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So, Tim Sweeney was taking a victory lap. I sort of missed this. This was last Thursday. Basically, the Ninth Circuit struck down Apple trying to do something else in the Apple tax battle with Epic Games. So a quick refresher on this. Tim Sweeney says the Apple tax is dead in the United States. This particular nail in the coffin comes from the Ninth Circuit. These things are never fully over. I've learned it's just there's a class action lawsuit, then another lawsuit, then this one, then appeals, then they go to the Supreme Court, then back. It's always up and down. That's just the nature of these things because the stakes are so high. Exposure seems a little hot on that. What's going on there? But basically, the court had said that Apple could not charge 30% if a developer routed an app customer to their own payment page. And so Apple was like, 'Yeah, totally. We're cool with that. How about 27% plus 3% for payments and 27% for IP licensing?' And so the end result was exactly the same. It was literally 30%. It was just structured slightly differently. They just changed the language. And so they were in contempt. It's like we told you not to do this and you're still doing it, Apple. And now they're not supposed to.

Of course, the weird takeaway here is these big momentous things happen, and then the stock moves not at all. Because my conclusion from digging into this was that fundamentally, consumer behavior has built up over almost two decades now. The app store launched I believe in 2007. This 30% fee, this whole saga, starts in 2011. This guy Robert Pepper sues Apple along with three other plaintiffs. Mr. Pepper alleging that he was overcharged for iOS apps. Imagine, I mean, that's not exactly what happened because it's a class action lawsuit. It's much bigger stakes, but it's funny to imagine a guy just saying, 'I'm coming for you, Apple.' You know what, Flappy Bird, I was charged $2 for it. Should have been $1.70 or something. And taking it all the way to the Supreme Court. I mean, if he's a flower whale and he spent millions, tens of millions of dollars on the app.

Yeah. The economics are a bit, you know, you wouldn't normally see somebody like that suing Apple because they're like, 'I you overcharge me by $2,000 across the lifetime and I'm suing you for damages.' And it's a lawsuit that with a class action lawsuit obviously you get a couple plaintiffs who are exemplary of the problem and then when the settlement happens it's like billions of dollars paid to everyone who ever purchased an app, right? And you see these things before: did you use Facebook between 2016 and 2017? You may be entitled to like 5 cents. Class action settlements happen all the time. Obviously massive economic incentives for the lawyers who fight them. Anyway, before I continue, let me tell you about Linear. Meet the software, meet the system for modern software development. Linear streamlines work across the entire development cycle from roadmap to release.

So basically, Apple's going to work. Now the court ruled that Apple can't do that anymore. They can only collect fees that are in line with actual costs of facilitating links to other payment processors. Cost for one link.

I know. I know. It's crazy. And the associated actually we need to use AI for this and we need to.

Yeah. No, no, no. That's actually what's going to happen. So basically right now it's like if I'm the app store. I'm Apple. I have the app store. You have your own app and you have your own Stripe account and you want to accept payments your way. Apple says, 'Well, you know, even though you are checking out on your payment rails and it's your app, I created the link and the technology that creates links within iOS and that is helping you. So you got to pay me an IP licensing fee.' And you know, typically it was like 27% of whatever you make, which doesn't make any sense because obviously as Apple my costs don't scale proportionally to your revenue. It's linear with regard to my cost.

These are pricey links, John, these are pricey links. Like you're laughing, but realistically the iOS team that has been working on just links, there's code there and they get paid a lot. It's probably in the millions. It might be, across all of the different advertising.

I know. But if you're a successful mobile developer, you've been paying millions of dollars to Apple forever and you're talking about millions like relatively fixed opex for Apple that again doesn't and they make 30 billion a year or something like that. So it's like they have paid for the R&D fully. But basically the idea is justifiable costs should be like $10 maybe $100 for reviewing an app and just saying okay we ran our software we understand you know is this violating any rules. We maybe had a human pop by and look at it for a couple minutes make sure that this is compliant with the app store. And then there are obviously other costs but should it be millions of dollars? Should it be proportional to revenue? Should it be 30% of revenue? A lot of people have been arguing no. But of course this will go back and forth and Apple will probably try and make the fee as high as possible because they have every incentive to.

What else is interesting about this? So, the other interesting thing is in Pepper versus Apple there was this question of where in the chain is the monopoly pricing having an effect, where is it increasing the price of the good. And so this all goes back to Ben Thompson's the best chronicler of this whole saga, of course. And he goes back to this Illinois Brick Company versus Illinois, the state of Illinois. This was in 1977 and the Supreme Court held that only direct purchasers of illegally priced goods had standing to sue. So the Illinois Brick case, this is pretty interesting. He says the value chain was very straightforward. Concrete block makers, including the anonymous Illinois Brick Company, great name for a company that makes concrete blocks. They were accused of colluding to fix prices of concrete blocks which were bought by masonry contractors. Masonry contractors in turn submitted bids to general contractors for construction projects which were ultimately paid for by the state of Illinois. And so the state of Illinois sued for damages alleging that the higher prices resulting from the price fixing had been passed through to the state of Illinois. So even though the masonry contractors were like, 'Okay, yeah, the Illinois Brick Company with all the other brick companies, they're jacking up prices, it doesn't really matter because they just passed that through.' And so there's a question about, well, you didn't actually pay the higher price directly. The state of Illinois, but it was passed through. And so that harm gets passed through. And so, he says in this value chain, it is obvious who the direct purchasers were. Masonry contractors. To the extent the state of Illinois suffered harm, it was indirect pass-through harm. Thus, the Supreme Court ruled that the state of Illinois did not have standing. So the state of Illinois could not sue. Then, if every party in the value chain were to sue, the infringing party could be the subject of duplicative recovery for damages and parsing out the share of damages would be extremely difficult. So it's the masonry contractors that have to sue.

Now in Apple versus Pepper, there's this question of who is harmed by Apple's alleged monopolistic practices. According to the plaintiffs, the value chain looks the same as the concrete block manufacturers. Basically, there's developers who sell their apps to Apple who sell those apps to consumers. But Apple said, 'Whoa, whoa, no. We're not a retail store, even though it's called the App Store. It's not a real store. We don't buy inventory and sell them.' Yeah. Exactly. We're an agent. And so, the company argued Apple does not buy and resell apps. Instead, Apple acts as an agent for developers and says, as respondents note, this is from the actual court case, the developer agreement confirms that Apple acts as an agent for app providers in providing the app store and is not a party to the sales contract or user agreement between the user and the app provider. Thus, respondents concede that the direct sale is actually between developers and consumers, facilitated by Apple as an agent and conduit. And that sort of makes sense. You know, you go to a grocery store, they buy the apples from the farmer, they sell them to the customer, they take possession. A real estate agent facilitates a transaction. Takes a fee.

If Apple was actually going and buying licenses and then reselling them, you know, they'd be negotiating like crazy too and be like, 'We'll give you a dollar and then we're going to sell it for $10.' You could argue it'd be even worse for developers in that situation.

Yeah. And so the interesting thing about this whole case is just how much the reality of the shape of the app store and the business of the services narrative changed the entire financial story of Apple over the last decade and a half. If you want to look at Apple's stock, you should head over to public.com. Investing for those who take it seriously. Big on multi-asset investing. They're trusted by millions. But what you should do if you go and look at Apple is look at the price-to-earnings ratio because back in 2011 it was 9.7. Let's call it 10x price to earnings. Today it's 37x. So obviously the business has grown but the value of the earnings is so much higher. Why is that? It's because it's so much stickier and it's because they've developed this services monopoly essentially where they have aggregated, it's the Ben Thompson aggregation, the toll road for your life.

It's not a toll road. That's a great thing. There is a difference between a toll and a tax. A toll is something that you pay that is directly linked to the service that you're getting.

Okay. So your road would be more like a toll road now. Yes, now it will be a toll road and we should celebrate that. Developers should celebrate that. Tim Sweeney should be celebrating that because a toll road is something where it's like I'm paying $5 to drive down this road. That money goes directly towards this road.

The tax structure applied to a toll road is like what economic value are you creating by driving my road? We're going to charge 30% of that. Exactly. Oh, you're transporting a shipment of televisions on this road. Those are high margin. Or you're a rich person driving. You have some GPUs on your truck. Are you not? Yeah, yeah. Oh, you can certainly break us off more as opposed to saying you know every time someone drives on this road it takes a dollar of depreciation. We need a million dollars to repave it every year and so we need to link the cost of using the service with the actual underlying cost of operating that service.

My question with these changes is what is the consumer experience going to be when trying to cancel subscriptions? Because the one aspect of the app store that I've always appreciated is the ability to one-click cancel from within the app store and not having to go to individual apps or services to cancel. And so I do wonder as soon as you let payments live outside of the app store, everyone has experienced any type of software or retailer making it hard to figure out how to cancel a subscription. And so will Apple keep that kind of one-click cancellation ability within the app or will they actually have to no?

I mean this already exists because you can go put your credit card down in Fortnite. The thing is that I think the subscription revenue is not as much as you think. It's not as much of a driver. The in-app payments, the one-off clicks, those are a much bigger driver of overall economic activity, but I don't know. On the subscription side, it would be interesting if there's some sort of re-aggregation at the Stripe level or something like that. I don't really know. But in general, the interesting thing is that Apple's price to earnings goes from 10 to 40, basically massive run-up. And this is all on the back of the services narrative that Luca Maestri, the CFO, sort of outlined in I think 2016. He said, 'Each quarter we report for our services category which includes revenue from iTunes, the App Store, Apple Care, iCloud, Apple Pay, licensing and some other items. Today we would like to highlight the major drivers of growth in this category which we have summarized on page three of our supplemental materials. The vast majority of the services that we provide to our customers, for instance, apps, movies, TV shows are tied to our install base of devices rather than to current quarter sales.' So he's saying you need to stop thinking about our financial performance as driven by how many phones we sell this quarter. You need to think about just how many users we have broadly and start valuing us more like Facebook. If you're an iPhone user, it doesn't really matter if you bought a new one this quarter. Obviously that's sort of continuing, but the big game is better monetization on top of the user base.

We should try to get Justin Khan on to talk about his company Stash because Stash is effectively payments built for game developers. Interesting. Very cool. The app store. Yeah. And so they're very well positioned here.

Yeah. So Luca Maestri went on to say, 'For some of these services such as content, we recognize revenue based on transaction value. For some of these services such as app store, we share a portion of the value of each transaction with the app developer and we only recognize revenue on the portion that we keep. To fully comprehend the scale of the services that we are delivering to our installed base and how fast this business is growing, we look at purchases in addition to revenue. When we aggregate the purchase value of all the services tied to our install base during fiscal 2015, it adds up to more than $31 billion. That's an increase of 23% over 2014.' So Ben Thompson has some funny quotes here. He says, 'First off, it's striking that when Apple was facing one of the most challenging years in the stock market, its first response was basically to make the plaintiff's point in Apple versus Pepper, suddenly the company wanted to recognize all of the app revenue, a portion of which is shared with developers. Sounds like a company in the middle. Sounds like a tax.' And then secondly,

Wait, repeat that original line you said they've grown 34%.

31 billion. They increased 23% over fiscal 2014 was the historical growth. So basically what's going on is Luca Maestri is the CFO of Apple and he's having trouble in the market because it's 2015 and what's happening? Well, you're eight years into the iPhone. 2007 the iPhone comes out. It's expensive. It doesn't have 3G. It's got a lot of rough edges, doesn't have copy and paste, but it's cool and it's interesting and there's lines out the door for them and people at the higher end, a cell phone back then was like a hundred bucks or you'd get it for free as part of a bundle.

Yeah. Every two years you'd get a new phone and it was free basically. Then the iPhone comes in. It's $600, very expensive, very upmarket. Then a year or two in, they start figuring out how to bring down the price. It comes down to like $300, $400. There's these incentives for signing up for a year-long plan. There's a whole variety of things that make it, the app store comes out. There's just more functionality. You no longer are like, 'Well, my BlackBerry still does this, but Apple doesn't.' It's like, 'No, they do the enterprise stuff. They've checked all the boxes.' And so it's growing, growing, growing, but eight years in, everyone who has one, they won the game. And so device sales are starting to flatline. And then they need sort of the new a new narrative for the stock because it's getting beat up because Apple's basically winning, sold everyone an iPhone, but it's over. The trade's over, right? It's like, yeah, we get it. Everyone has smartphones now. So iPhone unit sales are slowing significantly. Of course, they're able to raise prices still because people are locked in. Like it's a good business, but it's not this incredibly high growth thing anymore. So Luca Maestri needs to come in with a new narrative and that's the services narrative.

And so the services narrative is saying, 'Hey, for a long time you've been looking at this bucket of basically other revenue. We have device sales, which you've been obsessed with as the investor, as Wall Street, you've been obsessed with how many iPhones we're selling, how much we're selling them for, our margins on those iPhones, how many we can make, all of that. And then we've had this other bucket, which is like iTunes, App Store, Apple Care, iCloud, Apple Pay, Licensing, a bunch of funny treating it like the storage feature on the iPhone where it's like, hey, you have photos and these other things that are taking and apps and then like, don't worry about other. Don't worry about other. We're just going to throw everything in there. Don't worry about other because we don't really know how it's growing. Is it that high margin? We don't know.' Then all of a sudden it became like don't just not worry about other. In fact, focus entirely on it. Focus on it exclusively because it is the best revenue that's super high margin and it's growing really fast. And oh by the way, if you zoom out and you look at the economic activity that is driving on top of the app store, yes our take rate is 30%. But on top of it, just in 2015, it's $31 billion of economic activity in that ecosystem. And so, this is an admission of the economic power that they have.

Ben Thompson was not a fan of it at the time. I mean, he was a fan from the stock price perspective, but he had some really harsh words. He said at the time, 'It seems incredibly worrisome to me anytime a company predicates its growth story on rent seeking. It's not that the growth isn't real but rather the pursuit is corrosive on whatever it was that made the company great in the first place.' It's like whoa. It's sort of like okay they're going private equity mode. The beautiful art, the creativity is gone at this point. And that's a large.

Tim Cook has effectively done exactly that.

Yeah. And he says that is a particularly large concern for Apple. The company has always succeeded by being the best. How does the company maintain that edge when its executives are more concerned with harvesting the profits from other companies' innovations? So going forward, the growth story of Apple has been someone else innovates, someone else creates an app, and we'll take 30% and we don't need to do the innovation that doesn't need to happen here.

And that's a big shift in the narrative. Whereas before, all through the '70s, '80s, '90s, 2000s, it was like the innovation comes from Apple. They're like we're going to make the iPhone $1700. It's going to be newer, lighter, better, faster, stronger and they're going to buy it and then we're going to take our cut from everything on top of it.

Exactly. Exactly. Anyways, should we continue?

Yeah, we can move on. Let me tell you about Apple's newest partner, Gemini. Gemini 3 Pro, Google's most intelligent model yet. State-of-the-art reasoning, next level vibe coding, and deep multimodal understanding.

Megan in the Wall Street Journal has a scoop. OpenAI ended a policy earlier this week that required employees to work at the company for six months before their equity vested.

They only have a six-month cliff. Yeah, it was already short. A few months ago, xAI shortened their waiting period known as a vesting cliff from 12 months to six. And then there's been, I don't know if you want to start reading through it at all, but the change to the vesting cliff announced by applications chief Fiji Simo came on our show last week, is designed to encourage new employees to take risks without fear of being let go before accessing the first chunk of equity. Interesting. So they had a problem where people would come in and say, 'Okay, I gotta just do politics for the first six months because I don't want to get fired before that.' That's a crazy culture.

I think this has to be more reactionary to meta.

Yeah. And obviously some of the other OpenAI has shortened its vesting period for new employees to six months from the industry standard of 12 months in April. We have to ask Evan Spiegel about how he thinks about vesting periods and running a public company where your employees can sell the stock that they get. He's the perfect person to ask about this exact article. Let's see. Elon Musk's xAI and OpenAI competitor made a similar change in late summer. People familiar with the matter said xAI didn't respond to a request for comment. Of course, the decision to loosen or do away with restrictions meant to ensure new hires stick around reflects the frenzied competition for top-tier technical talent within the AI industry. Tech companies typically have a one-year vesting cliff. That's what I'm certainly familiar with for new employees, preventing them from having to give away stock to hires who leave quickly or don't work out. But with AI, companies including Meta Platforms, Google, Anthropic, wooing top researchers with pay packages that can be worth $100 million or more, researchers and engineers have been able to hold out for the most attractive terms and in many cases have been quick to leave jobs they have found not to their liking.

Yeah, I think that this is just a sort of a red queen's race, a if you give a mouse a cookie sort of situation where competitive market employees end up benefiting. I also could see them trying to kind of rehab their employer brand. You remember there was a bunch of this probably six, eight months ago at this point. OpenAI had there were some articles surrounding they had some really restrictive exit agreements.

That's right. And a lot of people were pretty frustrated.

I feel like that was over a year ago. That was maybe like a year and a half ago. About a year and a half ago, that story broke that if you left and maybe didn't sign a non-disparagement agreement or NDA or something. If you didn't sign it, they could claw back your equity. And then they were saying that was important during the whole Ilya ousting thing. Yes. Because a lot of the employees left after that, but then they couldn't talk about it.

Yeah, that's interesting. I always thought that the bull case for that was well if you're going to be whistleblowing on something that's a true AI doom scenario, then money doesn't matter. So you shouldn't matter about them clawing back your equity. But of course there are more mundane reasons why you might want to talk about your previous competitor.

There was another line that some people zoomed in on here. Connor Sen over at Bloomberg Opinion says the company expects to spend $6 billion this year on stock-based comp, almost half of its projected revenue. And I saw this post going viral in a few different areas, but a company that creates however many hundreds of billions of dollars in value in a year and then has $6 billion of a non-cash expense. It doesn't seem that crazy.

Yeah. No, not at all. It seems fairly low for a $500 billion company. It's 1% of the market cap that's going out to employees. And also they have to be in an incredible talent war. They're growing. There's just so much to do there.

The number that was shocking to me was that you remember last week how there's the rumored SpaceX IPO that is apparently continuing. So SpaceX schedules bank pitches for IPO in the Wall Street Journal. But the SpaceX IPO if they raise $30 billion will be lower than the $40 billion that OpenAI offered in this private market. And so there's been this big question about are the private markets tapped? It appears it's the David Goggins thesis market. It's just there's always David Goggins thesis for life. I mean, if you went back five years and you were like, 'Do you think you could raise $40 billion in the private markets or would you have to go public for that?' They're like, you know, the Saudi Aramco level of funding. Yes, you'd have to be public. But turns out you don't have to be public because in fact, $40 billion is available in the private markets if you're OpenAI. Let me tell you about Numeral compliance handled. Numero worries about sales tax and VAT compliance so you can focus on growth.

Tech investors have privately complained. They're complaining. What do they have to complain about? We're in a bull market. They privately complained about the ballooning stock-based compensation associated with fast-growing AI startups, arguing that it eats into shareholder returns. Companies that are needing to be more competitive are dropping the traditional first-year vesting cliff. Co-founder of Levels.fyi says in August after Meta chief executive Mark Zuckerberg launched a full-scale raid on OpenAI staff and offered giant pay packages, OpenAI gave some of its top researchers and engineers a one-time bonus with some employees receiving millions of dollars, the Journal previously reported. Yeah, I was thinking about that with Mark Chen went on Ashley Vance. He was like I don't compete with Meta dollar to dollar. I won't match their offers.

He won't go banana for banana.

He won't go banana for banana. But it doesn't mean that he won't fight back for cliff. He'll go cliff for cliff for sure. And also he'll go like one-time bonus during a crazy raid if the time calls for it. So it's not like he's not participating in the war at all. He is a little bit but I think it's the right move. I do think that there's been this I don't know if it's a hedonic treadmill. What is the correct metaphor for what's going on with these offers? But it's very clear that the details of the packages are leaking at least through internal back channels. And so the next person that gets hired wants something a little sweeter, a little extra, a little cherry on top. And so you go from four-year vest, one-year cliff to three-year, six months to no cliff to add more zeros on the pay package, more guaranteed, more upfront. But at the same time, there is something to I mean the reason I would argue in favor of no vesting cliffs here is that it does feel like the value that you can get from a new engineer joining from a competitor at least is on day one.

You just left Anthropic. We're going to plug your brain. You just left OpenAI. You just left Meta. What's going on there? Like that's going to be the day one orientation. And so are they adding value on day one? I would imagine. So to be capturing a little bit of that value, that seems like a win for the AI researcher. At the same time, it is just another sign of the froth in the AI market.

Finn Bar says, 'Okay, but seriously, why is everyone leaving Meta?' People are speculating in the comments. Jane says, 'Vest.' Finn says, 'But if you stay longer, you vest more. True.' Someone else says no direction for the company. Several major unannounced RL projects canceled. The $100 million boys reportedly do zero work because they know that if Zuck fires them, he'll look foolish. I don't know. I think some of these hundred million dollar men and women just are about that life. They do want to pursue greatness. They do want to do the biggest run. So who knows? I'm sure there's some instances of that. Andrew says behind state-of-the-art on their models. Of course, that's why Zuck overpaid for talent is to try to catch up. No PMF on their consumer AI products, even though they force everyone on Instagram to see it. I think we got to wait a little bit for the Christmas season to come and go and see how these things are selling. They don't even use Llama models internally to code. I mean that makes sense.

It is a tough position to be in because they don't have a public cloud, even though they are a hyperscaler. So with Google, even if they get completely smoked by OpenAI and ChatGPT winds up being truly the Facebook of chat apps and it captures 99% of consumer AI value, having a Gemini API is still extremely valuable because you have cloud services. It would be odd for Meta to wind up trying to build a public cloud service around the Llama models. I mean even they went closed door.

They said at one point though that they would be open to reselling capacity but then you're going up against Anthropic directly. It feels very tricky. I don't know. Anyway, let me tell you about Cognition. The team behind the AI software engineer Devin. Crush your backlog with your personal AI engineering team.

What else is going on? VCs funded OpenAI and in return OpenAI automated them. This is GPT-5.2 thinking is able to construct a cap table accurately in spreadsheets. This is what Fiji Simo was talking to us about about emerging capabilities. Seems like they might have RL on some spreadsheets. That's pretty cool. Truly everyone is going after spreadsheets at this point. There's everyone from our sponsor RAMP to Microsoft to a number of startups that have been on this show talking about Excel agents, Excel plugins, Google Docs plugins.

I'm so interested to see how that market actually shapes out.

Who is there's so many AI for Excel. Some full stack, some plugins.

Yeah. And it's like it's not that Harvey was pitched as like a Word plugin even though lawyers do a lot of work in Word. That was not the instantiation of that product. It was much more just full service product. It was interesting. Anyway, there's a clip of Sergey making a joke about automating away VC. Should we play this video? We have the ability to pull this up. Let's do it. What does he say? No audio on our side yet, folks. Any luck? Well, in the meantime, let me tell you about oh, here we go. 'Can do that human. Majority of jobs in that we know today, like more than 50%, might be replaced by machines that can do that human judgment piece better. Well, we've been working on the venture investment machine learning. No, I'm just kidding.' It's kind of true, actually. As long as I can buy one, I'm good. You think you'll do it? That is kind of what Google Ventures does. No, they started that way. I don't know if they're actually doing that. Like, I don't know. They keep hiring partners for whatever reason. So this is actually hilarious. Where was this? Extremely candid. This is very funny. Love it. Anyway, let me tell you about Adio, the AI native CRM. Adio builds, scales, and grows your company to the next level.

What is up with this the CIA lost a nuclear device in the Himalayas? Did you read this article? Apparently, this is not new.

It's not a new story, but there's some new reporting in here.

Okay. What happened? How do you lose a nuclear device in the Himalayas? I want to go through this. My only concern is that it's going to potentially take like an hour to read through.

Let's do it another day then.

Yeah, we can do it. Let's do it tomorrow. Let's summarize it and put a link to it in our newsletter where you can get tech analysis and news. Get our daily op-ed, top headlines, and more. Sign up at tbp.com. Oh, yeah. You want to go somewhere else? Take us wherever.

I was going to take us to Brad Adcock. A party over the weekend with Deadmau5. Okay. And let's play this video. So, he posted earlier today that that figure is looking quite cheap now in comparison to SpaceX, right? Because there's a new biggest line on the private markets chart. Is he drinking on here? What is he drinking? I think he's cracking open some cold ones. So my theory is that they have done billions of dollars in sales, okay? And this is kind of their way of signaling if you know, you know, because of course it would be absolutely insane to have a party like this if you still hadn't shipped a product, if you still were kind of a pre-revenue, but certainly being valued on vibes. So yeah, there's no way they would throw a party like this. So SpaceX has $30 billion in revenue, right? Yeah. So it's going out at 1.5 trillion. So it's at like 50x revenue. So to be cheap, he probably trading at like 20x revenue, something like that. That was my theory at least. So they're at around $40 billion. Yeah, they could be doing like $2-4 billion in revenue potentially if it's cheap on a dollar per revenue. I think this is very much a on a price-to-sales ratio wink wink moment because seriously no I don't think any CEO would throw this crazy of a party if you weren't really printing. So expect an announcement soon on the revenue side over at Figure. Anyway, that's wild. Astro compute Prennav, are we getting him on the show?

Yeah, I think he's coming on tomorrow.

Okay, fantastic. So Prennav has done the math. He sat down and did the math on the data centers in space. He said everyone and their mother has something to say about space compute but no one has comprehensively broken down the physics, energy, cooling, economics and the real work involved. So I built a first principles model to show you guys myself. Tyler, what was his conclusion?

Yeah, so I mean you can go through it, you can change all the different parameters and stuff and then you can run the simulation and kind of see where it lands. I think the conclusion was that there are a lot of scenarios where it does make sense. Like today, right now, if we use current technology, probably not. But if you kind of use the trend line where things are going, I think it's pretty reasonable to say that there's a scenario where it does work.

Okay. Yeah. What are you laughing at? Fiberglass is clearly an OG. He says that was some OG dry humor rage baiting from day one on TBPN. It's true. We certainly a year ago that was like 50% of the show's content. For sure. Fiverr, it's great to have you here. Thank you for being a day one. Andrew McCalip who's building spacecraft over at Varda Space. He's going to put data centers on a boat potentially. He has a boat project that's very fun. He says data centers in space. It might not be economically rational, but it might be physically possible. Oh, is he breaking rank from the co-founder of his company Varda, Delian? He says, 'I'm trying to bring some quantitative structure to a conversation that's been mostly big number vibes.' So we have sort of dueling math equations at this point. This is vibe coded from public, so maybe we need to have a debate. Maybe we need to have them both on. But he says TL;DR the analysis is actually far more favorable than I thought. It's a close thing. I desperately want a Kardashev level civilization but we've got a lot of work ahead of us. Interesting. So Delian's been saying it's impossible. It's not gonna happen anytime soon. It's not gonna be a thing. But Andrew McCalip says there just might be a chance. Who else is talking about this? This post from Goth. Goth says, 'My dealer, I got some straight gas. This train called space data centers. You are going to effing fry. Lol. Me. Whatever. 20 minutes later, dude. WTF. We just need to radiate the heat and then we can totally bypass terrestrial regulations, my friend. Pacing. I should buy magnet stocks to get ahead of all the rail guns.' What is they're smoking space data centers, John. Just kidding. This is all over the place. Theo was happy about the Epic thing. Props to Epic for seeing it through to the end. This is an incredible win for developers. Quoting Tim Sweeney.

The AI in the chat says, 'Data centers in a volcano.' That might be a first. Nobody's talking about that. That does seem like free energy. Isn't that just like geothermal? That doesn't seem like it sparks. Yeah, that's terrible vibes. Data center in a volcano sparks immediately. For sure. Well, let me tell you about Privy. Privy makes it easy to build on crypto rails securely. Spin up white label wallets, sign transactions, and integrate onchain infrastructure all through one simple API. Anthropic has ordered $21 billion worth of TPUs to train large Claude. Is that really what they're calling it? Texas from yesterday's Broadcom earnings call. The scale at which we see this happening could be significant. As you are aware, last quarter Q3, we received a $10 billion order to sell the latest TPU Ironwood racks to Anthropic. This was our fourth custom that we mentioned. In this quarter, we received an additional $11 billion order from the same customer for delivery in late 2026. But that does not mean our other two. Kaiju fights are the best kind of fights. From October, this is from Andrew Curran. He says Anthropic is in discussions with Alphabet's Google about a deal that would provide the artificial intelligence company with additional computing power valued in the high tens of billions of dollars according to people familiar with the matter. The plan which has not been finalized involves Google providing cloud computing services to Anthropic. According to people familiar with the matter who asked not to be named. Google is a previous investor and cloud provider for Anthropic. Large Claude was just me having fun with words and is not anything official. I also considered Fat Claude. I'm saving Colossal Claude and Gargantuan Claude for 2026. Fast Claude.

In other news, just the large Claude thing. Fervo Which is the energy company that went public at a $20 billion valuation, they they talked about getting their facilities online, I think in the 2030s, and people were a little bit bearish about that. They've traded down almost 75% since their IPO. So it seems like we've basically seen this kind of rolling correction across every single AI pure play.

You could even say that but nobody's done volcano data centers. No one has done those. Where are you going to? The chat's asking where do you put the heat? Just shoot it up into the air. That's what The volcano data centers is funny because immediately they're like, 'But don't you want the chips to be cold? You need cooling, not heating.' Yeah. The heat dissipates with the lava. It would be great to just hard light, but the heat's free. Data centers are hot. In this one, we're getting the heat for free. No. What happens after a correction? You're corrected. I think we're corrected. I think it's possible that the market is correct. It's perfectly valued. I saw somebody saying that the BG2 interview with Sam helped us avoid a 2001 style scenario. It could have gotten a lot crazier. So maybe that was Brad's play the whole time. He was like, 'Hey, we just need a little reset.' He's a hero. I'm going to look like I might be a bad guy for two weeks, but now he looks like a hero. I mean even in the moment he didn't look like a bad guy. No. He asked the question. If he didn't ask that question, there would have been some rightful criticism. It was important. It was an important question to ask. Yeah. I really like Young Macro. This guy's a great poster. Nick Lan proclaims, 'May coldness be my god.' What normies think he means. Techno-accelerationism, techno-capitalism. I like that the circular AI deals made it in here as well. Just the stock charts. He really means he means Christmas.

It means Coca-Cola. He means a nice wintry retreat.

Yes, exactly. Play some music. This is what may coldness be. My god, it means cozy up by the fire and get festive. I love it.

Did you see this reporting on Jim Carrey and The Grinch? No. Jim Carrey offered to return his $20 million Grinch salary and was going to quit the movie amid panic attacks over the makeup.

Then a guy who trained the military on enduring torture was hired to help him.

Richard Marino was a gentleman that trained CIA officers and special ops people how to endure torture. Carrey told Vulture, "He gave me a litany of things that I could do when I began to spiral, like punch myself in the leg as hard as I can. Have a friend that I trust and punch him in the arm. Eat everything in sight."

Changing patterns in the room.

If there's a TV on when you start to spiral, turn it off and turn the radio on. Smoke cigarettes as much as possible. There are pictures of me as the Grinch sitting in a director's chair with a long cigarette holder. I had to have the holder because the yak hair would catch on fire if I got too close. Later on, I found out that gentleman had trained me to endure the Grinch.

So the only question here is, I feel like if you were being tortured, they wouldn't exactly say, "Well, let him turn the TV off and on again. Let him turn the radio on."

Interesting.

So I think these are probably great things to do if you're not getting tortured and you're just developing an anxiety attack.

I did resonate with this because when we had the Halloween makeup...

Well, to be fair, it could be like metaphorically being tortured, like in a foxhole as a member of Seal Team Six. If you're staking out someplace in a pit, you're not being directly tortured by an enemy, but you have to deal with a really hard situation. You sit there chain-smoking, and I don't know why you have a TV in this scenario. Again, I didn't land on that one.

Yeah, this just resonated because when we were three hours into our Halloween episode, I started to realize...

I felt like I was fully suffocating having...

I was fine with it.

...two centimeters surrounding everywhere...

Yeah.

It was a very weird feeling.

I think he was doing like nine hours a day of makeup.

Can we get the giga chat filter on Tyler? That makes us look like wimps compared to him. We were only doing three hours of makeup. Nine hours is really heroic. Wow. Totally worth it. If you aren't watching The Grinch this Christmas, go watch something that's being re-streamed. Re-stream. One live stream, 30 plus destinations. If you want to multi-stream, go to re-stream.com.

Merry Christmas.

Will Brown says, "ChatGPT is the only consumer app with regular popups asking if I want to downgrade my subscription." This was hilarious, got 3,000 likes. It's a testament to...

They're running this as a test. They're like, we tell people they can pay less and they don't. They enjoy giving us money.

Hey, maybe the pro plan results in more permanent churn, so this is actually LTV-positive. A downgrade is actually LTV-positive. No way to prove that's true, but it would be very funny if it was the case. The polish around the product is potentially the way you win consumer. I really think we're in the era of productization more than the latest model.

The product managers are the heroes now. I want to see a product manager getting a four-year, $1 billion package.

It's not completely over for the AI researchers. The models are important, they do get better, and there's functionality under the hood that's research-driven and valuable. But if you believe Ilya, we're in the age of research. The AI researcher is doing experiments with no clear timeline. You can't just do engineering and put one foot in front of the other. You have to do science and discover new ideas and ways to create new capabilities. In the age of research, the researchers should be off doing research, and the user experience designers are the heroes. The product managers are going to be more important as the apps fight for market share. What do you think, Tyler? Do you agree?

Yeah, that makes sense. It's fun to think about how Elon and Ilya are perfectly counter-positioned. Elon is like, we don't have any researchers, they're all engineers making small improvements. And then you see what Grok is like. It's largely undifferentiated from all the other LLMs. Anthropic has code.

Yep.

OpenAI has the actual consumer. Grok is still kind of undetermined.

I wouldn't say they're counter-positioned. They actually agree, they're consistent. I think they are opposites, but they both embrace a fundamental reality: you should either be doing pure research or pure engineering, and it's hard to mix the two. Research won't immediately translate to faster times on the racetrack in the current race.

Yeah. Elon is very AGI-pilled, but he still doesn't think about pursuing AGI as a research thing.

Interesting. Okay, maybe they are a bit more different than I considered. How do you interpret the fact that the AGI scores are going through the roof, yet qualitatively people are not shocked by the interaction of talking to 5.2 or the latest Claude 4.5?

I think it's about the spikiness thing. They just created a new spike.

The spike just got longer. The coding ability of the model is much better.

But the actual ability to write prose is not much better because it's not what they're pursuing.

But it is bullish. My take has been that if they can create a spike in any direction, they can solve any economic problem.

Just create every possible spike, and eventually it no longer looks like spiky intelligence; it looks like smooth.

The engineering task is to find the RL environment that makes the model better at writing, which is what they're doing. You see all these RL environment startups that make things that labs train on for specific tasks.

Suspended Cap says, "OpenAI could probably save 25% on their compute if they just taught the model to give me the answer and then shut the f*** up a bit."

Wild.

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Jason Fried has a note here. He says, "One of the best upgrades to ChatGPT is simply changing the base style and tone to 'efficient' and giving it a 'get right to the point, be practical above all' instruction. No more praise, no more flourishes, just the answers."

Everyone appreciates Tyler, jolly-mixing. He really is in the Christmas spirit. Hey, are you a minor? No, I'm here to sell shovels. Everyone's selling different shovels. 20,000 likes on this just for different shovels.

Some people are mining, some people are in the trenches, but it's just a few people who are not selling.

Big change from a year ago when everyone was talking about how rappers were cooked and people were talking somewhat negatively about rappers.

Yeah, it's interesting. Are rappers selling shovels during...

No, they're mining.

It's actually mining in a very small side mine, not the main mine. What do you think?

I would think of mining as using the models to do a rollup or something.

In the AI shovels and mining analogy, the mining is done by Elon, Sam, and Demis. They're doing the core thing, and everyone else is drafting off of them, supporting them with shovels. The gold is the output you can get with the models; the models are the shovels.

The models are the shovels.

So then...

That is actually funny.

If you're doing a rollup of companies and using AI a lot, but you're not an AI company...

The way the whole shovels analogy is levied at startups is, "Oh, you don't have it in you to create a great mobile app, so you'll build a developer tool that helps people ship mobile apps." That was the original critique. With AI, it's the same: why don't you solve a cool problem with AI instead of saying you're a platform for running AI agents on top of it? That critique has never hit that hard with me because both are valuable. We need all of that.

That being said, in a recent YC batch, there were a lot of people selling shovels, not many creating full-stack solutions for end customers. It was all about AI agents to manage your AI agent infrastructure. I think we need more actual end-state agent companies selling to everyday consumers.

Everyone talks about selling shovels during a gold rush. No one talks about selling just the wood shaft that goes into the shovel. I don't even sell the shovel. I'm a particular slice of the shovel supply chain. I'm so deep in the shovel supply chain, I sell the screwdriver that makes the screws that assemble the shovel. I'm seven layers of abstraction away from the gold.

I sell the shovel-making machine.

Yes, the shovel-making machine. That's where you want to be.

Rappers. I wonder if anybody's building a rapper company to help people wrap presents. I assume all the different LLMs can do this pretty well. You take a picture of an item...

They can do that. It's like the Rubik's cube benchmark because it requires shape rotation, which the models have been notoriously bad at. I wonder if they can give you instructions on the best way to wrap an arbitrary-sized present.

Speaking of holiday gifts, we did a Snap demo today. I was wearing the Spectacles. We're proud to have Evan on. I asked my Spectacles, "Can you count the presents under the Christmas tree?" And it nailed it.

Fantastic.

These are the important problems. I think it's about time.

Yes, let's bring in Evan from Snapchat. Welcome to the stream. We're going to walk him in. Let me tell you about Fal, a general media platform for developers. Develop and fine-tune models on serverless GPUs and on-demand clusters.

Thank you.

Great to have you on this.

Please have a seat.

Scoot it up. Look at this. You look fantastic. My wife told me to wear a suit. It's part of...

It is. We put on these suits as a joke. You're one of the many tech people who popularized the t-shirt. I wore a t-shirt my entire career in tech. We wanted to stand out. Everyone else in tech podcasting wears a t-shirt—whether you're a CEO or a podcaster. We thought, how do we stand out? Let's do the opposite. Let's wear a suit.

It's instant credibility.

The funny thing is, when some of our videos go viral in parts of the internet not familiar with what we're doing, there will be comments like, "Look at these guys in suits. How are they talking about software? They don't know anything about tech." They don't get the bit.

Anyway, super excited to have you on today. There's so much to talk about, and I don't even know where to start. I'd love to start with a demo we got just an hour or two ago: Spectacles. How are you thinking about hardware these days? What's the state of the organization? How much of your time are you spending on it? You have a monster business to manage, earnings calls, so much going on. How are you splitting your time? What does the team look like? What are your ambitions for hardware these days?

What was the first public release? Was it 2016?

Spectacles? Weren't they yellow?

That makes sense. It's frustrating when you're in a technological platform shift, like with virtual reality, where the demo is amazing but the use case is limited. It's the same thing where if the demo is...

It's good if you're watching a movie alone.

From my understanding, you guys are not saying you'll build the hardware platform and a foundation model lab. Could you talk more about that? It's quite different from some other hardware players.

A more near-term example is working on your car with an AI assistant running permanently, allowing you to use your hands and have it reason on the fly. How is that shift manifesting in your daily life as CEO? Since ChatGPT, there's been an urge for folks to send AI-written stuff to me. I always say, "Just send me the bullet points." But I'm wondering how you see AI changing your workflow.

How do you think about the instantiation of AI features within the core Snap product? There's immense energy around AI doing everything—making full videos, audio—but I think the cooler thing is AI riding alongside the rest of the creative suite. How are you setting up creators for unique AI-enabled experiences while still having their creativity?