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Hey acquired listeners, we recorded this episode a few weeks ago in what already feels like a very different era. Obviously we live in a whole new world now with the spread of the novel coronavirus and the global health economic and frankly emotional fallout as a result. Yeah. In that vein, we have a few announcements to make. First and most importantly, we're thinking about all of you right now and in the weeks and months ahead. Many of us know people who've lost their jobs or businesses already or even worse whose families have been affected and that's likely just going to grow significantly in the coming weeks. We want you all to know that Ben, myself and the whole acquired community are here to support each other. It's true and related to that, we are going to make some changes for now to both the community and the acquired show itself. As for the show, we'll share more in the days ahead. On the community side, we're changing a few aspects of our Slack to help us all do everything that we can to support each other right now. You'll find all the details in the announcement that we've pinned to the general channel. If you haven't joined our Slack yet, now is a great time to do so. You can find a link on our website. We think it's especially important to find ways to try to be together right now virtually even when physically we have to be a part. Yep. One other thing, I'm a believer that when you have a voice, you should use it. David and I are fortunate to be able to talk to all of you. In this time, we are here to tell you to stay home. Most of you who listen to the show are already doing this, but we figure if we can touch just one person, we can make a difference. Social distancing really works and has saved countless lives in countries across the globe. If it's not bad in your city yet, be the reason that it won't be. We promise you will look like a hero later for reacting early and reacting quickly. Of course, go pick up some takeout food from local restaurants you love. Amen. On both of those. Finally, one last thing. Some of you might be wondering why despite everything we're saying here, we still decided to release this episode right now. We thought about it a lot and we decided to go ahead one because even with everything going on, we think the world does still need some entertainment and most importantly to laugh and some of the things that we say in here are pretty funny now in retrospect. Two, though, we also thought it was a good reminder that even as tough as things are and are likely to get right now, at some point things will return to normal again and it will seem completely normal to debate the top 10 acquisitions of all time. Hopefully this will be a little reminder of that. Yep. Well, thank you to everyone for being on this journey with us. Stay safe and healthy. We will get through this together and now on to the show. Welcome to season six, episode three of acquired the podcast about great technology companies and the stories behind them. I'm Ben Gilbert. I'm David Rosenfall and we are your hosts. Today, we are tackling an episode to cover the question we get asked most. What are the best acquisitions of all time and what can we learn from them? So today, here it is, the acquired top 10. Quired top 10. We figure we're over 100 episodes in now. It's time for greatest hits album. Yeah, listeners, the idea originally started as a blog post, which you can find linked at the top of the show notes. But we wanted to do an episode with really more of a director's cut of the list and how we thought about each one since even though there's lots of numbers involved, it's not quite an objective exercise. We reserved the right to great as we see fit as always. Alright, a few announcements before we dive in. First, we had a great limited partner episode this week with Hamilton Helmer and you can listen to a segment of it attached at the end of this episode. For those who don't know Hamilton's name, he is the author of Seven Powers, which David recently described to me as the best business strategy book out there. Now David is in good company here getting high praise from strategy master Reed Hastings at Netflix, Daniel Eckerts, Spotify, Peter Teal and many, many more. So we had to of course have the author on the LP show. Now if you want to go deeper on company building topics, you can become an acquired limited partner and get access to all the things that come with that by clicking the link in the show notes or going to glow.fm slash acquired and all subscriptions come with a seven day free trial. Hamilton was fantastic. Super fun. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founders, so we knew there's a natural fit. We know the host of founders well, David Senra. Hi David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together and then they say it's like the best curriculum for founders and executives. It really is. We use your show for research a lot. I listened to your episode of the story of Akio Maria before we did our Sony episodes this incredible primer. You know, he's actually a good example of why people listen to founders until acquired, because all of history's greatest entrepreneurs and investors, they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research. But I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third, fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them. Because in my opinion, the greatest such a printer to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's My Hero. So the reason I did that is because I want to find out like I have my heroes. Who were their heroes? And the beauty of this is the people may die, but the ideas never do. And so Edwin Land had passed away way before the apex of Apple. But Steve was still able to use those ideas and now he's gone and we can use those ideas. And so I think what requires doing what a founder trying to do as well is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Most of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. All right, David. How on earth are we structuring this episode? Well, instead of history and facts, we're going to replace that with notes and methodology today. It must be two things coupled by an end in the middle. Exactly. And percent not an end. Oh, is it an ampersand? Do you know they're not interchangeable? Really? Yeah. Whoa, that's shocking to me. This is like little known nerd facts. So I'm not going to get this exactly right. But it is when you are coupling two things together rather than when you are using an end in the way that you sort of would in a sense. Is it like compounds and says a conjunction and whatnot? Yeah, okay. That makes sense. Yeah. I also, it has a cousin called et cetera. And there's a crazy, you can go sort of research the evolution of this glyph. If you think about the ampersand sign, not the big curly one that looks like an S, but sort of the smaller one that has two curly things on the side. Yeah, yeah. It's actually an ET. Oh. And so it sort of comes from the same root as et cetera does. I think we could have a whole spin-off podcast about that. I think so too. Origins of odd typography and logistics. All right. Well, back to the lecture at hand. So first off, we thought about all acquisitions out there in history. We didn't necessarily limit ourselves to just the technology universe, as you will see, as we go through the list here. But the big caveat is it's based on kind of what we know in our universe and our experience. So there may be ones out there that, you know, we didn't identify that we slipped. We thought a little bit about some of the Berkshire Hathaway acquisitions. Obviously, they are fantastic. By some of the criteria that we look at, don't quite compare to what we have on our list. Big caveat that we may be missing some. And obviously, please write in if you have super interesting ones and we'll have to just cover them on the show in the future. Yes, please. Also, the acquired Slack at acquired.fm would be an awesome place because I think this one is going to be a good fodder for community discussion. Yeah. Okay. So that's caveat one. Caviar two, enough time has to have passed since the acquisition that we can make a definitive call. Yeah. We're talking about like a Visa's acquisition of Plaid here or a credit karma or anything that just happened, you know, in the last few weeks or even in the last couple of years, we need to be able to say definitively what the outcome was here. Yep. Another thing is it must be a majority purchase. So there are many amazing pickups of minority shares and companies better known as investments. But you know, one listener. Tencent. Naspers. Tencent comes to mind. Yeah. And our pointed out Liberty media buying what 40% of a serious XM, which is now worth over I think $20 billion. Yeah. That was incredible. I remember being a media investment banker, investment bank analyst on Wall Street at the time and seeing this happen and just being like, serious XM. My dad listens to serious XM. That's a dumb idea. These guys are going to go bankrupt and yeah, that was what I'm no longer a media investment banker. I'm not a media investor. World class podcaster instead. Another one. This represents a moment in time with company market capitalizations as of the end of March 3rd last night when we compile a lot of this data in the midst of the US Democratic primary coronavirus and everything else going on in our macro economic world right now. And so this, you know, episode may not be the exact order that we would rank it five years from now, even one year from now, even six months from now. So it definitely represents a moment in time, though I think directionally correct for a while. Yeah. This episode may, we may actually be the actual music that is playing on the Titanic while the whole deck chairs are being rearranged. But we'll see. Hopefully not. Woof. Yeah. Well, as you know, on acquired, the way we issue a grade is using this criteria. How good of a use of capital was it for the big company to buy the small company? So of course, the way we ended up ranking our list best we can tell is what is the absolute dollar return in value to the big company from buying the smaller one. So in other words, if I have a company worth a billion dollars, like acquired and I buy David's Pidly Little Start-Up. David, your little startups worth a dollar. And I pick it up for that. And my company then later becomes worth two billion dollars by integrating your product. We would look at this as an acquisition that added nearly a billion dollars of value. And that's sort of how we would. That's what we would. That's what we would. That's what we would. I'm running out of you. I'm not going to say you. Value added minus the acquisition price because this is going to be important in a couple of days. It's fair point. Last thing is in cases where, or at least last notes of methodology that I have, in cases where the acquired company's product ended up becoming a component of a larger product within the acquired company, we thought of some sort of subjective discount of like in our estimation, what percentage is this acquired company's product responsible for the success of the ultimate product? Yeah, you could imagine if you bought maybe like a way to make chips or maybe a programming language or something like that. Where are you finding those examples? You might say that that's not responsible for all of the company's future value or even all of that product lines future value. Yep. All right. Now with all that out of the way, I think it's time to actually start moving through our top 10 and dare I say our top 15. Absolutely. We've got 16. Oh, adding too many to list here. Well, we're only going to rank the top 10, but we have some honorable mentions to start with. First and most aptly given recent acquired history, we would be completely remiss if we don't mention what's app on this list. And by estimated, as we talked about on the show, on the episode, definitely one of the best acquisitions of all time, however, by our criteria where we are looking at revenue and market cap contribution to the parent company. Oh, I don't think we said so the way we tried to estimate market cap contribution of the acquired companies into the parent companies was via the percentage of revenue that that company is now responsible at the parent company. And then what the revenue multiples of the parent company are. We totally recognize that a lot of these companies don't trade on revenue multiples. They trade on free cash flow basis, but we can't get the cost structures of the acquired companies anymore. So this is the best we could do. Yep. Again, I think it's directionally correct and the fun part about getting to do a show that's kind of the director's cut here is we can talk a little bit, especially in playbook as we get into it. And Hem and Ha, a little bit about ones that we were too generous on are not generous enough by just thinking about it as as revenue contribution to the business. So by our screen, you know, what's app essentially generates zero revenue for Facebook's that they're not going to show up on the list. They were far lower than 16 if you. But definitely deserved to be mentioned. For sure. For sure. It's funny how that one's a, I don't know, six year old acquisition that's still in camp too soon to tell. Yeah. Seriously. Well, we know that it was a, as we talked about, not too soon to tell on the defensive move front, right? Too soon to tell on the revenue front. Yep. All right, well, coming in at 15th, or I guess our first of our honorable mentions coming in, an episode that we have not yet done yet. But a couple listeners, especially recently, have been suggesting in the Slack that we try it. So that is VMware being acquired by Dell EMC. First, but acquired by EMC and then later EMC was of course swallowed up by Dell. This one is super interesting, you know, EMC acquired VMware for $625 million. VMware currently is doing right under $9 billion in revenue. Now EMC acquired 80% of VMware. So VMware has always had this public stuff that trades publicly of the rest of the equity. Super, super interesting though. The only reason this is so far down on the list is because of all the complicated EMC Dell stuff we'll get into when we do this episode someday. Dell is actually trading in the public markets at a significantly lower value than what their stake in VMware is worth. It's crazy. It's completely nuts. I think we saw this with that holding company that owned part of what episode was that, where there was like a nine person holding company based in it was a Altaba. Altaba, that's right. Having the stake in Alibaba, or it actually traded lower than what their percentage of Alibaba was worth. We thought that was crazy. I mean, the discount, and again, we haven't done all the math here and know the whole corporate structure and everything. But with that caveat, the discount at which Dell is trading on the public markets simply to the 80% they own of VMware, which is also publicly traded is astounding. Yeah. So on the one hand, it's a cheap way to pick up some access to VMware. On the other hand, the way the stock market is behaving, they're putting a massive, massive discount on it for its lack of being able to escape out of Dell. Yeah. So. Okay. Next, we have our hard-breaking deer to our hearts, both a heartbreaker and our very first acquired episode. Pixar. Pixar. Pixar. So in 2006, Disney, which at some point we got to cover Disney on this show. You know, David. Disney bought Pixar in Landmark $7.4 billion deal. And I thought this one would be a lot higher. But we'd like to walk you through how we did the math on this and the absolute dollar return that we're looking at that from a bunch of our estimates and this methodology is about $2.3 billion to Disney's market cap. Now what you sort of thought about that is Pixar is basically good for a film a year. And as much as I wanted to do this by summing all of the profits or maybe abstracting one layer up and summing all of the revenues from all their films, really the right way to think about, especially as we're thinking about contribution to market cap, is how much revenue of Disney's annual revenue are they responsible for every year? Yeah. Which is effectively one film's worth. Yeah. And one Pixar film worth in revenue from its sort of worldwide gross after release. It's about a billion dollars in the success case. You look at the Incredibles 2 or Toy Story 4. Each brought in right around a billion dollars because of our Disney episode. We know that you make about twice as much from Parks and Merch as you make from the film itself or at least the division as a whole does. So we felt it was reasonable to say triple the the amount of money that any given film gets from the box office to sort of its total revenue contribution to Disney. And you get about three billion dollars. And so contributing about three billion dollars in revenue per year to Disney at a there close to $70 billion market cap. $70 billion revenue. Sorry. $70 billion in revenue. You get to just just under $10 billion in market cap contribution from Pixar. But of course they paid $7.4 billion for it. So when you net those two out, you get. You're mentally about $2.3 billion in market cap contribution from Pixar. This you should also note is our lowest annualized return out of anything from the entire list with about 2% per year since this was a 10 year old acquisition. Well, we're going to have 14 year old acquisition. We're going to have some more discussion in grading about this one. Okay. Next on the list, another fun episode from Aquired's History. Our first big independent live show, Venmo. Pick up by PayPal in 2012 for $26 million. PayPal was recently announced doing about 300 million in annual revenue or sorry, Venmo doing about 300 million in annual revenue within PayPal. You do the math and that nets out to market cap contribution within PayPal of about $2.5 billion. Not bad for buying it for $26 million. Yeah. And of course, this went through brain tree. So it was $26 million that brain tree bought it for and then less than a year later that was picked up for $800 million. But sort of rolled that $26 forward since that is the isolated number for Venmo alone. Now David, I will say still not profitable. But not a part of our analysis here. Oh, profit. What are you talking about? We care about revenue here, I'm acquired now. But they do, it is worth noting that they did give guidance that they thought this by the end of the year, Venmo would be a profitable unit. So that's an interesting update to our Venmo episode. Yep. Next we have Bungee, dear to my heart, played so many, so many sessions of Halo over the years. Microsoft pick up a Bungee in the year 2000 for an estimated $30 million. Now this one was really interesting to think about because the Halo franchise in total has generated about $5 billion in revenue over the life of the franchise. Of course, Microsoft got that IP as part of the acquisition. But you also got to think about how many Xboxes did Halo sell and no Halo, what would have happened to the Xbox franchise? The Xbox franchise generates about $11 billion in annual revenue for Microsoft. We estimated current market cap contribution of that $30 million, a Bungee Halo pick up in 2000 to be about $8 billion currently. That's funny, this is an honorable mention that doesn't make our top 10 lists, but like, oh my God, getting that thing for $30 million, even with all the work they poured into it afterward was a friggin' steal in order to bootstrap the Xbox business. Totally, totally. I mean, it was the Killer app. Yep. All right. Speaking of Killer apps. Yeah. PA semi. So long, long time listeners of the show will know that we did an episode early on with Apple's 2008 purchase of PA semi, which at the time was working on very advanced... Arm infrastructure. Yeah. Yeah. And developing IP for new chips that they didn't manufacture. They like... Fabulous semi-connector. Yep. Many, many firms these days outsource it. But it seemed not contrarian, but a little odd for Apple to be buying this sort of like researchy CPU, you know. Yeah. And right after the first iPhone had come out, people were confused. And they paid a bunch of money too. I mean, it was $278 million. So this isn't like some of our other ones that were like tiny little pickups. And Apple's market cap back then, let's just say they weren't a trillion plus dollar company. And so, you know, this is a decent size bet for them. But as we know today, the iPhone being as differentiated and creating as magical of an experience as it does is in many ways attributable to Apple making their own silicon, which of course all started with PASMI. You also look at Apple's innovations in silicon elsewhere. So there were wearables division being able to do the W series chips for, you know, the AirPods and the watch. What is the... There's the W chips and then there's another one. There's like an S series of chips, I think. Yeah. Even actually, I think the touch bar has its own... That's right. ARM CPU in it, which probably is attributable to... And of course all the rumors are... Yeah, there have been rumors for years, but the rumors are this year maybe or next year, we're going to see ARM based in PASMI technology based MacBooks. Yep. So this is like the hardest thing to figure out. And this is probably the most fun thing to sort of debate on this show or at least in this format. How do you account for something like this that is necessary but not sufficient to create the product line that they have today that if you look at the revenue contribution of the iPhone, the iPad and the wearables division, which are all sort of made possible by Apple making their own silicon. It's $188 billion a year in revenue. So necessary but not sufficient. So what do you do? Well, David and I took some, a little bit of a hack job of estimates here, but basically what we said is, look, you can probably say 25% of iPhone revenue is attributable to making their own silicon. Yep. iPhone and wearables and iPad, like that's 25% of the differentiation is from the chips. Five percent then we further discounted that and said 5% of making their own silicon is attributable to their acquisition of PASMI. So what that basically says is, well, let's take all that revenue and go grab 1% of it. And I promise we didn't come up with that 1% number. We first came up with this 25% and then that 5%. We love false precision here. It is false precision at its finest. But that gives us the funniest metric of all time that acquired should probably trademark. The discount adjusted current market cap contribution. Eat that community just to see you with that. And we look at that as contributing about $11 billion to Apple's market cap, which of course is a nice 36% annualized return, absolute dollar return of over $11 billion, but somehow still not making our list because... Just missing the top 10. My God is this a gilded set of acquisitions that we've gotten the top 10. All right. Shall we move into the official top 10? Yes. Okay. Coming in at number 10, what we and I have sometimes referred to on the show as the best media acquisition of all time, turns out it's not. There's going to be one that's above it coming later in the list, but Disney's 2009 acquisition of Marvel. This was just brilliant. Who would buy some defunct comic book company? That's IP is already basically leased out to everyone and cut up 11 ways for 10 years. I'm going to talk more about this in playbook, but Marvel was, I can't remember exactly, but sort of like going on a 70, 80-year-old company, it was very old company at this point, been around forever. Of course, Marvel Comics, one of the pioneers of the comic industry. But Marvel Studios, an Iron Man, the first film out of it, had only launched a year earlier. So it was actually pretty early in this part of the market for Marvel. So Disney of course paid $4.2 billion to acquire all of Marvel in 2009, which of course is $3 billion less than Pixar. Yes, $3 billion less than Pixar. So for Marvel, we did essentially the same thing as we do with Pixar, but you'll note with Marvel, as opposed to Pixar, where they're cranking out one feature length film per year, with Marvel, they're cranking out multiple feature length films. They're cranking out TV series. They're cranking out action figures. They're doing comic books, of course, still. That's why it's a stuff. So we took their revenue. Since the acquisition, we did that on an annualized basis. We applied the same 2X multiple for Parks and Merch that would apply to the content revenue that they're creating. Yep. And that revenue that you mentioned at the beginning there, we are only taking their films, revenues, and multiple of them. That's what we had access to. Yep. So you do that. You get between $6 to $7 billion of annual revenue contribution from Marvel to Disney out of $70 billion in total revenue. Which is fascinating. So it's basically more than twice as much revenue per year from Marvel than it is from Pixar. I mean, 10% of Disney's revenue by this estimation coming from Marvel. It's crazy. We may not be correct on that, but like it seems really swag. Yeah. So if you look at, you know, I just want to do this comparison to Pixar, like they're making over twice as much money per year. They paid almost half as much for it originally, and they did it three years later. And so it's sort of this like every lever that you have the ability to sort of pull and make this one a better acquisition they did. So if you just look at the stats, we have an absolute dollar return market cap contribution minus the price they paid for the acquisition of over $16 billion on Marvel. Incredible. Fantastic. Not quite the incredible, but even better than the incredible. Also, coming in right around $16 billion of an absolute dollar return is Google's acquisition of three companies, where two keyhole and zip dash, the Google Maps suite. Yes, around 2004 to create the Google Maps that we know of today. Now estimates are that Google Maps does about $3 billion in revenue. This mostly comes from the sponsored products that you see that are basically the ad units that are shown on Maps and the Maps API revenue. That's right. That's right. So bought for $70 billion. $70 million. Sorry, but gosh, the orders of magnitude here. This one's a hard one to do because you just keep forgetting commas everywhere and sets of three zeros all at the same time. Bought for $70 million, doing about $3 billion in revenue 16 years later. So we looked at the current market cap contribution of about $16 billion to Google's near $trillion dollar market cap. That kind of pencils. I mean, if you think about it, like is it... Maybe it should be a little higher. Then 1.6% of the value of the company. Totally. Totally. So when you look at similar to Marvel, you look at the absolute dollar return. It was about $16 billion. The funny thing is if you compare another, there's another number we sort of have here that's interesting to compare the ROI multiple. So what's the return on the invested capital there with Marvel? It was five with Google Maps. It was 242. Yeah. This is where... We'll talk about this in playbook and grading more. But you can become a little myopic as invested in focus on return on invested capital or cash on cash multiples or whatnot. That's nice. Yeah, it's paper money that feeds your family and pays the bills. At the end of the day, $16 billion is $16 billion. Whether it's a 240X ROIC or a 5X ROIC, it's still $16 billion in incremental dollars. Everything else is vanity metric. And speaking of those vanity metrics, we are going to publish this whole table. So if you click the link in the show notes, you can go check out with probably some false precision, all the numbers that we came up with across all of these different measures. Well, next on our list, next highest on our list. And what are we at? That was number nine. So here we're at the actual best media acquisition of all time. We're going right back to our friends at Disney, actually ABC capital cities, the acquisition of ESPN 1984. So this is the oldest acquisition on our list. One price of just under $200 million ESPN currently is contributing over $10 billion in revenue to Disney through, obviously, advertising revenue and subscription fees, including ESPN Plus in there now too. Just incredible. This, even though this acquisition happened in 1984 generated by our estimation over $30 million in absolute dollar returns, 166 ROI multiple. We also calculated the annualized return to just trying to adjust for time here a little bit. 15% annualized return since 1984. That is just incredible. That is like Berkshire Hathaway levels of return by an acquisition within a company. Yep. Yeah. If you found a financial advisor who could figure out how to guarantee you a 15% annualized return for, what is this? 35. I was born in 1984 and I'm 35. Yeah. That would be, I'd happily pay whatever they need for the cast management fees on that. Absolutely. All right. Moving on to number seven. The Mafia. Ebay's acquisition of PayPal in 2002. And David, as you say, the Mafia, it is not just for all the future value that would be created by all those founders starting every company from Tesla to Yelp to LinkedIn to you name it. Wild group. But actually the value of PayPal growing inside Ebay was friggin crazy. So the way that we did this one, because Ebay actually did spin PayPal out in full in 2015. 2015. 2015, is that right? Yeah. And 2016 somewhere in there, this is the only one where our sort of, we have exact numbers. We do have exact numbers and we know an exact annualized return and we're not pegging that to the market cap today, but rather the actual, actual spin out. So when they did spin it out, the market cap of the independent PayPal entity was $47 billion. Now in 2002, they bought the company for $1.5 billion. So no analysis needed that was $45.6 billion of an absolute dollar return for Ebay shareholders. A 28% annualized return, just a unbelievable job of picking something up relatively on the cheap, both doing a nice job integrating it with PayPal to create new dare I say synergy value. And of course betting on a trend that was internet payments and being spot spot on there. Yeah. Now we're going to get into starting to get into some of the real funds. I mean, not that all these aren't fun. The next one, this acquisition was so incredible that the company that bought it, bought this little company back in 2005 has now fully changed its name. Even though this was a large public company buying tiny, tiny little company, the company is now called the name of the little company or of course talking about price lines acquisition of booking.com. The active hotels as we discussed about on the episode with with you, it was the two companies together, even though booking is was the larger at the time and is still the larger $135 million in 2005. Booking.com is best as we can tell separating out what the core booking and active hotels revenue is within now the booking holdings. Booking holdings. There's no longer the price line group, but booking holdings. The holdings is over $10 billion in annual revenue contribution. The company does about $15 billion in revenue. At least $10.8 comes from what they call the agency revenue, which is basically booking its original business model. There's even more in there. There's other segments of their revenue that booking also contributes to, but we were conservative in our analysis here and basically said, let's just call booking.com's contribution here. The agency revenue. Responsible for over two thirds of booking holdings revenue now. As David mentioned, $10 billion. That translates to an absolute return of just under $50 billion. He was crazy. We were talking about annualized return with the SPN a minute ago. 35 years of 15% annualized return. Here we're talking about 15 years. Not 35. They got a long way to go to get to 35. What the annualized return on this one is? I'm not looking at my screen. I don't know. 38% annualized return compounded for 15 years. Man. Insane. That is a good acquisition. The other fun one about this is I think all the rest of them that work in a mention come up very, very commonly in conversations where people say, what's the best acquisition of all time? Actually, I think number two is going to be a surprise for people. It was a surprise for me. Okay. Fair. But yeah, with booking, it's one that I think people don't realize. I don't appreciate. The booking is, I haven't checked the latest market caps, but I remember it back when we did the episode. Booking holdings is worth roughly by market cap. Several multiples of Airbnb. Several multiples of Expedia. Expedia is a $13 billion company right now, market cap and what's booking? And booking is 70. Now, of course, we're doing this in the middle of the coronavirus. I break so the bookings all travel companies, market caps have been taken a big hit. But still, I don't think it was particularly people in the Seattle area don't appreciate how much larger booking is than Expedia. Yeah, absolutely. This was, I mean, getting like what happens as it all, like the company is now called booking holdings. Very true. Okay. The next one, number five. Next is next. How come I get both of these ones? Number five, Apple's 1997 Aquahire of Steve Jobs. Greatest Aquahire of all time. And all of the incredible technology that comes from next. That's the thing. It's not just Steve Jobs. Right. What's next? Right. So this one had to be in there, right? Because Apple is a $1.4 trillion company now that certainly would not be but for the next acquisition. So this is another situation where we have necessary but not sufficient. So Apple makes this move, get Steve Jobs back. They also get the sort of new and blooming object oriented programming. The objective C language and runtime next step which turns into Mac OS 10 which then gets refactored into iPhone OS which then became iOS which then forked to iPad OS which then forked to watch OS. So far as much as we want to do attribute value to the hardware from PASMI, the software in all of Apple's, you know, everything that is Apple today comes from next. Yeah, it is not don't forget. Go to Man and Copeland and all these machinations of oh man, co-op. machinations. I don't think I know that word of Mac OS 9 machinations machinations progressing through it was nope new thing based on next step. You know, don't forget they also got the cube. They also got the cube also got the cube. So of course, how do we how do we value this one? So what we basically said, so first of all the acquisition price, $429 million again big freaking pickup for Apple. You think about 1997 that much money for them. Huge bet, huge bet. The funny thing is the company wouldn't do literally any of the revenue of the $260 billion in revenue that they do today. Zero. Without that acquisition. But of course. Look at all their business lines. All the iOS business lines. Yep. I've had wearables none of that Mac none of that services none of that. Yep. Everything. Yep. Yeah. So then how do we do the math here? So what we basically just kind of like squinted at as we said that the discount for future dependency. So this discount that we apply where we're basically saying what percentage of the product that ships today came from outside the assets acquired. We're going to say it's about 95% that necessary but far far far far 95% from sufficient. And so we take a 95% discount on Apple's current market cap today. Here's the crazy thing. Oh, what's 5% of Apple's market cap? Some tiny number 63 billion. Providing us with an absolute dollar return of 62 and a half billion dollars that are very squinty math here. But honestly, it's hard to come up with something better would yield for Apple buying next. Yeah. Okay. Number four, just a hears width outside of our top three. But absolutely just this is what we'll get to reveal what it is. This is going to win the prize for ROI multiple here by a long, long shop. We are talking about Google's 2005 acquisition of Android for $50 million. Which one of the things this points to is how you can get these gigantic multiples from early stage investing. Yeah. I mean, when you say this one wins the award for ROI multiple, what I really hear is must have been a really cheap pickup price. Yeah, exactly. Well, exactly. Exactly. But again, like you can't eat ROI multiple. So that's why this is number four and not number three, two or one. But still a monster. Okay. Android $50 million to buy this thing. We tried to think about how do you account for what Android's current revenue contribution is to Google. And of course, Google is not helpful to us at all in this segment that when they report Android revenue, they report the search revenue that is generated from people searching on Android phones, which is not really how you'd want to do this. You really want to think about like, yeah, that's Google search right now. Yeah, that's those. Google searches were going to happen somewhere anyway, whether they had the Android or not. So how should we think about this? Well, there's one piece of the revenue that is actually much, much easier part, which is Google Play Store revenue. That is fully attributable to Android. That was going to happen. You know, like there's no sharing of that. It's like no Android, no Google Play Store. Yep, exactly. The other component, which is a little bit harder to sort of squint at, is what we call traffic acquisition costs. So it is reported that Google currently pays Apple about $9 billion a year in order to keep Google as the default search engine on the iPhone. That is an insane, insane number in their cost structure. And so one big thing that we sort of determined on the episode with Android in addition to the Play Store, how should you think about the value of Google creating Android in-house? You should think about it as money. They don't have to pay anyone else for that traffic. Because if they own the operating system, then they can for free keep Google as the default search engine. And so the way that we went about that is we compared the amount of money that is spent on the iPhone through the app store to the amount of money that is... Searches in 10. That would be monetizable search traffic. Basically, to the amount of money that is spent on Google's Play Store, Apple makes about twice as much money as Google does on the app store versus the Play Store, which kind of gives us a sense of... If you think about gross purchase intent or basically the value of the traffic on iPhones, it's about twice as much as the value of the traffic on Android phones. And so that's sort of how we backed into, let's add another $4.5 billion in, quote, revenue per year to Google for owning Android. Because it's basically costs they don't have to pay to anyone else. So here's the surprising thing to me though. The total number that we come up with revenue contribution for Android is, uh, Redmond 13 billion, right? Yep, 13.5. 13.5 billion. So four and a half of that were attributing by our, you know, flawed methodology here, flawed in some way, we don't know way to search. I realize this. There's so much revenue in the Play Store, like it's so big now, even though the iOS app store monetizes more and is, you know, more and more. Google is going to do, uh, by estimates, Google did about just under $30 billion in total gross merchandise value in the Play Store last year in 2019. They take a 30% cut of that, you know, we're under slightly under $10 billion in, you know, super high margin revenue to, uh, to Google. Basically, infinite revenue, infinite margin revenue to Google. That's incredible. Yep. Yep. Yeah. Listeners, uh, would love to hear your thoughts if you have a better way of thinking about Google sort of revenue contribution, we fully recognize that this, this cost saving is different than revenue. We also fully recognize that taking a ratio of the app stores earnings and sort of using that as a ratio of traffic acquisition costs. We may be vastly underestimating search value here. It's true. And of course, the 9 billion number that they pay to Apple is not a Google disclosed number. That is a reported number. Yep. And so, uh, yeah, we'd love to have more conversation on that. So we net out all of this when you current market cap contribution, taking out the $50 million acquisition price of $77.68 billion in absolute return on this acquisition of Android, which represents an ROI multiple of 1,555 X compared to a 5X from Marvel. And a nice little annualized return of 63%. Woof. Yeah. 63% over 15 years. Now, of course, that's not hard cash like a booking, which is the 48% annualized of like, yep, that's like, you can take that to the bank. Yep. But still, gotta make this one super high. All right. Well, our Google streak continues. It was going to continue for a little while here. Number three, Google's 2006 acquisition of YouTube, which I think the acquired podcast called this a C when they did that. Those guys, those guys are more awesome. Yeah, they definitely need to revisit this one. Definitely need to revisit. Consider this a primer on our, on our revisit. So big acquisition price. I mean, this is a 1.65 billion dollar acquisition. And in 2006, for a year old company, for a year old company that was a $1,000,000,000 that was basically incubated inside Sequoia. Yeah. So actually, is I believe still to the state, the only publicly available Sequoia investment memo out there because of course it was part of discovery in the YouTube by a com lawsuit. Yep. We'll link that in the show notes. If you're listening to this show and you find this interesting, you will like love geeking out over this investment memo. Yeah. It's awesome. I think this was real off first investment at Sequoia. I mean, it's real, it's like remarkably cogent for someone's and first successful investment memo. Yeah, you know, it's better to be lucky than good. He's good too. So Google finally did us a favor and broke out YouTube and it's most recent earnings. A fast growing revenue segment of $15 billion a year. I've got lots of comments on this, but I'm going to hold it for our playbook section. We're going to do a little more analysis. You look at the acquisition price of 1.65 billion now doing 15 billion in revenue. Google total is doing about 160 billion in revenue. So that comes to a market cap of a market cap contribution to Google's trillion dollars of $86 billion in market cap contribution for YouTube, which of course then is an $84 billion absolute return on Google's cash. We're just getting the silly numbers at this point. Yeah, if you can get a 52 X ROI multiple on a billion and a half dollar investment, you're doing pretty good. You're doing pretty good. There's lots more I want to say here. We'll hold this on for it. We'll hold this on for it. The end of the show. But all right, here's number two. I was shocked by this. I'm just shocked. We have not covered this as an episode. I mean, listen, you're listening along. What would you think number two is going to be? This is not what you think it's going to be. You probably know what number one is going to be based on the number of times we reference. So what is two? Yeah, what is two? Okay, so big caveat here. We haven't done this episode. We need to dig in more. This is this episode is like coming right up to the top of the list now of like we need to do the work here. Another Google acquisition. And let's pause. It's another Google acquisition. So listeners take five seconds and think about like what else did Google buy? 2008. That's what happened. Double click. Man, I was like, Ben, when you first put this on like the first draft of our list, I was like, double click. Come on. No, like that's not like, yeah, I mean, there's revenue and stuff in there. But like a bunch of that was already in Google and they did other stuff. And so we almost took it off the list. And then we went and we actually like dug in a little bit and we're like, wow, no. Double click contributes. The former double click assets now contribute a massive amount of revenue to Google. Google Ad Manager, that business line in the business unit that it's within, which is almost all double click and ad mob. They acquired ad mob. And when was that 2012 somewhere in there for about $750 million? So you put those two together. That's about $22 billion of revenue within Google today. Now, obviously, that's not search revenue. That's like display revenue. Right. That's revenue. And the way to think about this is of the sort of two big Google ad segments, and we're excluding YouTube here. And there's the stuff they own. So there's search engine ads that come up and that used to be called ad words. It may still actually be called ad words. I think they just changed it to Google ads. Google ads. Okay. And that's the larger segment. And then there's this other still very large segment. That's the stuff they don't own. So the ads that they're showing on other people's websites, which you used to be called ads since. Yeah. And that predates the double click acquisition. And that's why initially I thought like, oh yeah, ad sense been around forever. That wasn't double click. Yeah. But ad sense, that product line is actually quite small these days. Almost all of what is in, what are they called? And that's like Google network ads or something like Google network advertising, maybe something like that. Almost all of it is double click and ad mob. It's wild. And so of course, this requires a much more nuanced understanding of sort of the digital ad serving ecosystem and understanding double click for publishers and understanding what's an ad network versus, you know, double clicks. Is it a DSP? A. Well, there's like, you know, there's a double click for publishers and then there's double click for advertisers. And that's, you know, I believe again, we're not ad tech experts, but I believe that's like the standard, you know, rails that all kind of third party ad tech runs on these days. And I know every publisher for sure still has DFP as the sort of main container that all the ad networks plug into on their site. So the TLDR on this one is they created an unbelievable amount of value. It's still a massively value created for Google and works. I did too an episode on it. So they bought it for $3.1 billion in 2008. Current revenue contribution of this segment within Google is just a here under $22 billion. You can play that out by the market cap and you get $126 billion in market cap contribution, net out the acquisition price, $123 billion in value creation. You know, anyone should be trepidacious spending $3 billion. But when you have any sort of guess that 103 billion could pop out the other end, I got 126 billion could pop out the other end. Yeah. Have a little more faith. All right. Well, number one on our list. No surprises here. King. The king. The goat. So after three Googles in a row, we have Facebook buying Instagram in 2012. They bought it for a billion dollars. Recent estimates say that there's about $20 billion in revenue that comes from advertisers going into the very same portal on Facebook that they used to buy Facebook ads and instead buying Instagram ads. Or in addition, probably most often. Yep. So Facebook's current market cap, around $540 billion, they do about $70 billion in revenue. So 20 of this 70 comes from Instagram. Yeah. That's two sevenths of Facebook's revenue is Instagram. Yep. So not ridiculous to say that they contribute somewhere around $150 billion to Facebook's current market cap, which, you know, let's just round and say somewhere around $150 billion in absolute value return nuts. And you think about how recent that was to 2012, that puts it in an 88% annualized return for Facebook. So on our whole list, this is the highest annualized return. Now, only eight years, but still eight years of annualized return of 88%. Wow. 88% compounded annualized return. It's funny. It's nothing more to say. These percentages really force you to understand for folks who aren't used to looking at like IRRs or annualized returns. You'll notice even the best one isn't 100%. And so it really forces you to sort of like think exponentially, which humans are bad at. Yeah. Well, there's the Warren Buffett and Charlie Munger re-quote of, I believe it was Albert Einstein that said compounding interest is the eighth wonder of the world. Like if you can compound something at 88% per year for even just eight years, you get the greatest acquisition of all time. It's true. So we're going to do a little bit of a modified version here of acquisition category. So David, how are you thinking about this? So I went through our top 10, the only the top 10 that qualify. And I categorized for me. This may be slightly different than what we did on the episodes of the show, maybe different than what you think. Each, I categorized each real quick. But Instagram, as a business line, double click business line, YouTube business line, Android product, next people plus technology, booking.com business line, PayPal business line, ESPN business line, the Google Maps suite, I said product, and then Marvel business line. So of that, we have two products, one people plus technology and all the other seven business lines for me. Wow. You agree? Yeah. I would not change a single categorization there. Did you call Instagram a product or did you call it a business line? I called it a business line. That's maybe some one to be the revenue when they bought it. I think it's a product that plugs into Facebook's existing business line. Yeah. That's that's that's debatable on that one. I can see that that kind of straddles the line. Yeah. Because we define business line as like it is a, if not sustainable, then having a path to sustainability, business on its own, right? Yeah. So like booking.com course ESPN, of course. Yeah. It was YouTube, it was YouTube generating ad revenue when they sold. I guess that's not that important because it's like, it's pretty safe. Like you do the same way that Instagram would have implemented. Yeah. Right. Yeah. Wouldn't have been successful as successful because it wouldn't have been aggregated on the back end with all of either Google's existing advertisers or Facebook's existing advertisers and either those things. Where's I think like Android is definitely a product because you know, Android got integrated into so much. Like in a window style sell licenses. Right. Right. Like it wouldn't have worked. There's no way Android's business model could have existed except within Google and same with the suite of Google Maps acquisitions. Right. Like that was not where to was not going to build. They were building Google Maps, but they weren't going to build the business of Google Maps. Right. It's funny. Like I, so I generally agree with your thesis that the dominant tech theme here is, is business line acquisitions. And if you would ask me 100 episodes ago or 110, you know, when we started the show, like what do you think your takeaways might be? And I think we had this categorization thing within the first few episodes. Yeah. I don't think I would have told you that the most successful ones would be the business line acquisitions. Yeah. What kind of makes me think it's kind of a justification for venture capital for me, right? Like because kind of you could maybe make an argument that what these, some of these super, super successful acquisitions that our business lines are is just like, oh, well, the parent company at the bottom of the kind of like a venture capitalist, like they funded Google funded YouTube for a long time. And YouTube turned out to be an amazing business. And it's a separate kind of standalone business. It's the same thing about Instagram. I think probably Zach and Facebook, you know, we'll talk about in just a sec about acquisition, philosophies of different companies. I think that's kind of the thing about things like, you know, like the Facebook, quote, unquote style acquisition of we're going to buy you and we're going to leave you alone. Well, it's kind of like what it would be like if you're operating as a standalone venture back company. Yep. It's a great point. You know, it's funny. As you talk about the companies that show up here, and then we're drifting into playbook and themes here a little bit, notably missing is Amazon. Yeah. No, we're in the top 15. I mean, you've got Microsoft, Google, Facebook, Apple. Yep. You don't have Amazon. Yeah. Well, okay, let's talk about this. So the other thing I wanted to talk about in category section is use this to talk about the acquirers. Let's talk about each of these. So maybe can we start with Google? Google has four of the top 10. Yeah, it's amazing. Like, I mean, people know like, I think, yeah, Google's like, you know, well, right? Like this is Google is the best M&A track record in history, right? Like, four of the top 10 and three of the top four. That's pretty good. And they were in a bidding war for that for Instagram. So that's right. It's right. It could have been 404. It could have been, it could have been for the top four and five of the top 10. You know, you think of how Google, you know, maybe Eric Schmidt, I can see this, but like Larry and Sergey, you don't like, they don't scream like M&A genius to me. Yeah. I mean, I was tempted to blame it on the sort of M&A spree that they were on in this sort of like late, you get enough shots on goal. You're going to hit some winners. Yeah. But like, those ended up being the sort of like 20 to 100 million dollar pickups. They were doing it as a bunch of YC companies, as a bunch of Google alums. Those were Echo hires. They were just fine. Yeah. Like, these were bets. I mean, if you look at 1.65 billion, you look at 3 billion. Like, these are, these are big strategic bets that they were making out of the company, you know, in what, 2005 and 6, it's not like, I mean, how much was it? There was Google worth in 2006. 1.6 billion was very real money. I remember, my investment banking interview, one of my interviews was the Google YouTube acquisition had just happened. And the question was, what do you think about this? And I remember saying like, oh, man, they spent so much money. This seems crazy. Yeah. Well, here, okay, here's my sort of thesis on it. As when you say like, Larry and Sergey don't strike me as M&A geniuses. Obviously, Eric Schmidt was very active in the company at this point. Was he CEO or? Yeah. During all of these acquisitions, I think. So, you know, very seasoned executive there, technology executive. But the way I sort of think about Google is, at their founding, they were tech geniuses. They figured out something very disruptive, but didn't really realize it. They didn't know what to use it for. This sort of like- As Doug Leoni said, it took them a couple years to figure out. They knew they had something, but exactly what it was, they didn't know. And they kind of fell backward into a business model. They kind of like realized that, oh my gosh, this thing that we're doing by having the fastest and most accurate search results with the lowest cost structure because of our distributed compute infrastructure. Like, oh my God, we can do that thing that overtures doing and have incredibly high margin, incredibly defensible revenue. Yeah. Oh, okay, I guess we'll start doing that. Yeah, they didn't invent that. But then I think the thing that they did realize was the power of that. And then like, I think it's a billion's quote that Bobby Axelrod says, when you have an advantage, press it, they became very good at figuring out, hey, how do we leverage our existing strategic position to just widen the moat and create more business lines or create things that just add tremendous high margin revenue to our existing business lines? Here's something interesting though. All of these fantastic acquisitions happened 10 to 15 years ago for Google. Now, you can argue, as we said at the top of the show, we're not going to include recent acquisitions in this because it's too early to tell. So maybe Google has made some recent acquisitions that are going to turn into this, but I kind of don't think so. I think two things happen to Google, maybe three things in the period after when they were making these incredible acquisitions. One, Facebook showed up and started making some of these acquisitions. So like, whereas before Google was kind of the only scale tech acquirer, now I'm going to send Facebook some to see. And there's tons of alumni at Facebook from Google. I mean, the whole Facebook ads team was the original Google ads team, Cheryl moving over. Yep. So Facebook gets Instagram, Facebook gets WhatsApp, Facebook gets Oculus, which obviously of course is not on this list, but like, you know, it was a big bet to make. You know, you should be making these bets. Just like, take away here, playbook, you know, newsflash, make these bets. Do though, maybe in response to that, Google starts shifting to this strategy of like, oh, we're going to build stuff in house with like Google acts and whatnot. And I just don't think that works as well. That's a good point. You know, I see sort of the rationale, but like the incentives are wrong, you know, if you're not smart and you're going to build a company, you're like going to be all in and aligned. If you're making a Google salary and you're building a company, it's not, it doesn't work the same way. You sit here the day after Waymo finally took external capital. Right. Right. I mean, maybe Waymo will become this, but like, anyway, that's two. And then I think three related to both of these was the leadership change at Google. You know, Eric Schmidt steps back, Larry Page becomes CEO. Kind of what I said, Larry and Sergey both like incredible entrepreneurs, incredibly, you know, stewardship of Google and everything. But this isn't there. M.O. You know, making these acquisitions. Yeah. Yeah, Google X is in very, I mean, I don't know as much lore around the founding of Google X, but it does strike me as trying to recreate the conditions upon which Larry and Sergey invented Google search. Yeah. I'm sure there's many business school professors who study this professionally, but it strikes me that you can kind of do that once. And then when you hit your tipping point and what you need to do is grow and defend M&A is a much more high likelihood of hit rate strategy than trying to replicate those initial conditions. Which brings us to, I think the next company to talk about which is Facebook. Yep. Yeah. So I thought coming into this that my takeaway would be that Facebook is the greatest acquireer of all time. Well, they got number one. Yeah. And ultimately, the value from number one over, like as it continues forward in the future may actually prove that nothing else matters. Power law. Yeah. Number one beats two through ten combined. Yep. Maybe, maybe. But at the end of the day, there's two very different, like holding my comments about online advertising. There's two very different modalities of sort of this traffic. There's intent based and then non-intent based. Or I don't know what you call Facebook, but mess around on your free time based. Yeah. Yeah. Yeah. They both serve an incredibly different and incredibly powerful purpose. And they haven't really stepped on each other yet. Like they've tried in different ways. Google Plus tried. And actually, Facebook hasn't launched a search engine, even though they index most of the web, which is kind of interesting. Interesting. I do think both of those will continue as independent and during juggernauts because they serve very different purposes for the types of advertising that they serve people in the moment in which they catch them. Yep. Yep. It's interesting to think about, like, you know, Facebook is, we were just talking about Google in this era of this incredible era and then sort of seeding that definitely not intentionally to Facebook. But Facebook is also kind of like they haven't made acquisitions like this in quite a while. I wonder if that's because the venture capital industry has been so robust over the past few years. Like where it used to be like, Facebook wants to buy you for billion dollars, a couple of billion dollars, 20 billion dollars. We have a small fund that sounds great to us. Now you can raise money at 10 billion dollar evaluation. So yeah, it's a great point. Yeah. Interesting. One of my big tech themes is like, oh my gosh, these have all happened largely in the last 20 to 25 years. And based on your comment there, it may be the case that there was a 20 to 25 year window where the best M&A of all time existed. Yep. And if this ability to both stay private longer and raise huge amounts of capital and there are people with huge funds to support you to do that. Or as you said, robust venture capital infrastructure. Like maybe we don't see this kind of thing as much anymore because if YouTube was started five years ago, actually what would happen is it would be a competitor to Facebook, Facebook at this point. And it would be a large independent company. I mean, TikTok is the sort of what would have happened otherwise if if YouTube was 10 years later. Well, now that says so instead. I was going to say that it's both of what would have happened. It's two, it's a counterfactual and a counterfactual that a counterfactual is in that they bought musically. Musically is too early to tell if that's going to make the list, but it could. There's a world in which it could. And that's a recent acquisition. Super. It makes me very glad that we broadened acquired from just acquisitions to first IPO's and now just great technology companies because yeah, the era of these type of acquisitions maybe it's never going to be over. But like that fertile window from 2005 to 2012, I don't think it's going to come again. Yeah. You needed the right overlap of a technology wave and a capital wave. Yeah. And I think the interesting thing about the technology wave is these are all internet companies. And so you alluded to this at the beginning where you said, hey, we are going to cover non-tech companies too. And we're thinking with a lens of covering non-tech companies. But when you think about it, software being distributed over the internet. Zero marginal cost. Yeah. Like holding my comments about YouTube, like you look at Instagram's gross margins, right? Like they don't have to pay anything for the content. The advertisers are all aggregated anyway from their big stable with Facebook and even more people coming for the combined Facebook and Instagram. And the bandwidth costs to serve it out to the billion plus users on the platform now. Not zero, but much, much lower than the revenue that they're generating and off of this. So it's not just cost structure, but it's also I think even more important in why at least by our bias lens, we only had tech and a few media companies in here is just the ability to scale. If you're making widgets, you can't go from a million people buying your widgets to one out of every two people in the world buying your widgets within 10 years. You just can't do that. Yeah, unless you're Apple, I guess. Yeah, that's a fair point. So there's margin, there's scale, and there's defensibility at all sort of come. I mean, you're not going to unseat Instagram at this point. Yeah. Try a snap might. Let's go run through quick the other big tech companies. So Apple's on this list, but it's Apple's just whole approach in M O to this is different. You know, they make hardware, right? Like Apple buy components, technology, technology companies from time to time is always their comment. We thought about that as a name for the show originally. That's right. Glad we didn't do that. Yeah. Microsoft. What do we think? So they have none in the top 10. We've got Bungie as an honorable mention. Yep. Microsoft famously bungled M&A for most of the ballroom era. Yeah. Which is interesting, given they had such a robust team, they had probably a bigger, more robust team than then. I think maybe they overthought things. It's a couple things. Well, actually, they all stem from the same thing. It's Microsoft's culture. Either the not invented here syndrome just crushed anything that came into the point where they weren't going to play nice. Or Microsoft bought a quenif, like at the same time Google bought double click and like. Yep. I mean, that's the counterfactual. Or the crony culture or the cronyism that emerged from the culture there, people would make these acquisitions for political reasons within the organization and then refer to point one for wouldn't end up playing nice when they'd try to get integrated. Yeah. Frankly, like for as dominant as Microsoft was and as much as the culture helped them get to that position, I think it was pretty value destructive for being able to grow meaningfully through M&A. Yeah. Yeah, that makes sense to me. Under Satya now with the new Microsoft, having seen Microsoft is Microsoft, is Microsoft the current, currently the largest company in the world by market cat? It's up there at your age. I think they may be above that. I do know that their stock went up 50% between December 30th, 2018 and 2019. Wow. So obviously Satya is doing an incredible job leading the company. It would be interesting. Give me a minute just saying the era of the great golden age of M&A may be over. If it weren't over though, would Microsoft and Ken Microsoft, even in this era, make some some. I mean, you look at like what? Minecraft. Yeah. What else did they bought in the last few years? Well, they bought LinkedIn, of course. LinkedIn's never going to qualify because it was already so large. Like so much of the value had already been created. Yeah. Which to your point, like this sort of like robust capital environment, although LinkedIn was the same era as Facebook. It was, but they went public. They were LinkedIn went public right before Facebook and they were kind of the first, there was a huge drought of tech IPOs after the financial crisis and LinkedIn kind of broke the log dam. Anyway, the only other one I want to mention, you know, that we have to, Disney, got two of the top 10 media company, you know? Yeah. So I had this like blog post that I've wanted to write for a long time that might be just better as an LP show, but what is the same and what is different between content and software? Yeah. Because both are, I mean, if you look at software, it's really just content. Like it's, I mean, it executes. Yeah, it is. It's content. But it's copy right a bowl, you know, it's words, ish. And it's a set of instructions that is processed by some brain, just like an essay is. And so it has the same characteristic where you create it once and then you can create an infinite number of copies of zero marginal costs. This era, it has basically the same distribution costs as software does putting 4K video out there, obviously, is a little bit more expensive to host and distribute YouTube than other forms of, you know, then, then SAS, for example. So there's like these things that are the same. But then the things that are different are like you have to create the constant next thing in content in the way that you don't in software. Yeah. And you need to maintain it and stuff. Right, right. One of those last times Slack added a new feature that was meaningful to your life, never. But like, if you're- Where's we go three weeks without making an episode and we start getting like, really antsy? It's nothing. It's like, what Doug Leonis say, like without the next great investment, we just got the chicken and the fat. Twenty chickens running in the back. And that's how it feels. I mean, that's the difference between- We got to say that line more often. That's a really good line. Totally. I mean, that's the difference between sort of building an enduring thing that has a snowball effect and grows over time versus, you know, having to start from square one each time. Yeah. So to me, it's like the reason why these content things are on here is because they have zero marginal and low distribution costs so they can sort of have this high gross margin characteristic where you sink a ton of money into making it and then you can amortize that over tons and tons and tons and tons of people. But the reason why they're not in the top, you know, one, two, three, four, five, yeah, is and the reason why Pixar didn't make the top ten is because it's all about your next hit. That's so funny. And like, just they're even on this for a minute. Pixar didn't make the top ten. Marvel and ESPN did. Marvel and ESPN are more predictable and repeatable than, you know, Pixar is dependent on the brain trust coming up with something great every year. Yep. And sometimes they don't. Whereas, you know, ESPN is for like sports and getting to get played every day of every year. That's true. The content kind of creates itself too. And with Marvel, like the depth of the bench and existing libraries, like, yeah, you got to make a kind of movie. You got to be good and whatnot. But like, you're taking a lot less risk than you are on like, okay, brain trust. Go make me something good, you know? Yep. Yeah, that's a great point. Yeah. Okay. Playbook. Yeah. Can we talk about the fact that the top three are all online advertising? Yeah, let's talk about that. I have this is my, but what I think you're going to say is also my number one team here. Yeah. I mean, there's a few different ways to attack this. One is a defensibility perspective, which I think is interesting. Like once you already have all the advertisers and you already have all the users, it's a far cry to ever break that, that bond that's created. And so the other side of that coin is being anti-competitive. So you know, the fact that our top three are all online advertising network effect businesses that were bought by other online advertising network effect businesses. Like that may pay some credence to the drum that Ben Thompson has been eating around. Do we need a new regular? We're going to have a trust. Yeah, regulation. Yeah. So hugely, hugely value creative for the companies that bought them open questions. So the question of whether it's net positive for the world for this combination to exist. Yeah. What other angles do you have on? Oh, it's just so my angle on this, I greet totally with everything you said. My angle on this though, certainly for this insight that the top three are all online advertising markets, but also the whole list and all the honorable mentions. This comes back to me. This is another beat yourself over the head with a hammer moment of like, you want to build a big company target a big market, you know? And there's lots of big markets out there. But this top three all being online advertising, you know, like think about it for a minute. Online advertising is probably the biggest market in the history of markets. So it's interesting advertising all up at least in the US. It consistently tracks as 1% of GDP. Yeah. Now, okay, you could argue that residential real estate is larger. I'd buy that argument. But those two, I can't think of anything bigger because it's a big, big, big market. Anything bigger because it like advertising and online advertising, like you're taking a, a vague on everything that is sold all over the country. You basically get a vague on the economy. You're getting a vague on the economy. And, and so like it's so big that it can support the three biggest acquisitions of all time. I think, like, yeah, I don't know if you should say it's like, if you look at household consumer spend, there's like a big chunk. I think like 30% is like their housing and then like 10 to 20% is their car and like 10 to 20% is food. So like, I guess the, what I would think about all of those even housing advertising. Right. Zillow. Yeah. But I guess the point I'm making is like maybe it's the single largest high margin addressable market by a number of consumers perspective, but from an absolute dollars perspective, I bet those other markets are, are larger. The only difference being one, you actually have to do the hard stuff, like bringing, making the food, bringing the food, whatever it is, cars, you know, making cars, margins, segments, like online advertising knows no segments. Everybody has a social network account. It's crazy and, and ease of scale. So like, I don't think the amount of revenue available in online advertising compares to the amount of revenue available in residential real estate. However, the reason these market caps are the way that they are and the reason these multiples are the way they are is gross margin, lack of segmentation and growth characteristics. Now what we're talking about at the end of this episode with, you know, in our clips with Hamilton, as we talked about in the whole episode with him, the mistake that VCs always make is the only look at market sites. That's only one half the equation. The other half the equation is your ability to create defensibility within that market. And we haven't talked about that on this episode. This is not the time and place for it. But, you know, all of the top companies on this list were able to do that. The other two quick kind of sub bullets of that that I want to say are one, if you look at all these acquisitions on the list with a couple notable exceptions, double click being a really notable one, these acquisitions were done early in that marked particular markets development in the lifecycle of the market. And, you know, Hamilton also talks about this. Like, it's the growth phase of a market. That's when you can create power. You can create defensibility. If you wait too long, you can enter markets later, but you're never going to dominate a market unless you enter later. Now, double click is interesting in that Google bought that in 2008. I think double click was founded in 1995. So that was, you could argue that was an evolution of the market. Anyway, and then my other sub bullet is like, if this, if you're big game hunting, you know, if you're big elephant hunting, price doesn't matter. You know, bring a big gun. You can spend 1.65 billion for YouTube and like still end up number three on the list. All right, David. So in this final section, most commonly known as grading in every other episode, we're going to use this to sort of talk about things we might want to adjust in this list. Acquired adjusted ranking. Acquired adjusted ranking. And we're not going to actually change the rankings at all. But there's some things like you can't serve all masters and there's some masters we didn't serve, namely profit contribution, you know, gross margin, strategic value that deserve to be talked about here. And so this is sort of our opportunity, I think, in this to grade either entries on this list that we're like, I, you know, maybe that should be higher alert. Yeah. First, let's just talk about how unbelievable Instagram is again. So instantly make it higher. The number one. There's a defensibility, amazing to it that I think gets harped on over and over and over again. There's another thing that is they don't pay the creators for the content on it. Like Instagram generates 20 billion dollars in revenue from content that they get for free. It's incredible. Yeah. It is like the content is like what's interesting. You know, we're going to talk about YouTube in a sec. We got to pay for the content, they got to pay the creators. Then you look at like Facebook, like, oh, Facebook gets their content for free. But the nature of the content on Instagram is like super high, like it's art. Like these, these, like that content has value. Yeah. Whereas like the Facebook content, doesn't that have value if it does, you know, like me typing out a status update, you know, like what not like you've been on Facebook in a while. It's kind of the same as Instagram as it is. Yeah. Well, I think I've been on Facebook and, but like, you know, professional photographers and brands and people creating content for free. Yeah, highly produced content that they could, you could go spend a million dollars to make a film that you release on Instagram for free. Like crazy, crazy, million might be high, 100,000. So then compare that against YouTube where, of course, they pay something like half of their revenue out to creators. So when Google says we generated $15 billion in revenue in our YouTube segment last year, it's like, I would, there's an argument about if that's even revenue. And like they chose to report it as revenue and have a higher revenue, lower gross margin percentage business line there rather than I think what you could have done is said, you know, we have seven, eight billion. Exactly. That is what it is. It also YouTube is serving 4K content. And so they're bandwidth and hosting costs got to be, I don't know, at least three, three ish billion dollars. In YouTube's, I'm sure Instagram's, I'm sure are high too, but you think about the level of compression that people are totally happy with on mobile screens and the fact that like, oh, they haven't released an iPad app. It feels, of course, like they're resource constrained, but like gosh, you might want much higher quality stuff if you're having it shipped down to a, you know, retina iPad Pro. So I guess the macro point here is I think it's always worth comparing to similar companies like this. YouTube and Instagram, Instagram doesn't pay for a lick of their content. YouTube has half their revenue going out the door. And I think probably significantly higher hosting and bandwidth costs. Yeah. It's important to know too. Like we, we're not going to do value creation value capture on this episode, but they're like a bunch. We're not talking about like what's good for the world, what's not good for a world like all this stuff. I'm going to a lot of arguments that Instagram is like bad for the world and like how it is right now. Purely as a shareholder from a like investor economic perspective, if I could hold shares in Instagram versus YouTube, I would put all of all 100% of my dollars between those two into Instagram and zero into YouTube, even though I love YouTube burn. Well, it's just like Instagram is totally it's everything we were just talking about. Yeah. Yeah. The other thing that's worth talking about YouTube now that we've denigrated it is it is is talk about the strategic value, which we didn't talk about anywhere in here. Yeah. So YouTube is the second most I think this is still true. The second highest traffic search engine in the world. Yeah. And they're owned by the highest traffic search engine in the world. And so it is worth in the same way that with WhatsApp, we said, was it worth Google? Was it worth Facebook paying 20% of their value to go and make sure that their core isn't threatened? It's hard to put a price on Google owning also owning the second most valuable search engine in the world. Yeah. So, you know, I think it deserves to be up there probably for that reason alone. I'll be it. That's not how we made this list. Yeah. Another one that I want to discuss here and again, we're a little bit out of school because we haven't done the episode on it yet. And we absolutely need to is VMware. Like the only reason VMware is as low as it is is because of this crazy thing going on with the MCN Dell right now, like to acquire 80% of VMware for $625 million. Like, man, if I could go do that again, I would go like mortgage, you know, my house a million times over to do that. Like turned out virtual machines were a we're a thing. And also reflects all the playbook we were talking about, like early in a big market. Like also interesting that it's the I believe. Yeah, it's the only kind of enterprise company on this list. Oh, that's interesting. When you're talking about attacking big markets, I thought that was a direction you were going to go earlier of like consumer is a big market. Yeah. Double click is arguably. But it's it's serving consumer. It's the end customers consumers. Right. And like it kind of makes sense that the biggest companies would be consumer companies because the consumers businesses serve consumers. You know, you pay retail price for something. And then there's 11 businesses that are chopping up all the revenue that you gave to the retailer along the way to power the back end of the retailer. And that all has to add up to less than what you bought it for. Yeah. Otherwise, you know, so they're losing the retailers losing money. And so it sort of makes sense that like the biggest companies would be consumer companies and the most successful acquisitions would be consumer acquisitions. Makes sense. But yeah, I had we didn't point that out before. Do you want to make your picks our apology statement and not apology, but your apology not in that you're sorry, but like a justification for picks are here. Of why it's all the way down at 14. Oh, why it's worth more than we say than we say in this. Yeah. Yeah. So there's a that's right. We talked about this last night. So picks are a thing that we didn't do is also count the Disney animations value that it created. Of course, revitalization of the whole company. Totally. Like I think what's the phrase from the Iger book? So with animation goes the company. Yeah. So Jeffrey Katzenberg did an incredible job with Aladdin and what beauty in the beast and Lion King. And then we had sort of him leave and then we had the Lee Lowen stitch era and we had Tarzan and we had those are the good ones. And so you know, you have Disney animation falling off a cliff, which of course, so as the whole I will everything. And so in acquiring John Lasseter at cat mall and the rest of picks are, you know, they revitalize. And like the whole the whole brain trust totally. They revitalized Disney in a way that it's it's kind of hard to put a value on the easy way to put a value on it is just multiply the number of basically that that value that we said that it contributed by two and basically say because you get for everyone picks our movie you get one Disney animation movie. Exactly. And that's been largely true. They've both both studios are basically done one big mega hit per year. And sometimes they try to but sometimes you get frozen like it it worked. You know, I and so I do think let it go. Let it go. It's if we were considering sort of strategic value, then I do think you'd probably want to say picks are contributed not what it would be say three billion a year, but six billion a year, something like that. Yeah. But that wouldn't materially put it up with some of these other ones. Who wouldn't you know. Software is hard to beat. Yep, any other any other comments? I know. Thanks. So the only other cafe that we said in the beginning, I'll say again, we're probably missing some in here. So please write us in a card FM at gmail.com join the Slack. Hit us up in there. But I can't wait to do a double click episode. Yeah. NBM where episode. Yep. Going to be super fun. I think this just pointed out the sort of need to do both of those if not this season that soon. Yeah. All right, carve out. So we haven't done them in a while. Oh, we haven't done them in a while. I got to first is the piece of software to do it. I love it. I do. My to do list. Apple reminder is just like I just finally couldn't take it anymore. It got buggy. It was so so itky. And even though my whole life ran on it for years. So I tried a whole bunch of different, you know, options and finally landed on to do it. And I just love it. It's great. It's everything I want. And to do lists, my name which sounds simple, but I manage my whole life on it. And I can assure you as someone who's built a to do list. That's right. Going over the years. It's actually harder. And this is any piece of software, but it's actually harder to make it feel simple than it actually is to make it feel. Well, everything should be as simple as it can be, but no simpler. To do this does a really good job of this. What's the Hamilton quote? Simple, but not simplistic. Yes, that's right. Simple, but not simplistic. You'll hear from Hamilton in a minute here. My other carve out is, you know, band a couple. I saw in the WhatsApp episode, your carve out was computer glasses. Our friends, you know, a lot of sponsorship, but Felix Gray, direct consumer computer glasses brand. Fans of the show, listen to reached out to us and they sent us pairs of computer glasses and I've been used them. They're awesome. I love them. Welcome to the party. And the best part is I finally, I'm very lucky. My vision is normal, but when I wear glasses, I look very airy a day. But I'm not going to be that guy that wears glasses that don't actually have prescription just look very day. Now I have an excuse to look airy a day. I love it. I don't actually know what that word means. You know, like knowledgeable, intelligent. I see. I think you look that way anyway. Oh, thanks Ben. All right, my carve out is the master class taught by dead mouse. So if anyone out there is a master class subscriber or wants to give it a shot, I spent a couple weekends ago doing the watching and then experimenting a little bit on my own with producing some music and watching the dead mouse class. And it was awesome. It's cool that he agreed to do it because with that many hours of just like somebody talking about their craft. You really get a sense of how his creativity works. It's interesting from a learning perspective, learning the software. It's interesting from watching the ways in which he is resistant to using a lot of like out of the box software or cookie cutter loops. And he's like, he's a massive wall of things that he's actually plugging into and dials and doing it all sort of analog and then recording the analog sounds acquired goals. Dude, it's really cool. It's really creative for anyone who sort of likes to watch the creative process in action. I highly recommend it. That's awesome. Whether you're an EDM fan or not. So can't can't recommend enough. Do you think a D-sall watched it and learned from it? DJ D-sall. Probably not. I don't know if that guy has the kind of time on his hands. Yeah, probably not. Yep. All right. Well, listeners, if you aren't subscribed and you like what you hear, you should. This particular episode is different in that it has a accompanying blog post that we're going to publish sort of the full data table and a little probably short paragraph on each company. We got to write it. So who knows exactly what it will be. But the hope is to create kind of the first enduring piece of acquired kind of acquired artifact outside of just these 100 plus episodes that we've done that is is a little bit more sort of referenceable and I think discoverable for folks who aren't already big fans of the show. Feel free to click the link in the show notes to check it out to share with your friends. And we'd love to have a conversation about it both on Twitter at acquired.fm and in this lack. By the way, you can join the Slack. Go to our website acquired.fm and there'll be a big button to get an invite to the Slack there. We have going on 5,000 people hanging out there. Also, it's a great stuff going on. It's true. We'll stay tuned after this for an excerpt of our LP episode with Hamilton Helmer, who is the author of seven powers. If you'd like to become an acquired limited partner, subscribing gets you access to our LP show where we dive deeper into the nitty gritty of building companies in real time. To listen, you can click the link in the show notes or go to glow dot fm slash acquired and get an seven day free trial for all new listeners with that. Thank you to Silicon Valley bank and Wilson Sincene. We will see you next time. See you next time. Welcome LPs. I am here in lovely Los Alta's California with a very, very special guest that we've been wanting to have on the show for a long time, Hamilton Helmer, the author of a book called Seven Powers, which is just spectacular. And probably the best kept secret in Silicon Valley. We and I first heard about your book on Patrick's and Best Like the Best Podcast on the episode with Keith Reboye, where he said basically the same thing. And so I ordered on Amazon and I look at the blurb in the inside of the jacket. The people who agree that this is the best kept secret in Silicon Valley, the list of them is just kind of staggering. So Reed Hastings, who also wrote the forward for your book, Daniel Eck, Michael Moritz, Peter Teal, the former CEO of Adobe Bruce, Bruce Chisholm, Patrick Collison from Straype, Daphne Culler from Coursera, Jonathan Levin, who's the Dean of Stanford GSB, Pete Doctor from Pixar, who directs at Monster Zink and up inside out. The list goes on and on and on. We are so excited to have you with us here to talk about the book, talk about your work. And I would say we're sorry to blow your cover, but it's sounding like that's pretty well blown as no longer the best kept secret in Silicon Valley. I was going to say that the fact that it's the best kept secret says something about my acuity as a good marketer. So okay, let's get into the fun stuff. Seven powers, you know, when I read it, to me at least, the thing that was so enlightening about it was I see this mistake all the time until the Silicon Valley and adventure investing of like everybody's like, tell me about the tam. Got to target a big market. But that's kind of only half of the equation of what makes for a great enduring company is targeting a big market. Of course, you have to have a big market. But you also have to have what you call power in the book within that market. You have to have defensibility. You have to have something that makes your company and your business stand out. Can you tell us a little bit about how you define power and how you came up with it? Yeah, sure. So as I consulted with more and more companies, because I ran my own consulting firm for decades, three things started to become evident to me. One was that really strong performance is persistent. If you look at Intel's results this year and Intel's results next year, the fact that they have high profit margins will probably be true next year. And it turns out there's a lot of empirical work that verifies that. That there's a person there's persistence. It's like the exact opposite of hedge fund managers year to year or mutual fund managers. You know, there's no persistence in mutual fund managers. Now interestingly, you probably know there is persistence in venture capital. Yes. And then the next thing, if you've done a lot of valuation work, I'm sure you've done a ton and I've done a ton and I've even taught it. What you learn is it's all in the future. Yeah. So if you take a company's growing about 10% do a standard valuation model, what you find is 85% of the value is after year three. Yeah. So persistence and in the future. That says that if you can understand the issues of the drive persistence, you're going to understand what drives value, right? But then as I did more and more consulting work, another thing came into focus, which was that the path to establishing that kind of persistence is not linear. There's a step change. So there's a period when a company can establish that and that window often closes, if you will. And it's the kind of business that you were so familiar with. It's in the earlier stage. I think you called in the takeoff phase of the market. Yes. So if you think of a founder, there's this period of where there's tremendous flux going on. They don't know who the customers are. Technology can change you like crazy. They have all wide variety of different types of competitors. And in that, there are all kinds of degrees of freedom about how you move. The fact that people even talk about pivoting is just suggesting that it is possible in fact to pivot. Ask Intel to pivot and that would happen very easily. And they've certainly been trying for a long time. So what that says is there's this moment. But then the problem is from a strategist point of view is that all the information is changing so radically that the person or the group that has to process that is the founder and his team. And it's not hiring somebody like me and making a recommendation or a strategic planning or something like that. It's actually processing all this time. And as you move through space and time, understanding, okay, this direction looks a little better than that direction. Silicon Valley founders and the venture capital ecosystem identify here's a big large market opportunity. Hundreds of companies get funded and rush in. And only one or two of them make it out. And so it's these decisions that guide what's going to create power. That's right. And so what that said to me was that what people needed was not advice from an expert, but rather teaching to fish. And to assemble a way of looking at strategy so that the people on the ground who are really making these decisions have a way of thinking about it that will never perfect, but guide them in the right direction. But the problem in doing that for me was that providing a mental model like that, as I say in the book, it has to be simple, but not simplistic as simple so that you can retain it, not simplistic so that it's relatively complete. You don't miss a lot. That's a really high bar in strategy. And that's what took me so long. I mean, I wrote the book. It took me 20 years of writing it basically. And Hamilton, I'll tell you, like having read a bunch of business books and having an even larger pile of business books I've bought, but haven't read. And then probably even bigger than that of recommendations I've had, but haven't made it to, there's so many different mental models for how to think about this stuff. I will say, like, thank you for taking the 20 years to do it because the fact that there is a one-page reference card that sort of like assemblies this whole thing in the grid. It actually does make it so you can reference the seven powers and sort of make decisions in real time. And it takes, I think I've read the book very recently. I'm sure it will take me some time to sort of like make that system one thinking instead of system two thinking, but it's certainly much more accessible than, I think, trying to weave your own fabric of lots of different theories. Let's talk about a few of them. We won't have time to go through all seven, but they're all fantastic. Maybe a good one to start with since most of our audiences in technology and most of those folks are entrepreneurs or aspiring entrepreneurs, counter-positioning. This is such a fun one. I know it's your favorite power. And particularly such a fun one because it's, in many ways, the most relevant for startups and entrepreneurs in a lot of markets. Can you talk to us a bit about? Yeah, yeah. I do have a special place in my heart for counter-positioning. I have to say because it's so contrary and I'm sort of a contrary person, I guess. Compositioning occurs if a company comes up with a new business model and challenges often a powerful incumbent with it. But for the incumbent to mimic this model, they would incur or at least think they would incur so much immediate financial damage that they just say, I can't go there. Even though maybe long-term it would be good, they just can't do it. And that provides a powerful disincentive for them to respond quickly. And if something's happening in the kind of flux that you guys deal with, very fast, responding late may mean that you don't do it. So I'll give you some examples. So Netflix versus Blockbuster. So late fees. Yeah, yeah, yeah, late fees. So late fees accounted for half of blockbusters income. Netflix says we're not doing it. And Blockbuster eventually mimicked Netflix. And who knows? But my suspicion is if they'd done it a year earlier, I'm not sure Netflix would exist. And so, and the place I got to kind of cut my teeth in this was I was a big investor, big for me, not big for them, a big investor in Dell in the 90s. And my investment hypothesis was the compact couldn't respond quickly to them because Dell was going direct and compact had these lucrative arrangements going through stores. But there was nothing in the literature that sort of I kind of looking at as investor, I could see that was true, but you know, why? And so that kind of got me thinking about it from sort of a ground up. And eventually I was able to formalize it. Hamilton, one thing to push on there. So it seems like, and I'm remembering from your book, that the criterion are basically this new thing is both a good business, but net negative for the big incumbent because of the cannibalization that would occur. Are there any other things you would sort of add to? Yeah, so there are a few flavors of counter positioning. One is that is that it's a net negative. And therefore, because their current model is so lucrative that actually even if they did a net present value, they would end up with deciding not to do it, even though they'll eventually the business will go to the challenger. And these are not mutually exclusive. It's very often true. I'd say almost always true that there's a cognitive bias involved, which is that the incumbent, they've done just great. Their model has worked for years. I mean, Blockbuster is saying, oh, we've got all these stores. People love it. They come in, they can browse. What's wrong with that? And they think they just, and the idea of somebody doing this rough and ready group sending out red envelopes in the mail, they say, what the hell? This is just not going anywhere. So they're very cognitively biased towards thinking that their model works. And then there are also agency issues, what economists call agency issues, which means that the person who controls the business may not be and have interest aligned with the long term interest of the business. So for example, CEO Comp is often about this year's performance or the next few years performance. To upset the Apple cart for a gain that will happen four years out, you may say, I just don't want to go through. It's hard to do if you are a hired CEO of a large long-lasting company. If you're not a founder, then most of your worth is in the equity of the company. So the long-term matters. It also reminds me, as you were talking, I thought about this, but obviously for startups, counter-positioning can be great. Netflix is a fantastic example. But even remembering a blog post Bill Gurley wrote a number of years ago in the beginning of when Android was starting to take off. I think the title of it was less than free, the most disruptive business model ever. You had Android, which cost less than free. They would pay you if you were a carrier to put it on your phones versus Nokia that's trying to make money yourself there. Even as Google and I staff, because they had the separate business model of search, they're able to enter this adjacent market with a completely counter-positioned business model. Hamilton listeners who have read the innovators dilemma, this is going to sound vaguely familiar. This would be the power that's most similar to that concept. How do you think about, in the same way that we asked earlier, what's the difference between power and mode? How do you think about counter-positioning relative to that grand theory? I recommend everybody to read that book, innovators dilemma, it's a brilliant book. Christianson was just a scholar of innovation and deeply researched. I've created a very generous book. But it's pretty different. So if you want to get mathematical about it, there's many to many mapping between the two concepts, which is to say that counter-positioning doesn't apply disruptive technology and disruptive technology doesn't apply counter-position, give you some examples. So I would argue that in and out, progress is counter-positioned against McDonald's. There's no technology involved particularly at all, but it's counter-positioned. So that's one case for it. And it's not disruptive in terms of Christiansons philosophy as low end. This is like an objectively worse product. Right, right, right. In and out, right, right. Right, right, right. So you're going back to Christians' original book, which I think is the more interesting one, where there's a product that kind of doesn't satisfy everybody. You could argue that Tesla's first cars were like that, right? Right. Right. And then the other direction is that if something is a disruptive technology, it may not be counter-positioned. So that's right for it. And the fact that they don't map to each other and the fact that power maps directly to value or there's a one-to-one mapping between power and value, it means that disruptive technology does not map to value. And so as an investor and the simple thing about that is you can disrupt something and it can be a really lousy business. Yeah, that's all the time. You may not be able to realize you poison the well. You poison the well. You poison the well, but there's no good end point for it. I think we may be overly quoting Gurley here, but I think it's a recent tweet, something along the lines of there is an infinite amount of product market fit for selling dollars for 90 cents. Yeah, yeah, yeah. Right. So, yeah, I mean, and you see this model all the time of, so just pricing something so that people are attracted to it and losing money is not, there's no power there. Now that's so stems from pruh beam and batteries, from the