Technology
Is AI in a Bubble Right Now?
In this episode, we explore whether the current AI market is experiencing a bubble, particularly focusing on AI stocks like Nvidia. The discussion delves into valuations, revenue generation, and the s...
Is AI in a Bubble Right Now?
Technology •
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Interactive Transcript
spk_0
Do you believe that AI is in a bubble right now?
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More specifically, AI stocks.
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So when you look at like an Nvidia, for example,
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or you look at any of these other tech stocks,
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do you believe it's in a bubble?
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Or do you believe it's more, do you think it's like 1999?
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Or what do you think it's like?
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Are you talking about the valuations or the revenue?
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Both actually.
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So let's look at value, because people tend to look at valuations first.
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But I like to look at both valuation and revenue, right?
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So if we look at an aggregate, how do you look at it right now?
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So I don't know if valuations are in a bubble or not.
spk_0
Mm-hmm.
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Well, I look at the Nvidia's ours.
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They're the shovels, the fixes, the acts of the gold rush.
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Do I think there is a lot of fluff and AI companies
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that are gonna fail?
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Yes.
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Do I think the energy companies, the Nvidia's and stuff like that,
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are gonna get crushed?
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No, I think they're gonna keep generating more revenue
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for a very long time.
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Does that mean that their stock is gonna go up or down?
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That part I don't know.
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But they have so much demand, because think about how much AI can power
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from helping with cancer research and new drugs and formulas
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and all this kind of stuff.
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It has solid use case.
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The problem I'm seeing in AI, and this is what some people could assume
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is a bubble.
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And what's a 24-hour VC-Harry something?
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20 VC.
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20 VC.
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What's his name, Harry?
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He's stepping.
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And he talked about how the valuations are just becoming ridiculous.
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He posted something on X, I think a few weeks ago.
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We're seeing a lot of crap companies generate tons of revenue.
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I'm not gendered tons of money.
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Get a really high valuation when they shouldn't be.
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A perfect example of this was I was talking to an AI company
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in the video space.
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They do well into the eight figures in revenue.
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And they're talking about how their company is worth
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call it a half-a-billionish dollars.
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And I looked at it and I was like,
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Google has a better product.
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And Google's product is free to cheaper.
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Yep, right?
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And I was like, I don't understand why people need to use your product
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when Google's product runs circles around you.
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And oh, by the way, they can make it free.
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And they're like, no, I'm like, yes.
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If that video product helps advertisers spend more money on Google ads
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and they go from call it 300 billion in ad revenue to 350,
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they don't mind losing a billion dollars to give away that product for free
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completely to generate 50 more billion in ad revenue.
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And that's where I see a bubble in which a lot of companies
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like the Jasper's of the world were funded with high valuations
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when it never really made sense because it's what.
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So open AI creates an API.
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You can do this on chat GPT.
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Sure, Jasper is creating some unique features,
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but you can do most of it with the open API.
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Jasper was interesting back in the day before chat GPT came out
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because it was chat GPT-esque, right?
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And that's where they're accruing the value.
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And then, well, what happened?
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Not so much anymore.
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They actually still have a lot of employees.
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You see that? I checked on LinkedIn.
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Yeah, the extra box president,
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Tim Young is the CEO and runs it.
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I don't know what their revenue is,
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but I've read something online at 50, 60, whatever, million dollars.
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Yeah. Don't get me wrong, great business.
spk_0
Yeah. But SaaS companies are not valued at a billion dollars plus
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and a multi-billion dollar valuation.
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I know it's more than a billion.
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I don't know if it was multi-billion,
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but I know it was more than a billion.
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I think it was like two.
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That's what I read.
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Yeah.
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I think it was one-and-change.
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You could be right.
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I remember two or one point five if you want to,
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you're compelled to search it.
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Okay, let me give you my take on this.
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So the reason why I brought this topic up,
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so is AI a bubble right now?
spk_0
I don't believe AI is an bubble.
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Go ahead.
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One point five.
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One point five.
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See?
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See?
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Okay.
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So is AI an bubble?
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I don't believe so.
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And here's the reason.
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Because if we go back to the concept of Gevin's paradox,
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right, when you think about the electricity,
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electricity back in the day,
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you think about the internet back in the day.
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When you and I,
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when our internet speeds started to get faster and faster,
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what started happening?
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We started using it more and more and more.
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When we're getting more and more tokens now,
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really what we're buying is intelligence,
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the cost of intelligence, right?
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The cost for us to code things.
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Like we just mentioned the efficiencies
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we're seeing with our engineers, our developers, right?
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So I'm literally arguing with a finance YouTuber right now
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on this.
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And I bet I'm $10,000 that here's my bet.
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You can tell me if my bet's unreasonable.
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But I basically said, look,
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you look at the usage.
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It's going up right now.
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Companies are literally cutting headcount.
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Not saying that's a good thing,
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but they are cutting, that means they're seeing value somewhere, right?
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If a center's going to cut 11,000 Salesforce,
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cut 4,000 and Walmart's like,
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we're going to keep our headcount flat.
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Okay, something's happening, right?
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So if he says, okay, well,
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you know, Nvidia, this is a,
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we can talk about the round tripping with the revenue where like,
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you know, they're investing in an open,
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100 billion in or open AI and then like 300 billion
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open AI is paying to Oracle and like the round tripping
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this revenue, right?
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And he's saying it's more,
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this is like N-ron, like red flag type of stuff.
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I'm like, dude, like,
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open AI has 800 million users and he's like,
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well, the $20 a month is never going to grow into the revenue that they,
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I'm like, dude, in startups, you go for the users
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and then you can turn on ads later,
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you can do whatever you want with the users later.
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It's not just going to be a $20 a month thing, right?
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And he's arguing with me back, I'm like,
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okay, I'll bet you $10,000, okay?
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I bet you open AI and Thropic cognition in the next five years.
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I'll, I'll even give you 10 years on it.
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Their valuation plus their rev,
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valuation or revenue is going to be higher, okay?
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And if you want to look at the Mag 7,
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he was using Nvidia.
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He's like, why do you think Warren Buffett doesn't use Nvidia?
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You talk about Warren Buffett all the time, right?
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I'm like, yeah, I'll tell you what,
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Warren Buffett doesn't invest in talk.
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Well, stocks, he's a tech stock.
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I'm like, some he does.
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Yeah, this is Apple.
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I think, sorry, I said, I said Warren Buffett tends to avoid tech.
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And so he does have Apple, he does have Google,
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but guess what?
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It's his lieutenants that put in that money.
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He has said in the circle of confidence
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that he doesn't touch that stuff, right?
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And, but you and I both understand technology.
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And we know how this stuff goes.
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Long run, long run.
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So I was like, look, okay, you can take Nvidia,
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you can take Microsoft, even take Amazon as well.
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You can take Google and I'm telling you,
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in the next five years, revenue,
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valuation will be up, okay?
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And I'll bet you 10, I'll bet you more than that.
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I'm near fiber 10.
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I can do five, I said five first.
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I said, I agree.
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I think within five years are all worth more.
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Yeah, but this is not financial advice from Eric.
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And I, this is just our own opinions.
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We're not financial experts are economists
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and you could lose money.
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But I agree with you.
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I think it's common on Enron is very non relatable
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to what's happening with like Nvidia investing.
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And Ron was taking revenue.
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And let's say the revenue was over three or four years.
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They're booking it all right now,
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which you're not supposed to do in accounting.
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If someone pays you over four years,
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you can't just count all the revenue today.
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Yep.
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And that's where Enron got into a big issue.
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If Nvidia is making money from selling GPUs
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and open AI is trying to build massive data centers
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and you know that company's growing in revenue,
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these companies have venture arms.
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Why can't they invest in them?
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It's like it's taking money off your balance sheet.
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Yep.
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Yes, they're spending some of that cash
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and investing it back into,
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but you end up becoming an owner in that organization
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that's growing very large.
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Yep.
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I look at open AI and Nvidia
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and a world where there wouldn't be a world
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where monopolies would be allowed.
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You would start seeing these companies
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gobble each other up because they're so dependent.
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Yep.
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And you would grow even faster.
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But we can't do that in today's world.
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You know what, Jensen said,
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so I was listening to a podcast
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where he was talking to Brad Gersner
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right, so he was doing an interview
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and then one of his partners was there too.
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And so they brought it up.
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It's like, what about this round tripping?
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He's like, dude,
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like I believe that open AI,
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Jensen saying this,
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that opening is going to be
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the next multi-trillion dollar company
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by generation.
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I can see that, right?
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And he's like, we regret not putting in more money
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because we were poor, right?
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Before everything took off, right?
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And now here's a chance for us to put in more money
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and we're going to put in more money.
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And that was his reasoning.
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And like, it actually goes to what you said.
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I'm sure you didn't listen to that podcast.
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That's just you, it's the same logic.
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It's the same logic.
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It's like Google invested in Uber early on,
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right?
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Or not that early, but early enough.
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And Uber started using Google Maps, right?
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So what?
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Google's sending them money,
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then they're making money because they're using Google Maps.
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I don't know what the deal or the terms of the deal are for them to use it.
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You could say it's going in a roundabout way,
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but Uber's map technology sucked compared to Google's.
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They use Google's.
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It became a better product.
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Yeah, it's a win-win scenario for both of them.
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I look at this as just the kind of wrap it up.
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I think it's a look
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there's real revenue, there's real products here.
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And then I think if there's any investing less than not advice for you guys,
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it's warm buff at himself.
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Uncle Warm Buff has always said,
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you want to invest within your circle of competence.
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And the beauty with investing is you can wait to swing on all the pitches you want.
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And you can wait for the fat pitch.
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And then you can swing, right?
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And so, and he has said, like,
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tech is not my circle of competence.
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And so he doesn't bet there.
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And so, but when you know this area,
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you can afford to bet more.
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That's not financial advice, right?
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When you understand your niche, you can press hard.
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Yes.
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But no, yeah, and you're right.
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He doesn't not invest in tech.
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It's his team members that do.
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And it works out from because they understand it.
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And you and I are similar.
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We'll be investing what we understand.
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Whether that's right or wrong.
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Yeah.
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Well, I mean, you and I have been stupid with angel investments,
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but yeah, angel investing has worked out for me.
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It has.
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Yeah, it worked out really well.
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I would say I
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net net it's worked out, but I feel stupid.
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Because most of the bets don't work out.
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That's why I say it's stupid.
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Yeah.
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So I stopped doing angel investments.
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I don't know how many years ago, but it's been a while.
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And then I shifted to just being an LPN funds.
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So when I got started as an angel,
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companies have really raised more than 100 million in total.
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I'm not talking about one round.
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I'm talking about in total.
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And they would just go public if you,
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you know, you risk 10 to this long time.
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Yeah, one million in your series A,
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four or five, your series B,
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you know, and then you got to D.
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And then you've raised maybe 100 total.
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You go public.
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And the returns were actually really decent if you pick the right ones.
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The problem that I started facing towards a latter part of my angel investing
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quote unquote career, but it wasn't really a career more so hobby.
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Yeah, is I invested in quite a few companies.
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And I was one of the first checks.
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If not deep or I was in the first round.
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So I was, you know, one of the first checks.
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Right.
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If they raised a round of two, four,
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whatever million dollars or five million or a million bucks,
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I was participating in that round.
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I wouldn't take up the whole round, but I would write a check.
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And some of these companies started becoming worth two, three, four, five,
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six, seven billion, whatever over time.
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And they were growing.
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But the problem that I ended up facing as an investor is
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when they start raising rounds like 400, 500 million dollars,
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you started seeing things like liquidation preferences and all this kind of other stuff
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that makes it harder for you as an angel to get returned versus what I used to see before.
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And people were starting to, they started to pay up because when you look at most financial investing,
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some of these ventrathons are starting to get 30, 40, 50 percent returns.
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There was a lot of other people who were like, well, we'll pay up for these.
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And we're okay with 20 percent returns.
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And some of the top tier ventrathons do 20 percent because they have so much money and
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so much capital is being deployed.
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Entrepreneurs are getting diluted.
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And that's fine.
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But there's also higher valuations.
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It's just the angels don't from what I've experienced.
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I'm not saying this is everyone.
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This is just what I experienced.
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My returns aren't as great as it used to be 15, 20 years ago.
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Maybe I'm just picking the wrong companies, but people look at like anthropic.
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And I know someone that behind the scenes deals and people like, oh,
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look at this.
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They're worth 150 billion.
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Look at the early angels.
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They made a killing.
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No, they're not getting these crazy valuations.
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What's, um, call it, uh, liquidation preferences and guarantees on how much return they get,
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which really does screw up the returns for the original angels.
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And I know some of the angels or earlier investors on some of these deals.
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And I've talked to them about their returns on some of these A companies like,
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this not as good.
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I'm like, some of these late sage companies or late sage rounds.
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These companies that are putting in, you know, five, 10, 15 billion dollars.
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They're not just being like, cool, we'll do it at 100 plus billion valuation.
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Whatever happens happens.
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They have terms in there that really protect their downside,
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which hurts the returns for their earlier angels.
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So now I just stick with being an LP and the funds.
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Let those, those guys do it and grind it out.
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And if I get my 20% returns, great.
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If it's 30, great, but the bigger the funds that I'm in,
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the harder it is for them to produce 30, 40%.
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The smaller the funds, like call it sub hundred million,
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they have a higher chance.
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But when some of these funds have like seven billion, 10 billion,
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just for one fund, it's hard for them to produce 30, 40, 50% returns.
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They call that the law of big numbers.
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But here's what I'll say.
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So yes, as angel investing,
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like my very first one was a 50-excer.
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The very first one, right?
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But here's the thing.
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A private equity guy recently tweeted this, right?
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And I was like, oh, this makes a lot of sense.
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And you and I have talked about this.
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It's like, dude, if you put money into a fund or whatever,
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you go into private equity or like,
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and you sold the business before,
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you will never have the same returns you had with your business.
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And that's what we learn.
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Our business is the best ROI machine by far.
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And I think at least for me, I got distracted
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by all these things in the past, right?
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But then you start to look at it.
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I think a lot of people, when they sell their company too,
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they expect to have the same returns
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with, you know, by du-pointing into these funds and all that.
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It's just not the reality.
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So it's not.
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And like, dude, I've invested like,
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there was one company that put a hundred grand in.
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I think it returned six or eight-ish million.
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Six and change or eight and change to me.
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Wow.
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So it's like, I've had some good wins on it.
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And they make up for all my other investments.
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But the problem is, is like, it's not just picking.
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I've picked companies that are worth four, five,
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10-ish billion dollars.
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And the returns just aren't the same
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when you're the first check compared to what it used to be.
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Because now they just raised so much and they stay private forever.
spk_0
Mm-hmm.
spk_0
Yep.
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Did you see...
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So there's two things, and they're both similar topics on here.
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So there was a post on Reddit.
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It says,
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Disguised promotion on Reddit for the sake of GEO has to stop.
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And I saw it on Reddit, and funny enough,
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I also saw that on Tim Solo's account,
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the HREF's CMO.
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And I was cracking up when he took a screenshot of it and posted it,
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and he said, he's like, no, no, no, this is just starting.
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And I was cracking up because I like this is so true.
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Like if these LLMs are going to cite Reddit all the time,
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what the heck do you think marketers are going to do?
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They're going to spam the crap out of Reddit.
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And I'm not saying they should.
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I'm just saying this is the reality.
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This is a game for every channel.
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Yeah, this is a game for every channel.
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This is what all marketers do.
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And I'm using spam really loosely,
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but on Reddit, people will really try to spam.
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It's going to make the community crappier.
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I'm not saying you should.
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I think it's short-sighted.
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And I think it's a waste of time of doing that.
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But Reddit, and I think this was very well-do.
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Reddit socks things 12% as Chad GBG references to his content,
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plunges from 10% to 2% in September.
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And there's a headline I had originally.
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Reddit drops $5.3 billion because of an SEO report.
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I believe this from Yahoo, I saw it from Yahoo Finance.
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I don't know where it first came out.
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So they pulled this.
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So there's a got there's a software called prompt watch.
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And it shows you the big drop right in some some a guy tweeted it.
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And then it got cited by all these news sources.
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Well, no, I think that was great because the problem,
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I'm not talking about the stock dropping.
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I don't want anyone to lose money.
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But when you look at Reddit and the citations that are happening on Google
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and on Chad GBG, it's insane in a bad way.
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They're referencing it too much and the quality is really low.
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I get Google has a deal with Reddit for data.
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And I get that Sam Altman owns a percentage of Reddit shares,
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whether it's through his fund or indirectly however it was.
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And sure he benefits from it and they made an announcement before Reddit went public.
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Yeah.
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But for me, the quality of Reddit information.
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Yeah.
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Wasn't it wasn't the best to begin.
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No, and they were just citing it like crazy on Chad GBT.
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And it has nothing to do with Reddit.
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Sure, if I really wanted to, I could figure out ways to gain Reddit.
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I know so many top users.
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But I, you know, I'm not focusing on that.
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Nor do I care to do that because I didn't believe for the longest time
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that they're going to continually site Reddit all the time because of quality.
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And the same goes with Chad GBT.
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Dude, you know how many people I know are just guest posting on junk websites.
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And they're doing comparison tables with like structured data comparing their SaaS product
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with other people.
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This is a little different than the early days of SEO.
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Yes.
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And people like, why aren't you doing that like crazy?
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It works so well for Chad GBT.
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I'm like, no, no, no, no, no.
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I've seen this show before.
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It works well right now.
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Eventually, they'll realize this is making Chad GBT data more crap.
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And they'll filter out crappy websites.
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Yeah.
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And it won't work the same.
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For sure, at best, they will only filter at worst.
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They'll start to ban people.
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Yeah.
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Yeah.
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They'll start going through.
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Sorry for the.
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Yeah, it's okay.
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No, it's okay.
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No, it's not.
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You're just taking a couple of.
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Yeah.
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You know what's interesting as you drink, we have a mutual friend that's here in the Beverly Hills area.
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So I saw him at a YPO event recently.
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He's like, and he was kind of talking down to me a little bit.
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He's like, oh, you got to go on Reddit.
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Yeah, I'm all in on Reddit.
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I'm going to go hard on this talk.
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And I was kind of making the same points that we're making.
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Is he the same one who got us to both into YPO?
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Yeah.
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Yeah.
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And then he was like, also like dismissing me as if I don't know anything I'm talking about.
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Right?
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He's like, no, no, no, trust me.
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Trust me.
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This Sam Altman owns this.
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No, no, no, no, no, no.
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I'm like, yeah, man.
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Like, it doesn't help if we spam the internet.
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We add work crap to it.
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Like we've seen this with SEO.
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Yeah.
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Yeah.
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Sam Altman owns Porsche Reddit.
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Uh-huh.
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Let's talk once he sells all his Reddit shares.
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Yeah.
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Right?
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If he already did, I don't know if he's a long-term holder.
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But eventually, he'll look at as, oh, either I sold all my Reddit shares.
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So I don't care anymore.
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Or B, yes, I'll hold shares in my shares or worth $50 million.
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But man, my chat GBT experience is becoming worse.
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And that could potentially cost me $5, $10 billion in net worth.
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So, uh, yeah, it's all right.
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If you can use the Reddit shares.
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Yeah, I'll lose them.
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My Reddit shares are dump them.
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And then, you know, that's what a logical person does.
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Yep.
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By the way, I mean, kind of related to this one.
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Oh, so I have this topic here on why SEO attribution is dead.
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So, um, but I can't log into my LinkedIn right now.
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So you can pick another topic.
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That's okay.
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We can just go with SEO attribution is dead and why we agree with that.
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I don't know what you're referencing there.
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But I believe SEO attribution is dead for two reasons.
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I don't have the chart in front of me.
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But when we look at where people learn from a company versus where they buy,
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SEO is a big chunk of where they learn about a company.
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But it doesn't pass as a last conversion source.
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A lot of times from where they convert to SEO has evolved into optimizing for,
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you know, AI overviews, these alum platforms like, uh, chat GBT.
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And you're getting the brand mentions.
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But it's really screwing up, uh, your conversion tracking because a lot of people learning
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about a company through these LLMs, assuming you can get your brand sided more.
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But the conversion source isn't always where they first found you.
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So you got to do, you know, multitouch attribution.
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Plus it's not all trackable when someone sees your brand.
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They don't necessarily convert right away or even click right away,
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but they come back.
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And I think attribution not just for SEO, but for SEO, organic social.
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A lot of these channels are dead.
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And the attribution for paid, what we see is it skews more
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where the platforms try to take credit for the conversions.
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When I'm not saying they didn't help us this, but they weren't the only touch point.
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Remember what was said a long time ago with advertising?
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It's like, you know, 50, 50% of my marketing on the dollar works.
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I just don't know which 50%.
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And this is where we're going again.
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Because back in the day, when we first started doing this,
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it was called like 15 for you, like maybe a little longer, 20 years ago or whatever,
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you had attribution.
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You can see keyword attribution.
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You see this.
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Everything was very much less touch.
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But you can't look at it that way.
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And this post actually came from our mutual friend, Guy Tano.
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And like, I traffic go to your homepage.
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You're pricing your solutions.
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Like, you don't know what's actually driving.
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Like, sure, you're good.
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We're not saying don't look at your analytics,
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but it's no longer gospel.
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Like I think you and I in a very beginning, we looked at it as gospel.
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It's not like that aim.
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Once a lot of time, you checked your analytics.
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I actually checked it like earlier this week,
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but I was looking at, I was looking at AI traffic data.
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That's what I was looking at.
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I don't think I've logged into my Google Analytics for probably six months.
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And Neil used to look at it every day.
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Whenever I went to Neil's house, I'd let it, Google Analytics was pulled up.
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I used to look at like five, six times a day.
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Yep.
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But on the flip side, I do have a decent size team at this point.
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I don't know how many people are marking,
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but we have over a thousand plus people.
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So there's so many people that log in and send me reports.
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I don't need to log in.
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So that's one.
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So it's very Neil gets a bunch of text messages and different text groups.
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That's your name.
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And they break down all the data for me.
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And some of it comes from Google Analytics.
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Some of it comes from our own homegrown solution.
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Some of it comes from things like recurly,
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strive, you get the point.
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But I do look at data probably two to three times a day.
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It's just I don't have to log into Google Analytics.
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And but I agree with you on attribution.
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I think there's been a big issue for attribution for a long time.
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Eric had this headline on his single grain home page for a long time.
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I'm going to butcher it, but you know what I'm talking about.
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You actually you better think it's 78% of CEOs don't believe that marketers
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measure ROI.
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We do.
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Yes.
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It was something like that.
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And I think it's totally spot on in which most marketers never really measured
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attribution and executives never really believed in it.
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But back in the day, it was easier to measure than it is now.
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I think it's just we have more tools to help us,
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but it's more complex because data is in so many different areas.
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And all the sources don't give you the data.
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And then the second problem is is because of that,
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you don't really know what's fully causing the conversions.
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So you can show reports.
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It's just making marketer.
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It's making a marketer job more charter in today's world.
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Yeah.
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All right.
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So that's it for today guys.
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And we'll see you tomorrow.