[0:00:02] Recode Radio presents Recode Decode, hosted by Kara Swisher. I'm Kara Swisher, co-executive editor of Recode, and you're listening to Recode Decode. You may know me better as Kim Kardashian's best friend, but in my spare time, I do some tech reporting, and I also talk a lot about tech. Every week, we bring in someone who's doing something that's worth paying attention to.
[0:00:25] This week in the red chair, it's Sam Altman, president of startup incubator Y Combinator and a board member of Reddit, which has been in the news a lot lately. Altman is one of Silicon Valley's nerd kings, an investor whose Y Combinator graduates include companies like Stripe and Airbnb. He's here today to talk a bit about what's going on at Y Combinator and also maybe a little bit about Reddit's recent drama. Welcome, Sam. Thanks for having me.
[0:00:49] Thanks for coming. So there's so much going on in your life. Yeah, a lot. Busy week. Yeah, let's start with Reddit. Okay. And then we get into Y Combinator. Can we only talk for like five minutes about Reddit? Whatever you want. There's so much more interesting stuff. I know. Well, it is interesting to people what's going on. There's all kinds of issues around media right now all over the place. So tell us what happened there. There's all this back and forth and obviously you have a very vocal community. From your perspective, what's the key takeaway? Well, I think the key, I mean,
[0:01:15] The piece of news, the key takeaway, is that Ellen Pav, the former interim CEO, resigned. And we all brought back Steve Huffman, the new permanent CEO and the original founder. So that's the news. And I think Ellen did a very good job leading Reddit through this very tough stage. She really came into a mess of a situation. And I think Steve will take the baton and take it on from here. And I think that it's been a choppy week or couple of weeks for sure or couple of months. But I think that...
[0:01:44] Things seem to be settling down, and I'm excited for the plans Steve has going forward. So you had a previous controversy around the celebrity photos, and it's all around what content is up there and the tonality of the site. Do you feel like you've gone far enough to define how to control content on that site? I think that a lot of the controversy is about the way that Reddit makes and communicates decisions. I think the community gets actually even more upset about that than they do.
[0:02:12] But watching from the outside, it does seem to be about the content. The issue of free speech is really tough. I go back and forth myself in my own mind about what it should do. There are certainly days where I wake up and say, you know what, this is too hard. Reddit should just get rid of all of this crap. None of us feel proud that Reddit hosts some of the stuff that it does. And certainly things like revenge porn or information about how to rape someone. Very easy decisions.
[0:02:41] Not covered under free speech. Death threats not covered under free speech. But there are upsides to free speech too, right? So like on Reddit, do I think people should be able to say like, I'm going to kill you for being gay on Reddit? Obviously not. Do I think people should be able to say like, I think gay people are disgusting? I wish not. I wish I didn't have to read that. But I do think they should be able to say it. And the reason is that it's really hard to draw the lines on free speech.
[0:03:10] 100 years ago, the controversial, offensive, non-mainstream thing to say was not, I think gay people are disgusting, it was gay people should have rights. Like that was the sort of crazy thing to say, right? And it's a good thing that people were able to say that because eventually the world evolved. But, and of course today we think like, well, you know, we're...
[0:03:31] There's nothing left like that. We have no need to protect free speech. Yeah, but that's kind of interesting. That was a reasonable thing to say, even though at the time it didn't seem reasonable. Calling people vile names, having things like areas like Cone Town on there, it's just reprehensible. Absolutely. It is a question of how you can define where that line is. And so the decision that the current CEO made is that given that the line is hard to precisely draw,
[0:03:58] But there is stuff that obviously feels reprehensible and that no reasonable person would doubt. Let's preserve the principle of free speech, but take that stuff and make it so that no reasonable person will ever accidentally see it. Require a login, require a second opt-in that you want to see offensive content. And then because we're preserving this, or he is preserving this potential for important free speech, he can...
[0:04:23] With a pretty broad stroke, say, you know what, we're going to cordon this stuff off and make sure that you or I never see it. It's never indexed by Google. It never shows up anywhere else on Reddit. But we're not going to kill the free speech. Now, that said, if that doesn't work, Steve will have to try something else. Do you ever imagine controlling? Because most platforms do control certain kinds of speech. We do, certainly. We've kicked off commenters, people getting vile. And we make the determination on our own, with our own standards. Yeah, and Reddit does.
[0:04:51] Kick off a lot. I mean, there are rules about stuff that instantly get you kicked off. The question is, is being offensive alone enough to get you kicked off? Well, it's not on Reddit, clearly. Yeah, it's not. It does get you. However, it's up to the moderators. And in many communities, in most of the things you'd see on the front page, those moderators of those subreddits have made rules about if you say something offensive, you get banned.
[0:05:17] Well, some of the moderators are problematic, too. I mean, what do you do in that situation? Because I get the idea if you wanted to have free speech, you want people to talk all you want. But there is a line in our civil society that we don't allow, that it does create. It also creates problems around creating a business around it. Now, I don't say that's the biggest reason you should do something like that. But some things are just way over the line. And I don't even have them. You can make lists of them. So, yeah, and I think that actually works well about Reddit. And that works well about people.
[0:05:45] The great majority of people, the 98% of people, the subreddits they choose to view are the ones that do have moderators that enforce what you and I would call basic human decency. So although you can point to a few things on Reddit that are despicable and that will be cordoned off and no one will accidentally happen across them, the great majority of Reddit, if you go read it as a normal user and not a journalist looking for controversy... But you don't have to look hard for controversy on Reddit. Yeah, but if you just go to Reddit.com and start browsing, you will never find this stuff. Right.
[0:06:13] What was your thought, and we'll finish up here in just a minute, on the celebrity problem, which was your previous CEO's issue? Yeah, I felt the day that happened, Reddit should have taken it down. And I felt we had a heated email exchange about this. I think that falls under the category of things that are not protected under free speech. Was Ellen a scapegoat for this? No, I don't think so at all. And how did you think about what was going on on the site about her?
[0:06:41] I mean, I thought that was horrible. As I said in my blog post, I thought the way that she was treated was an example of the very worst of the people on Reddit. So where do you imagine it going next? What do you see Reddit as? You're a prominent board member, an influential person. So first of all, I would say that as a board member, my job at Reddit gets really busy when there's a CEO change. Otherwise, I try to not be one of those activist board members.
[0:07:09] What I think is cool about Reddit is it is the best piece of community software ever written. And the reason people feel so strongly about it is that there are so many people that just spend most of their day and that's most of their connection to their interest in other people and what they do on Reddit. And what I would like to see is to grow into one of these billion user online community sites and be a place where a lot of people go to connect to their world.
[0:07:34] And do you imagine building a strong business to do that? You're half owned by Condé Nast or more? Someday, but less, I think. But, you know, Reddit has a very low burn rate because there's less than 100 people that work there, lots of page views. And so there's no rush. I mean, you know, Reddit could operate.
[0:07:53] Do you have any business plan you think is advertising? Advertising will work for sure. I think sort of enabling commerce on the site. You already see this where communities come together to buy things or make things, and you can sort of imagine Reddit providing tools for a slice of the proceeds there. I'll say this. I think it's much harder to build a billing user community than it is to monetize it. Reddit is well on its way to the former, and we can figure out in a few years how to monetize it.
[0:08:19] Okay. Let's hope we don't come back with another CEO really soon. Let's hope. Look, getting the founder back is, I mean, I worked really hard on that. I think that's a really special opportunity. And hopefully, you know, it's his baby and he gets to keep it. Okay. So let's talk about Y Combinator. You just announced a new fellowship. Explain that. And I want to talk about where you think incubating is, this idea of startups, where we are in the cycle. But let's talk about your new thing. What is that? So it's called the YC Fellowship. It is a $12,000 grant. No equity, just, you know, here's a gift.
[0:08:49] This is to anybody. They don't have to be a Y Combinator company. In fact, they can't be. It's only for new companies. If you've already raised any money, you're sort of too far along for this program. So it's $12,000, access to the YC community, advice from partners and alumni, and some of the YC deals. So you get like $100,000 of free hosting from Amazon, Microsoft, stuff like that. And the idea is that there is all of this sort of untapped innovation around the world.
[0:09:15] And there are people that because they cannot scrape together the very small amount of money you need to start a startup, go work either as an engineer at a big company or minimum wage job in a restaurant or something. And it would be good for all of us, NYC in particular, if these people could start startups. And so we're doing a few new things. We're not requiring that people move to the Bay Area. We're willing to do this remote. It's only eight weeks, so it's not a long-term commitment. It's meant to just, if you have an idea.
[0:09:43] Build it out, or if you already have a prototype, get some users. We hope some of these companies will apply to YC later, but we're not requiring it. And we think it's just, if we could do this for 1,000, 2,000 companies a year, that would sort of be a very wide distribution of capital, and I think kind of good for the innovation output of the world. And does it bring streams into YC itself? You're sort of incubating the incubator, essentially. Yeah. And 12,000, why 12,000?
[0:10:12] Well, that was the amount that YC gave me in 2005 when we started my company. So it was sort of a number in my head. What did you do with that money? Lived on it and bought hosting and servers and cell phones. And how many companies are going to be in the first? In the very first one, my guess is it'll be 20-ish. But again, if this works, I'd like to scale it quickly.
[0:10:35] And then they could possibly be YC companies and then so on and so on. So talk a little bit about this idea. I mean, a lot of people are talking about you guys, the fund you're raising, the things that you're investing in. There's a lot of people thinking you're going to be competition for venture capitalists. You have been sort of the font for venture capitalists to later invest in. How do you look at your role now? What's evolved under your leadership? Without any specific comments about any future funds we might raise, I think it is remarkable how much...
[0:11:03] Time and effort VCs spend worrying that we might compete with them. It's like they have this. Because they're not insecure at all. They have this right that has been bestowed upon them by the heavens. They're not incredibly thin-skinned because they're the most secure non-thin-skinned people. And we're not allowed to do anything that they don't like, which obviously is not how we work. But here's the issue. The really good VCs, they add incredible value in the Series A and the Series B rounds. They take board seats. They get incredibly involved. They earn their money. They work so hard with these companies. And the scale of YC, we just can't do that.
[0:11:32] So we're really happy for these other investors. We have no desire to go start doing Series A rounds. And in fact, if you look at our competitors that have started to do Series A rounds in their own companies, they've killed their program. It's just dead, right? Because there's this huge signaling problem. And they end up with their Series A fund picks off a company or two from their incubator. None of the other ones can get funding because of the adverse selection issue. And then the incubator eventually dies and they just become yet another Series A fund, which is a boring thing to do and nothing I have any desire to go do.
[0:12:02] So I think VCs should just stop being so insecure and stop worrying about it so much. Okay, but they did do a lot of incubators and they haven't been as successful at that. And why is that? What do you think? How do you look at your role versus them? VCs incubators are like the 500 startups, tech stars of the world. Right. Which ones? Like the ones that have been done by VCs? The ones that have been done by VCs. They all open them with great... Those were very predictably likely to fail. I mean, I think most VCs know very little about this. If a VC that is focused on
[0:12:32] Helping these Series A, Series B companies. Tries to start helping the YC stage companies. They find that it's a very different beast than what they thought they were saying. How so? It's really hard to underestimate the rawness of a company that comes into YC. The questions that we get are so basic. Like where's the bathroom? It's that kind of level. Pretty much the equivalent. To the left.
[0:12:58] And you really have to sort of sign up for this like very hands-on, very time-intensive thing. And it's just not a VC model. Like a VC wants to own a lot of a company. Most of them don't want to work that hard. A few do. And then they want to sort of like only do a few companies to sort of limit their time they spend. And the thing that I think has impressed people about YC is that we're able to provide a high level of service for 250 companies a year.
[0:13:25] And we run it more like a product company than a VC firm. Right. And thus we're able to do that. But we're not set up. We don't feel like a traditional VC firm at all. Right. But they were sort of getting down into your grill, and now they feel like you're getting into theirs. They do. There's definitely that feeling around you all. I mean, you know, competition, I think, is a good thing in markets in general, and it's good for the customers, which are the entrepreneurs here. But I will repeat, you know, we're not going to go take their Series As. But this whole thing that, like,
[0:13:54] VC's are worried that YC is getting too powerful and they're going to make them obsolete and whatever. That is a ridiculous point of view. That's like we have this thing that we are entitled to and we don't want any competitors. Come on. Yeah, fair point. But there's areas also that don't get the funding the others do. There's some very easy things to fund, consumer apps and stuff like that. Talk a little bit about the areas that are missing in investing.
[0:14:20] One of the many reasons that I think many VC firms have bad returns is that they all chase the exact same sorts of companies, and they bid those up wildly, and they leave out the entire rest of the investment universe. So you have this incredible schooling effect around these few areas, photo sharing apps. And so it might make sense if you were the only one doing that, but once every firm is focused on the same area, the valuations get bid up like crazy, way too many competitors, all that.
[0:14:49] Now, sometimes the VCs as a theme get it right, and the industry is so big and it's growing so fast that everyone makes money. Enterprise Software a couple of years ago, a good example. But the further away you get from software, the less you have VCs willing to write checks. And I think one thing that people don't understand is that in the same way that a startup CEO is responsible to his or her VCs and very afraid of them, VCs are responsible to their LPs, their limited partners, and very afraid of them. And so they don't want to invest in anything.
[0:15:20] Where they could look stupid. You know, if you invest in a photo sharing app and lose money, your LPs are unlikely to fire you. Because, well, everybody else was doing it. But if you go start investing in nuclear fusion, then your LPs are likely to say, well, that was obviously dumb, whatever. So, in fact, one of our nuclear fusion companies, you know, VCs just like, well, we don't get this. Trillion dollar company if it works. Literally, largest market in the world. Energy and, you know, incredible science and progress. And VCs just wouldn't fund it. So I ended up stepping up and doing it myself.
[0:15:50] So what other areas are like that? What other areas do you think are neglected by the sheep? Energy as a whole. Some parts of biotech. AI, I think. There are two companies that have raised significant AI dollars to just go after human-level AI straight on. Space. I think, you know, those are some examples. Are those interests of yours, or do you think that those are good opportunities for YC funding?
[0:16:20] Both. I think those are both things I'm personally interested in, areas that YC has made investments and will make more. Are you making those choices with the YC companies like that, or do you feel like you want a range of companies when you're picking the classes? The next class is in January, correct? Correct. Demo day is August. We like a very broad range. I think one of the things that works really well about YC is that we fund an incredibly diverse set of companies doing consumer software, consumer hardware, enterprise software, enterprise hardware, biotech, medical, just everything.
[0:16:50] Constant refrain inside of YC is that we want to fund anything that we believe can be a $10 billion or bigger company. And that that is such a tight constraint. We cannot have any other constraints on where the company is from, what they do, anything like that. Is there anything you're sick of, though? Do you go, ugh, not on one of these? Oh, totally. So there are plenty of areas where... Obviously photo sharing apps. We get sick of... Now, we have to be careful because sometimes after you've failed a bunch of times in a certain area, you're too negative on it. So like me personally,
[0:17:20] I'm very negative on location-based applications. Yeah, you had some experience there. And I have to check myself every time I look at one because my natural instinct is just Instapass. Right. So is there any area you think is overhyped right now, for example? I think that a lot of enterprise SaaS has gotten into the overhyped range. Everyone's trying to start it. People are going after these smaller and smaller verticals, and you have 20 or 30 competitors doing the exact same thing on day one. One of them will probably win.
[0:17:48] But the space has just gotten so heated. Like benefits or payroll or things like that. Taking part in every part of the enterprise experience. Yeah, look, so Zenefits, this is where timing really matters, right? Zenefits was one of our companies two years ago, now a $4.5 million company. When they started, no one else was doing anything like that. And in fact, most people thought it was a really dumb idea. And so it was a good thing for us to be investing in now. But today, there's like hundreds of people trying to be the next Zenefits, even in HR again.
[0:18:17] And those I don't think are as good investment opportunities. Are you seeing a good pipeline of things coming in? You have, again, another class in January. Totally. I mean, we have sort of an embarrassment of riches here, and we're trying to figure out how we scale less and faster. How many applications? About 16,000 per year. Wow. And then for how many places? Roughly 250.
[0:18:36] And is there anything that comes across when you pick those or is there any, how many people are in the process? Sure. So we split the partnership into five groups. And then, so it's three partners look at each company and they come in and meet us for 10 minutes. You know, we're mostly looking at the founders because the ideas are sort of so malleable at this stage. We want an idea that seems really good, but we know it will evolve. But we want to see that it's really good as sort of an intelligence test on the founders. What we're really looking for is like,
[0:19:07] Are these founders determined? Are they passionate about this? Do they seem committed to it? Have they really thought deeply about all the issues they're likely to face? Are they good communicators? That's incredibly important. Actually, I'll just talk about that for a second. I think the thing that took me the longest to understand about evaluating founders is the importance of good communication. Most of which aren't. Most of which are horrible, yeah. But if you can't communicate well...
[0:19:35] You'll have a hard time hiring people. You'll have a hard time raising money, selling your product to customers, getting investors. It is one of these fundamental founder skills that I don't think people talk about enough. And how do you improve that? Because many of these people are not. They're quite shy. They can have different attributes that are not communicative. We give people a lot of one-on-one coaching on this during YC. In fact, my first office hours with a company at YC usually are I ask the company to pitch it to me.
[0:20:02] And then I tell them what I think they explained well, what they didn't explain well, and I try to pitch it back to them. And what is the biggest problem? Is it just the inability to speak or what? You know, it's actually, it's really hard to distill a complicated idea down to the simplest form. That's just a skill that you pick up over time. And I think that is the fundamental thing. It's, you know, taking this complicated thing with all these things you could say and figuring out how to position it in the simplest possible way, what things to include, what things to leave out.
[0:20:30] So talk to me a little bit about what makes a great entrepreneur now in this landscape. How are you looking at the landscape? Everyone debates bubble. They debate this and that. It just seems 16,000 is an enormous number of people wanting to create things. Have we created an entrepreneurial society or is that a challenge? Because you see all these issues around jobs and how to – Look, I think when the rest – when all of the traditional things you've been told your life –
[0:20:54] Go to college. Go work at a company. They're going to take care of you. You're going to get a 6% raise every year. You're going to do it for 30 years. The economy is going to keep growing. When all these things that people have been told their entire lives start to fall apart, I think a lot of smart people say, hey, you know what? I better go do this myself. I better go make my own life, my own career. So I think that we are still in the early stages of this sort of secular shift.
[0:21:17] To more startups and that being the norm, not the exception. More startups and everybody is an entrepreneur. Do you think we can create that in this country? I mean, other countries, China, India. I think if we can't, we're in a really bad place. What do you think the challenges in this country are? Well, I'm sort of always optimistic about this, but I think we're going to get through this. I think it's going to happen. But I think the challenges are that there are a lot of people in this country that are sort of against the idea that you should try to work hard and get ahead. I think one of the striking things.
[0:21:47] Whenever I go to China is how much more intense the entrepreneurs are there as a whole. Obviously, there are exceptions than the ones here. So I think the, you know, like, look, being an entrepreneur is really hard. It is a not super pleasant life, at least for the first few years. And anyone who says otherwise is lying. And people have to want to sign up for that. And there are a lot of people who just don't.
[0:22:13] Do you imagine there's going to be a reckoning, a bubble breaking, or anything like that? How do you look at that? Oh, someday. I know you're tired of that question, but there's certainly been some really amazing valuations. But I don't know when. The valuations have been very high. I think that, more than anything else, is a factor of we have this very bad policy, in my opinion, of 0% real rates. There's nowhere to put capital. There's very little growth anywhere in the economy.
[0:22:39] And so what you have is people seeing these startups that are growing incredibly quickly. So they want to put money in it. And this very low-risk investment. You put in half a billion dollars into a $10 billion company. You get your money out first. As long as the company does not go down 21 times in value at the time of acquisition or IPO, you're going to get your money back. Now, sometimes it does just blow up. And then maybe you get a return because it's really fast-growing. So I think what we're seeing with the late-stage valuations is
[0:23:07] A lack of places to deploy capital. So when the interest rates come back, I fully expect valuations will go down. And IPOs? I think the biggest issue there is that founders don't want to go public. So I think there are many companies that could go public, but sort of perversely, the better the company is, the less the founder wants to take it public. Why would you want to? Why would you want to? There's all the crazy regulation.
[0:23:38] But I think the bigger issue that founders really understand is that if you go public, your company is then quarter to quarter at the mercy of these sort of like crazy gamblers that are trying to trade your earnings report, whether you make it by a penny or miss by a penny. And that makes it really hard to make these sort of long-term investments. The long-term investments, though, are what create all the value. And so founders want the freedom to do that. And they don't want these shareholders that are sort of focused on these short-term optimizations. And I get that.
[0:24:07] What do you say to your entrepreneurs? And what's the out? Getting bought? Yeah, I mean, I think many of them have chosen to stay private for a very long period of time. And do you think that's going to continue? Yes, I think they will go public someday. But why would they rush it? There's plenty of private capital available. So let's talk about two other issues before we end. Diversity. Yes. Big issue.
[0:24:29] Obviously, Ellen was in the center of one of those issues, but it's around a lot of things going on right now across the country. Gay marriage was just approved by Supreme Court. You're gay. Yes. How do you look at the diversity issue in Silicon Valley? Do you feel at a disadvantage being a gay man? No, I never have. I think I'm eternally grateful to Silicon Valley for that. And why is that? Why do you think that is? I mean, you know, I still look like a white guy, I guess.
[0:24:59] You do indeed. But they've been much more tolerant around gay issues than women's issues. It's really interesting. Yes. When we had a story where we were getting quotes about the Supreme Court or what happened in Indiana, instantly everybody volunteered. They fell over themselves to quote when it was around Ellen. It was quite a difference. Why do you think that is? No one wants to talk about that issue, do they? No. Why is that? I don't pretend to really know the answer to this. I think that people...
[0:25:32] The issue of the sort of gay people in Silicon Valley, for whatever reason, is not much of an issue. They're not that many gay entrepreneurs or gay investors, but it has just not been a high-profile issue, and it's not something that anyone is against. But there are people that think the sort of sexism in tech, there are people on both sides of the issue. No one's saying that women don't deserve to do stuff. It's just saying that people sort of overblow this issue.
[0:26:00] For whatever reason, and I comment on it all the time because I really do think women in tech get discriminated against, but most people are really afraid to say something on either side. It's become this incredibly toxic issue. You comment on either side and you have these Twitter trolls from both sides just tearing you apart. So it's become this lightning rod that most people just don't want to mess with. So what's the solution? Do you spend time thinking about it at Y Combinator? I mean, obviously most of the people you fund are white men. Well, I mean, most are for sure, but 19% of the founders in this current batch,
[0:26:30] 19% of the companies have a black or a Latino founder. That's unusual. And 24% have a woman as a founder, which is not as high as the population, but compared to the rest of the Silicon Valley, it's like off the charts. Yeah, but that's like a low bar. That's an enormously low bar, unfortunately. I'm just saying. No, I get that. How we think about this issue is we just try to fund more people. But if it starts at the beginning, in the beginning of the pipeline.
[0:26:55] What can you do to change that? Is just keep doing this? Or is it hard to find them? What's the difficulty you faced in trying to make it more diverse? We certainly have to do more targeted outreach. We go visit the HBCUs or host an event just for women starting companies. But it's work that we're willing to do. And I think the numbers show it does work. And I think that this question of how do we get more black founders, how do we get more women founders, how do we get...
[0:27:21] The answer is we just fund more of them. So that's what we've been trying to do. Is there one thing that works? As basic as it sounds, just continuing to repeat the message that we want to do this. Like, you're welcome here. Please come apply. That seems to work. And where does it go from there when it leaves you? Is there any way that you can... That is a problem. So I still do believe that black founders, for an example, have a harder time raising money after YC than white founders. And that...
[0:27:49] There's limits to what we can affect there. I think the good news is historically, later stage investors, a few years after we start doing something, have started doing it as well. So I'm hopeful it will resolve itself. Does Silicon Valley need to pay more attention to it? Or where do you imagine the problem is? They use the expression unconscious bias, which I hate, which is a word I hate because I think it's just lazy. I think it's lazy and being stupid purposefully.
[0:28:16] Really trying hard to be stupid. So how do you look at that idea? Intentionally stupid vibes. Intentionally stupid vibes. How do I look at... I guess I don't really... How do I look at... How do you... That's the excuse they use when they're not doing anything. And so I'm just wondering, is there one thing that you think needs to happen? Is it just continue talking about it or... Well, no. I mean, I think continue talking about it clearly doesn't work. We've been talking about it for a couple of years. The numbers haven't really moved. Right. People definitely do feel uncomfortable. I think...
[0:28:46] The thing that will work the best is very successful examples that people can point to. That's going to take a while, which we're trying to make happen. But I think, unfortunately, that is what will change it with most later stage investors. I think the other thing people can do is just decide to fund more black founders. You could decide to do that. I think that, and the point I always make is, it's not like you have to like...
[0:29:14] Drop the bar to do this. We're very conscious of not doing that. We're very conscious of not having quotas. We're very conscious of sort of not having an easier thing. We just work hard at the top of the funnel, and we get great black founders. We get great women starting companies. And look, most of the people we found are still white dudes, and that is going to be the case for a very long time. And we probably can't do much better than whatever the computer science graduates rates are, but those are going to get better too.
[0:29:41] Presumably. I think they will. I think now there's just such a focus on it. So last question, very quickly. What one piece of advice would you give to a founder right now when you're bringing them in? What's the most important thing right now? Make something people want. I think that's always what we say. And I think when times get really crazy, that's the case. When times are really barren, that's the case. Most founders fail because they fail to make a product that users love. And everything else is a sideshow.
[0:30:12] Well, it's very simple. Thanks, Sam. It's easy. I really appreciate it. Thanks for having me. Sam Altman from Y Combinator. Thanks a lot for coming. This is Recode Decode, where we help you make sense of what's happening in tech and media each week. Join the conversation on social media by following us on Twitter at Recode. You can also follow me at Kara Swisher. We're on Facebook as well and at Recode.net. Just use hashtag Recode Decode. We'd love to hear your thoughts about the show as well as ideas for guests you'd like to hear me interview in the red chair.
[0:30:42] Now, moving on to Too Embarrassed to Ask, where we field some of the burning tech issues that may stymie you and try to demystify them so you don't need to ask your kids. Last week, Walt Mossberg tackled photo apps with me, and today, our fantastic tech reviewer, Lauren Good, is here to talk about IoT. Welcome, Lauren. What the heck is IoT? Because it sounds like something I don't want to get. Well, that's right. There are creams for that.
[0:31:09] The IoT stands for the Internet of Things, and it's a phrase that's basically used to describe all of the Internet-connected physical devices that we now use on a daily basis. This is not a new thing. Some people believe that the phrase was coined as long ago at the Internet of Things to sell things, exactly, as early as the late 90s by a British technologist and entrepreneur named Kevin Ashton. If you look up his bio online, he's got this smoldering look. He's kind of like...
[0:31:39] He's trying to be like the James Bond of the Internet of Things. It's quite funny. But really what I think has propelled this forward in more recent years is the adoption of mobile because now we're all using our smartphones to control these Wi-Fi and Bluetooth connected things, whether we're wearing them, whether they're around our house. So actual things. Like you just reviewed the Nest Cam this week, correct? Explain what that is. So the Nest Cam is made by Nest, which is now owned by Google, and it's the company's first smart home.
[0:32:06] Monitoring camera that connects to Wi-Fi in your house, and you're able to just set it up somewhere in your house, and you're able to monitor a live feed of what's going on at home from your smartphone. Now, this is not the first camera. No, there's a bunch. I have a different one. Which one do you have? I don't know. Maybe you have DropCam, which was actually bought by Nest. I assume Google has everything. It monitors my entire home. That's my assumption on that. I don't do anything interesting, but still.
[0:32:36] You may not be wrong. Yes, indeed. All right, let's get to the questions about the Internet. So it's not a place. Internet of Things is not a place. It is just things attached to the Internet that we control via our phones. Exactly. And the smart home is just one.
[0:32:47] Subset of that. And everybody is doing this. Lots of companies are getting in on this. And it ranges from your cable operators who offer connected home devices and home security systems to smaller startups to companies like Google and Apple. Right, but a lot of it's security, lighting, locks. I just got one of those locks that's doing smart things. Or your smart kitchen. Smart kitchen. Could be kitchen appliances. Like for the next time you cook all of us recoders dinner, you can use like a smart crock pot. Yeah, it's called using my mobile phone.
[0:33:17] All right, so a question from at Apple Joe tweets.
[0:33:23] What's up with an iOS home app that aggregates HomeKit devices into one single app? I don't even understand the question. If you haven't heard of this before, it takes some explaining. All right, explain it to us. So let's take a step back for a minute. First off, what is HomeKit, which Apple Joe Tweets is asking about? HomeKit is a framework that Apple developed a while ago now to try to connect and control all these different devices, smart home products into one. And Google is doing something similar, by the way, definitely worth noting. So both of these projects in their own way are still kind of...
[0:33:52] Right now, the smart home space is very fragmented. You go out and you buy smart light bulbs or smart lock like the August lock or you buy the smart crock pot I mentioned earlier, whatever it might be. You're likely using multiple apps to control all of these different devices because they're all being made by different companies. And I think what Apple and Google are trying to do is say, here's a software development kit. Here's the framework. And we're going to sort of give you an easy place in which to control these things. And why are they doing that? To make it easier to control these apps further?
[0:34:20] I think both. I mean, if you look at Apple too, I mean, Apple has a retail play in all of this. The smart home products that are compatible with HomeKit, they're also now selling in the retail stores, right? And Apple, of course, tries to build this.
[0:34:34] Great developer community and get people making stuff for them. So that's part of the goal as well. I think what this person is asking is, when are we going to see a HomeKit app, like an app that actually lives on your iOS device? And right now there isn't one. Right, where everything can be. Where everything can be, right. Right now, let's say you have a Lutron device, which works with HomeKit. You go into that app and you activate HomeKit and you activate Siri and you start to control things with Siri. You can't go to your phone and say, where's the HomeKit app and control it from there. Right, right. Now I have a lock, for example.
[0:35:04] And you control it from all those different apps, right? Yes, I keep opening different apps. Right, exactly. So I think what's going to happen, my belief, is that Apple is eventually going to offer some type of third-party, excuse me, not a third-party app, some type of its own app called HomeKit, similar to the way that it has Health App now that aggregates all this information. But unfortunately for Joe, we don't know exactly when that is yet. I could give it a better name, HomeKit.
[0:35:29] Well, you should send your ideas to them. I should call Tim Cook immediately. You should tell him what's up. All right, question from AtOpsBug. Some people say that these new technologies are too new for anything serious. How can I best reply to that? Lauren, give him some ammo. I know. He wants some arguing points with his friends. He's like, no, nerd cred. Don't you know you live in the Matrix already? This is all fake. Which color pill did you take today? So I would say two things here.
[0:35:59] The first is that if you're arguing in support of the smart home, it's very easy to look at these one-off devices and identify very acute solutions or acute problems in some cases and say, this is silly. The first time I ever tried a smart home product, I was using connected light bulbs. And this was about four years ago now. And I said, well, it's a lot easier if I just go over and flick the switch myself. What is the big deal with having these multicolored smart light bulbs by the time I open the app and everything? I had a similar experience when I tried to rig a smart coffee pot.
[0:36:28] I thought it's really easier if I just get up in the morning and...
[0:36:31] Get out of bed and hit the button myself. Okay. So there's that where you say, what are these really solving? But I think if you look at it sort of bigger picture, like this idea of an entire layer of connectivity eventually applying to your home, and you look at how it's impacting utilities, you look at how it's impacting security and things like that, I think there could be a good argument made there for the viability and the value of these types of products. The other thing too is that if you believe what analysts say, which sometimes we don't and we take with a grain of salt, but if you do, they tend to be...
[0:37:00] Very bullish on the idea of the smart home. I think all our homes are going to be like totally absolutely connected. The doors, you know, like in Star Trek and things like that. I mean, a lot of people already have that happening. Right. But it hasn't been accessible to normal people like us. But you'd imagine like saying, I want this food coming in or it's cooked. Right. That's coming. Yeah. Or like your wearable knows you're going out for a run. And so it triggers your home. This has been talked about, though, for a long time. System to lower the temperature.
[0:37:29] Right. And just now, I mean, a lot of the solutions are starting to sort of patch things together like that. One triggers another, but it's complicated. This is an interesting data point, though. We had this recently on Recode. According to Gartner, the average household will have more than 500 connected devices by 2022. Wow.
[0:37:47] 500. 500. That's a lot. I'm not going to connect that many things, really. What if it's inadvertent? Well, you connected your cat, which I think is just cruel. Anyway, question from at Falco underscore rocks. Well, Falco apparently rocks. Genuinely concerned about smart home and hacking and government potential back doors. Get that, back doors house.
[0:38:08] That was a good pun. Well, that's not exactly a question. Are you concerned about that, them looking in at everything? We had a speaker at our Code Mobile last year talking about that, like the idea that she gave out stickers to put on your phones and on your cable boxes and everything else because people could just look in. And I was just watching the show Mr. Robot, and the guy put something in a computer, and so we had access to their camera that was on all the time.
[0:38:29] And she also was not allowing her kids to use Instagram, right? Wasn't that a big thing? Because she said once you start Instagram, people know your location. Yeah, exactly. But the idea is, you know, can they get into your home? I'm debating this around a smart lock right now, whether I should do it, people could hack it. Now people could just break my window and get in the house or jam the lock. So it's not like...
[0:38:48] People are more concerned about digital issues than they are about physical ones. I think these concerns are very reasonable. At some point, these things will be hacked. I'm not a security expert, but I can almost guarantee it will happen in some form because just like your financial services information becomes vulnerable or your target credentials became vulnerable or your PlayStation account or anything else has been vulnerable at some point, once you apply Wi-Fi connectivity to a device, you are essentially opening it up in some way.
[0:39:16] Earlier this year, this was really interesting, there's a firm called Synac in Silicon Valley which crowdsources white hackers to basically do all this vulnerability testing. These are good hackers. Right, they're white hats. So they say, okay, we trust that you're not doing this for nefarious purposes. So they say. So they say. So they say a lot about everything. According to. Allegedly. Allegedly. They allegedly looked at 16 different devices from cameras, home automation controllers, thermostats, the whole thing, and they were very surprised.
[0:39:45] Discovering how vulnerable some of these things were. How easily things could be physically manipulated if someone had 20 minutes with your device. Could they somehow install malicious software on it?
[0:39:58] They found that many apps stored passwords in plain text or left behind non-expiring session credentials. Basically, things weren't encrypted in a certain way. They did find that some companies were better than others. And it's like, this is just one report and people are doing this a lot. They're testing these vulnerabilities. Just assume. Right. I mean, it's another thing to consider in the trade-off for should I...
[0:40:18] Should I rig up my home or should I not? Should I not? Yeah. I have gold in my mattress right now. No, I don't. Oh, I just told everybody. No, I do not actually. Where can I get? I don't have any gold. Well, I did have this moment when I was testing the Nest Cam where I was watching True Detective one night. This is way TMI, but I got like really hot in the apartment and I thought, I'm just going to take my pants off and watch True Detective without any pants on. And then I thought, oh my goodness, the Nest Cam is pointed right on me. And if these clips ever got out, you know.
[0:40:47] You're watching True Detectives with no pants on. That's not exactly. It's not the Kim Kardashian sex tape there, Lauren. I know. People probably wouldn't be nearly as excited as they would. But I enjoyed watching it myself. Tony Fidel and I shared the. Question from at M. Osborne, NYC. Where can I get one of those furry pieces of technology featured in your last review?
[0:41:08] What is that? So my cat was in my last review. Oh, all right. Because I was using the Nest Cam to monitor my pet. I was a little worried there. I would advise that this person should read the Verge's review last week of the domestic cat because they're basically described as tiny little huggable animal versions of Tony Sopranos. They seem cute and they will kill you in your sleep. Should you outfit a cat with technology? I mean, you did. You were watching your cat. You showed me your delightful picture of your cat. You can put a GoPro on a dog now. Yeah, I get that.
[0:41:38] But I'm saying you were watching your cat move from the bed to the thing and not get on the bed when the cat wasn't supposed to. Now the cats care. But it was interesting that you use it to monitor a pet. Those are adorable, usually typically very adorable pictures and stuff like that. They are. And people have chips and cats and things like that. Yeah, microchips and pets now are quite the thing. So you can find them. So do you imagine that becoming something or that we have pets that are digital completely?
[0:42:06] Sleeper. Woody Allen's Sleeper. I actually don't know that movie. Are they robot pets? Robot pets, yeah. Oh, I don't know. I mean, we had Tamagotchis at one point, didn't we? Yeah, and that didn't work. And people play mobile games where they're taking care of virtual pets. And Sony had a few virtual pets. That's right. That's right. That dog. Because that would be perfect for the Internet of Things. I think those things will always come and go. Yeah. I mean, I just think you really can't form the kind of connection with a robot pet that you would. I mean, I think that there will be accessories.
[0:42:34] It's like we're talking about now for pets and other furry things in the home. Allegedly. Supposedly. Last question. Reportedly. I don't believe Noah put this in here. Finally from our own Jason Del Rey. I call my son a smartass, but it still doesn't wipe itself. Can you help? Oh, I get it. I get it. Oh, Jason. Jason. So to wrap up, Lauren, this Internet of Things is coming. We cannot avoid it. But it's becoming more.
[0:43:01] Easy to use, essentially. That is correct. And someone asked me, do I ever think there'll just be one platform that people will be able to use? And the short answer to that...
[0:43:12] Me is no. I mean, just like there isn't going to be one mobile platform that everybody uses. There will always be competition. There will always be players trying to get in and do something different with this. But I think right now it is incredibly fragmented. And your favorite item in the Internet of Things right now is the cameras? I don't use the smart light bulbs anymore. So I would say right now the most useful one for me is the home monitoring camera. But I do still...
[0:43:36] I feel that if someone could get smart coffee right, I would be super excited about that. Super excited. Okay. Well, thank you so much, Lauren. Thanks, Cara. Next week in Too Embarrassed to Ask, we have Walt coming in to talk about, was that right, Lauren, Windows? Windows 10. Windows 10. That's right, the launch of Windows 10 at the end of this month. Which is such an exciting topic. It's a big deal. It's a big deal. No, it's going to be great. Cara's laughing right now.
[0:43:57] And now on to Enough Said, the part of the program where I get to spout off or one of my reporters gets to spout off on news of the week or stuff that's just pissing me off. I'm not particularly pissed off about Google, but it was really interesting this week. In their earnings, they got a huge pop in their stock because they actually were friendly to people and nice and talked about their new CFO, Ruth Peratt, talked about transparency and cost cutting, which is unusual for Google. So here today is our Recode reporter who covers Google, Mark Bergen.
[0:44:25] Welcome, Mark. Thanks, Kara. So you wrote a lot about Google this week. Let's start with their earnings, because then you wrote about sort of this new happy face of Google, which I completely don't believe. But let us see what you think about it. Sure. I mean, they also had numbers that beat the expectations. But it wasn't a huge beat. It wasn't huge. Right. They just used the word transparent and seemed nice. It seemed like that was the biggest thing. They did, and they used the word mobile a lot. They made claims without any numbers behind it. The discrepancy between their desktop ads and their mobile ads is closing.
[0:44:54] Wall Street, as usual. Yes. Mile wide and a foot deep. And then they talk a lot about YouTube and how great it is and how many people are watching it.
[0:45:03] And gave a few new numbers about ads and viewership on YouTube. And that kind of contributed to a lot more bullish on Wall Street. Why is that suddenly? What was that? Because the stock has been sort of straight on, hasn't gone anywhere for a long time. And one of the reasons is this idea that Google just is busy creating time machines and rocket ships and invisibility cloaks and spending all kinds of money while they make the money off of search, but they're not concerned with Wall Street or investors. Do you think their personality has really changed?
[0:45:30] I do think that Ruth Porat really spoke to the analysts and investors on the call and to the street in general and kind of told them what they want to hear, which is, yes, we're aware that we can appear not to be as disciplined as you think we should be, but we're going to keep investing. And she didn't say explicitly, we're going to stop investing in R&D and we're going to stop spending billions and billions each quarter in this. And she said, our spending may tick up next quarter.
[0:45:55] But she just used language that made the street comfortable. So do you feel that's real or that it's just they have this person who is of Wall Street? She's from Wall Street. She's someone who's well-liked on Wall Street. Not that the previous CEO, who was a terrific CEO, wasn't. But is it a more dulcet tone? Is there a reason behind that? I think so. I mean, I think he was well-liked, but he's also, I mean, you talk to analysts, he's a little bit detached, right? It was almost like the street was not Google's primary concern. Not at all. Never has been. Yeah. And at least with Peratt, it seems that she's paying them more attention.
[0:46:24] Right. So do you think they mean it? Not necessarily. I think if you read between the lines a lot, what she was saying was don't get your hopes up that our spending is going to start dwindling down or we're going to do investor buybacks or pay up dividends.
[0:46:38] We're still going to be Google. Yeah, they talked a little bit about that kind of stuff. I was like, they're not doing that at all. They're building that colony on Mars. They're doing that next. Right, right. She talked about what Larry and Eric Schmidt have said, that kind of 70-20-10, the allocation of spending, and that 10% still being the moonshots. Right, and they can continue to do this because of the growth of search. I mean, they made $65 billion on the stock market on Friday alone. Right. So it was like...
[0:47:01] One and a half Ubers. So people like a nice Google, like a friendly Google. I think so. Yeah. So you wrote also a piece about Amid Kordestani, who is their head of sales, who replaced Nikesh Arora. Talk about him a little bit. Right. Because he was the original salesperson. A friendly Google. Yeah. He was their number 11 hire back in 1989 when it was just 10 engineers.
[0:47:21] And he built out the sales force. I think what I understand about Amit is that he had a real talent for finding talent. And he found Sheryl Sandberg, he found Kesha Rory, he found Tim Armstrong, people that have gone on to be CEOs of very successful companies. And he has kind of harvested that and really doesn't take a lot of the limelight. I mean, I think he's probably not a huge fan of the fact that we wrote a story about him.
[0:47:45] But one of the things you couldn't find was one negative thing. Not that we in the press like to have negative things written about people. And he is. I've known him for 20 years. He's literally the nicest person around. Yeah, but I think an analyst and talk to ad partners, his biggest challenge is going to be it's a very different company than when he left in 2009. And back then, he kind of had the benefit of riding this rocket ship-like growth, and they had this search advertising no one else was doing as well. And now Google has so many more competitors.
[0:48:14] It's into so many more businesses than it was in 2009, and it's just a very different company. So is it still the same aggressive push to the edge company, or do you feel like there's been a shift? I think there has been a little shift. I think part of it is coming from the fact that Facebook is now rivaling them in the advertising world.
[0:48:30] That you have the growth of apps that have really given this existential crisis for Google in the future of what it's doing on mobile. And it has to be a lot nicer player. And then you have publishing, right? Google was once, SEO was once the dominant platform for publishing. And now you have Snapchat and Facebook and social publishing. And so the publishers, their relationship there, they don't need Google as much as they once did. So the friendly Borg. Well, that's good to know. Thanks a lot, Mark Bergen. Thanks.
[0:48:54] Thanks for listening to Episode 3 of Recode Decode. We'll be back next week with another great series of interviews and reviews. If you like what you hear, you may find our other interviews with people like Stuart Butterfield, CEO of Slack, and Ashley Vance, author of the latest book on Elon Musk, on our site at Recode.net. I'm Cara Swisher. Thanks for listening. This has been Recode Decode, hosted by Cara Swisher.
[0:49:20] For more hard-hitting interviews with insiders from the worlds of tech, media, and politics, subscribe to Recode Replay on iTunes, featuring candid conversations with leading voices like Snapchat CEO Evan Spiegel, Uber founder Travis Kalanick, reality star Kim Kardashian, Shark Tank host Mark Cuban, and presidential candidate Hillary Clinton, President Obama, and more. They're all on Recode Replay. Thanks for tuning in.