note the fact that we're starting with Eddie Lamar on the story of how modern telecommunications came to be is so cool I remember we reached out to the NDS capital folks and said hey you know do you have any great resources on on Qualcomm and they sent back this excerpt of you should go read up on Eddie Lamar I was like are they trolling me right now you cannot make this stuff up this is like why we do the show. So Eddie was an incredible she was like just incredible human being she was world famous incredibly talented actress incredibly beautiful she would later be build like the way MGM she's one of the MGM starlets marketed her was as the most beautiful woman in the world. She was also a genius so she started in Samson and Delilah ecstasy Ziegfried girl many many more but what most people at the time even up into her death did not know and certainly her husband at the time in Austria in the mid 1930s did not know was that she had incredible powers of observation and was way more intelligent than anybody else around her so this said husband it's quite character. His name was Friedrich Mandel and he was not a good dude he was a Nazi arms dealer which made him very rich at the time just probably how he met Eddie and they became married. Eddie though probably unknown to Friedrich and certainly unknown to his business associates including Hitler and Mussolini. Eddie was Jewish and so Friedrich would bring his beautiful you know film actress world renowned film actress bride to his business meetings you know with the Nazi military powers and Eddie was listening in to everything that was going on and as the situation deteriorated in 1937 she disguised herself as a mid as one of her maids and escaped to Paris. And then from Paris made it to the US went to Hollywood and lived in Hollywood for most of the rest of her life when she came to the US though she knew like an incredible amount of inside information about the Nazi war effort and she was incredibly motivated because obviously she's from a Jewish family she hated the Nazis hated her former husband and wanted to contribute and specifically she knew that the Nazis were working on the war effort and using to great effect a radio jamming technique for radio guided torpedoes that would be dropped from airplanes to attack Nazi submarines. And also pretty amazing at this point in history that we had as humans the capability to radio guide the torpedo and the torpedo you know gets propelled and you could guide it using radio frequencies deciding which way to turn the rudder I did not know that technology existed in the 30s this is greatly the computer does the digital computer doesn't exist yet the concept of digital doesn't exist yet because we're going to get to that in a minute. All being done essentially with FM radios and so he wants to contribute to the Allied War effort and when you say with FM radios therefore pretty easy to jam if you know that someone's broadcasting on you know jam in 92.3 and you start another signal on 92.3 you disrupt their signal and they're not able to hit their target with the weapon totally so he teams up with her new Hollywood neighbor a composer a music composer. Name George and feel very with us here I promise this is getting to Qualcomm who is a film music composer and they with her ideas and his musical prowess they develop a concept that they patent and they get issued a confidential patent that says confidential for decades in the US military. By the way this I believe did not become declassified until 1981 that's how long it was buried inside the US. It was issued in 1942 so four decades that this history was completely unknown. They develop a novel technique to defeat RF frequency jamming by using frequency hopping and what they describe becomes the origin of something called spread spectrum technology so if you're familiar at all with like the wireless world or Qualcomm right here spread spectrum and you're like oh that sounds familiar spread spectrum technology this is the first like description of it in a technical document and a patent. By these two like incredibly unlikely people and what it basically means is any way that you're going to transmit a single message across a variety of spectrums so rather than just on I'm going to keep saying and jamming 92.3 to ground it in radio. But instead of just broadcasting on one frequency they came up with this idea to hop so change frequencies during different points in the message to evade anyone trying to jam the signal and move to a different frequency and the reason she teamed up with a music composer for this is that the way you make this happen is you have incredibly precise time syncing on in this case the two ends but in you know wireless you case all end points of the communication channel incredibly precise syncing. So that all end points no when to hop frequencies and you're hopping frequencies like dozens or hundreds of times a second and this can defeat jamming this is great for cryptography this is great for sending coded messages it turns out this was not on anybody's radar pun intended at the time it turns out that this is also the most efficient way to use radio bandwidth but let's put a pin in that for now and first let's go back to this. Specific use case of we want to transmit from a plane to a torpedo and we want to be hopping around to different frequencies and we want to change that incredibly precise time so the transmitter knows to change the frequency and the receiver knows to start receiving the message on a new frequency at very specific points in time the concept of digital hasn't been invented so how are we doing this David what the technology used to synchronize a schedule of frequency hops between a torpedo and an airplane so here's where if this were a you know Hollywood movie like one of Eddie's films this single handedly would have like defeated the Nazis and all that unfortunately the reality is there was no digital computing at the time it wasn't possible the US military tried very hard during World War II to make this happened the whole military they couldn't make it work because like think about what you're trying to do here and that vacuum tubes and analog computing was what was happening at the time you would literally need to put like any act on a torpedo and drop it from the sky to make this happen that was not feasible it's worth sharing how their prototype worked though so the way that they prototype this heavy in the you know nineteen early nineteen forties is they took to player piano scrolls that had the same basically song and they mapped each note to a new frequency and they put the same player piano in the receiver the same scroll and the receiver that they did on the transmitter and they pressed play on the player piano song at the same time so would know exactly where to hop around the same time so it's worth 88 frequency hops in their technical description of the patent because they're 88 keys on a piano so I guess literally you wouldn't be dropping any act from this guy you'd be dropping a piano from the start yes card to totally OK so that is the origin that you can't make this up origin of spread spectrum technology that's act one act to we stay in World War II around the same time but a few years later there is a question PhD grad PhD grad from the Massachusetts Institute of Technology they are gust Massachusetts Institute of Technology who was working on code breaking for the Allies very famously at Bell Labs and at the Institute for Advanced Study in Princeton New Jersey where he intersects with luminaries like Albert Einstein, John von Neumann, Alan Turing we're not talking about any of those three folks but by process of elimination you can probably figure out who we are talking about we're talking about Claude Shannon literally the father of information theory one of the fathers of computer science and the inventor of the concept of digital of the bit of information like digital did not exist before Claude so during the war all of this effort culminates in what he publishes after the war his master work on that a mathematical theory of communication which defines a bit the new field of information theory usheres in the digital era for the world and combined with the other folks who we mentioned Einstein, Turing, von Neumann and Bell Labs work on transistors during the war these things come together to create the modern era of humans and the digital computer so we've described like the Hollywood part we're described here in act two Claude Shannon you know birth of computing all that and it's worth maybe sharing a little bit about information theory if can I take a second day of course all right so I heard people reference information theory or communications theory dozens of times over the years and every time I opened up the Wikipedia page I'd see a bunch of complicated math equations and you quickly want to get to like okay but what is this why does everyone keep describing it is so important and I think there's a pretty key concept that was an aha moment for me which is all communication must happen through a medium there's no communication that happens through nothing you need some way to send signal from a transmitter to a receiver and the method by which you communicate the way you send signal is governed by that medium and so what I mean by that in particular is let's use the analogy of a conversation well if you're in a super loud room then your message needs to be very loud and it needs to sort of not be very noisy it needs to be a super clear super loud message because there's a lot of noise in the room whereas if you're in a really quiet room then you can have kind of a message with a bunch of noise imagine someone talking but there's a bunch of static well that's okay if the medium itself the room that you're communicating in doesn't have a lot of noise itself so there's this this relationship between how noisy a message can be and how noisy the medium is that you're communicating in and I think this is this very interesting aha moment where what he basically deduces is there is a theoretical limit to the amount of signal that you can pump through any given medium based on how noisy the medium is and based on the level of entropy or randomness in the in the the message that you're trying to describe so when I say entropy let's say David you're expecting me you think there's a 99% chance that I'm coming to deliver the message to you I just had breakfast well if it's a really loud noisy room and you know there's I'm sick and I'm coughing and I tell you I just had breakfast because you were expecting it it's fine if it's in a really garbage medium but if you have no idea what I'm about to tell you and it could be everything from like hey you're fired to a just had breakfast and you have no idea like we need to have that in a pretty pristine environment with really nice volume or gain on the signal so that's sort of the high level concept of of information theory and more specifically of Shannon Hartley theorem describing the the relationship between signal and medium yeah super super cool stuff the so where this all comes together in act three of our story here which is going to be a little longer because we're getting get into Qualcomm as part of this is one Irwin Mark Jacobs American born in 1933 as we mentioned in scrappy New Bedford Massachusetts which used to be I believe the wealthiest town in America during the wailing era as we discussed during standard oil or I think this Berkshire actually it was Berkshire because 45 years before erwin Jacobs was born in New Bedford the half away manufacturing company was started in New Bedford before it merged with Berkshire and before of course even often even by 1933 New Bedford was not the New Bedford the wailing era shall we say so erwin is a pretty amazing American story so he grew up in like a very middle class family in this super scrappy area of the country his dad worked a bunch of jobs and ended up running a local restaurant called the Boston Beef Market erwin was highly gifted in math and sciences as a kid going through school he wanted to study math and science and probably would have wanted to study engineering if he knew it existed in college but his high school guidance counselor famously told him that there's no future for math and science in New Bedford and frankly his high school guidance counselor was probably right so erwin though had very good grades growing up and the guidance counselor encouraged him to go to the world famous Cornell School of Hotel Management so that he could learn the hospitality management business and come back and work in the family business at the Boston Beef Market which he did the school of hotel management this engineering genius this like American pioneer of the wireless communication industry that is what he went to college for and he would later credit the year and a half that he spent in the hotel management school at Cornell before transferring to electrical engineering he would credit that year and a half with really helping him start first link of it his first company and then Qualcomm get out of academia and become an entrepreneur because he actually learned about like business accounting the real world applications and found that like he kind of loved that too so after a year and a half in Cornell in the hotel management school he learns about engineering and is like oh you can make money with math and science this is actually like in demand maybe not in New Bedford but like in the rest of America and so he goes to the dean at Cornell he tells the story he's like hello sir you know I sophomore at Cornell I would like to transfer from hotel management to electrical engineering and the dean's like oh you mean electrical engineering to hotel management right he's like no no no no hotel management to electrical engineering no I want to do the harder one I want to do the hard stuff after the dean like picked himself up off the floor he allowed it perhaps with a degree of suspicion which he need not have because Irwin is another genius in this string of geniuses he would graduate go on to a PhD at MIT which he would do in three years finishing his PhD in 1959 studying under none other than Claude Shannon himself who after the war returned to MIT as a professor it's pretty interesting because so many of these stories that we tell there's an immense element of genius no question Irwin Jacobs and Jensen and at Nvidia and Steve Jobs geniuses and also there were like ten people in the world who knew this stuff at the time and they were among them yeah it's the most incredible right place right time in history too because without studying under Claude Shannon the father of information theory it's extremely unlikely that Irwin Jacobs becomes the Irwin Jacobs he went on to be totally and then without what's going to come later in Heddy Lamar that he would start Qualcomm amazing so Irwin is so young Irwin is so talented that after he finishes his PhD in three years you know mere like five years removed from being a hotel management major at Cordell and Shannon and MIT ask him to stay on as a professor and MIT like immediately which he does he spends five years teaching an MIT during which he teaches the first course like for students on digital communications in the world I believe you know like applying Shannon's theories to like disseminate amongst like practical engineers being trained at MIT he and a fellow faculty member write the first textbook on digital communications that is still in use today you can still like it is the Bible of digital communication theory you can buy it on Amazon and written by Irwin distilled you know from the father himself of Claude Shannon he spends five years teaching there and then in 1964 he takes a sabbatical and heads out to California to do a sabbatical at JPL at Depp propulsion labs working on the US space program and communications with satellites in the US space program at the time where he intersects faithfully with another recent MIT electrical engineering PhD grad one Andrea or Andrew as it was anglicized Viterbi a Jewish immigrant from Italy who got his PhD from MIT in 1957 who was working at JPL and they become fast friends so fast friends in fact that when Irwin returns back to Boston to cold snowy bleak Boston near his upbringing in Massachusetts after his sabbatical Irwin then gets a call shortly thereafter from one of his former professors at Cornell that a new engineering school in San Diego is being started the new UC San Diego and there's an opportunity for Jacobs to come out and start the electrical engineering department at UCSD he says well I really enjoyed my time out there I've got this great friend Andy let's do it I would make the exact same decision so he is family Irwin and his family move out to UCSD and while he's out there he continues doing his contracting work with defense contractors and JPL and the US space program and this is sort of one off at this time I mean he's like doing it under his own name he hasn't really started a company it's just kind of Irwin doing contracting totally he is like the first you know like electrical engineering professor at UCSD that's his full-time job but because he's in such close proximity to everything going on at JPL and NASA and the like he's doing that on you kind of like one day a weekish and one day he and Andy and another professor from UCLA are up at NASA Ames in Mountain View doing consulting work up there they're flying back and they're all kind of lamenting they're like this is super cool that we're doing this we're making more money than academia we're helping our country we're participating in the space race but it's kind of hard to like balance all this stuff that we're doing and they're like hey what if the three of us band together and form a company kind of a shell company to just kind of manage this consulting work that we all get we could probably get some you know efficiencies here maybe hire an assistant help us out that kind of stuff and they say great great you know we don't intend this to be a real company we're not going to make any products or anything this is just to manage our consulting they sort of tongue in cheek decide to call it link a bit like linking a bit very like academic joke so who is this third partner in link a bit he ends up not kind of jelling with the other two leaves shortly thereafter his name is Len Kleinrock and I read that the first time and I was like I've heard that name before I know that name and I'm going to guess 99% of listeners haven't heard that name but if you're you and me and all we do all day is study tech history and the history of the internet that name should ring a bell well you know first you read the history and you're like man bummer for Len he missed out on founding Qualcomm well he actually ended up okay because instead of founding Qualcomm he founded the internet he literally was the I think the founding engineer on the arpanette project at DARPA you many people were involved in the arpanette project that arpa I don't know if it's arpanette yeah arpanette which was the precursor to DARPA which was the precursor to the internet Len and one of his grad students at the time at UCLA like the next year right after this is happening this is all happening at the same time they sent the first message on arpanette ever like the first internet transmission ever from UCLA to Stanford he's one of the core founding fathers of the internet so he ended up doing okay you probably didn't make as much money but he will be a remembered in history pretty amazing so AMD and Irwin they're mostly continuing to work on NASA and Navy defense projects in San Diego because of course San Diego is a US Navy town and most of what they're doing is working on satellite communications and if you know anything about satellite communications the bandwidth that you have available to you is very very narrow and you need to be very very efficient with your communications and that's still true to this day I mean any any company in the sort of emerging space economy it's a totally different engineering problem than you're used to today because if you ship code up to your satellite and you find a bug it's like very expensive and very slow to go get enough bandwidth and actually make sure you have the right time window to update the code on the satellite so it still kind of works the way that computers worked 30-40 years ago and so there you know it wasn't them like this was the military there was as they got exposed to this trolling around to find the most best most efficient ways to use this narrow bandwidth channel that they had and what ends up getting used but this old patented spread spectrum technology from the World War II era invented by Hetty Lamar and George Antil the timing is perfect because the time of link a bit is this sort of early 80s where that really 70s oh link it's early 70s it's like 15 years of link a bit before oh yeah oh yeah there's a long link a bit is involved oh we uh you may not know I've got some good surprises for it so they start doing more and more of this Erwin's exercising the like hotel management sort of side of his brain as he's doing this he finds that he really enjoys it they start bringing on other professors other grad students into link a bit to kind of build this sort of like army of the greatest you know information theory and wireless signal minds in the country all for defense contracting almost all for I don't think they were doing any commercial work at this point I think it was all NASA and defense yep and almost all satellite work and so they start building the company that eventually in 1971 there's so much going on Erwin decides he's going to take a sabbatical from UCSD and spend a year just organizing the company he ends up never going back to UCSD ever because during that year they get the idea I believe it was during this year maybe they'd start to have inklings of it before that um you know it's really nice they've got all this technical talent they're consulting on these projects that defense contractors mostly are the prime bitters for they're like wait a minute those guys are making all the money we're doing all the differentiated like engineering work here what if we started bidding on some contracts ourselves we would probably make a lot more money as like a kind of products like you know contract focus services company ourselves rather than just as a sub consultant on these projects and that that less than persists to this day too if you can pull off being the prime contractor to the government on a big contract that's the economics are much better than if you get subcontracted by one of the primes well and like oh man if you can be a prime I mean the primes back then primes being prime defense contractors they're still the primes today like that is a gravy train that like yeah Raytheon Lockheed Boeing all these companies so of course they start doing this but like there's a reason the primes then are the primes now link a bit is not going to be a prime then or ever so they need to if they're going to do this they need to move into the commercial sphere so this is like one of these is like so good it's like history was like made for acquired do you know what the first like contract project that link a bit did was if you knew you would just be like no I don't I don't smiling so wide right now so they hear about remember their expertise is in satellite communications they hear about a regional retailer no did they do Wal-Mart satellite network yeah they did what yeah they hear about this eccentric founder of this small midwestern regional retailer that for some reason wants to beam himself talking every day to all of you know from HQ to all of the local stores of this a local outlets of this retailer link of its first project is doing the satellite communication system for Wal-Mart that's wild listeners for anyone who didn't listen to our Wal-Mart episode Wal-Mart was for a very long time the most innovative retailer on the planet I mean until Amazon basically and one of the illustrations of this is in the late 70s and then continuing into the early eighties when they actually lit it up they invest they invested tens of millions of dollars into building a private satellite relay because the bandwidth available on the internet was insufficient for them at the time it was just the arpeggio it was the line rack do it phone lines that the public weigh-on effectively or precursor to weigh-on was insufficient to you know send the store data that they had actually been collecting and want to tabulate their results on a daily or weekly basis but also this like yes Sam wanted to broadcast out the you know the Saturday oh Phoenix so great wait there's more Wal-Mart to come a little later in the episode stay tuned literally so got you just crack yourself I died this is what probably got this from the actual episode we get occasionally we get these reviews for acquired in like comments that like one host is like really normal and the other a host is just like laughs at his own face crazy person and I'm like well you know at least they remember me who we are nothing's been changed and it's seven years in we're not yeah I promise you it's not an act ask my wife okay so the next thing that they get into is because they're in they're in video they're they're in satellite they're in video now with Wal-Mart and they're doing these two way communications they build the video scrambling system for pay TV on cable systems so it used to be before the link a bit solution for multiple access cable systems if you like were even mildly technical or could like play around with like a allen wrench you could you could get HBO or any of the early pay TV channels for free yeah the the catchphrase there is security by obscurity yeah exactly you know find one clever thing that consumers weren't likely to figure out by unscrewing their box and you know moving one wire or something and yeah so Jacobs and Butterby and all the the brain trust at link a bit they solve that problem and the HBO uses them and then all the other all the other big pay TV channels I think that's the inspiration behind the HBO opener yes this scrambled because it's like descrambling and now bringing you this so great that's Irwin and Andy right there so in 1980 they do this for the whole decade of the 70s in 1980 the link of it the company gets acquired by a East Coast radio technology company called Maccom I think is how it was pronounced it used to be actually Maccom and then it you know this like weird 80s branding stuff they changed the brand to M slash a dash C O M microwave communications I think anyway they sell the business for 25 million bucks in 1980 which like nice really win not bad for some former academics 25 million bucks in 1980 dollars like and they had a lot of people at this point I think there was like over a thousand employees it grew within it was on its way there but I didn't grew over the next five years within Maccom to that big so I don't think it was a grew to 1500 people eventually like this is a big freaking business like you know mad the things we're talking about like a lot of other retailers started using you know satellite networks a lot of other cable TV you know channels wanted to use these to like and there were other products that they were building like this is a huge like yeah basically they made a big mistake selling the company you know they they hadn't listened to acquired they didn't have all the lessons they wouldn't have had Qualcomm if they didn't sell the company well that's true they made absolutely the right decision in selling link of it then so they stay with Maccom for five years and then there's a leadership change at Maccom and like this is an East Coast technology company so they all leave in 1985 and they sit around for a couple months and you know they're like like we made more money than we ever like dreamed we would we got to be part of so many cool things but like we're still young and like the wireless communications industry is kind of just getting started and this is 1985 so the cellular telephone industry exists at this point it had just started we had the you know how we were on 5G now and everybody remembers the iPhone 3G that that second phone and the edge network that that the first iPhone launch with was 2G it was a little advancement on 2G this was 1G this was 1G which was analog no digital yet in in cellars analog cellular and cellular had just been an innovation I mean this notion that rather than you know communicating over long distances we were actually going to put cell towers so that you only needed to communicate with your local tower and that that could be relayed and you had this sort of cellularification of all the geography that you needed to cover that was new and it's funny how today we we don't even think about what the word cellular means but that was the most recent innovation at the time. So you know Erwin and Andy like they're they are first-rate academics you know as hopefully we've told the story here like among the most brilliant minds in the world but they're also like especially Erwin like incredible business people market analysts like they're very aware like the products they developed a link of it they're aware that this market is coming and and the reason they're so aware like technically it exists now cellular it's all car phones at this point in time because the way it works is it was essentially it was just like the torpedoes back in the day it was essentially a FM radio broadcaster that you would wire up into your super high power super high power you needed like a lot of freaking power. You had to put it in a car for what you're talking about and because you couldn't like there was not a battery available to you needed a running internal combustion engine to make it work. To power things yes on the end points. Yes on the end points and bandwidth was super limited and like these systems were thousands and thousands of dollars in early 80s dollars and despite all that the consumer demand for car phones was insane like this was just like you know there were wait lists years long for consumers to get car phones installed and the fledgling carriers at the time like they only had so much bandwidth they could fit because literally it's you know there's no there's no efficient use of channels it's just like the torpedoes back in the day like they couldn't keep up with all the demand. I remember when my parents who were lawyers like they had car phones in the 80s. Did your parents know my great uncle had one but it is interesting thinking about you know when you're listening on an FM radio you have 99.1 and then you click up on the dial and it says 99.3 and then you click up and it says 99.5 and you can't even have 0.2.4.6 because that's too close there would be interference. So you start thinking about and this isn't exactly right I'm going to oversimplify this a little bit but you start thinking about well geez how many slots are there to communicate in this analog way with a cell tower near me what can a cell tower handle 100 phones 200 phones 500 phones either way it's not going to stop like much more than 100 yeah yeah maybe you think about how many radio stations there are like it's not much more than that so you know the link of that folks are running and they see this they know and they're like oh this industry isn't it's infancy we see this amazing demand we are literally the best we know there's a better way to do this we know you can do this digitally we know you can do it way better we know how to do it the best so they found a new company in July of 1985 with 7 total 7 in total Andy Irwin and 5 other of the best link of it engineers they meet at Irwin's house and they just started to start this new company and they name it Qualcomm quality communications which is short for quality communications which I had no freaking idea we did the research but they're like oh uh quality communications and then when you know all this history it makes sense like they are the highest quality you know but they know how to do quality communications this is a communications company and they can provide quality then nobody else there's so many companies name this way too these things become these household brands and then it's like you don't need to think about what the original meaning was totally totally because like the industry was still so early and you think for a minute about what is involved in building out a cellular telephone network there is enormous capex like you know laying like cable we've talked a little bit about the cable industry history on acquired like that required enormous capex like this is like literally putting towers in the ground putting base stations on them building these thousand dollar mobile phones it requires a lot of money to participate in this it's money and it's a bunch of competencies because not only when you are you thinking about the real estate for the tower and putting in the tower and putting the base stations on the tower well then you need to figure out well how are those towers what's the protocol what's the technical method that it's communicating with phones and making sure that the phones have all the correct hardware and it's not just antennas it's very specialized chips and so then you're like okay well do we need to then make phones and do we need to build a consumer brand and do we need to market to consumers do we need to be our own carrier or do we sell to carriers there's a way to sort of like bite and try and eat the whole elephant here or you could say okay we're just going to try and be one small part of this because we have an idea for how to make this better but if you're just doing one small part of it and inventing the means by which the technical method that the phones communicate with the towers there's a bunch of stakeholders that you got to get on board with your thing carriers the government in terms of licensing spectrum phone manufacturers, chip makers, base station makers so there's this really interesting crux that they're at at this point of the company where they're saying we know we can do this better we have a specific idea about how to make this better which we'll get to in a second but there's a really trying to figure out how much of the elephant to try to eat themselves and this story you know this hopefully this first you know 45 minutes of the episode was interesting we know fun telling this like crazy World War II Hollywood you know history of all the technical aspect that comes to this the business history of Qualcomm just like Bill Gurley said on the blur with this book it is one of the most brilliant strategic executions of entering a market period you know like writ large ever like this is on par within video if not yeah honestly more brilliant it seems more difficult because if you were to get me this idea a priori as an investor I would tell you immediately know because I see 15 different needles all of which you must thread perfectly a story that's entirely path dependent so you're not going to get one thing until you get the previous thing and that was a needle that you were threading so the likelihood of success is unbelievably low and yet here we are talking about Qualcomm so they knew two things at the outset of founding one this is a massive opportunity that they eventually wanted to pursue was bringing their expertise to bringing cell phone terrestrial cell phone networks into the digital era and building the dominant gorilla company in this soon to be massive industry and two they knew they couldn't do it yet so they actually started in the same fashion that link of it did they're like okay we're going to bootstrap up by doing consulting work so one of the first consulting projects they do is with Hughes you know like one of the defense primes like Howard Hughes pretty awesome on a proposal to the FCC for a mobile satellite network like I will learn about consumer mobile you know telephony services enter the market will work on the satellite network and we're talking like Jurassic Park smartphones yes that is exact a big hawking thing super expensive but like when you really need it it's nice that there exists a set phone network yes so while they're working on this they're like working on like okay how can we like where the experts at you know optimizing satellite communication channels for efficiency they come up with an application of spread spectrum to use multiple access multiple conversations access the same channels at the same time that they call the they they use a technique called CDMA code division multiple access which the first time you hear this phrase sounds like complete jargon like meaningless and then you stare at the Wikipedia article for a while to try it on package one so break it into parts multiple access well that's that's fairly straightforward rather than being broadcast so like a TV network we have multiple endpoints that all want to communicate with each other using whatever the same communication medium is so rather than using one single frequency to all try to pile on there at the same time which of course wouldn't work in that analog world that we were talking about I want to call you on 92 3 you want to call Bob on 92 3 my mom wants to call my dad on 92.3 you quickly get into a situation where like everything is just colliding with each other so multiple access on just single analog frequency doesn't work so you got to divide up and say everybody gets their own frequency and that's sort of the way that the way the world evolved so you mentioned code division yeah before we get to code division can we talk about a different type of division yes we certainly can so before we get to the CD and CDMA code division let's so we've got the multiple access part bunch of people trying to communicate using the same medium well the things that we were talking about before everybody gets their own frequency that was called FDMA frequency division multiple access so pretty straightforward way that you might divide up the air waves in order to have multiple conversations and the way the telecommunications industry works is remember I opened the episode by saying it's basically a layered set of magic tricks this is sort of the the next iteration on top and if you say okay rather than sending analog signals what if we were sending digital signals so if I'm talking to David there's a lot of sort of pauses about half the conversation is actually empty air and if two folks out in the audience are talking to each other a lot of your time is actually empty air so we don't both need the entire frequency all the time and if we are communicating using a digital signal instead of an analog signal then actually we can parcel up the information into digital packets and just rotate the time of when different packets are being sent right so you know the very crude example is afforded inner party I can have my conversation for 30 seconds in a room and then you know I pause and I stop talking a different conversation can happen for 30 seconds of course that's too crude and that's far too long in a time division network what you basically do is say I get some digital packets for these milliseconds then the next milliseconds you get your digital packets then the next few seconds you milliseconds someone else gets their digital packets and we'll keep round robbing it between the 20 conversations that we're all having and when it gets reassembled on the other side by some other phone or something thanks to transistors and digital technology this can all happen fast enough that like you don't even notice yeah you're like oh the signal maybe sounds a little compressed it's not as good as if we're talking to each other actually face to face but there's no like weird blips or pauses in the conversation even though we're all borrowing different time slots on the same frequency it actually sounds pretty smooth to me yep so that's the next iterative event in this case where Europe was way farther ahead than the US Europe was basically ready to implement this time division multiple access digital standard in Europe for European cell phone technology and that was driven by Erickson the big European infrastructure provider so I think like just to pause and reflect big innovation going from maybe 20, 30, 50X like you get a lot more capacity by saying instead of just one person gets a frequency at any given time you now get a whole bunch of people who can use that frequency because the signals digital because it's time division this is the movement from frequency division multiple access FDMA to time division multiple access or TDMA it's actually 30, 50 maybe now that kind of is but like back then it was 3 to 5X really I think the rate analogy is like it is time sharing time sharing is what it is and it's kind of like the old computing model of like time sharing on a teletype on a mainframe that's what's going on here. And so over to Qualcomm so they're thinking about doing this satellite communication thing and remember Erwin studied with Claude Shannon so he's always thinking about what is the most efficient way to use all the way up to the theoretical limit of how much signal can be communicated in a given medium at a given time and he's sort of looking at TDMA and they're like I think there's something even more efficient than this and we need something more efficient than this for this satellite network. And these guys were all around the beginning of the internet and like you think about you know anything about how the internet works and packets with networks generally. Packet switching it's not time sharing. No it is everybody compresses their data as much as they possibly can into a digital packet they fire it off and it bounces around a series of places until it hits the other side gets decoded and hopefully the protocol is written correctly where as you're sort of opening your packets and sequencing them all in the right way it seems perfect and how the message was originally intended to be when it was encoded in the first place. You said the magic word decoded and that's what these guys figure out. They're like duh we'll just use code and then like everybody will send all the conversations all the same time all across all the different channels will maximally efficiently use all the spectrum allocated and we'll just depend a little code to the beginning of each digital packet of each digital conversation and it will get reassembled on the back end. So basically the same way the internet works. Yeah so to break that down further so you've got this really interesting situation now where all messages are encoded digitally and I keep going back to this analogy that they use in the telecommunications industry of the dinner party. So rather than the sort of frequency the FDMA model of everybody's in their own room having their own conversation you know that's not super efficient or TDMA which is you put five or ten people in a room but they need to wait their turn to have their conversation. Well what code division basically is the analogy goes is well everybody can communicate in whatever room they want they're all just communicating in their own language and the person that they're communicating to understands that language. They can sort of listen and disregard noise that's coming in. So if you're saying if I'm expecting your message to be I had breakfast this morning then like I don't care how much noises in this. You don't care how much space. I either know you said that or you didn't say that. Right you're like I'm disregarding all the Spanish and I'm just listening for English that sounds something sort of like describing someone's state of breakfast. And that's an oversimplification if you really wanted to sort of dig into it what you're basically doing is you run any given packet through like literally an encoding. Maybe my encoding is 10010 so you detect, so you encode whatever the packet of information is you run it through sort of add it to 10010 and then you end up with this signal that you can sort of stack on top of other messages. So imagine a digital signal like a digital wave where all of our messages are layered on top of each other so the top of the peaks of some of the wave are extra high and the troughs are extra low for others and when it all arrives all together on the other side, the other side knows how to decode all of our messages. So it individually subtracts all of our messages which are layered all on top of each other off the very same digital signal until it basically has all of our messages spread apart. It disregards any of the ones that doesn't match the code that I'm looking for, that I'm listening for and it says I just care about the message that came from Ben which was 10010 or whatever. Code I just made up and that's reassembles it. The stick for CDMA. And what these guys do, just this brilliant like they saw it, they had the background, they had the engineering, they like everything right place right time and the business sense, they developed this and they freaking patent it. In 1986, well before years before Qualcomm gets actually directly involved in the cellular industry at all, they patent the method and technique for code division multiple access applied to terrestrial cellular networks. In 1986, in US patent number 4901307 which is one of the most valuable patents in history. Yep, unreal. Like literally they played such a long game and they threaded needle after needle after needle. And that was just the first. And when you think about why that is so valuable, what you really distilled down what the CDMA patent is, it was the very first time that you could say, well rather than thinking about one specific frequency, just imagine you have all the frequencies available to you and everybody can all the time broadcast their message on whatever the next available frequency is and we have the technology to just figure it out on the other side. Oh and by the way, you don't even need to do it with super high power so it's good for battery life and that sort of thing. Because sense is encoded. An internal combustion engine to power this thing. Right. The other side knows what it's looking for. So this is the equivalent of there's a bunch of people whispering in a gigantic house to each other all in different languages. So it's this like way more efficient way to use a given medium to have the absolute maximum amount of conversations or signal transmission in that medium. Okay so Qualcomm founded 1985 patent issued 1986 or applied for 1986, which is worth remembering so it'll expire in 2006. That's right. That's right. Looking ahead. Forced at one. Qualcomm doesn't enter the wireless industry until 1989. What happens in the interim? This is the next wall bar. It's so good. It literally can't make this stuff up. So they get approached to bid on another contract. The fledgling Qualcomm does from a company called OmniNet, which has this idea that they think the Qualcomm folks are going to be perfect to implement. They want to make a mobile satellite network specifically to connect commercial semi trucks on the roads in America. Now work them up to the distribution centers for retailers and other people who companies who ship a lot of things in the US. This is right in their wheelhouse Qualcomm and Irwin are like great. We're going to bid on this contract. They start working with OmniNet and they make it work. One of the very first customers is of course Walmart, which influence their own proprietary fleet of trucks, building further their technical advantage over just about every other retailer in America. And at this point they've walked away from the satellite contract, right? They sort of like the huge satellite thing that actually just never happened. So they developed this technology, they patent it, they were like oh, but there's no money here because the contract was... Yeah, the FCC was like yeah, satellite, Jurassic Park phones, not going to be a thing. Right, so instead they're focused on this OmniNet. So they focus on this and they also have like a lot of the business relationships already from the previous iteration of what they were doing in the end of it, including with Walmart, many of the other large companies and retailers. I believe it's Schneider trucking, becomes one of the first customer I think for that. So they work on building that, it becomes pretty clear like this is going to be the interim main product. Qualcomm and OmniNet merge in 1988. It is $3.5 million in funding as part of that. They bring the product to market at the end of 1988 as OmniTRAX. People might have heard of it. It was part of Qualcomm for a long time before I believe in ended up getting spun out to private equity. And in 1989, in the first year of business for OmniTRAX, they do $32 million in revenue in 1989. Which is something like, it's like inflation adjusted $100 million. And there's a lot of demand for this product. In the first year of the product launch. Year one. Now there's a lot of COGS, like this isn't SaaS revenue. No, yeah, yeah, talking about. And there's particularly a lot of COGS because one of the things they learn from doing this, in one of the reasons the companies merge, they first kind of like the link of it is, remember Walmart was their customer for the link of it satellite thing. Walmart is very happy to integrate and implement technology themselves. Most other customers are not. So they go around and they're like, you know, pitching this to tracking companies and retailers and the like. And most of them are being like, well, this is like cool, but we're not going to operate our own dispatch centers and messaging. We try to have a small and IT department as possible. Why on earth are you asking us to do all this work and just handing us this pile of technology? Yeah, so Irwin is like, well, what if we just operate it for you? And we provide a whole full stack solution. We don't tell you a technology. We sell you a solution. Which is like every enterprise company that you ever, you know a company has become enterprisey when they cross the chasm and their website no longer has like products pricing about. And it changes to solutions. Yeah, solutions. They make the business scary of solutions. We all should say like, this is a tremendously dilutive financing event. This is Qualcomm saying we need money so badly to fund the development of Omni Tracks for this customer Omni net that the most attractive option for us is to sell half the equity in our company. So everyone gets deluded 50% by merging with the customer themselves in order to get just a few million dollars to continue funding this effort. It's a pretty different time than today where you go raise a seed round and you sell 5, 10, 20% of your business for two. I don't know too many seed rounds that are happening for 5% delusion these days, but they were. They were. And so it's a very, it's crazy to think the position that they were in where everyone was looking at Irwin and he was like, Hey, I think this is literally the best path forward in order for us to get the few million dollars we need to get. Yeah, I think some people were pretty bitter about that totally. And you could imagine too, it's not like an idea like they had done a bunch of work already. This was going to happen. They were going to go to market. They were just a couple years away from making a hundred million dollars in inflation adjusted dollars. And yet they had to give up half the company. They literally were a couple years away from making actual 100 million because the business doubles every year for like five years from a 32 million dollar base like. Wow, pretty awesome. So now that this is in place, they're like, All right, we have both a cash flow spigot that we can use. And now like a base of business that we can finance and like borrow against and raise equity against to pursue the real big idea and our original patent. And here's the other just brilliant thing. What happened originally was not an event. There were other people who knew about code division, multiple access. Other folks could have been in a position to patent this and pursue it. But at the time, nobody believed it could actually work because you needed such sophisticated processing power on both the endpoints on the base stations and the endpoints to actually make this work. Like it sounded completely freaking crazy. It needs to happen in real time. I mean, people need to have conversations without a perceptible delay. And you are. Cutting a comment you're you're first doing the the analog to digital and coding where you're taking their voice and you're actually turning it into a digital signal. You're cutting it up into a bunch of packets. You're encoding those packets with every user's unique code. You're sending it over the airwaves to your most local cell tower. That cell tower is relaying it across variety of other cell towers to where the other person on the end of the conversation is having the call. And then the whole pipeline is happening in reverse on the handsets on the handsets. And then the whole process of things like main real could believe you could do this processing on the on the base stations on the infrastructure side. But like the idea that like at a car like something powered by an internal combustion engine like in a car or or having forbidden not car like a mobile phone like a Zach Moris phone that you know somebody would hold in their hand. And then the whole process of things like that was crazy in 1986. But the clock on guys they know about more's law which like most people didn't know about at that time. They're like, yeah, I'm pretty sure you give it one or two more, you know, turns of the crank on more's law here. And like I think we could maybe do this. And then the whole process of things that we've talked about in the last, I mean, not acquired generally, but especially in the last year where their success came from correctly forecasting where more's law would be at the time that they ship their product. Yeah, so no like at the time of shipping. No, like it's not possible today. But when we're going to ship this, which is still going to be several years in the future, it will be possible then. People didn't knew that then. And like, ah, crazy. Well listeners, for our second sponsor of this episode, we are talking about Brex and we're doing something a little bit different. Our friends over at Brex are big fans of the community and asked what we could do for the community. So if you become a Brex customer because of hearing about them on acquired and using the link in the show notes, that's Brex.com slash acquired when you sign up, they will send you a free acquired t-shirt. Also goes for anyone who signed up earlier this season. Brex of course is a fantastic provider of modern corporate cards and expense software in over 100 countries, trusted by big companies we've talked about on the show like Dordash and Pilot and of course recent LP show guest Mutiny. Today though, we want to talk about something that we found out that Brex does for their customers that is pretty unique. We were getting coffee with the Brex team in San Francisco a couple of weeks ago. And we found out from them that for their customers, they do billboard rewards. Yes, so here's how it works as you would expect Brex gives points on everything that you and your team buy on the cards points, of course, never expire and well you can choose to use those points for cash, which I'm sure most people do. They also have a crazy way to redeem your Brex points, which is actual billboards. They have a full service in house billboard campaign planner. You might say, how did this sort of come to be? Well, Brex got very good at this in 2018 when you saw them everywhere and they leveraged all these connections and discounts they negotiated with media companies to extend it to all Brex customers. So you can turn Brex points into out of home advertising in top cities, high traffic locations. If you've been in San Francisco in the last six months, you've probably seen the awesome billboard takeover on the 101 from Stitch, whose founders are also members of the acquired community. That was courtesy of their Brex points to get started and to get an acquired t-shirt sign up at Brex.com slash acquired or click the link in the show notes. If you're already a Brex customer and you heard about them from acquired, just drop us a line at hello at acquired.fm from the email associated with you are Brex account and we will get you a t-shirt too. As always, Brex terms and conditions apply and are thanks to Brex. Thank you Brex. So in September of 1988, all these factors, you know, they've got the financing capability to take swing at this. They see a path with Moore's law to it being technically feasible. They've got the patent. They're literally the only ones that can do this. And then the market timing. So in September 1988, the US Cellular Telecommunications Industry Association or CTIA, as most people know it, and then it's related entity, the TIA, the Telecommunications Industry Association. They release performance requirements, the spec for performance requirements for the planned upgrade of the US's cellular networks from the analog 1G networks to the new digital 2G networks. And this is just the US one. Europe has its own body. Europe's already well on its way. GSM, Ericsson, TDMA, it's all happening here in Europe. The Qualcomm folks, of course, they eagerly anticipate the release of the spec and they look at it and they're like, oh my god, this could not have been written better. It's written for us. It's a dream. It's written for us. They realize two things. One, of course TDMA is the front runner and Ericsson now that they do the US too because they're successfully doing it in Europe. And not only is it being done in Europe, it makes sense to adopt in the US too because it's kind of nice to have a global standard and because it's quite believable. Like, okay, one big thing I have to believe is we're switching to digital. I can believe that. Another big thing I have to believe is that you're able to use the same frequency for several conversations at once through cutting up different time windows. Okay, I can believe that, but gosh, how much new stuff are you trying to invent all at the same time? Anything cooler than that feels like I got to take a leap of faith. And show me a can work in Ericsson's well on the way to like pilots proving showing it works. They're big companies. They've succeeded before. They're the right vendors that everyone trusts. So the spec that the CTIA publishes, Qualcomm guys, they just must have just been like, beaming year to year. They realize that TDMA because of the capacity limits of TDMA, it's not going to meet spec. Like, you got the best implementation of TDMA. It's not going to allow for enough compression to actually meet the spec that the US wants to hit. So here, this is a, I've been waiting to bring this thing up. So at this point in history, the US standards body is correctly forecasting the incredible popularity of cell phones in the US. So they're setting a really high bar for the amount of phones that need to be able to use this network. And the reason that they have since changed their tune is in 1980, this is a fun bit of trivia. AT&T, who has been the incumbent for 100 years on all things telecommunications, commissioned McKinsey and company to predict cell phones. It all goes back to McKinsey always. To predict the cell phone usage in the United States in the year 2000, so flash forward 20 years in the future, the consulting group argued that cellular telephony would be a niche market. Yes, of course. They forecast 900,000 people would be subscribed to a cellular telephony network in the year 2000. I think I have 900,000 cellular connections personally. So as you know, that number was off by over 100x. There were 109 million people, not 900,000. 109 million subscribed in the year 2000. So it does make the point that in 1980, it was super not obvious. Like you had some of the smartest people in the world, both in domain depth at AT&T and just good business model thinkers at McKinsey, wildly misforcasting this. And to illustrate how big the miss was, AT&T eventually bought McCaw cellular for $12.6 billion to become AT&T wireless, which is the AT&T we actually all know today, and catch up in mobile telephony. So this like 2G spec that was written is right around the time that a lot of the people in the industry are starting to realize like, uh-oh, were we super wrong in what we all thought just a few years ago, the potential of this thing was? So that's like, you know, back to the original Edwin Land quote starting the episode of like creativity, like one act following another, you know, enabled by it suggested to suggesting the next like this is the next like needle they thread, you know, domino that falls of TDMA didn't hit the spec. And they could kind of foresee this, you know, because they knew what the demand was and the new TDMA wasn't going to be able to do it. So, uh, here's the next, this is cool, like I didn't expect to get into kind of like geopolitics on this, but the one great that you know, the US has like a ton of bureaucracy and regulation like all of this being like, you know, case in point. But one incredible, I think this took five years to eventually. Well, in like the standards bodies and like all like this is not the free market like by any means, but the one difference in the US process for all this versus the European process and it was the difference that made all of the difference was the US government said. The industry associations, you guys can set the specs and all that that can be official, but it's not mandatory. So like in Europe, it was like mandatory like the TDMA which DSM was based on like mandatory that's it and plenty other countries, you mandatory. And the US was like, this is the industry standard and like we recommend that any mobile carrier follows it. But if you want to do your own thing like as long as it meets the performance spec, you can use whatever technology you want. And importantly, standards bodies are decoupled from government agencies. So the FCC allocates spectrum, but these standards bodies are literally just industry associations. And they need to exist because there's so much coordination between all the different manufacturers and carriers and companies involved that like you need to have a standard otherwise the innovation doesn't happen. Because no one knows what to build against and no one can sort of effectively collaborate enough. So once all this, you know, the standard comes out, Qualcomm immediately like goes to Washington like, oh, in the 80s, they go to DC. And they're like, hey, just to make sure we just want to like be crystal clear, can you confirm to us that even though this other thing is the standard, if a given carrier mobile operator wanted to use something different as long as it used to spec, like that's cool. That's not illegal, right? And they're like, yep, that's the case. They're like, okay, cool. Thank you. We'll be back. And so that was like the next needle they thread. They're totally undaunted. They go, they're like, great. We can go pitch individual carriers on using CDMA as a technology. So they start a sales process. This is now the beginning of 1989. They start a road show. They go out pitching this new novel CDMA standard versus the TDMA industry standard. And this starts what is now literally I tweeted this the other day in the Wikipedia entry for all this. This is like canonically known as the Holy Wars of wireless. And there's so much telecom nerdery. It really is holy war because it's about belief. So many people were just like, I don't believe you that CDMA will work. It was literally only the clock on folks who thought it would work. And not just, I'm reminded of the Don Valentine, like I knew the future based on all they didn't know the future per se, but based on all their experience. They were very, very confident that it would work and it would win despite the seemingly overwhelming odds because they knew a secret, which was that at the end of the day as long as there was not government enforced standardized regulation. They knew that economics would win in the market and there's so many benefits of CDMA versus TDMA. We've covered some of them. One of the other ones is that like the voice quality is actually much better than TDMA. Like it's all like there's a whole litany of better security is much better. I mean, it was originally created for the government to beam stuff up and down to satellites. Another huge one is it literally if you're operating a cell network and you can have more subscribers per unit of infrastructure is literally cheaper. So you're going to be a lower cost technology. This is the thing. So there's one benefit that actually matters. All the others are like nice to have on a feature spec. There's one benefit that is going to allow them to be super sure they're going to win. Which is that it is like an order of three to five X more efficient to operate. Unfortunately, they originally pitched 40 X. That's the standard that everyone was benching or. Oh, that was versus animal versus animal. I think it was three to five X more than TDMA. So that meant if you were a carrier and you went with this crazy CDMA thing and it actually worked. You could fit on a given set of spectrum that you are operating with. You could fit three to five X more subscribers three to five X more monthly revenue on that same fixed cost base than your competitors who are using TDMA. And if you know anything about like if we've learned anything on acquired about economics of industries and power in Hamilton, Helmer and all that. Like if you have a scale advantage like or you have a power advantage of differential profit margins versus your competitors. You are going to run the table on your competitors in any given market. Yes, if a customer is worth more to me than they're worth to you and we can offer them the same value. I'm going to win because you can just lower prices and get all the customers and make more profits along the way. And we've only sort of scratched the surface on this episode of reasons to doubt that code division was the right technology. There were all these other crazy hoops they had to jump over. One of them is the the near far interference problem. Oh, yeah, this is like like if you think about it. So like let's keep the whispering analogy going. The code division idea is that we can all talk really quietly and use the smallest amount of power and the smallest amount of sort of gain in our signal to communicate with each other. So it's much more efficient than these all these other high gain high power high volume signals that everyone else is trying to use. Well, if I'm using a really low gain signal I'm far from my the base station from the cell tower. That's an issue because the people who are really close are going to sort of drown me out. Imagine we're all whispering, but I miles away. Well, you're going to hear the person whispering right next to you. So, you know, we're very early days in powerful chips, powerful power management. And you've got Qualcomm pitching the industry that they're going to do this and people are like, wait, but you have to turn down the gain on anybody really close to the towers and turn up the gain on anybody really far from the towers. And you have to know in real time and adjust in real time. All of that. So you have to be good at power management chips. Also, how are you going to know how far away someone is from the tower. And they're like, well, we'll be able to just observe the signal that is coming back from the tower or perhaps do it on the tower, observe the signal coming from the phone itself. And we will in real time determine if it needs to go up or down. And this is blowing people's minds in the mid 80s. They're like, oh, no, we got that. In real time, you're going to modify a signal based on what you're currently hearing from that signal. And then Qualcomm comes in way over the top and says, oh, also there's this new thing called GPS that is coming out. And we're going to start from the military basing the technology on GPS. So we know how far away someone is from the cell tower based on GPS, which doesn't really exist yet. Like there's always impossibilities with this system that theoretically is better, but we've never witnessed any of the building blocks that are going to go into it actually work in practice yet. Back to the magic thing, like just the technological magic that went into this at every stage of the way they're like, yeah, we got this figured out. And they patent every single piece of this every single piece on the first patent we talked about is the most valuable, but like there is all string of dozens hundreds thousands of other patents that come after this that are just incredibly valuable. So they start the red shell pretty quickly in February of 1989, one of the largest carriers in the Southern California area, PakTel wireless is interesting because they get it like this economic argument like it's basically they're like, all right, this works like, yeah, you got us. So they put up a million dollars to fund a prototype like, okay, prove to us that this works build a prototype. Qualcomm for the rest of the year works on this November of 1989, they hosted demo, you know, with the PakTel money, but they invite the whole rest of the industry in San Diego. And there's a famously little hiccup where like they're about to, you know, Irwin's giving like a big speech introducing it, then they're going to do the actual demo. They've got vans driving around the city and then like a base station back at Qualcomm HQ, and they're going to make it all work. He's giving the interest speech and one of the engineers is like, frantically waving in the back, like, keep talking, keep talking, they had to reboot the GPS system. And so like, he's, you know, he makes a little quip of like, as a former professor, it was easy for me to keep talking. He's told this story like a million times. There is something funny too about this original demo where they're not a consumer hardware manufacturer yet. They've never built a phone. There are a bunch of academics and consultants and, you know, the electrical engineers. And so for this demo, the cell phone that they build basically looks like a mini fridge with like a handset hanging off of it. Yeah, I mean, they build the most. There's a photo of it in the book. It's awesome. It's awesome. We'll come back to building handsets in a sec. So it works. And then like, Pac-Tel's like, great, we're in. And then some of the other. Which Pac-Tel, by the way, would eventually get rolled up into Verizon. I think they're basically a Verizon's West Coast operator at this point. Some of the other industry folks who come, they're like, well, this is impressive. It works. But like, San Diego is a pretty forgiving environment for cellular technology. Like, this is a very like geographically easy city to operate wire, in terms of wireless signals. Prove to us that this can work in like an urban jungle environment. And Qualcomm's like, okay, how about New York? And they're like, well, we'll see you there. So in February of 1990, they do a successful demo in Manhattan in New York City. On the back of that, they sign 9x, 9x mobile, which is one of the largest New York carriers. And then in August, they sign a Maritech, which is one of the largest. Chicago, I think. Chicago, yep. I think a big chunk of them in West. And then, they're going another really move. They start going international. So like, here in the U.S., there's all this like forward momentum that's already happened with the 1G analog services. And you know, the TDMA and all that. They're like, what if we go out to countries where it's just tabulo arasa, like Clean Slate. And we pitch this as like the obvious best technology. And famously, South Korea, the fact that like government mandated standards. The South Korean government is like, yep, this is clearly the best government mandated. All, you know, they were building up the first cell phone networks in South Korea that were going to be these digital, you know, next-gen networks. All CDMA, all Qualcomm. South Korea, for a time, was I think close to 40% of Qualcomm's revenues. Because the whole country, like, and it was one of the, you know, most advanced mobile countries. All the season Qualcomm. There's lots of benefits to the free market and freedom and. There's also benefits to regulatory and government catchers. Yes. Coming in over the top with an edict is also beneficial. In December of 1991, on the back of all this, they go public. There is a poultry $68 million in their IPO. Like a Series B. Yeah, totally. That's a twenty-twenty one Series B. So, finally, in 1993, the US Industry Association, the CTA and the TIA, does actually adopt CDMA as a second standard. So, the CTA can standard officially. It's like, okay, now you have our blessings. It's like, well, it doesn't matter. We already got half the industry signed up with us anyway. Thanks for nothing. At that point, Qualcomm does a secondary offering. There is another hundred and fifty million on the public markets. A couple years later, they do. Maybe a year later, there is another five hundred million on the public markets. So, they're very well capitalized. And why are they raising all this money? Back to the omnitrax and, like, this, you know, solutions discovery of, like, enterprise. You know, the people that they're pitching as their core customers, the wireless carriers, they are sophisticated operators. But there's a whole ecosystem of technology providers to them. And they already, except in the case of South Korea, you know, they already have built out, like, towers, infrastructure. They can replace all of that. And so, you know, it's a big ask. Even with the economic advantage, it's a real big ask for a Pactel or, you know, a 9X or anything. If you're a Pactel, you're like, it sounds great to me that you are going to have this much better standard and this much better technology. Are you going to replace my towers? Are you going to replace my base stations? Are you going to replace all of my customers' handsets? Like, all of our customers buy phones from phone manufacturers. So, are those phone manufacturers signed up? Yeah, right. It quickly becomes a rat's nest of industry dependencies. Qualcomm, they're still relatively small, San Diego technology start-up. They can't do all this stuff. So, they do start signing some partnerships with both base station infrastructure providers and handset makers. They sign Nokia, big win, big European manufacturer as a partner. But they realize, you know, to do this whole solution, like specifically, there's kind of four parts to making a CDMA wireless network work. We've talked about all of them, but just to enumerate them here. You need the core IP and technology that we've talked about. Qualcomm's got that for sure. You need the infrastructure, the CDMA, like, base stations that go on the towers, you know, all that, like the back ends, switching all that. That infrastructure needs to be CDMA, the old stuff's not going to work with it, the TDMA stuff's not going to work with it. You need the handsets for consumers to work. Same deal, it's got to be CDMA. And then, probably most importantly, in order to make those two sets of infrastructure work, you need the silicon, the semiconductors that go into them. And so somebody's got to do all four of those things. All four of those things need to happen. Qualcomm's for sure got number one covered. The question is, who's going to do two, three, and four? Well, I was like, you know, they science start signing partners, but they're like, you know, we really need to spur adoption. I think we kind of got to do everything ourselves. We need to offer the complete solution. And this is a major undertaking. This is why they raise all this money in the public markets, which is quite interesting because despite, I mean, none of us are buying Qualcomm phones today. No, Qualcomm brand phones today. Spoiler alert, Qualcomm today is the largest fabulous semiconductor company in the world. Is that crazy? Bigger than Nvidia. Bigger than Nvidia. And they don't make infrastructure. They think bigger than Apple. Oh, yeah, yeah, in terms of numbers of orders they're placing with chip foundries. Qualcomm is the biggest. So how do you get from there to here? So they did need to run this really interesting playbook where even though it wasn't going to be the thing that they necessarily did long term in order to get their solution adopted, they had to do it in the most. We'd strap it up. So they do another just brilliant move. They create two joint ventures. I believe, I believe both of them. I know the hands at one, but I believe both were 51% owned by Qualcomm 49% owned by the partner. On the infrastructure side, they partner with Northern Telecom, Nortel to do a JV to manufacture CDMA basedation equipment. And then another wonderful acquired and full circle moment. They call up our friends in Japan. They call up our friends in Japan who at the time their US manufacturing headquarters was based in San Diego. That's convenient California very convenient. Our friends Sony against a Aki Marita was running it. Yeah, at that point in time. Yep. The Sony Corporation to partner in a JV to make handsets. So I actually had a Qualcomm handset back in the day probably a lot of those little flip phones. Yeah, well, that was a lawsuit with Motorola. No, no, I had a brick phone. Like a small brick, not as a more as brick, but a small brick. Because Qualcomm phone was made by the JP with Sony. That was a Sony phone with Qualcomm branding. But they're doing all this to be able to answer yes when a carrier is coming to them and saying, well, great. We'll be CDMA, but question mark, question mark, Qualcomm's like, yep, yep, and yep, we make all that stuff. So you should feel safe adopting us. IP infrastructure, handsets, silicon that goes into both. We got all of it. So we just talked about one, two, and three. And to be clear on the silicon, people know the Snapdragon brand today. This is not Snapdragon's. This is not systems on a chip CPU's. This is not a competitor to Apple's a 15. This is literally the silicon to power the radios and just that it's to do the encoding decoding power management of literally just attenuating the airwaves to send CDMA encoded to left any back and forth. You're making it sound trivial, but this is actually this is this is the final. I'm not making it's on trivial. I mean, I couldn't do it. You do it. This is the final just brilliant masterstroke in this long series of brilliant masterstrokes that Irwin and Qualcomm did at this time. I don't know any other chain of just brilliant, brilliant strategic decisions one after the other. If this had been 10 years earlier, they would have had to do the same thing with silicon. They would have to partner with Intel or you know, AMD or somebody or TI Texas Instruments. One of the real men that had one of the real men that had maps. Of course, we're referring to AMD founder. I think so Jerry Jerry. For his last. Once said that real men have fabs and of course was proven desperately wrong over. They would have had to do the same thing they did with Sony and Nortel on the semiconductor side and maybe they could have had some value capture from the Qualcomm IP, but they would have had to partner to make this stuff. But thanks to our acquired superhero Morris Chang, fabulous semiconductors in 1989, 1990, 1991, just starting to become or just starting to become a thing. So they could design their own chips without having to actually have a foundry in house to make them and they could outsource that today. So that's actually do all the important value added work like it's totally it's it's a rigging bent hops and smiling curve in this industry. If you go from you know one to four of the IP, the two manufacturing and then the semiconductors. All the value, all the differentiation in this industry is in the IP and the semiconductors and the manufacturing is a commodity. Qualcomm would have been a great company if they had just captured the first they captured the first and the last they got all of the value like all of the value is just and and like we talked about on the Nvidia episodes. It was equally crazy and like future seeing to know that fabulous was a thing that foundries were a thing to be willing to work with foundries. And Qualcomm did it. It's like how many times is this company going to be in the right place at the right time and just to you know the silicon and know it. Yeah and right and right sees it and the you know we're going to talk more about silicon and Qualcomm as as we go here. But you know just to you know paint the punchline here. Today Qualcomm's total revenue is what close to 40 billion annually I think. Yeah of which 85% is their semiconductor business. So like without 37 billion of their 44 billion of revenue is so but for this strategic decision. 85% of today's Qualcomm revenue would not exist. Like and they are the largest fabulous semiconductor company in the world bigger than Nvidia who's number two. Crazy. And it makes sense they started a couple years before Nvidia so you know compounding it's a thing. So they pull this whole freaking thing off. It's just crazy. There's nothing more to say than it's just one of the most impressive business stories I have ever heard. CDMA gets adopted as a major 2G standard for the next set of phones that come out. 57% market share in the US in 2G 100% market share in countries like South Korea they end up getting. I should know this I either 100% massive market share in China which is adopting mobile self-invent for the first time. And like this is so much so the first 1995 is the first year that these networks go live in the US and internationally. Qualcomm does $383 million in revenue in 1995. In 1996 they do $814 million in revenue. Oh my gosh but here's the crazy thing so here's another like just wild you can't make this stuff up. You would think Wall Street would love the stock. Wall Street bets would be going nuts for this stock. The equivalent at the time. Not at all the case. The stock is like basically flat Wall Street kind of hates it. It's because the manufacturing operations and the JVs require so much capital and they're tying up all the profits of the company. It gets the stock gets punished basically all the way up until January of 1999. And a few interesting things happen are you okay jumping in 1999? Yeah great let's go there anyway. So a few interesting things happen in 1999. One Qualcomm starts to realize it's a pretty serious drag on our business to have this super capital intensive manufacturing operations. We're funneling all this money that could be free cash flow for the business or could let us reinvest in new R&D into making phones and making base stations. We got to do something about this. So in March of 1999 they sell their infrastructure business, the base stations to Ericsson, which was formally one of their competitors. Big competitor. There is part of a licensing deal of all the lost or settlement deal of all the lawsuits that popped up between the two companies along the way. They're like, oh great we'll sell you our manufacturing. This is basically them looking and saying, I don't think we need that to bootstrap our strategy anymore. I think at this point we've got enough momentum that we don't need to make our own base stations. We don't need to make our own cell phones. So a thousand of the 9500 Qualcomm employees become Ericsson employees. Then they look over at their mobile phone business. Not fun at the time, but fun now. A little footnote on that sale to Ericsson. The employees that got transferred as part of that were so freaking pissed that they lost their Qualcomm stock options. They got Ericsson. I don't think they would have got equity at Ericsson at all. They actually filed a class action lawsuit against Qualcomm to get their stock options back. Over the next 18 months, the stock would basically be Tesla stock. That's this crazy moment that we're about to talk about. December 1999, Kinosaribis Qualcomm's mobile phone business. So they now officially just sell chips that they call QTC, the Qualcomm CDMA Technologies Group. And then they've got a second group, QTL, which is Qualcomm Technology Licensing. It's just one and four. The BIS model is now set. They make silicon. They make licenses. They sell very high margin revenue licenses to their patent war chest. That's the business model for the future. They no longer have this drag on them. And they sell relatively high margin semiconductor designs because they don't fab any of the semis. And when they're selling these designs, they're not just saying, here's a chip. Give me $5 for it. They're saying, how much do you sell those phones for? Yeah, we'll take 5% of that. And you say, what? What if I want to raise prices on my phones? And Qualcomm says, yep, you'll still pay us 5% of that. And you're like, what do you mean? I'll just go somewhere else. And they're like, where are you going to go? We own all the patents. And by the way, in addition to paying us 5% of the phones, I think you should pay us to license these patents too. And all the customers go, what? And Qualcomm goes, where else are you going to go? So you make them sound so evil. I mean, they did invent it all. So they do have a right to monetize it. And Apple did, and the DOJ did, not the FTC, so you've sued them for antitrust. Well, spoilers. We'll get to that. The punchline of all this after the December of 99 offloading of the handset business to Kiyo Sarah, which is actually a Japanese company. I also had Kiyo Sarah phones growing up. Well, you bought all the good ones. I got all the good ones. Well, you were on a TMA network, right? I was on Singular, which was a GSM network, which got bought by AT&T wireless. It doesn't matter. It all becomes CDMA anyway. Eventually. As we'll see. In the year 2000, after this sale, the height of the tech bubble. You know, this is like, on the benchmark, it says, we're talking about eBay, e-boys, benchmarks making billions of dollars. Yahoo's going nuts. It's the internet bubble. It's the tech bubble. And people are looking around. They're like, what power is the internet? And what's going to power the next generation of the internet? The single best performing stock for the entire year 2000 is Qualcomm. It appreciates the Qualcomm stock appreciates 2,621 percent, with the 360 days of the year 2000. I think it was a leap year. Yeah. It's unreal. 26.2x. In the public markets, in one year, the best performing stock of the craziest year until 2021, until last year, in the stock markets. However, you would have had to know just the right moment to sell, because it did not stay up there for very long. It would crash down over the next year, such that it became only a 4x from its pre-1999 high. But if you bought it on the way up, you lost a lot. I'll take only a 4x on my 2021 investment. All day long these days. Yeah, pretty great. That's the core, just crazy business story of Qualcomm to take it from there to today. The next generation of cell phone networks, 3G, which Ben and I probably vividly remember, probably many folks listening, do 2. That's when there was a lot of debate, especially in the US, about GSM versus CDMA, and all the things like naively, you would think at the time, like, oh, well, all the folks who are going GSM, this bad for Qualcomm, GSM switched to CDMA anyway, so basically all 3G was CDMA. This is different flavors. In Europe and in the US, just worldwide. They just ran the table. Yeah. And the reason for that was 3G was all about data speeds, broadband internet, data speeds. And CDMA was just like the vastly superior technology for... Totally. You didn't have to encode anything from analog to digital. And you're talking into your phone, you got to encode the signal. But if you're downloading a website, or you're sending an iMessage, or you're sending a tweet, all that's digital information anyway, so it's already packets. It lends itself perfectly to CDMA's digital-required infrastructure. Totally. Then in 2005, Irwin retires as CEO. I believe it also as chairman of Qualcomm. And interestingly, his son, one of his four sons, Paul Jacobs, takes over and becomes the company's CEO. Paul actually has a PhD in electrical engineering as well. Spent his whole career at Qualcomm, rose through the ranks, becomes the CEO. So an important thing, remember I put a pin in the idea that 20 years from 1985, when they filed that first patent, something else would happen. So Paul Jacobs becomes CEO. Also in 2005, Qualcomm buys Flarian technologies for $600 million. Now, Flarian did some interesting, like they had some interesting products, but they had a lot of patents that would become essential for 4G. So when we talk to some industry analysts about this, one view was, and I quote, it was to refill the pot of missiles that Qualcomm promises not to fire at their customers if they pay additional money. So the key set of technologies here were OFDMA, which is, we're not going to get into it, but it was sort of... That's why 4G becomes, sort of, 4G was based on OFDMA instead of CDMA or thogonal frequency. Division multiplexing. Yeah, we're not going to dive into it, but it was more efficient than CDMA. CDMA, well, it was definitely the night in shining armor versus the previous set of technologies. It didn't quite hold up to the claims or the future proofing of sort of its evolution path that... Which makes, by this point in time, it's 20-year-old technology. Totally. So what we do see here now is after the Flarian acquisition, Qualcomm is able to continue their same exact business model because all of the patents that would be required for 4G and LTE and all that going forward, they own a lot of those too. Yeah, it's interesting. So the Paul Jacobs era of Qualcomm from 2005 to 2013, I think, 13-14. Somewhere about a decade. I think it's like very viewed at a very mixed light. His big strategic initiative was getting Qualcomm into IoT. IoT didn't really become a thing at least at that time. I mean, maybe it's starting to work now, but not in the time. Everyone thought it did. And it was kind of like a lost era for Qualcomm. But when you look back on it, two things that actually were really great then one was that acquisition and getting, because initially Qualcomm was fighting OFDM and trying to have CDMA still be the standard for 4G, eventually they did pivot and get into OFDM. So that was kind of an initial wrong move, but then pivot in a save. But two, that's when they started building the Snapdragon unit and mobile systems on a chip and CPUs and taking on more of the processing on the early predecessors to smartphones. And that would just put them in such a good position for the modern smartphone era. They sell the high-end Android chip today. I mean, the world has sort of standardized around. Apple makes the A-series chips for your iPhone. And if you're buying a high-end Android phone, it's a Qualcomm, whatever. I don't know all the model numbers, but Series 8 Gen 1 or something is the Snapdragon. And they now brand everything Snapdragon. They do, which makes teasing some of this apart very confusing, because they've just slapped the Snapdragon label on so much that you're like, wait, but that's just an RF antenna. A Qualcomm, it says, Snapdragon. And they're like, yeah, fake you out. That's the whole point of calling everything Snapdragon. I mean, it gets to be fair. The silicon engineering and the chip design is so complete. Even for like, oh, just an RF antenna. That is like a million times more complex than any processor in a phone 10 years ago. So it is truly differentiated work that they're doing. But that was obviously a huge win. And to the point that I think today, Qualcomm makes on average about $20 for every smartphone sold in the world, including Apple iPhones. Yes. So let's get into that. So I've got the timeline from here. So going to 2009, this is when all the litigation really starts to happen. And people's flip from Qualcomm, we think really highly of you, and you're a pioneer of technology and true inventors, which they are. They still spend a ton of the companies revenue and reinvested into R&D. But where they really start to be known by their customers and the media and the ecosystem as value capture pioneers. And so they lose a lot of... How you capture pioneers. That's a new way. That's another acquired feature. Value capture pioneer. Or what's the phrase that I use for Apple, maximally extractive over their ecosystem? So Qualcomm loses a lawsuit with Broadcom in 2009, has to pay $900 million in 2012. Paul Jacobs at the helm makes a really bad bet. Maybe it's a good bet, but bad outcome. On a reflective display technology called Mirosol. They spun over a few billion dollar fab to make it... Well, they actually made a fab. There's ultimately zero customers for this next... The promise was really... Real companies don't have fabs. It was supposed to be like a screen that looks like a magazine page, but they were never really able to reproduce the image quality of the product. Right, I was working in the Wall Street Journal at this time and like, oh man. That was the future. 2013. So does the iPad was the future? Yes. So Qualcomm comes in and becomes CEO, where I suppose gets promoted to become CEO. Very technical leader. It was a COO before. It was a COO before. But the problems... They keep growing revenue. They keep doing well as a company, but the ecosystem issues for them. And ecosystem reputation continues. So in 2015, they enter into not just an issue with other companies, but now with nations. So they have a licensing dispute with China. You have an activist investor who comes in that same year, John Apartmenters, to try to split up the licensing and the chip business. That activist investor is kind of saying, why do these need to be the same company? The licensing business is printing cash. At this point in time, many semiconductor companies have split out the actual chip operations and the IP, like a lot of old semiconductor companies are basically just litigation companies at this point. Yeah. So that's the Broadcom model. So it's interesting to say, OK, what is Broadcom at this point? Broadcom is actually a company called Avago, where the CEO of that basically made a bet and said, I think the semiconductor industry is no longer experiencing growth. I think that industry should be harvesting profits, because I think it's predicated on Moore's law, decelerating. But basically saying, I don't think that this industry should be reinvesting as much in R&D anymore, because it's a settled frontier. And what should be happening is we should be rolling up these companies. So Avago buys Broadcom, takes Broadcom's name, buys some other stuff like LSI Logic. LSI Logic. Oh, I think it's a coil-in. Don Valentine's. Yeah. One of his first very favorite investments. And it's really, the Broadcom strategy is to roll up the semiconductor industry, squeeze them as much as possible. In fact, they're basically a private equity firm. Broadcom is borrowing lots and lots of debt to make the acquisitions that they're making, and then squeezing them for profitability. So John. You've got my favorite piece of Broadcom history trivia that Avago, the sort of core of what Broadcom is, actually started its life as Hewlett Packard's chip division. What a sad state of affairs. Yeah. 2015, the company shakes off Jan a partners and doesn't split out the two businesses. I think that was the right call, and I'll tell you why in playbook. But we were talking about Broadcom. 2018, Broadcom comes in and tries to do a hostile takeover at a $117 billion valuation. And interestingly, it was financed by $106 billion of debt. So that company for the rest of its life, I mean, that would basically just be Qualcomm servicing the debt. So interestingly, the Trump administration got involved and said it would be a national security concern and block the deal. And while that may have been true for the reason that the Singapore-based Broadcom was sort of joined at the hip with Huawei. It did a lot of business with Huawei. This, I think, ends up being a big win for Qualcomm's lobbyists. I think they had great relationships with the US government and always have since the early days in being a government contractor. And a lot of people that we talked to viewed, or at least that I talked to, viewed this as Qualcomm being able to call in a favor and say, this is a national security concern, don't you think? We're calling it in the favor now. It's totally true. I mean, this deal was going to go through and Qualcomm was going to be everything you were just talking about with Broadcom, which would have been very, especially now. We know about semiconductor. This is one of the huge wins of the Trump administration for America was keeping Qualcomm an independent American company. Whether it was Qualcomm calling in a favor or just what, I think we can all look back in 2022 and be like, this was an enormous win. Yep. So in 2017, going back one previous year, both the US Federal Trade Commission and Apple sue Qualcomm for basically the same thing, saying that Qualcomm was using its market position as the dominant smartphone modem supplier to force manufacturers into paying excessive fees. And this is one that I want to sort of dive in on. We spend a bunch of time advancing through the timeline to really get to this particular point, which I think is a great place to zoom in on Qualcomm's strategic position today, is this Apple lawsuit. So some background. Apple has always used either Samsung processors in the first iPhones until they switched to their own. But they still had to pay Qualcomm patent royalties for whatever RF stuff they were using. So whether, you know, let's treat the CPU as its completely own world, transitioning from Samsung to the A series processors. Apple probably has to buy stuff from Qualcomm. Maybe they could look somewhere else, but either way, they're paying Qualcomm the licensing for it. Today, Apple does use Qualcomm cellular modems, which started in 2011, and there was just one year where they used Intel, where they did not use Qualcomm. We're going to talk about that. So the way that I essentially perceive this and why Apple eventually initiated the lawsuit is Qualcomm got greedy. They had patents on technologies that were part of standards that were set by industry consortiums all over the world, and they leveraged those patents in basically every way possible. And here's the economics as far as I could sort of suss it out. So they asked Apple for $7.50 per phone sold, which comes to about $2 billion a year, plus an additional 8 to 10 when they were going to raise prices later. And so you quickly get to a situation where the Qualcomm was sort of expecting Apple to pay $17 just to license patents, which is on top of the price that they were paying for those base band chips. So rac rate for a base band shipped and base band chips are the same thing as sort of cellular modems is $30 a chip. And it's not actually $30. It's more like 5% of whatever the average selling phone price is. Oh, guess what phones have a really high average selling price. High phones. And so if you think about 250 million phones a year, that is $7.50 billion a year that Apple would be paying Qualcomm, that would be 20% of the QCT revenue. 20% of all of the chip revenue that Qualcomm makes. And further, if you back out the $14 million a year from QCT, their chip segment, that doesn't come from the chips for handsets specifically, but rather there's some other stuff they're working on, automotive, IoT, and this new thing that they're calling the RF front end radios product line, which we'll also talk about. This is cool. Apple could make up up to one third of Qualcomm's handset chip revenue. Now, analysts have estimated that Apple negotiated down from $30 to $10. Apple's general counsel during the lawsuit, let the number $18 slip. So whether it's $10, $18, or $30 a pop, that is an enormous amount of revenue that Apple pays Qualcomm. Again, not for a Snapdragon, not for the CPU, not for the system on a chip, just for the RF cellular modem. Wild. So there's some other interesting things that came out in this lawsuit. Qualcomm asked Apple to speak out against Y-Max, which is a competing technology. They were like, we need to vocally speak out that our competitor is a bad piece of technology. They also stipulated that if Apple ever used a competing supplier, and keep in mind this deal is signed in the early days of the iPhone, if they ever used a competing supplier to Qualcomm, they would owe Qualcomm a billion dollars. So what Apple is basically doing is biting their time for there to be an actual credible competitor, and they'd wait all the way up until the 4G days, until they're looking at Intel, and they're like, especially if we work with you and we work closely with you, we think you can be a credible competitor to Qualcomm right now. We think your cellular modem's business is close enough where our customers won't notice the difference, and we can tell Qualcomm that we're going to use you and try to get a little help from you. What Qualcomm interpret that as is, well, now you asked a billion dollars because look at our original deal we did. What this basically comes down to from a legal perspective is because Qualcomm owns patents that are a part of an industry standard, they have to charge a price that is fair, reasonable, and non-describunatory, or friend is the industry terminology. And Apple is basically alleging, look, you're abusing the market because it's not fair, reasonable, and you're highly, highly unreasonable in the way that you're charging us this. So around the time of the iPhone, XS, and XR, those phones actually did use Intel modems, but what was basically happening is the Intel modems were falling further and further behind Qualcomm. So Apple was realizing, oh crap, we're going to miss 5G, because there's no chance that Intel catches up and can actually develop a credible 5G chip, and so they end up settling and sort of backing off their big lawsuit with Qualcomm. When this is where the, we're going to escape our technical level of competency quickly if we haven't already, but like 5G is like, it's pretty cool. And this is where like, you were talking about patents, this all sounds so like icky, but like the amount of engineering and like IP and like work that has to go into like what we described originally back in like the World War II, and they're like, there was so crazy complicated to make this stuff work back then. Now it's just like a factor of a million more, like the amount of processing, what Moore's Law has had to come up the curve to enable something like 5G is unreal. Like there's a dedicated processor in front now of the RF stack to do all the crazy multiplexing that is required for 5G bandwidth to work, right? Yes, so this RF front end, okay, so here's a fun little, so what is 5G? It actually is an open question. When 5G was first proposed, the proposal was to use the millimeter wave spectrum, this super high frequency part of the spectrum that for years people thought was basically impossible to work with because it was, it just requires incredibly sophisticated electronics to make it work. Not only that, but when you have really high frequency, and again, we're right on the edge of our competency here, but when you have really high frequency radios, they can't transmit through a lot of stuff. So it's still concrete well, and so you end up needing a little base station on every street corner. Now it can give you like 10 gig internet, like it's crazy, but it needs to be really close to you. And so as the telecoms were starting to build this out, of course the initial review, they say we now have 5G, in fact they even rebranded a bunch of LTE stuff to be 5G, so it's show up as 5G and you're like, they were like, all of a sudden, because I was on ETE and T, at the time, used to say 4G LTE, and then all of a sudden it just said 5G on my phone. 5G? You're like really 5G, like that, that's exactly the same stuff I was using before, but now you've rebranded it. So occasionally you'd walk by something that actually had a millimeter wave tower, and it would be like, oh my god, this is the fastest internet I've ever experienced, and then you'd walk across the street. I remember like the Lai at the birds doing like, yes, the world's expert. Yeah, on a specific street corner in New York City or San Francisco getting like 5G's at 10 out of 10. And then you take one step to the rate, and you're like, back on 4G. So here we are, 2022, 5 years after the initial hubbub about 5G started for consumers, and what is 5G? Well, the industry has decided to a lot two more areas of spectrum that are not millimeter wave and are easier to work with and are cheaper to build infrastructure for and are slower as 5G also. So now what that does to chip makers is it says if you're building a cellular modem in your phone, you have to have a really complex RF front end, or what it's called, it's calling their RFFE business. The RF front end basically needs to at any given point adjust in real time depending on what flavor of 5G. You're accessing so many different windows of spectrum. Yes. So far across the spectrum bands that like, yeah, there's all man, think about like back to the original, head of the barn frequency hopping like it was all within one band. Yeah, it's now we're talking about like, what they have a crazy number of bands. So Apple going back to the Apple lawsuit, Apple sort of realizing, worst screwed here if we don't have Qualcomm as our customer. So they settle with Qualcomm. And this is in 2019, Apple says we will continue using Qualcomm's radios for now. I think they negotiated some discount to the exorbitant fees that they were having to pay Qualcomm. They Apple also paid four billion now switching over to the licensing side of the house to secure the patent licenses over the next six years. I think it's four and a half billion dollars for a six year deal. It's actually unclear who really wins here. I think Qualcomm wins in the short term because Apple's backup solution of Intel's modem fell entirely behind. But in the long term, I mean, what ended up happening is Apple actually bought that division away from Intel. And they've been developing their own cellular modems in house. We know based on, I don't know if it was a slip of the tongue or an intentional thing, but we know from the most recent Qualcomm earnings call a week ago that the next version of the iPhone that comes out in November of 2023 will continue to use Qualcomm's chips. Even though Apple has been working on their own. So they're trying to do the PSMI on the modem? Yes. It's ludicrously hard to build the stuff that Qualcomm has built. So even next year's iPhone will have Qualcomm, our F-frontends, and I think they use our F-frontends and cellular modems. But after that, Apple's definitely going to try and take this in-house. But Cristiano, the CEO of Qualcomm, set on the most recent earnings call after that, we do anticipate having almost zero dollars come from Apple in our chips business. So at least their foreshadowing to their shareholders, Qualcomm is that they think Apple's going to succeed at this. It's just going to take a couple of years. Well, this feels like the perfect time to talk about the other strategic chess move that Qualcomm made here. Yes, Newvia. Newvia. So this is another 2021 move. So Qualcomm bought this company called Newvia for $1.4 billion. What is Newvia? Well, Newvia was founded by former Apple Silicon people, including the chief architect of the A-Series chips. That seems like a good get. Yeah. And so... Back to PSMI. So this... One way to look at it is this is Qualcomm's ticket into the laptop CPU slash system on a chip market. They already make snap dragons for the high-end Android phones. And soon they'll be able to make a competitor to Apple's M-Series chips for laptops and dust tops and maybe even servers. And phones too. I mean, like iPads, phones, tablets, like... So this is crazy. This is where it gets interesting. So snap dragons, for anyone who listened to our ARM episode, you'll remember the difference between ARM makes an instruction set architecture that you can license or you can go big with them and just buy one of the actual ARM design chips off the shelf. Like buying a solution, you might say. Yes. Snap dragons use an off-the-shelf ARM design for their CPU. Apple just uses the ARM instruction set but has done their own custom design to get the most performance. And that's why Apple Silicon is so far ahead of the competition. The Newvia team can just do their own custom design of chips and actually be differentiated from stock ARM CPUs just like Apple is doing. Unfortunately, Qualcomm, everything cool about the snap dragon chip doesn't actually include the CPU. The CPU is just a standard-ish... Yeah, a standard-ish ARM design. So what... This is cool. So this is the path for snap dragon to get on par with Apple Silicon. Yes. And for their CPUs to actually exactly. So one caveat to this whole thing about like maybe they'll do laptops, maybe they'll do servers. Qualcomm actually doesn't really want to do any of that. Qualcomm historically has failed every time they've tried to do servers or watches or smart home or displays. Like every time they've strayed too far from their core competency, it hasn't been good. Probably what Qualcomm really wants is 20 bucks for a map all for every iPhone. I think that's a reasonable path forward. The CEO is pitching a much broader story than that to shareholders these days. So what Qualcomm actually wants is for the Newvia team to sort of like invest where they see the frontier going. Where they see a much bigger tam where Qualcomm sees a multi-hundred billion dollar opportunity and that is IoT automotive and the RF front end. And so they sort of describe phone modems and phone systems on a chip as almost like a legacy business and they're highlighting these other areas as sort of the growth business as the frontier. Interesting. But either way, Newvia seems to be the ticket because if you can custom design chips using the ARM ISA but be like the performance of Apple Silicon, I don't care what you're putting those in. That's a really good. Yeah, powerful thing. Well, just I mean, even like for technology, the technology industry writ large to have just like with Android, you had a, you know, iPhone rivaling operating system available off the shelf for any kind of application that let a million flowers bloom to have the same thing for Apple Silicon way. That's pretty cool. 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Thanks to our friends, wasim, Jessica and Jeff all acquired listeners will get 20% off their first six months of service are huge thank you to pilot dot com. There are two other small things that happen that I think let's just sort of skip imagine a briefly but let's get into analysis. Paul Jacobs got kicked off the board of Qualcomm in 2018 he tried to take the company private through a buyout when there was all this sort of tumult about is it going to be bought by broadcom all this stuff and the board said if you're going to try and make a hostile takeover and LBO the company yourself. You can get right off the board and so there are no members of the Jacobs family on the board of directors anymore the other thing that happened in 2016 to 2018 Qualcomm tried to acquire NXP semi conductors but I think eventually China sort of just like drag their feet enough to kill that. It could have tied up in the whole broadcom thing. Yes. But quick review of where they are today and then we'll go into analysis Qualcomm today has a one hundred and twenty billion dollar market cap. Which two things one that's astonishing that's impressive their technological pioneers and their amazing value capture to that is the same price that it was worth at the peak of the dot com bubble. Wow and just about the same amount of broadcom offered a buyout for right. Yep. Which is interesting you know by revenue I think revenue and probably also a number of chips there the largest fabulous semiconductor company in the world bigger than Nvidia. Yep. But a way lower market cap than Nvidia. Yep. I mean are you going to make a bet like I here's my view on the Qualcomm versus Nvidia do you bet on the intelligent connected edge as as the CEO Christiano monwood put it or do you bet on AI. And like they're both mega trends AI has a far bigger potential in my opinion than the intelligent connected edge which is wonderfully buzz although I do really have a genuine appreciation after doing this episode for like the amount of engineering that goes into wireless technological advances which almost at a Moore's law that's lower than Moore's law like pace but a steady drum beat have continued to improve and I mean now there's like no difference between 5G and like home broadband like and that's like understanding on the right street corner. Okay. They do 44 billion in revenue chips make up most of that at 37 billion licensing fees make up only 7 billion but the licenses are a much higher margin business it's a 69% margin I think it's earnings before tax margin on licensing versus only 34% for the chips so there's a super efficient business there in licensing. Revenues are growing 32% earnings are growing 47% year over year this is an amazingly high growth rate company. Yeah that's pretty awesome they almost doubled their revenue over the last couple of years too so that the Christianos definitely does seem to be doing a good job. Christianos the new CEO as of last year I think he's been for been in for about a year so into analysis what power do you think that Qualcomm has. Patents. Is that a cornered resource I think that is a courted resource I think yeah Hamilton in 7 powers I think he does say patents are a quarter I think they're in the canonical distribution of a court and resource that for sure. They had at least maybe still do have network economies in the infrastructure side of the telecom industry and the handsets side like you have to one one locks in the other one locks in the other like if you control the infrastructure standard all the handsets will have to use that. And all the handsets use XYZ standard then the infrastructure after you had to like be able to control both like I think there actually wasn't network effect there. I also think there's scale economies if you are a fabulous chip company then totally is worth all the R&D the amount of R&D creating a snapjack designing and creating a snapdragon and realized across a huge number of customers so like it's really hard to start the next Qualcomm if the front the front here you want to compete on is making a better snapdragon that's not going to happen. I've got a fun one here. That's both fun to talk about because it always is but I think actually as a I feel reasonably confident in I think Qualcomm do during the golden years that we told the history of had real process power I think it was equivalent to the fix our brain trust like that set of people working together under those set of circumstances were wholly unique in the industry and. The world yeah and actually it's interesting like I read all you know all besides the Qualcomm equation book from Dave Mach which is amazing there's a ton of history out there about Qualcomm especially in like local San Diego like like the lots of local San Diego publications and history books and stuff especially because the Jacobs has given hundreds of millions of dollars to support the we didn't talk about this but her one is. The great philanthropist of the past century like undoubtedly but to you see us the you see system so many like so much of building infrastructure in San Diego comes from Qualcomm in the Jacobs family so going and doing all the research all these local San Diego publications and you know historical documents they all talk about the like wealth the well spring of startups and other technology companies they came out of Qualcomm and indeed there are like you know link a bit in Qualcomm. They're like 100 plus in the San Diego area they came out of Qualcomm but you compare that to like the Silicon Valley like what came out of Intel what came out of Fairchild what came out of the trade or see there's not the same. And I think that actually de facto shows there was process power like it was that unique group of people in that unique situation sort of like proof by example yeah. Did that prove. Qualcomm has very real competition from the low end that we didn't talk about an example is media tech who not only makes the base band modem chip but also systems on a chip using the stock arm CPU designs so media tech systems are way cheaper than Qualcomm. And I think they actually just surpassed Qualcomm in terms of number of units shipped and so all the low and mid-end Android phones are using media tech and so Qualcomm kind of needed to buy new via in order to differentiate the CPU and not just be using the stock arm design that media tech and everyone else is using on much cheaper chips. Historically they failed that everything that was not a phone that we talked about before and now they're sort of saying the future is IOT and automotive these things that are not phones will see. They're just constantly in lawsuits I mean we didn't talk about this but like China South Korea EU Taiwan all these companies all these nations have sued or so many law firms must have be making a fortune off of right industry. And the last one for the the bear case for me is I really think that they finally poked the bear talking about their customers enough to make them want to actually do something about it. The goal for Qualcomm should have been make as much money as you can without pissing people off too much and I think over the last decade they really upset Samsung Apple so many people that are starting to at least make their own radios or even consider systems on a chip. And so now that there's very viable alternatives for silicon that people could either use in house or competitors coming around at different angles Qualcomm may lose their leverage to actually get a royalty out of each phone sold now licensing business is going to continue to be a juggernaut smaller and revenue but higher in margin. But you know that that is the sort of bear case on the current silicon business now the bull case like maybe the lawsuits thing is actually a bull case they managed to keep making more and more money and have been reaffirmed over and over again and a bunch of jurisdictions that. You know they settle their way out of these lawsuits or they whatever but they're able to keep making tons of money. The big bull case is you believe that this shift to automotive IOT and 5G RF front end is real and so for those keeping track at home everything I'm about to say is a part of the chip segment that does that $37 billion in revenue automotive does 2 billion in revenue that's a very real business the RF front end business that we were talking about that does 4 billion dollars a year in revenue it's interesting I mean we rented a car here in Lisbon. And for the family and of course it has data built it you know 4G or 5G data right as does like just about every new car these days. Yep the IOT segment is now doing over $7 billion a year Qualcomm thinks overall this is a $100 billion opportunity there's a bigger narrative that Christianos trying to espouse around this intelligent connected edge that they call a $700 billion $100 opportunity that's really the massive numbers I know it reminds me a lot of the the Nvidia slide that talks about their trillion dollar tam. I mean they're executing very well but I think they're trying to sell a story in terms of addressable market that is hand wavy. All right playbook so in the early days this is a thing that we didn't talk about we talked about the some of the ecosystem stuff but there was this incredibly delicate dance of needing to be the best supplier to win deals but also have other credible suppliers no phone company was going to take a dependency on the CDMA technology when just one vendor existed and so they need to evangelize and create their own competitors so that their customers could feel safe with this new tech. But of course as long as they kept some things secret of how to eke out the absolute best performance from the innovations they actually could still be the leader so it was like figure out how to get a bunch of other people just good enough which is is fascinating and it's such an amazing case study in bootstrapping and industry yes yes similarly they had a clever tactic in their IP strategy so at Qualcomm where I think they have something like 17,000 patents now there's a lot of things that are going to happen and they're going to have to be a decision every time there's a novel piece of technology about whether they should patent it or keep it a trade secret and there's enough things patented so that you can't achieve any of these things these magical things that we've been referring to all these layers of magic without paying Qualcomm but they don't patent everything because they want to keep an advantage for like consulting revenue or implementation fees or signing big deals where they say not only do you get access to our patents which may expire at some point but if you work directly with us you get access to the trade secrets and you can pay us to you know basically generate services revenue for you to work with our engineers. I was thinking about this for playbook as we were going to there's this really interesting dynamic to this industry that lends itself well to the IP and patent monetization scheme that Qualcomm has adopted which is that the successive generations of wireless network you know G's happen just fast enough that it's within the patent lifetime. So that like you know all that core CDMA patent like all those patents are expired now but it doesn't matter because we're so many generations beyond that like those patents are now worthless so you get all the useful life during the protection period of the patent and then when it's you know that today it's not like a generic drug where like you know ad bill is still or title or whatever is still like you know useful right that's a great point it's also interesting that if you miss the window like if Qualcomm had missed the window in the early 90s. So they're not going to be a window in the early 90s of evangelizing the technology for 2G they made out of survive long enough to catch the next window 10 years later for 3G so this is like one of the few industries where it there's these super quantized time windows that exist when you can actually get in. So another one that I thought was pretty interesting because I mentioned I think the businesses actually makes sense together the licensing business offers Qualcomm predictable high margin revenue that they can basically use to fund R&D so because they know they're going to keep getting that and because it's a big revenue stream it lets them sort of take bets on new R&D and when they do more R&D that fuels the flywheel where they both get new products and they get more IP that they can continue putting into the licensing flywheel so there is I think there is a credible argument of why you want to keep them together there's also a and Qualcomm makes that argument explicitly totally the not very credible argument is this things a cash cow and we want to keep our rich uncle around to make this a nice place to work and you know like they have several I think there are some airplanes like it's a it's a relatively cushy company for what I understand. Well San Diego is a very nice place. Yes I do think the big picture is that the US government's patent system has granted Qualcomm a monopoly and I I think there's like a lot of things we've covered on the show where the business exists because of the US's regulatory system they've basically said and then reaffirmed in a lot of these rulings you are allowed to capture a ton of value from this and there's so many good debates about whether the patent system exists and serves its intended purpose of enabling people to spread the news about their organization so other people can add it and the way we compensate you as we give you a 20 year exclusivity window or whether something like this is an abuse of the system but there's no way to argue that this is anything but a perfect execution of the game on the field. Yeah it strikes me telling this whole story that like think about early stage venture capital company building and like you know who it's on the street if you were to give a venture capital is the Qualcomm pitch and like there's so many they're like at least six or seven different hops where you know X anti it looks like well and then a miracle happens and then we succeeded this and then another miracle happens and then we succeeded that and like usually you know my pattern matching as an investor in early stage companies is like anytime there's a single and then a miracle happens automatic pass like because if you're doing it but but sometimes if you have a team that because this wasn't just like and then a miracle happens if you listened closely and like really knew this team they like really knew they had really high degree of confidence that all of these tight you know threading the needle moments were going to happen yeah and it really don't degree that just blows my mind I've never heard anything like it yeah and it just makes me think that like some time like to maybe just be a little more open to that you know that like some time like if I'm some person off the what walked in off the street and said like give you the Qualcomm pitch for sure it would not work for sure and the hardest thing about being a technology investor or someone participating the ecosystem in any way is it's a power law dynamic this is a business of exceptions and I've seen and I'm sure you have to so many kind of actual two where incredibly credible teams walk in off the streets with miracle like then a miracle happens and yeah it still doesn't work like you know but sometimes but sometimes it but sometimes it never works but sometimes it does sometimes it does so it makes our industry fun all right so we're going to not do grading because we've decided to kill grading until we otherwise resurrect it but I do think it's worth articulating a little bit of a take away so my take away on Qualcomm is the the last decade was basically the best decade for their business model and being in the right place at the right time to have an incredible business model around capitalizing on mobile and in order for the next decade to be as successful they need to be absolutely correct about their growth businesses around IoT around automotive and around whatever the intelligent connected edge ends up describing because I think those are the things that we don't quite know what they are yet I think if they continue to try to run the same playbook in just the handset market that they have been the best days are behind them because people have caught on to their games a little bit and are going to squeeze them from a bunch of different directions. Well yes totally agree I think to paint the best version of the intelligent connected edge that I've heard is you sort of put plainly like hey we all agree that like cloud is like I think like we did the AWS episode there's over a hundred billion dollars in like revenue backlog in the cloud yeah we talked about on the AWS episode like snowball and snow will be all like getting data to and from the cloud so like still like one of the major pieces of lock in and like you think about how data gets in and out of the cloud most of it's not by snow also right most of it is wireless connected on the edge and so if you think about it like that you're like okay yeah I can buy that this is a you know trillion dollar market but how do you capture value in that and can they capture it in the same way that they have in the past like very much open questions. Listeners that was a total blast David crazy to do a live show like that with no guest for two and a half hours on stage just you and I yes and a professionally operated boom arm camera yes if you haven't watched the video version of this just go check it out on on YouTube or Spotify or anywhere just to see what that looked like it was a very fun spectacle to get to do that our huge thank you to fund rise pilot Brex and the Salona Foundation for hosting us at breakpoint this year is a really great event and fun to be in Lisbon on another note we wanted to say a huge thank you to everyone who took our survey over the last month we have emailed the winners of all of the acquired t-shirts and the air pods pro second generation winner is Lindsay from San Francisco we have also emailed so congratulations to all of our winners and a huge thank you for helping us learn more about all of you and it really helps us run the business and make the show better and really understand the importance when you finish this episode come talk with us acquired dot fm slash slack 13,000 other smart thoughtful kind people if you want some of that sweet acquired merch everyone is talking about go to acquired dot fm slash store I know in the next few weeks there's going to be a couple new design stropping inspired by catch phrases from episodes where I applied my graphic design skills for better or for worse is the perfect time to sign up as a customer for brex to get one of those yes that's right if you don't want to pay for your t-shirt brex dot com slash acquired much cheaper way you also get to be a brex customer so wins all around win win if you want to listen to the LP show we have had some awesome awesome episodes recently we just interviewed J. 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