 Prepare for the extraction point we've been briefed on all the important stories and events in the world of emerging information now it's time to extract the data and turn it into action live from the SiliconANGLE studios in the heart of Silicon Valley this is extraction point with John Furrier today on extraction point from SiliconANGLE TV Google reveals one pass for publishers Twitter secret video to advertisers leaked Android report what we need to know about mobile app developments and today in studio smart node and author Andy Kessler talking about his new book eat people today on extraction point with John Furrier good so eat people Andy Kessler you just wrote a book just came out grumpy your other book which had great reviews on Amazon I think I wrote one of them that was a fictional story based upon non-fiction scenarios right yeah any people's a non-fiction book a bunch of rules for entrepreneurs to figure out how to find the next big thing we're going to jump right into that detail conscious about eat people the rules of entrepreneurship identify the next big trends investing participating in but first let's go down through the extraction points today a lot of no not a noise out there in Barcelona with Mobile World Congress Google this Facebook that Google launching today the one pass for publishers you're a publisher you write books you also write for the New York Times and Wall Street Journal which they charge for content so here's Google trying to one-off Apple after they launched the app store 30 percent commission so what's your take on that I think it's great I love when big companies battle it out for a share I mean look what Apple did is Apple's trying to run this closed ecosystem you know apps all have to go through them they have to approve it now they're trying to do that with with subscriptions magazines or iPad magazines right where charge whatever you want but we get 30% and Google saying hey we're we're the open alternative so come and use it what you want you want to charge what you want that's fine and but we're gonna make money doing search and other things rather than these subscription miles I think it's terrific I mean Google's been monetizing the web for effectively for ten years now add words and add sense I mean they're not the most generous to publishers I mean you got you can make you know some lunch money if you have a blog or a website out there if you're a big publication then you got to do zillions of page views to make any kind of money so I mean do I trust Google with that kind of power or will they do it you know they're talking about mobile devices tablets right because the argument is is who gets magazines anymore you got to have these snappily dressed postal workers delivering them to a mailbox to get wet and they start smelling and the like and now you know this is we've got this nice beautiful tablets we're all gonna have one soon and so the battle is how do I get Newsweek or Time or Wired Magazine you know delivered to those formats and Google's just saying we're gonna be the more open alternative we're gonna have we hope more units out there and so publishers come work with us instead of Apple Apple saying yeah but there's our inferior we have the nice beautiful and you're cool if you have an iPad you look just you look cool and it looks better too that's what they're saying Apple says it looks better the retina displays well the extraction point there is look we talked about that yesterday Apple's closed and it does look good products great Android has got some serious graphics issues from platform to platform they could have multiple different versions so I mean I'm cautious I'm with Apple on this one point two to talk about Twitter's secret video leaked to advert about advertising a video was out in the web talking about how Twitter works for advertising so in essence it's a how-to training video and basically advertisers don't even know how to deal with Twitter so I mean yeah it's like I mean Paris Hilton leaked videos too right yeah the sex tape I mean Twitter sex tape we just watched the Super Bowl and these poor advertisers just spent millions of dollars just to run the ads let alone the millions to develop them and now they're being told forget all that you have to get your message down to 140 characters right I mean who can get a message across 140 characters but it's important because it's where buzz is created or it's captured and I think it's quite fascinating you know Twitter still has yet to really figure out a business model to what they're doing you know what Google's business model and as you said before monetizing the web is really about capturing gross margin from retailers and Twitter they're going to get paid for that mean even Facebook hasn't quite figured out how to get paid for page views on on friend sites and so leaking leaking tapes to advertisers is probably a good start but boy it's not the visual environment that advertisers like my angle on this is it's pretty clear it's just Twitter's so embryonic they just like baby in diapers they just don't know what they're doing and same with Facebook at least Facebook's over the top and says hey we don't know what we're doing we don't really care and we'll go dip into that zillions of users so we'll make as much money as we can to break even Twitter just seems to be forcing a business model and they don't really need to they have tons of money in the bank they're groping for an ad solution this video really highlights you know how really inferior Twitter's thinking is for monetization so I just think it you know advertisers don't know what to do mainly because it's really not much of a solution there so you're saying it's spaghetti against the wall and see what sticks this is spaghetti against the wall it's their sex tape and I think they got a long way to go figure that out and I don't think I don't think they should I've said in my blog and I don't think they should force it they got a great franchise they're changing governments freedom with Twitter and Facebook I think they got such a huge number just run up the scale make sure the system doesn't work and let monetization play out that's my that's my I can't wait till we figure out what Philip Morris is hashtag is but go ahead yeah yeah I really regulated that yet the third the third topic we talk about extraction is the mobile market and Eric Schmidt was talking about Android activations what was the number 300,000 a day 300,000 activations a day how real that is what countries they come from we'll see but I think the extraction point is Android's on a tear there's a motivated group of people who want to deploy Android because Apple's kind of blocked them out and it's the class free it's free and it's an ecosystem of developers behind it and like I said yesterday puts the pressure on the Nokia Microsoft relationship where Eric Schmidt said hey come work with us so well Nokia was paid I mean there was a bidding war between Microsoft and Nokia excuse me Microsoft and Google who could pay Nokia more to run their operating system so no longer do you not have to pay for an operating system someone will pay you to run it that sort of smells of the days of dot-com world when people started paying for traffic and and paying for content and until it got turned around the other way and and I think it's fascinating I think I think Google is a wonderful alternative to the closed system that Apple is and number one number two is there instead of making phones Google started out that way but almost as a test case they're owning a horizontal layer that's one of the rules in my book is just own a horizontal and it's also a zero marginal cost business doesn't cost them anything except the development cost to give away copies of their operating system and they make money either upstream or downstream from that before we before we jump into the rules about eat people we'll try to hit some of the topics we just talked about those three also well I want to add another extraction point is and we talked about this yesterday was the bubble there's big bubble mania and we'll talk about that but getting back to your book that's out there right now called eat people and there was some reference on the blog three about cannibalism or someone from the Washington Post mentioned that it's not cannibalism you know is it a fork through a guy I mean you know this is this book was inspired by what tell the folks out there why eat people it's a lesson for entrepreneurs lessons for investors what is the whole premise what's going on as you know we're in an economy in transition because the economy is always in transition but you know now more than ever we're in the process of get it using technology to get rid of older less productive boring mundane garbage jobs and replacing them with high productive high value high margin jobs and whenever we do that you know there's these sad stories heart wrenching stories of people that are being laid off and and jobs that are lost the unemployment rate is 9% 26 million people are undur employed or unemployed but the reality of it is it's all for the best the Golden Gate Bridge of all places just announced no more toll takers it's either going to be wireless fast-track or they have a camera that takes a picture your license plate will send you a bill yeah the ticket of all the people that's what eat people is about yeah it's it's automation and you wrote a book also into medicine we're here with Andy Kessler I'm John for an extraction point Andy famous Morgan Stanley analysts what was it one of the books said you were what was your your award you got top rated at no institutional investor magazine that was the old thing that would get ranked of the year or some you know historic you know superannuals that was early on the computer revolution when you were you know young buck in the business with you know Mary meeker but she came on after you Frank Quattrone you know I'm an old buck is that what you look good you're an old buck but doesn't the old days right and then you became an 80s early 90s yeah investor now you know author right for the hedge fund maybe less than a mile from right here and we invested in small technology internet internet boom right it was you know fortunately ahead of the internet boom we didn't do dot-com names but every time and this is answered your question about whether there's a bubble or not every time money got thrown at these service companies you know like a gesundheit.com or eatmyshorts.com we would put more money into the infrastructure companies of all the equipment that they had to buy and that's an interesting way to play the money being thrown at the zingas and twitters and root bonds and you've seen your share of paradigm shifts and disruption and massive wealth creation through and and also you know carnage right so destruction and now you write about it for the times in the journal in your new book I mean what is the biggest theme that you see between when you were an analyst identifying the entails of the world and then pre-internet what were those some of those key patterns you saw then that you see now if do you see any yeah well you know it used to just be it used to just be in the corporate world right is is you know PCs would change the way how corporations would operate how white collar workers would would manage their business now it's a consumer phenomenon so you know in the in the 80s we had given up the consumer electronics business to the Japanese I'll let them make the TVs and VCRs and DVD players and now it's a very American phenomenon the consumer electronics business is all about iPhones and iPads and tablets and each and the like even though HTC may make them it's American technology it's Google it's it's Microsoft software it's Apple software and so the the biggest change is just how fast these things are coming at the mobile that's making it so consumer tech I think mobility is one but also just we're at the point where it's just so inexpensive right it used to be when I started on Wall Street the big battle was you know digital equipment versus IBM now they're basically both digital equipment is dead and IBM is now a consulting company that happens to make computers on the side you know that those vertically oriented companies were destroyed by horizontal companies like Intel and Microsoft which is rule number what here on the rule number three rule number horizontal I had a roommate I used to come home late in the day horizontal from too much too many too many cocktails you have a couple cocktails and say when in doubt get horizontal and I've always lived by that rule but what that means is instead of doing everything instead of doing soup to nuts you know just pick some horizontal layer some sliver of intellectual property that you can own do better than anyone else and then the pace of innovation above and below you like Google doing operating system great you own that maybe you own search below that but you're not making phones and you're not running you know stores like they're like Apple is doing so you know I mean I see you've seen a lot of trends you've been involved in the business and you know you're really good right you've written some clever books and entertaining books but this book seems to have two kind of themes to it one is lessons about identifying big trends and key key trends from an either an investor or an entrepreneur job seeker but more importantly it's also got kind of a futuristic kind of bent to it eat people meaning you know we're living in a day of automation social interact is now online yeah and a change in kind of society kind of some sociology issues involved right yeah that a fair assessment the industrial evolution ended I don't know sometime in the 70s and we entered this you know knowledge age or information age and I think even that's dead it's the idea you can just you know a couple of really clever coders in a in a cafe up in San Francisco can change the world can come up with the next meet app that everyone absolutely has to use where it's an Instagram that does you know photo manipulation and the like and then recently just had the guy from Roku on yesterday who told us how they change the world literally in a day and a half they change how they you know did their product so that guys can stream out of Egypt and boom revolution guys out of business the country and freedom change used to like that used to take two years of memos flying around at IBM or AT&T so you know look I was an electrical engineer I was a programmer I then worked on Wall Street for God knows too many years and so I get email and I write books and op-eds I get emails all the time from smart young people that say hey I was an engineer I was a programmer you know I want to either work on Wall Street I want to be an entrepreneur what should I do here's my idea run for the hills so I said you know you can't type more than three sentences to someone back in an email so literally I said I think over my years I've figured out a lot of things that are the criteria to how to find the next big thing so I wrote it up and so I wrote it for all those emails that I couldn't answer and so it's a book for entrepreneurs it's for investors because there's a lot of investment themes in it and it's for job seekers I mean there's no reason that you can't be entrepreneurial inside of a big company harder but it's not impossible but I want to tell anyone who's you know 20 something and looking for which company to work for it makes a difference because you don't want to work for the next digital equipment or the next IBM that go you know is on there just no job security I mean we've known each other I've gotten to know you over the years and good friends so I think this is a great book for folks out there who want to get the insight from Andy who's seen a lot of this movie before multiple times in multiple markets multiple cycles up and down so let's break down the rules rule number one let's just go scale this rule one waste abundance horizontal intelligence at the edge productive adaptive eat people markets exceptionalism market entrepreneur zero marginal cost virtual pipe highest return okay some good buzzwords let's break them down you got to buy the book to see what that means scale no we're going to get them out of you so scale I'll tell you the three that are the most important to me and that's why I put them near the top okay let's go through the ones you can share so people will share them all but I mean by the book the the the ones that are any Kessler dot com for for information on the book when I look at investments or I look at work with entrepreneurs you know the number one thing in scale which is it's got to go down in cost over time I mean semiconductors have been able to do that since integrated circuits were invented in 1958 right I was born in 1958 so they're as old as I am and you know like me they get cheaper every year content business but it get cost go up our cost go up well the cost go up but the cost per bit everything else it has continued so so so communications since let's say the late 90s which is what drove the dot com boom the cost of communications has dropped I think the cost of diagnostics because of silicon the like is going to continue to drop but look there were businesses that used to scale I mean energy used to scale back in the days of Rockefeller the price of oil a barrel of oil fell from twenty five bucks to three bucks and it completely changed the world and how people would light their homes and heat their homes and the like the cost of railroad ties and therefore transportation in the 1800s changed those don't scale anymore so don't be fooled by a business that used to scale but I think you can find all sorts of things that scale so that means that's one part of scale and the other is don't do it don't do something for 10 people or a thousand people do it for a million or 10 million you put the same effort and the same cost into the property but you might as well sell it to tens of millions so consultants there's tons of consultants out there and what do they do they have a client or a couple clients you want more clients you got to hire more consultants so you know we used to say about the consulting business you know none of the upside and all the downside this is the old wall street line for consulting firms and it's true as opposed to writing a clever piece of code bringing a dashboard or an API and sending it out there selling it to millions or for use by millions that's scale some things got if you can bring the cost down 30% a year you're going to have a business that doubles every couple years and that's a mighty tailwind to be pushing you to heights eat people's name of the book Andy Kessler rule big rule scale Andy Kessler eat people's name of the book was the second most popular yeah the second one is horizontal we talked about that is fine that sliver of intellectual property I I tell us during the book of being on a plane with a guy who had a company that that could put up a charge plus positive thing was a negative charge or positive charge onto different substances and so you know they put this charge onto sunscreen SPF right and and the idea was you'd put it in soap and every morning you took a shower and you soaped up and you were SPF for the day and the charge what your skin is negatively charged this is positively charged and would stick to you for about a day and then fall off instead of that creamy gook that you put on with with sunscreen and so I said oh this is great you know you're gonna license this to you know ivory soap and dove and Irish spring I want to have all the soap companies I goes we're gonna we're gonna make it soap ourselves I go what do you mean you're gonna make it yourself you're gonna fight for shelf space and all the distribution hassles that go with soap and I said you know just I was thinking to myself because didn't have don't want to tell someone I thought their business plan was stupid but you know just go horizontal just be a licensor of the technology let someone else deal with all the hassles he gets to the market faster lowers cost no no investment all the cost investment since the books come out I've heard from him and he said well turns out that they have changed their business model over the last couple of years and they're not doing it for sunscreen but they're doing it for various forms of banks head on the wall a few times it goes that hurts you know fail a little bit pivot as they say in tech right any other examples of horizontal oh there's there's you know there's millions of them I tell the story of you know of IBM and of and of AT&T but you know I mean you look at digital equipment right I mean digital equipment in 1987 hired you know an ocean liner docked it in the port of Boston or Boston Habba and then I said Boston Habba for a deck world and they hired 10,000 plus sales that was the QE2 I was there QE2 yeah feet on the street Ken Olson said to to get more salesman to sell more digital equipment vaxes and the like when in reality the world was going horizontal the PCs you know didn't offer the same performance not yet anyway but they had tons of feet on the street because Intel did the processor and Microsoft did the operating system and Lotus and Adobe and Aldis did the applications compact and Dell and others would wrap plastic on a comp USA would sell it Dell was selling it by phone I mean you had infinite number of feet on the street or more feet on the street than deck could ever come up with and so I think the company which sold to compact only kind of when they missed what are the rules do you have for us the 12 rules the other one that I think is important is the is the intelligence at the edge and that's an old you should say an old but I that's an important Silicon Valley axiom which is you know the intelligence is at the edge of the network you know the whole corporate world is all about command and control right it's you know you report to someone who reports to somebody reports so many might as well call them instead of CEOs you know generals and colonels and lieutenants and captains and I don't even know how to rank sit down to the buck price but in reality because of technology because of the ability to gather information because you know people at the edge can see more and they're intelligent people they often know more than it gets filtered back up to the CEO can make decisions better and faster and so that works in the technology world to is instead of mobility at the edge of gaming my son's Xbox like crazy exactly all his friends playing games but you'd be surprised how many how few number of businesses structure themselves to take advantage of intelligence yet so that's part of it but the other part of it is this whole Tom Sawyer effect I mean think about Facebook what is Facebook Facebook is just a giant sandbox I mean you know those stores some photos and have a couple of neat apps that help you do things but they don't put all the information in there it's you know the time Sawyer sitting there telling all his friends hey you know paint my fans paint me a play in my sandbox and by playing in the sandbox then they can you know create this huge ecosystem of data great data great content basically population of content but someone else did it I mean think about Google they didn't put all those web pages up they just found them and and figured out a categorize that scale it's horizontal it's scale it's horizontal but it's also it's intelligence at the end so it's intelligent devices but also devices that can interface with intelligent humans and that might mean you know that the interface of our iPhones is is is well it's nice and there's you know so you can swipe your finger and stuff maybe that's becoming obsolete over time too maybe it's going to be voice and air gestures right like turn the page and you know turn up the volume and kill the interview and well we're here with Andy Kessler I'm John Furrier the extraction point today at Silicon angle TV Andy Kessler wrote the book eat people so you can't forget that name it's got a fork going through a body ties flying in the air hats coming off great logo eat people Andy Kessler comms great book a lot of folks out there in the tech business and an audience a new generation of users developers and future execs in the world and whether they do their own startup what's your advice of folks out there I mean and for example let's take an example gamers right so kind of a new generation of gamers you wrote a book story on the Wall Street Journal about gaming and how it could be good for for the economy and people it is so the game you know a lot of gamers out there who watch us on Justin TV for example want to know what what's going on with gaming opportunities so what opportunities in gaming what does gaming mean to society what do you how you read those well let's go back I mean it if you trace the history of a lot of technology it came out of the military right because the military needed the latest and greatest when it would the government would pay exorbitant sons for sort of a small number of what weapons or whatever else you know GPS was a system that was you know originally funded because of nuclear deterrent new debt nuclear detonation detection that would sit in those satellites you know great technology came out of the military but the problem with the military thank goodness is that we're not always at war and therefore they don't drive the volumes that consumers can and I've noticed that you know the volume product that that you know even ahead of communications and the like is has been gaming it's driven the graphics intensive processors harder than any commercial application and mobility I mean PSPs and the uptake on the users have been fantastic right I mean people love games who doesn't love games so so Toshiba who may or may not make the displays for the iPhone I don't know there's a handful of companies that do that you know or Sony they got their expertise in doing that from the gaming world and you know I'm fascinated by the game world also because you know inside World of Warcraft or Call of Duty or everything else they're these highly visual but also highly collaborative environments that people solve interesting puzzles you know usually killing orks or whatever or we're other transforming but you know think about the corporate environment in the future where it's gonna be highly visual and highly collaborative and it's gonna use voice and gestures and everything else and and we're training I mean I put people look at often look at video games as evil and as time sinks and I look at it as the next training ground you know not for the military but for corporate America yeah sure for drone pilots but really it you know it's that problem saw me you know you go to Wall Street and there's you know football field-sized trading floors with people with dozens of screens sitting there looking for patterns and the like and and they have yet to take advantage of that high resolution highly visual highly collaborative multi-dimensional data tension issues I mean and so and then the other thing is the connect the connect is like the coolest thing ever right because it's redefining an interface for users is no longer do you you know I was never very good at those touchpads keyboard I play Doom with a with a mouse as opposed to the keyboard but you know here it's just it's it's all visual and I think gestures and voice recognition are going to be that the the next wave and here it is it's so for the young entrepreneurs out there who are in the gaming field what of your rules which rules work man I work almost is there anyone that jumps out at particular well it's the mode the number six that be adaptive you know let let don't have humans adapt to computers have computers adapt to humans that's what the connect is it doesn't say here you need to push the button X or opera A or B it's hey we'll figure out what you're doing and and and I think that and scale and so my advice to entrepreneurs is you know the old Nike line just do it you know you got a great idea most likely it's going to be successful it matters to the execution you have to be able to track capital which means make sure you have a business model and a high return business but more than likely you're going to change the world and so just do it that the you mentioned before you know the idea of you go to college and you get a job after college at a big company because it's lower risk is bogus because those big companies lay all the way over the heartbeat exactly as opposed to working for yourself you work for yourself John you know it's like I mean your boss is a jerk but other than that it's me it's you yeah yeah it's harder it's more riskier to be out on your own but I tell you you know you can at least control your own destiny okay and and this is why the entrepreneurship boom is so hot right now and these rules do apply because you know my advice to entrepreneurs is that I started late as an entrepreneur I think I was in my thirties when I did my first company if I had to go back and do it again I'd do it right out of college because even though I got a lot of great experience working for a HP for nine years I kind of came out in a out of a cave like yeah it's like I'd much rather get knocked down on the street when I'm 23 yeah more resilient okay that's not good I would you know do that at the young I can ask you know you know hey should I should I do I have an opportunity with the startup should I do it and I said well why won't you well because if it fails I said well if it fails you're still you you're still hireable by other some customers going to pay you for the expertise in fact you'll have more expertise because you'll have five years of knowledge that others don't have and so I think you just do it yeah yeah and so Andy Kessler author of eat people also New York Times Wall Street Journal gaming let's keep on the gaming theme Xbox Xbox great I mean just people love it mostly males like it but you know the most part that user interface that collaborative the headset multiplayer game connect is opening it up to a whole another gender I mean one of the most what should Microsoft do if so if Microsoft listens to your rules because they have great environment in the gaming world okay you got connect you talked about right they have mobile trying to make a dent we didn't talk about mobile me got Android and Apple but where the hell's Microsoft right so Xbox could be a nice way to bring that new generation up into phones what do you think about that you know my advice is open it up more I mean the coolest thing about the connect is it you know it's a hundred and forty nine box at some some webcams and some sensors and some microphones and stuff and it's already been hacked I mean people have hacked it for you know your commercial use so they could wave at their PC but you know Microsoft if they already have and should you know just put the specs of it out there and let third party it's not you know third party such a such a formal sounding name let the hackers and the coders and the you know the guys that do hackathons and stay up all night drinking cold jolt cola and you know wear sunglasses and turn the brightness up on their monitors I mean those are the ones that are going to make that connect seeing not just EA or some other game company and I would say that about any platform that you come up with I mean that's one of the success of Android is you can get applications out faster on an Android than you can on the iPhone and as I agree that the Android is behind the iPhone in terms of functionality and in terms of stability it's not quite stable yet it still crashes every once in a while the function is out there but it's catching up and yet you can you can create it today and it could be out on the Android tomorrow and it's a it's that open system and so my advice to Microsoft which they don't like but they should know I mean they the Windows API's have been published for a long time and that's how they had their success of you know Windows being locked in and I would do it for every product they ever do is the day that it comes out release the API's for the for the hackers to go and rip it to shreds I'm John Furrier with extraction point with Andy Kessler author of the book eat people here in Silicon Valley Palo Alto our studio at Cloudera the home of big data and you've been an investor I think the stat was you raised a couple million bucks for start a hedge fund or an investment fund and grew it to a billion dollars and people throwing money at you the book you wrote was the book we're not running money and Wall Street meet was the first for the book you wrote about the hedge fund yeah running money running money you get a great book you got to get that one people come up with limos billion dollars being thrown at you you made some good money and then you shut it down right when the bubble burst it got you know frothy was one of the words but it got out of control yeah so you've played and made a lot of money and did the pre bubble stuff now what's your take on Silicon Valley you got Twitter $10 billion rumored valuation core and the three 400 million dollar valuation Facebook at $60 billion valuation Zynga at you know $9 billion LinkedIn's going public at a billion plus and crazy valuations bubble or not a bubble are we in a bubble and what's your angle on all this and you get the secondary markets basically selling out shareholders are getting liquid prior to a market is that a public market you know you get the secondary little private markets going on what the hell yeah what's going on out there I don't know bubbles are in the eye of the beholder and you guys say the eye of the deceiver but it's the beholder and and you know bubbles can last for a long time but I will say the because of Sarbanes Oxley rules and other SEC rules I think you know they're it's expensive to go public so less companies are going you know Facebook is trying to put it off as long as they can and so there has developed these private markets and you know the nice thing about the stock market everyone beats up on the stock market but the stock market is all about price discovery there's a lot of sellers and there's a lot of buyers and they match in the middle and every day that you know they discover what price the profit stream from some company is worth because and it only works because there's millions of people plugged into that stock market with the free will to buy and sell every day in the bubble of ninety nine and two thousand it wasn't a free market that you know IPOs had lockups and there was problems with NASDAQ trading you know there's all sorts of things that I think helped inflate the bubble this time it's not even in the public markets it's these private exchanges where there's a very limited number of sellers and there's a lot of venture capitalists who missed investing in Facebook who are clamoring for shares and so limited number of sellers and Zynga and Twitter was invested by in VCs that weren't even located in California. Yeah well Russian who's done who have done quite well because Boston and Boston and New Boston and New York VCs actually invested in some most companies so you can tell me that Facebook is worth fifty two billion or that Twitter and Zynga are worth eight billion and I say okay you can pick whatever number you want it's where those buyers and sellers match but unless there's a large number of buyers sellers I don't believe the numbers maybe it's more than that maybe it's less than that and it's not until you get the public market valuations by the way even public when you go public the first six months not all the shares are freely tradable and so you know I would say buyer beware be very careful and that's true because it's leaked over into the public markets. What I found and what our investment fund did ten twelve years ago is when money is being thrown at these service companies you know back then I talked about eatmyshorts.com you bought shares in the infrastructure companies those that were selling the the tools and the network equipment and the hard drives and all that kind of stuff and you know you're seeing values of those a lot of these things are being legit a legit values because they actually are making money. They've got terrific business because the money that is going into these new startups is flowing into flowing into the equipment companies in the infrastructure company so that's a call it a little more. What would you be doing if you were running a fund right now. I mean would you be in early stage deals would you be running for the hills would you actually if you were if you were doing. What would you be doing. Now you know why I retired from the. Running other people's money is fraught with daily questions of you know what the hell is this thing worth and why and who's doing what to who and what's the competitive analysis and the like. I think it's all teed off of what's going on at the Federal Reserve the Federal Reserve has short term interest rates effectively at zero it's zero zero interest rate policy and all the models of valuation are driven off of short term rates right so short term rates are 4% and they go to 5% then valuations go down if they go to 3% then valuations go up because the alternatives to investing just in you know low risk bonds is better or worse. When interest rates are zero it tells you that every company's worth infinite you just put an infinite valuation because you know it's you're divided by zero on these models. Interest rates will not be zero forever interest rates will back up to 1% 2% whatever the number might be as the economy picks up as jobs are being created. I won't want to be holding the hot potato when interest rates back up are they going to back up tomorrow no. Yeah next day maybe six months from now. So do you think it's fair. These big companies can sell the shares in the secondary markets when their investors aren't able to sell them it's just been some talk about some Silicon Valley companies where the founders can sell but the VCs can. I mean it's kind of a mismatch. I mean I'm kind of pro founder obviously but that's good I mean the founder can get some cash. Well it turns out there are both there you know there's both shares being sold to fund the companies there are shares being sold by the founders and in some cases their shares being sold by the early venture capitalists. A lot of the money that went to the Russian investment fund were both founders and VCs of Facebook. Is he a sucker or what. I don't know. I mean you know if he comes in I want to buy your stock. Facebook at a ten billion valuation. He's a genius. It's fifty billion it looks pretty smart on the other hand if maybe he's the one driving the price up from ten billion to fifty billion and the. We don't know the lockups as all this public information is not available. The future profit stream of Facebook may be considerable. I think they have a lot of work to do in developing a business model if you look at what makes Google successful we talked about it before. Is if you're buying a plasma TV you go to Google and type in plasma TV and advertisers will pay a hot a market price to get you to click on their ad you know so that they are the ones selling you a plasma TV. It's usually not best buy it's two guys in Brooklyn who are selling out of a warehouse in the back. And you know who cares who you buy it from it's that nice plasma TV. But Google has made a business of capturing a lot of the gross margin of those sales. Has Facebook done that or Twitter done that or others. You know Groupon has a funky model that may be emulating that but those others not really that they Facebook and then of course Zynga have created a model of selling virtual goods. Right. Give me a dollar and I'll send a balloon to a friend a digital balloon you go well that's pretty cool because he sold for a dollar something that cost you absolutely nothing. Is that a big enough business. It might be a life. If you look at the game or world we're talking about before the ability to buy. You know virtual goods and virtual services in these online world. It's a multi billion dollar business. Is it a hundred billion dollar business. I don't know. So it's not a multi billion dollar million dollar business. Eventually you got to wear clothes and eat food and you know watch ESPN and stuff like that. But. So what's the story of Andy Kessler who wrote the book eat people. Seeing the multiple cycles entrepreneur himself now as a writer. Publisher Wall Street Journal analysts investor. What's changed 10 years ago you mentioned how the Wall Street changed. What's changed for entrepreneurs mean this you're just kind of referring to these gaming environments where you know there's a lifestyle business your cost to start a company or X and you're making X plus significant amounts but not enough to go public or be sold. I mean you know an entrepreneur can literally pull down one to two million dollars in cash a year. Over five years that's ten million dollars that's a nice payout versus work for a startup. Being locked up and maybe pulling out ten million over five years. Maybe right. So so you have that kind of dynamic. So the good news is easier today to be an entrepreneur because the capital available and the tools are available. Right. The platforms you don't have to rewrite a lot of code. It's already there. The equipment is so cheap. You know that both the PCs and laptops and tablets and all that kind of cloud you get cloud all that stuff the cloud. Right. You can rent it from Amazon or rent it from a bunch of different places. That's the good news. The bad news is it's cheap for everybody. So anytime there's some new market segments there's Groupon Groupon Groupon Living Social. You know Eat My Coupons.com. Ten zillion clones of Groupon right now. Right. And photo manipulation sites and location based services. So how do you stand out. Well you better be quick rules better be first. You better take advantage of the rules. Make sure it scales as far as intelligence at the edge adaptive. What about these startup craze about incubators. White Combinator recently there's a entrepreneur sir out there class of 40. I called it to community college of startups. You know they're all kind of hanging out in this little school class and the Russian guy Yuri comes in and drops in you know 150 K. Can't really know. Hey happy birthday. Nice. What do you make of all that. I mean good bad. Hey great. Are the VCs getting kind of squeezed out. Is it a hedge fund. I mean just a portfolio approach just take all the startups. I've seen I've seen incubators come and go in the past and I think incubators will come and go in the future. The reality of the venture capital business is it's a portfolio theory. You know if you have one company that gives you a 50 X return it makes up for nine others that give you zeros. You still make five X on your fund or four X on your fund. Incubators are doing that in a much wider way. It's the shotgun approach. You know you see some of these angels are Super Angel came up with the name Super Angels. I think it was the angels themselves who call themselves Super Angels. Now the new angels that weren't so super call themselves Super Angels. Yes but because of the bad press they're not called micro VCs. Micro VCs. That's the new word. Micro VCs is the hot word. Maybe they're nano VCs and don't really know it. And that's the thing with with incubators it's it's the shotgun approach right. Shotguns have hundreds of pellets that scatter out. Maybe it'll hit a target. Maybe it won't. I haven't seen too much success but it's early because there's you know these things can take two three five years to may I use the term incubate before they're ready to hatch. But you know is that model. Good for entrepreneurs absolutely because I'm not going to available to do it will it dry out of course it's going to dry out a lot of dead bodies and certainly I mean it's going to be a lot of venture funds come and go there were too many venture funds in the 90s. Those that couldn't raise funds eventually went out of business. I think there's still too many venture funds but it's good good market for an entrepreneur there's a lot of cash available. It's the best time to be an entrepreneur but don't get over stuffed with yourself when someone says you know I'll give you two million dollars for ten percent of your company and says oh I have a twenty million value in your company. No you don't I mean you do but you really don't because you can't get the twenty million dollar valuation and then God forbid you run out of that two million and you need to raise two million more and someone says well it's not a twenty million and it's not even a ten million it's going to be at five million you've got to give up half your company because you raised money at too high of a value. So there's there's so many traps same traps as always just got to be careful of not to drink your own Kool-Aid when you're basically saying don't get over hyped. What about the what about the angel investors the real old angels the traditional angels ones that were supposed to be helping companies. Sure. I mean they're kind of backseat now I mean these super angels these micro angels. Are there nano angels. That's a new word. Pico angels you know look everyone has the dream of you know taking twenty five grand out of their IRA and throwing into the next hot startup and you know I think there were a lot of very successful entrepreneurs at Google who have cashed out and says okay I now have X million dollars and I'm going to give back by investing in a bunch of startups and what I like about that is here's a guy with experience or woman with experience who's going and helping entrepreneurs grow their company. The thing about the venture capital business is it's it's an asset class it's it's you know pension funds and endowments and the like say okay I'm going to take five percent or ten percent of you know the Harvard Endowment and I'm going to invest it in you know these illiquid names but that can grow wealth in a big way over decades. I like that when when angels come in it kind of when they try to do the math on these big endowments and pension funds because now there's too much money chasing the same number of entrepreneurs or worse too many entrepreneurs enter and you get fifty companies doing social coupons and so now maybe there's no returns in that business. So basically you're saying is so that basically the profile is someone with domain expertise has some cash wants to help out not so much a portfolio approach you have few but really focused on domain expertise and then the math on the asset class and then those are conflicting those are those are the end points and then the middles where the kind of garbage is the middle is you know what they say a fool in his money will soon be parted or a sucker's born every minute on the other hand there are success stories yeah I mean people who get out of the middle quickly move to the left. Yes you know to the asset class I think that's what they're all trying to do. We're here with Andy Kessler the author of eat people I'm John Furrier on the new show extraction point Andy will end off the show today with some philosophy. Yeah we follow your column on the New York Times once in a while but mostly on the Wall Street Journal which we're fans of. We like the journal. You write a lot about the the FCC and you write about you know net neutrality you have a good view about technology and how that applies to society you've written some great books about industrial revolution and you know modern day stuff we just talked about. What's your view for the future and what do we have to do as a country. America to compete in this global economy. Yeah. And just be kind of high level and for this lot of young folks out there kind of scratching their head who quite frankly you know weren't around when you know there was a three and a half inch floppy. I mean they weren't around. I was talking to not really like three inch floppy. I'm like why he goes you're old like that's that's not that old. What's it like. There are issues technology policy. Yes. Economic policy. Yeah. All this is kind of converging together just. Let's end off on kind of a vision of how you think it should go for. Let's start with this. There are smart people everywhere. There you know this country. America has the United States of America has the benefit of having the structure of the rule of law somewhat sound currency in place so that we attract smart people from around the world to come here and to implement their productive vision. Okay. We have a great education system. I'm worried that it's too expensive but nonetheless. Higher education higher education. It attracts the smartest people from around the world to come here. Some people complain well then they just go home and you go no no that's fine because then that's the networking that's the communication link that entrepreneurs in the U.S. will work with entrepreneurs or all classmates in other countries. I think the best thing that that the U.S. can do policymakers can do is get the hell out of the way. There are too many rules and too many regulations and too much you know futzing around with network neutrality which is you know buzzword for over regulation when in reality competition solves all sorts of you know competition makes networks neutral because if they're not true neutral you just go to a competitor that is neutral if there's neutrality is what you want. If you want your Netflix movies to stream glitch-free you pay five dollars more a month. I mean that's how it should be but as long as I have a choice I don't want to just pay Comcast five dollars more a month because they're my only broadband provider I want to pay them because the next guy doesn't offer that service. So forget about network neutrality it's it's it's an industry buzzword for let's regulate the crap out of the internet and we know we don't want that so get out of the way same thing with tax policy is you know we keep changing the the capital gains rate just you talk about a free market system free market society a laissez-faire isn't that remarkable because that's what's worked in fact that you could you can you can note the genesis of the venture capital business to a cut in the capital gains rate where those pensions and endowments would start saying okay I can start doing of course pensions endowments often don't pay taxes but you know wealthy individuals would say I can I can do decades long investing and my returns won't be taxed as if they're ordinary income and so get out of the way there are smart people they're doing great things unfortunately when you talk about communications technology interferes or overlaps with the regulated world you know cable is regulated wireless is regulated telephone system is regulated you know the internet whether we like it or not the that transportation portion of it is regulated but you can start putting and anything involved with spectrum is ready I think you should let spectrum go free just about education what about not higher education because we do have the best institutions but you know there's been a lot of controversy that the big American experiment of education really hasn't worked well I don't I look at high school curriculum it's all about memorization of you know usually worthless things I mean and you know they make you take French or Spanish when I'd rather learn a different language like Java right a useful language like a programming language and it's the same thing you know we spend so much time on teaching algebra and trigonometry and calculus where you know yeah if you want to be a physicist or you want to you know design suspension bridges that's what you ought to be doing but I think you know we don't teach enough about newer curriculum like how the web works and how parallel systems work and how you know networks can be leveraged in the statistics of using these networks and so is that going to be overhauled you know forget it it's not going to happen the students who want to do that figure it out and then they use the internet they use the internet they use it or they go to institutions of higher learning where they can get that expertise and so you know I don't I wouldn't say it's the same argument as net neutrality they need choice they need choice competition would be nice and you know so the institutions you know colleges and universities do compete I worry about you know that we're still turning out too many French lit majors because there aren't French lit jobs on the other hand there are a lot of computer science jobs and networking jobs and I think there's a need for really smart people which again are everywhere they're not just in the U.S. but they're attracted to the U.S. because of our the rule of law and sound currency and the ease of starting a corporation here and policymakers need to get out of the way to keep it like that we're here with Andy Kessler the book Eat People is this new book author great to have you on the new show Extraction Point great great philosophy about that I just want to go back and ask one final question because you brought that up I think you mentioned the railroads in your book are we at a railroad stage right now on the internet I mean are we laying down a new modern secondary set of railroads you talk about everything you talk about the free market education and a lot of this needs to be rehauled or there's new new vehicles yeah I mean any parallel between railroad you talk about steam engine in one book and then railroad what's are we in a railroad in society yeah it's a great point digital railroad so let's think about it the great line about railroad companies is that they they they at the end of the day thought they were in the railroad business but we really were in the transportation business right so they never could get off those rails when trucking started destroying the railroad business and and cars started taking passengers away or short haul flights they're in the transportation business and so you wonder sometimes about a lot of companies in the tech business and Silicon Valley what business they're really in I mean you know Comcast is in the broadband business I don't know I mean they're in an information delivery business and it better work over the pipes that they own and maybe over pipes that they don't own I mean you see ESPN is trying to go wide and not just sell over cable but sell over the internet Google is you know that they like to say they're in a million different things but you know they're in the they're in the ad business they're not even in the search business they're in the advertising business and I suspect that they know that because that's 90 plus percent of their revenue that they generate but you know they're a media company and Facebook whether like it or not is a new form of a media company Apple by charging subscription rates on iPad magazines if that's what you want to call them is in the media business and the rules for the media business are completely different from the old technology business of you know you come out with a microprocessor and to yeah speeds and feeds this port gets density port density perfect that's a perfect way of looking at it and get a new port this month yeah rah rah it's different so right so do you does you know Google come out and say we now have the five gigahertz Google versus the 4.6 gigahertz Google last year no they have to constantly improve the quality of the media that they're creating and you know I've studied the media business I've watched media companies you know come and go and you know there's a lot of them left to be destroyed and it's it's going on as we speak I mean look at Newsweek merging with the daily beast right and you know what I mean that's almost like digital equipment being bought by Compact here you go you know what the hell is going on here they don't have a soak and angle you know merging with AOL there we go I think that's more likely than anything that we've talked about so so you got you know like the railroads is your question is you know forgot that they were in the transportation business I think you know these technology intensive companies you know you go to Facebook and they say we're an engineering company you go okay but you're engineering what you're engineering a new form of of media so you better study the media rules and it's about uh transactions and it's about data that's about data but it's also about human psyche and getting them to you know pay five cents more for their soap I mean television they called soap operas for a reason it's it's not about you know football is not about Tom Brady it's about selling Budweiser and Gillette you know five blade razors and the NFL knows that and the media companies there's a big the big trend right now is in cloud computing is big data big data and big data what does that mean big data well I I like is there small someone's got a big data you know they got big data they put it on the table so you know that you know big data little data fast data but I mean data has a competitive advantage I mean companies like that's what you do with it right yeah because you can you can look I can you know in the old days you had a credit card companies these big data warehouses sitting on big servers and now you got open source like Hadoop here at Cloudera you can store and start cataloging data you know and access it out on the edge where before it was these you know right only databases I think I think the coolest thing about big data is that you and I can go next door to fries and buy a terabyte drive for fifty nine dollars a terabyte drive two terabyte drives is a hundred bucks well what can you store in that all sorts of things and you know and and if you put it out in the cloud and aggregate them you can you can have tons or a big data set now what do you do with it well there's all sorts business intelligence to be had of harnessing that data and I think we've got a decade worth of spaghetti against the wall having companies have a competitive advantage by leveraging that data unfortunately when everyone else can do it that competitive advantage is going to be short lived and you got to move on to the next competitive advantage that's the risk to big data I think big data is about fast data and you know useful data and not slow and you know not used and we're here with Andy Keshler that's a wrap this is your extraction point I'm John Furrier SiliconANGLE.tv Andy thanks for coming on our third show appreciate it I just have one final thing to say which is extraction point with John Furrier it's a wrap