Transcription
It's been done. So maybe I mean, I listen. I don't I don't ascribe any bad intent here, but you, you thought people wouldn't be confused. I would say the majority were not confused, but hey, you were confusedly did it with the TechCrunch one to confuse people. So let's call it what it is. You're hacking media to confuse people to get attention. Correct. Sure.
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All right, everybody, welcome to This Week in Startups. I'm Jason Calacanis, back home in Austin, Texas. Had a great dinner last night with my team, my growing team. I don't know how many people were up to, but man, launch is growing. Uh, with me again today, Alex Wilhelm, you know, from TechCrunch, cautiousoptimism.news. Is that right?
Nailed it. First try, Jason. I'm so proud. Optimism News. I got posted up. Go ahead. I think you should go to you're you're daily right now, right? Yeah. Five days a week. Not the right move. I need deeper insights from you. I'm going to just give I'm going to be your editor-in-chief. I think you should go to two or three days a week. Let the news build up because the news is a commodity now. All the bullet points, Alex. And I think what people would rather have is your insight, your take. So I am going to give you permission to run an experiment. It's your choice. Obviously, it's your business to try that for the for August. Alex's analysis, because when I see you cover the bullet points, I'm finding I know 80% of what you're saying. You're just taking the time to type it. But I don't care about that. I know the headline. Your readers are so in the know that I think you should just do the headline. Alex's analysis.
I will I will I will play with this and I will let you know how it goes. Thank you for the idea. Just an experiment. I love experiments. Is there a shorter version? Alex's analysis. I feel like we're almost at something. We've almost two idiots lad and I do all day is brand names, make memes, and do jokes. Trying to come up with tons. Yeah. All day long. All day long. That's our life. The life we've chosen.
All right. And with me, of course, Lon Harris. Hey, everybody. Our editorial director. Hey. Uh, you know, we uh had a great meeting last night with our our team. Yeah. One thing I realized is we need to, you know, I have the pilot co-pilot concept. Uh, what what do you mean by the pilot co-pilot concept? Well, it's something I learned as in management. I used to have very few resources. So I would staff. We used to say man, but I would staff. Now I staff. I don't man. You understand why, Alex? Yes. Because your team is majority women. It happens to be the truth. Um, and I have three daughters. So I say staff. We staff it. Yeah. Yeah. No, I'm with you. I'm teaching people. I'm teaching. Uh, you there was a period in time where at the we had a woman who would come an investor who would come to our accelerator and every time somebody used the wrong gender pronouns or whatever when she would give them a review of their business, she would start with like a five-minute lecture. You said sales guys, I would like you to know that there are women who work in. And it was just like it was like clockwork. It was just like, oh my god, these poor founders. So I had to like do a thing like when she would come and say, I just want you all to know that there are firefighters, not firemen. They're firefighters. Like you got you got to understand the non-gender words. Anyway.
All right. There's a lot in the news. I like coffee. Got a big coffee story. I think we got a big coffee story today because I remember a great fraud that had occurred with something called Luckin Coffee and Alex remembers it as well, but uh this incredible baked books, which, you know, baking the books in China's. I don't want to be derogatory here, but it's not uncommon, right? Let's just say that. It wouldn't be like a shocker that somebody had put their thumb on the scale. So they had some sort of accounting scandal. Sure. But um the news now is that they're launching in New York. Correct. Uh so we're talking about this meme has merged with the socialism meme, which means I'm interested. Coffee and socialism. Let's go. You and you and every every undergraduate uh poetry student uh loves coffee and socialism. Uh so yes, you you summarize Luckin. They're a Chinese coffee house chain founded in Beijing in 2017. They have been rapidly expanding over the last few years. Luckin stores in mainland China now outnumber Starbucks, which is an incredible stat to think about. They are opening two uh locations in Manhattan, Greenwich Village and Chelsea. Now, as you mentioned, uh Luckin was accused of accounting fraud in early 2020. They denied it. But then later after investigations, the company did admit to falsifying around $310 million worth of 300. Say it again. L 300 how many million million? $310 million worth of 2019. That is a lot of How do you even fake that much? You got to fake buying all those beans, brewing all of those cups of coffee. Like that's a lot. I mean, I can tell you a million ways to run a scam like this. It's pretty simple. I mean, you just say you you count the number of cups and then somebody at the manager at the end of the shift who refreshes them just takes 50 cups, puts 50 extra sales in the register and they you count it up. It's pretty straightforward, I guess.
So, so the company got hit in China. They wound up going through bankruptcy procedures in 2021. They emerged from bankruptcy. I didn't know that. Emerged from bankruptcy in early 2022 and that was when they started this new international push. So they've expanded to Singapore and Malaysia already and now here they are. They have landed in the uh US of A. Uh their 2025 Q2 earnings showed 47% year-over-year growth. $1.72 billion in total revenue and uh GAAP operating income of $237 million. 26,26 locations around the world. That's a lot. That's a lot of coffee. That's a lot of coffee.
Um now, this has become quite successful for a number of reasons. One is price. Yes. They've realized that sugar, milk, ice, and coffee, none of those ingredients in and of themselves are particularly expensive. Yeah. Uh so they have run the price down on they also have another leg up uh variety of drinks like they they have a lot it's uh some of the TikToks we saw compared it it's almost more like a boba shop with their variety of different kinds of drinks than just a coffee house. So a lot of those drinks probably have less expensive ingredients than coffee in them. So you can also cut the price there. Yes. And I just want to add here that there's a difference between the way we think of coffee shops here in the states or probably Europe as well and the way Luckin operates in China. It's mostly a mobile ordering experience and then you arrive, pick up your drink and leave. So you can have higher efficiency stores and therefore Jason lower prices. So it's it's not a place where you have newspapers laying around, Starbucks. It's not a European experience where you drink out of a ceramic cup. And that's super interesting when you think about it culturally. Um, in Europe to ask for a to-go cup is like they're like, "Why? Just drink your coffee and enjoy the moment." Relax. Three cigarettes. Enjoy your coffee. Why not? Sure. Just pop it out. Why not pop it out?
So, uh, race for impact, boys. I'm over now. Now it's a show. For those of you watching at home, our show. Now it's a show. So, and then America, we got used to Yeah. like having a third place to work. Yeah. And Starbucks was always very explicit about it's like an Italian coffee shop. The the drinks have Italian names. It's that leisurely European vibe, sit down, grab a comfy chair. And yeah, we've we've talked about how that is a little bit out of step with the times that we're in when people want to like go into Starbucks, get their drink, and go and now you're in line behind eight kids who want unicorn Frappuccinos and now it's your whole afternoon. So Luckin is a different experience. What's been the reaction to this in my hometown? I wonder. I mean, on one level, they're embracing it. They were doing pop-ups. They got those long lines just like you always do when you have Instagram friendly popup social media experiences. People don't want to miss out. What is this new matcha thing people are drinking? But there has also been a little bit of a pushback about the communist China origins of the company and people are making connections to uh the candidacy of Zoron Mandani, the Democratic socialist candidate who has taken over New York. Where are they expressing these opinions? I'm just going to I'm wondering where would a young socialist in New York comment on the communist coffee company? I mean it's it's all happening on TikTok as as we say so often on the show. Uh, who was TikTok? Uh, a Chinese company called ByteDance with connections to the Chinese and and Jeff Yoss when you're a busy founder. Finding a new developer, my god, that can become a full-time job and you've got enough on your plate. I mean, you're running a startup. But Lemon.io has done the hard part for you already. They've got a crop of prevetted developers that they've ensured are experienced, results-oriented, and prepared to make an impact at your startup. And they can work right now at competitive rates. These are skilled, handpicked devs with a minimum of 3 years of on-the-job experience. And just 1% of applicants are accepted into their program. Lemon.io isn't just recruiting you, the top talent that's out there, they're helping you integrate them into your team. If anything goes wrong, Lemon will find you a replacement developer ASAP. And many of our launch founders and Foundry University companies have staffed up with Lemon.io, and we always get the best feedback. So, go to lemon.io/twist and find the perfect developer or even a tech team in less than 48 hours. And Twist listeners get 15% off their first four weeks. Stop burning money. Hire developers smarter. Visit lemon.io/twist. io/twist.
So the CCP, the Chinese Communist coffee producers own the Chinese coffee. Yes, they own the They own the TikTok. The Catholicated Chinese coffee party coffee company and now they're going to own New York City. They're coming. I mean, they're they're coming for New York. It's a little bit aggressive. Do you want to see? We've got some of these TikToks. We can Oh, we do have TikToks. Okay, great. We can look at a few. We could look at a few. Luckin uh TikToks. All right. So So we have some options here, Lon. We have the official announcement one. We have the local news coverage. And then we have the woman in the u hammer and sickle jersey. Yeah, I'm going with three. Hammer and sickle jersey. Do it. Let's do it. We got options. We got options. Somebody get their daughter. All right, here we go. Let's Let's do it, boys. Okay, here we go. Hey guys, come with me to get a $2 cup of communist coffee. So, this specific coffee shop, this is great, has more locations in China than Starbucks does. Um, okay, I'm going to come back to make a video there later. But no, this company went through a $300 million accounting scandal where they faked their profits because capitalism sucks. And then they started paying their workers and putting the money back into the coffee and what actually matters. And now they are more successful than Starbucks. European family that doesn't know how to walk on the sidewalk. She's back in New York. Of course, this location is right by NYU campus. Should have paid your workers. Oh man, if you're from New York, so the fact that the first street Chinese communist coffee shop is on this strip is crazy. Go to Broadway. This is the very first store in the US. Oh, they numbered it. I got the iced coconut latte. Iced coconut latte. That sounds good. They also have a pineapple. Time for a little review. It's so loud in here. She's beautiful. And it is full of finance bros in here. But the barista complimented my shirt. So, we see each other recycling. No waste. No, wait, wait, no, no. You missed the banger. There's a total banger in here. Yeah, we got to keep going, Alex. You got to keep going cuz this is like amazing. Now, is she Is that like a European accent? Chinese company is coming to the US. German. I think she's a New Yorker. This girl I'm I'm I'm sensing like country. They're better at She's got a little bit. Oh, did you hear that one? Rewind that little bit. This is her best line. This girl is all bangers. This young lady communist country, they're all bangers all the time. Wait, sorry, I spoke bad one more time. Sorry. This be the beginning of Chinese companies coming to the US and disrupting the market and being better than American companies. Even though it's literally a communist country, they're better at capitalism than you are. That stung. That stung. She got me on that one. She's right. Jenita. This is Jenita on uh on TikTok. Shout out to Jangita. DJ an gi. Well, this isn't like any other coffee I think I've had. And this is also just in time for the Dunkin boycott because not every company needs to be talking about eugenics in their advertisements. Oo. Ooh. She's taking out Starbucks, Dunkin, capitalism. Keep going, girl. You go. Making lots of enemies today. Smooth. Smooth. Okay. Smooth. You can It goes down like super smooth. Like it's Yeah. Socialism usually does go down smoothly at first. Yeah. The other side that you got to worry about. There's a lot to take away from this. I think I'm sending this to to my guy JD Vance. I'm going to send this to JD Vance because this feels like a this is the beginning of a MAGA angle that we could go after here, which is that the Chinese companies undercutting American brands. Let's just let this sink in for a second. We're allowing Go ahead. Oh, I was just going to say fast fashion. We We did see this with fast fashion. Your American companies got beat by Shein and and those You cut me off at the uh You cut me off at the pass. Oh, sorry. Go ahead. No, it's okay. I'm going to give my rant because my this is a mini rant. America is so dumb that we're going to allow Luckin to come in. Sponsored by the CCCCCP, the Chinese Communist Caffeine Coffee Party, collective party, collective comrades. We're so dumb that we've let TikTok come in and take over social media and program our children. Now, we're going to allow them to come in and destroy one of our iconic brands by undercutting them. Keep in mind that this if if China really wanted to damage one of the great strengths of America, it's our brands. Why are we allowing them to come in and do this? I know that they're allowing Starbucks, but Starbucks has been struggling. They're going to sell off the business in China. I guess my question, let me finish my rant. Keep your questions, gentlemen. I need to finish my rant here, please. This is the start of a communist tsunami. That's This is a brilliant technique by the comrades in China. Pick a company, our automotive companies, and then send BYD in with the ships we talked about just on Monday. Send Luckin in. Undercut every American brand. Get all those jobs onshored to China. have all that money and all that profits come back to China. Which by the way is exactly what we did to them. We said, "Hey, make our iPhones." Designed in Cupertino, made in China. The people in China made a buck an hour. They were jumping off the buildings. Had to put safety nets around the Foxconn buildings to keep all the suicides because they were working six days a week putting in tiny screws and just the most arduous labor you can imagine or or amongst the most arduous labor. And now they know our playbook which is build a great brand and win the hearts and minds of consumers. This is something that is being done deliberately, strategically and thoughtfully and deafly by the Chinese Communist Caffeine Coffee Company Party. They're doing this on purpose. They see, okay, Instagram is number one. We bring in TikTok. Tesla is number one. We bring in BYD. Starbucks is number one. We're going to bring in Luckin. And what's the next thing to fall? What's an American iconic brand that they will want to take from us next? Disney Parks. The NFL. The NFL. Well, I mean, seriously, it's already happening. It the number one most profitable animated film box office-wise around the globe of all time came out last year, earlier this year. It's called Nezha 2. It's Chinese. It's with with They already are making it up on screen. Let me see that. Nezha 2 is how you is how you spell it. They're already making blockbusters that exceed Hollywood films in China. There was also uh I think 2024's top film was called Detective Chinatown and it was a Chinese movie and so yeah, they're they're already taking us out in the entertainment field. I'm taking action here. I'm putting a 100% tariff on Luckin coffee. Hi. Luckin. It's okay. You could try it, but not for $1.99. All right. You're paying $3.99. And that $2 is uh going to re-education camps here in the United States to re-educate my question. Communist sympathizers. Okay. Are we so threatened? My question is, are we so threatened by China because they are our largest rival? Is it because they are communist? Or is it something else? Because I feel like if this was a Brazilian coffee chain, if this was a Thai coffee chain, I don't think anybody would care. Everybody would be like, "Oh, cool. A Thai coffee chain. I want to try that." But for some reason, we've elevated China the same way we did. I feel like the USSR in the 70s and 80s there for good reason. I mean, maybe for good reason. They're they've got a billion four people. They are extremely ambitious. They're hardworking and they are cutthroat. This is a cutthroat rival. But I mean, is that not all true of India? And that if in But India tell me tell me the Indian brand that's taking over our social media. Tell me the Indian brand taking over our cars. Tata's not dumping cars around the world. I mean, but if this was an Indian coffee chain, I don't think anybody'd be like, "Oh, there's so many Indian people. They're coming for our coffee."
One of the themes we talk about over and over again on This Week in Startups is making sure you do your chores. I'm no expert on these things. I have some experience. Steven Estus from CLA is an expert. Let's talk about being cash efficient. Tell us about efficiency and what you see in the in the top-tier startups in your practice. We're seeing kind of an interesting trend out there where companies aren't needing to raise quite as much as they had in the past. You really have to be careful as a founder to only take on as much money as you really need. You got to do the forecasting. You got to do the modeling and you got to dial it in and get it right. Otherwise, you're going to end up either not raising enough capital to get to where you're going and you're going to have to go get venture debt or go back have an extender to the round or you're going to give up too much of the company because you just didn't recognize how much money you actually needed. Yeah, very important to get this stuff right, folks. And that's really a bummer when startups don't do things in a button-up. I always have a great partner, a good partner to have on this adventure. While things change, my friend Steven over at CLA. Visit claconnect.com/tech. And don't forget to mention that your boy Jason sent you. That's cla.com/tech. Start today. We What's good for the goose is good for the gander. I'm putting a $2 tariff on it. And if you want to launch your company here, you have to have a local partner. So, you need to give 49% of the company like we do when we're over in China. Uh, you got to give for you have a local partner and some Americans got to wet their beak on this and we got to have uh we got to have somebody from the administration on the board with a golden vote. A golden vote. I'm putting my guy Howard Lutnick on the board of Luckin Coffee USA. We're taking 49%. It's going in the sovereign wealth fund. What's going on? USA. No, Jason. Free trade. No. No. All of this is so Oh, god. Okay. So, a couple things. Couple things. Um, the reason why Chinese companies are coming after American brands is that the free market gave room for American entrepreneurs to build iconic global brands. Now, in the case of BYD, we are seeing the impacts of basically an industrial policy at the national level in China, subsidies and so forth. So that I think is a market distortive area in the realm of coffee. While we joke about the you know Chinese communist caffeine collective whatever it's not actually part of the government system. So in my view by telling American consumers you can't have lower-priced coffee because Starbucks can't compete with this company. We're just reducing consumer welfare. And by approaching them and demanding golden shares Jason all we're doing is aping the CCP. So when you and I see that that young lady wearing her I presume tongue-in-cheek hammer and sickle jersey. I didn't think your response to that was going to be excellent. Let's put that stamp on the US by forcing the same practices here. If you want to be okay I am looking for reciprocity here. You are correct about free markets. You're also making up a very good point. BYD is subsidized which is called price dumping in America. Agreed. So, we say no bueno to price dumping. What is a $1.99 cup of coffee for a ginormous thing? It's price dumping. I believe Luckin Coffee is engaged in price dumping. I'm bringing back Lena Khan on special assignment. I call on Lena Khan to run a new division which will stop communism and socialism spreading into our country. Lena Khan, you are now part of the 47th administration. I'm calling my connects. You guys know I'm very connected. I'm calling my guy Lutnick, calling JD Vance, and I am going to bring this to the top of the agenda. No price dumping. You need a local partner. We get our bets or we wet our beaks if you want our market. Uh, no. In all seriousness, I I do think it's like the price dumping is the issue. I don't mind the competition, but I do wonder if they get to bring their brands here. How's there's a Disneyland in is it in Hong Kong? Shanghai, I believe. It's in Shanghai. I want to know if we could ask producer Claude, who's incredible, by the way. And I have my common browser set up to use Producer Claude. So good. You can set your default in. Look at this. I can try out uh Opus 4.1 now. It's for complex challenges. Don't get ahead of the docket Lon. That's coming up later. Oh, okay. Let's ask dramatic foreshadowing. Yeah, let's ask it this question. What do you want to ask? Yeah, let's do it. Well, no. What I really would like to know from producer Claude is He's listening. What's the deal? What's the deal with Disney Shanghai? What is the deal? Who are these people? Who are these people getting 49% of Disney Shanghai? I want to know who owns the 49% of Disney Shanghai. Is it Is it Xi Jinping personally? Who owns it? Because we have to have a partner there. Bobby Iger and Donnie and uh Eisner, they had to cut a deal. The Shanghai Shendi Group, a Chinese state-owned enterprise, owns 57% of the Shanghai Disney Resort. What? The Walt Disney Company owns 43%. All right, that's it. I want I'm upping my 49%. We need 58%. If you take 47% of Disney, I want at least 62% of Luckin. Case closed. I have given my verdict. Yeah. Thank you to producer Claude. So, did you see how how speedy Opus 4 was with that answer? I mean, if you put Oliver on that, it would have been seven minutes. Instead, it was 7 seconds. Is doing a great job. He's great, but he's a human. Give me number two. You have a number two culture story here. I do. I do. It's a big It's a big It's a historical milestone. We've all seen this coming, but it's nonetheless an end of an era. Now that Disney owns Hulu outright, they purchased all the remaining shares that Comcast still held. Uh, they are going to sunset Hulu as a standalone app and platform and integrate it entirely within Disney Plus. By 2026, everybody will have a unified Disney Plus. Uh, now, you'll still be able to if if you want to just subscribe to Hulu content, you'll be able to do that. You can access just your Hulu or just your Disney Plus, but it will all be under the Disney Plus umbrella. Uh, Bob Iger told investors he thinks this is going to be not only a better, cleaner, less confusing user experience, but he thinks it's going to cut down on churn. Fewer people are going to unsubscribe because they'll already have Disney Plus and Hulu ready to go. And because these two, they already have the same ad team. So, this is going to unify a lot and allow them to bundle and do a lot more with ads now that it's just one platform and they don't have to worry about supporting Hulu and Disney Plus. In addition, this is also an interesting footnote. They're going to sunset the Star brand internationally. When Disney first entered the Indian market, it bought uh Star India, which was the big native Indian streaming platform. And so in India all this time it's been Disney Plus Star that's going away. Star is also going to just become Hulu in terms of fantastic. This is a great thing. We predicted it. And what this will do is uh if we could get producer Claude on this. I'm curious where Disney Plus and Hulu are in their subscriber bases and where Netflix is, uh, you know, in relation to this because consolidating these two, I don't know the overlap in subs, but this has got to be pushing, I would think, Disney over 200 million. Well, we'll find in a second. Yeah. Yeah. And and where is Netflix at, Alex, in terms of their subscriber base? And what was the first year Netflix offered the streaming service? Because Oh, what we have Yeah, bet. Anybody who's got it. Netflix is just over 300 million global subscribers. Uh, okay. I'm going to look up when they introduced uh streaming. It was like uh oh, January 16th, 2007 was when they first started. Okay, so they're at 18 years, correct? Disney Plus was 5 years ago, I believe, when they did that introductory $6. I think it's more like six years. 2019 before it was pre-pandemic. Now, I made a prediction on CNBC, and I'd like um producer Claude to find it. I made two really spicy predictions when I was doing my CNBC rounds. One was they got to get rid of Tim Cook because Apple cannot come out with innovative products under Tim Cook. I want to get that call and we'll talk about that on Friday. And I want maybe a little mini victory for me. He's done great in getting an extra $3 out of every iPhone, every iteration. Um, but I think I predicted that there's a possibility within the first 10 years that Disney would eclipse Netflix and that it would certainly be Netflix, then Disney, then whoever else. Uh, so core Disney Plus subscribers are at about 128 million as of the end of last year. The last time we got an accurate Hulu count, they had an additional 52 million. So, put them both together, you're close to 180 million. Well behind of Netflix's 301.6 million as of 2025. Also owned and big news out of ESPN today that they sold 10% of ESPN to NFL to NFL. ESPN Plus has 24.1 million subscribers. That sounds about right. Yeah. So now we're at 200 million plus. Yeah. In six years, Disney has achieved 66% of Netflix's 20 Oh, I got it. Almost 20-year run. In 2017, when Disney first announced plans to launch a streaming service, Calacanis told CNBC, quote, "It will be very easy for them to get tens of millions of people to subscribe." And he said Disney is the one company that could compete with Netflix and streaming content from Amazon Prime. He predicted the top streaming platforms will be Disney, Netflix, and Amazon.
We all understand the importance of a crisp, memorable, easy-to-spell domain name. One of those names you can say over the phone and people know how to type it in without asking you the spelling. But let's get real. The good ones are either taken or there's some poacher who's holding it and waiting for some huge payday and they don't reply to you if you even if you want to pay for a premium domain. You don't want to use up all your runway on a domain name. That's just the truth for a startup. You want to put that valuable cash back into your startup's operations. So, you should consider this a .tech domain. You can get a clean, crisp, super memorable name for your website and company and signal out loud to your customers and investors. We're a tech company. That's instant branding for you. That's why over 500,000 founders have collectively raised over 5 billion in investment building their companies on .tech. So, skip the hassle. Head to www.get.tech/twist or go to your favorite registrar and grab your .tech domain today. That's that's what gave me 2017 2017 when Disney Okay. So that was eight years ago. That was when they first announced Disney Plus. It didn't even launch for two more years. So I need a victory lap. I need a victory lap. I'm going to go back on CNBC to take this lap. Uh, but this is uh, this is big news. And I also said, I think on that that Disney Plus was missing the hugest opportunities ever, which is to make Disney Plus the singular place for all Disney services. The fact that they have not listened, I need somebody to get me a Bob Iger interview. And um, if I ever had another job, it would be a studio head. I would love to run Disney. I'm putting my name in the ring. If if this happens, I'm folding up shop. You're all coming with me to be on my Disney CEO uh jaunt. So, I would like the Disney I'm throwing put me in the as I said, uh, put me in the put me in the game, coach. I would love to be CEO of Disney. Heck yeah. Oh, here's what I do. Okay, day one. Disney merch is a tab in the app. When you're watching a show, when you get to the end of the show, it shows you all the Disney merch and says, "Since you just finished Lilo and Stitch, or you know, since you just finished watching whatever TV show, here's the Fargo merchandise page. And since you completed season 1, you get 20% off. If you complete season 2, you'll get 30% off. And if you complete season 3, you complete the whole series, you're going to get a free t-shirt or whatever it is, I don't know, something." Then for Disney parks, Disney parks, if you subscribe to Disney Plus, you get first shot at the premier dates at Disney parks, the holidays. The holidays are for Disney Plus subscribers. You can't walk up and buy a ticket for those days. You must have a Disney Plus subscription. And we give first shot at those to the top the top longest tenure Disney Plus subscribers. So if you have a Disney Plus account for 5 years, you get to buy tickets first on the holidays then second. So you get a pre-sale a pre-sale at the beginning of the year and we collect the money ahead of time. It seems it's almost like Amazon Prime but it's like Disney Prime. You're joining their like heavy users. Correct. The Disney Adults list. Yeah, correct. And everything is in So there's a Disney World app, right? Yeah. Oh, yeah. You have to have the Disney app now to if you go to a Disney park, it's all through the app. You basically don't have a choice. You have to download and we're starting a Disney miles program and a and a and a gamification. Well, they have too. Yes. So, as you go and do these different things, your Disney Plus account and your karma in the Disney Plus account grows and your badges grow. So, when children go to Disney Plus, you put your kids' names in, they get to have credit for which rides they want on. They have the percentage complete they are for California Adventure, percentage complete for Disney World, percentage complete for Disney Shanghai, etc. As you move it up, you learn more and more. Here we go. All right. Thank you. Uh, let's, uh, drop off our friend, producer, uh, I'm sorry, editorial director Lon, thank you for coming on. Uh, and that was a, that was a brutal call I made back in the day, Alex, when I said Tim Cook should, cuz, you know, the stock went on a rip. My point was the stock can go on a rip because he's a bean counter, and sure, it's going to make it's going to be a good bet on the stock, but it's not going to be a good long-term bet technologically if the person running the show is a bean counter. And sure enough, here we are. And Apple cannot build a car. They cannot build an a VR AR headset. And they cannot build an a goddamn AI assistant. So like every major uh new category since I make these comments, which I'll talk about Friday, uh seems to have been a whiff. Okay. Should we go to our guest wantistration Russian uh accident?
Now, earlier this week, Jason, you saw a video of what appeared to be yourself doing the All-In podcast, talking about a company, and you had this amazing moment when you said, "I I had did we talk about this show? Is that actually something that happened?" So, um, Zach, we'll talk to you just a second. Uh, but Jason, uh, do you want to show you want me to show the original? I think we should just show like the first up until my part of this and then we can pause it. Um, but this was so crazy because people were like, "Oh, what episode was that?" And I was like, I don't know. I think did I say that? Cuz I do seem to remember people doing uh, you know, sending AI jobs to Manila, wherever, and they were actually using pretending it was AI and they were brute forcing it with humans. So I was like, did did we talk about this or not? So here here's the clip. Okay, we have a confession to make. Brilliant, y'all. We got a situation. Sources are calling the biggest tech scandal since Humpreak. A YC startup called Atom. Okay. That creates 3D models from prompts for game developers has been exposed for allegedly using a human employee named Adam instead of artificial intelligence to manually edit those models. Wait, so game developers thought they were using cutting-edge AI, but it was just some dude pulling all-nighters sweeping. Bro, I if that's true, it goes on from there. And basically these guys hacked the system and people thought that this was real. And so I'm like wait a second and I and I I start asking like did we do I know that cuz there was another company as producer Claude, what was the other company that was doing this exact thing? Builder AI. It was Builder AI. Okay. So this is as far as I thought maybe we're talking about Builder AI, but then I see this Adam. So I see this this young gentleman Zach Dive. Zach, welcome to the program. Thank you. Thank you. Uh, and so take us behind your idea here. The idea behind the idea here because this is sinister and brilliant and all those great things. Go. Uh, how'd you come up with this idea? We we actually did it first for April Fools where we made an an April Fool's prank where we put up like a a fake TechCrunch article and said that like uh the AI behind Adam was actually a guy called Adam. Um, and it went fairly viral on X. In fact, uh, we even had some of our investors call us and like freak out, but I was like, it's fine. Um, and then, yeah, then we we decided to do it again. And with the new AI video, as you can tell, it's getting pretty pretty close to real, but um, but yeah. Okay. Which tool did you use to make these fake AIs? I mean, right now, you can use the mix tool. So, you can use like uh you can use 11 Labs to clone someone's voice. You can use lipstick models and then VO. We actually use a company, shout out to them, Yuzu Labs, uh, who are really good at doing AI avatars. So, okay. And you're a YC founder? Yes. Winter 25. Congratulations. Uh, not not easy to get into the program. And YC does look for pirates. They look for punk rock people who will break the rules. I've been there. Uh, this is a minor infraction. Uh, I was an investor in Uber, Robin and countless other companies that bet rules a you know, and were even more punk rock than you, Zach. But I saw this and I was like, hey Zach, what's the story here? So I DM with them like, hey, listen, people are confused and you can't do this kind of stuff to the point at which you're confusing people. Now, I've had people do there was a All-In AI that a kid named Edward did from a company called Podcast AI that I wound up investing in, and he did this digital All-In one, but it was so bad back then, we all knew it was fake. The problem with yours, Zach, is you did it too good. The tools are too good. People were actually confused. So, I said, "Zack, you got you can't do this. You can't take me out of it." I I will say most people would think probably a joke that a guy called Adam is doing but you know yes except it's been done so maybe I mean I listen I don't I don't ascribe any bad intent here but you you thought people wouldn't be confused. I would I would say the majority were not confused. But hey, you're confusedly did it with the TechCrunch one to confuse people. So, let's call it what it is. You're hacking media to confuse people to get attention. Correct. Sure. Sure.
Okay. So, I told Zach, I was like, "Zack, you can't do this kind of stuff. Take me out of it because I don't want to be a spoil sport here, but uh this is causing confusion." And I also I do uh endorsements and I have I have an endorsement with Athena. So, like if you can use me as an endorser, that's messes up my business. So, I got to nip this in the bud because literally in the last this year, I've had no less than 10 startups use me in their ads, including my friend David Freeberg's team cut me talking about Super Gut and then put me in a paid ad campaign. You didn't put any money behind this, did you, Isaac? You didn't do a paid ad campaign, did you? Be honest. I I know if you did. We didn't do a paid ad campaign. The ad was free. Even making you a muppet was free. So, exactly. So, then Zach's like, "Okay, fine." And I was like, "And please take me out of the previous one." So, I was like a little hardcore with Zach. But Zach was a gentleman. He knew he was in the wrong, I think. And uh he fixed it, but then he decided he would dunk on me. Well played. Here you go, Alex. Play the next one. I have cut, my dear friends, to the place where Jason arrives in his new getup. I think this is a really good fashion for you, Jason. Let's do I like it. I like it. has been exposed for allegedly using a human employee named Adam instead of artificial intelligence to edit those models. Wait, so game developers thought they were using cutting-edge AI, but it was just some dude pulling all-nighters. Even better. So, the Muppet thing's been done a bunch, but yeah. So, that was your way of like uh giving me a little counter punch, Zach. You want to do a little spicy with JCAL? Yeah. Yeah. Well, I mean, it got me on the podcast, so I can blame you for So, what's the status of the company? I mean, explain. So, well done. You hacked media. I give you credit for that. Uh, but in all sincerity, please don't use me in ads. And there's like a bigger issue. Now, there's crypto ads. I don't know if you've seen this, Zach. Have you ever seen me or Sachs or Elon or Chimoth doing crypto ads on like YouTube and TikTok on live streams? No. No, I haven't. The only thing I will make you into Jason is a 3D model. That's the only thing. I mean, okay. I mean, there's some there's some amount to fair use. Just there's a thing called right to publicity. I sent you this link cuz I also there was teaching moment because I was like, "Hey, Zach, if this is going to become like a regular thing, just know right to publicity is even if you parody a person, you still need to get permission and can't confuse. You got to put all kinds of disclaimers." That's why when uh there was like a group of advertising, I don't know if you remember this, Alex, on radio where they would use celebrities voices and they would use like Arnold's voice or whoever some iconic voice and they'd be like celebrity impersonator, not the actual Arnold Schwarzenegger. Oh, yeah. Yeah. And they would be like, I love to eat the superhuman boss. They're incredible. Um, so I just was like, Zach, I just know like you can't like do this as like a, you know, 100% of the time thing. You know, one time's okay. Um, but tell me about the business and what you guys are doing. Um, since you since you since you got yourself here, you could create a little bit of a ruckus. And now everybody's dunking. Oh, Jake has no sense of humor. Okay, fine. I have a sense of humor. I mean, it's punk rock, but just don't do it as a programmatic thing. Which one did you think was funnier, the first or the second video? Well, obviously the second is better, but these deep fake crypto ones are the ones I'm really concerned about. I had somebody tell me in my DMs that they had bought $10,000 worth of like JCoin or something in a crypto scam and they wanted their money back and then they sent me pictures of the DM. So, somebody created fake ads using AI. Then they DM from fake accounts on like Instagram. These Instagram accounts I'm not aware of because they download my whole Instagram account. They create a copy and they block me and they block you. So you don't know that they're doing this stuff. So there's like just so you know, Zach, why their sensitivity here is like I don't want my, you know, people who listen to the show and the listeners to get scammed. Uh, and this is like part of that whole genre of using AI to do this. So there's like a real thing here. It's not like uh I'm just singling you out. But tell us about the company. Yeah. So we're Adam. We're an AI powered CAD editor and 3D modeling tool. So basically like the model of the company is that you can just speak anything into existence, right? So I could say make a snap fit enclosure for Raspberry Pi and it'll generate the CAD model with a subset of parameters. Or I can even say like make a figurine of Jason holding a cup of CCP coffee. I could 3D print that and put it on my desk and show it. Absolutely. Yes. Make me into comrade. Jason, can I can I show you what it looks like when we use it? We have a I have a demo for you. Oh, great. Awesome. Yeah, go run the demo for Zach. Let's get him some customers. Who's it for, Zach? Who's this for? Is it people making video games? Is it for people who are like traditional CAD people or you trying to do what Canva did and make CAD something that everybody can do?
And kind of induce an audience to exist? Yeah, I think where AI is right now, we're bringing the floor down. So, what we're allowing people to do is people who really want to 3D model who don't necessarily have the the modeling skills a bit like Canva is they can just go in describe exactly what they want and then, you know, 3D printed or put into their video games. And then we also have professionals. So, we have some DA game studios um using it to sort of make assets for their games. Oh, they are making assets. Yeah, I did hear that um a lot of folks are now making assets in real time using AI too. Is that part of the vision where you could like actually have the tool built into the back end and world create and like insert things in real time?
Yeah, user feedback or I think the big thing I mean a lot of the asset generators out there you just like put an image in or put a prompt in and you can't edit it. Ours is the only tool that is like like chatg, right? You can keep conversing with it, right? So I could have you holding the CCP coffee and then we could, you know, have the same thing and have you, you know, having a communist flag as well so we can we could keep editing it.
Where are you guys based? We're in SF in the marina. Uh, well, congratulations. You raised money. Were you able to raise money on this idea? Where you at? Who's the who's the lead investor here?
Yeah. Yeah. So we I mean we're lucky enough that we had um, you know, we we had a launch during YC that was pretty much one of the most viral YC launches of all time. Um, so we raised like a very healthy seed round. We'll probably announce it in a few weeks or so. Oh, great. Awesome. And then yeah, so we basically during YC we made um the very first like sort of web- based text to CAD editor. So some people call it like Velv 0 for CAD. Even GMO called it C0. Uh, then we built this 3D acid generator tool in the last like two three months, best acid generator tool on the market. And now we're going full-fledged on sort of uh AI CAD research. But Alice can show you a little bit. Here's an example of Jason that I made. So my prompt was a model of an elf wearing a Lorna Shore t-shirt. And I picked that because heavy metal bands have very very complicated logos. Uh, ready to jump out of a tree. And here it is. One shot of this thing. Isn't that is that crazy cool? I would actually play a game with this guy in it. I think it's fantastic. Awesome.
Hey, since we have you on, Zach, how do you We're talking about IP. How do you think about IP in these kind of tools has been a big issue with output, right? Obviously, training data is one thing, but output like if you ask it to make a Jedi or a Disney character, will it do that or do you have to like start thinking about those kind of issues now?
Um, yeah, I mean, you know, I feel like that's a problem for the the big dogs out there. If anything, like, you know, initially we were content moderating it, but we found that users wanted to generate uh different IP and I guess like since the models are slightly different and adjusted, we kind of allow you to generate any single character you can think of. So your favorite movie character, you can generate a figurine, print it or like put it in your game. So So yeah.
Awesome. All right. So in the tradition in your interpretation of IP, no problem using other people's IP for the output. Not yet. All right. So, there's a lot of lessons here for you about IP usage. I would not let people output other IP things. We could make a video game you Jason. Wouldn't that be sick? What's that? We could make a video game where you're like walking around and stuff. We could have That would be sick. That would be Yeah, we could have you like slash down the CCP coffee. So, I love it. I love it. Uh, so, uh, is there any room in the seed round now? I feel like I need to get my beak wet here. What's going on with the seed round? What's going on? There's a room for Jcal in the seed room. We could let Jal in if we get publicity rights. We can like deed fake you whenever we want. Uh, I can make giant 3D printed models of you. I'll put it on top of the house to find out.
All right. Well, send the uh, send the 50 bits as an advisor agreement over and uh, we'll get that signed straight away and then let me know about the term sheet. Maybe we'll pop in a quick Hyundai and uh, we'll be along for the ride. But I wish you great success with it and uh, yeah um, it was great to meet you and have a little back and forth with you. All in good fun folks. All in good fun. All right. Peace. Check us out at adam.new. Oh yeah. Adam.NEW. Adam. And if you want to generate JSON in 3D and post it on Twitter, you can do it. Subdomain. New. New. Yeah. It's like bolt. You know, it's becoming That's a neat domain. I like that. Yeah. Zach, continued success. Uh, and uh, great to get to know you and I will see you on X, sir.
All right. Well done. Uh, I thought it'd be fun to just cut this off before it becomes like a Palmer Lucky situation. His enemies accumulate and this kid Zach is just I know a punk rock founder. Like I kind of this my specialty is finding the punk rock founders because I was kind of one of those back in the day. Um, because the second I was like, "Hey, you know, maybe you can't do this kind of thing." He's like, "Oh yeah, let me escalate this cuz I can get more views." And I'm like, "Yep, that's what I would have done when I was your age." Yep. That's exactly what I would have done as a 25 or 30 year founder. You told me to stop, I do it twice, you told me to stop again, I do it four times, you tell me a third time, then I'm probably going to tone it down. Absolutely. But in all seriousness, uh, this will become an issue over time. I don't recommend doing this uh as for for people listening. Um, don't ever take a known person's talking about your product and put it in an ad because this recently happened actually. Um, I think it was Huberman. Look up uh ask producer Claude about Andrew Huberman doing a lawsuit based on people you I think it was Tim Ferrris, Andrew Huberman and Peter Aia and one of those three or or multiple of them had to write a bunch of cease and desist letters and I think it was Hubberman because people were taking Hubberman who might talk about a compound on like Joe Rogan and you know he might talk about I don't know like vitamin D or something and and they cut him talking about vitamin D and then put their supplement ad on it. But this was like not just, you know, a startup, you know, in their seed round doing it on Twitter precociously. This was programmatically. They were buying millions of dollars of ads and using his likeness in it. And they and then somebody did it to Joe Rogan as well. Now, if you do it to those two people, they're in the business of their image. Like I think uh, you know, you would have Joe Rogan reading ads for these people. So now you're circumventing his ability to run his business and that's when you lose in court for a big dollar number and you would have to go back and pay for that violation in a major way. Now in this one you could argue a little bit of parody no harm no foul there was no damages but with Huberman's case Andrew Huberman's case against a neutrauticals company or something he can actually claim significant damages because he had his he has advertisers as well. So, we're here from uh May of 2024. Jason, is an Andrew Huberman post from uh Facebook in which he says, "Unfortunately, many ads are currently running on social media. They use my face or a drawing of it to sell it." Um, he sent cease and desist letters and then he lists here are actual sponsors down below. So, yes, this was you dead on. Yeah. And I I don't know if it actually went to a lawsuit or not, but this is going to become, you know, young people have a different view uh and technologists have always had a different view of IP copyright and the kind of fairness of this stuff. Um, and so in one instance where somebody did this programmatically and paid for it, they were like, "We're just fans." And I was like, "That's fine, but you understand this is our business." And then unbeknownst to me, they went and bought some ads on this weekend startup. I was like, "Wait a second. Is this the same company that was stealing though? Like, yeah, they felt bad about they bought these. Now, this was a company doing tens of millions in revenue. So, I was like, okay, that's a nice gesture. Sure. Um, I didn't ask them to do it. Um, but I did think, gosh, I always think when a founder is doing something close to the line, I should just give them a little bit of like, hey, be careful. Um, which is actually what I did in the Palmer Lucky situation. I was like, you know, don't buy covert trolling ads because it could blow up in your face. Anyway, I may have said it in a spicy way, so I'm sorry if I said it too spicy, which I probably did. I was a little spicier back in the day. Uh, but we've got more news in the docket. Let's get to the docket. Is there anything more news for us that because there's a lot of major news today? I saw that I think the biggest one is OpenAI dropped two open source models. Wait, I thought they were out of the open source business. Pause. Not open source. Open weights. Open weights. Not open source. Okay, totally different but still much more open. And as so you can't see the source code, but you can change the weight. So maybe you could explain to the audience what's going on here.
Yeah. Okay. So I knew this question was coming. So I spent a lot of time trying to figure out how to best respond to uh what the hell is an open weight. Yeah, sure. First thing at the top level, you can download these models and you can run them locally. You don't have to interact with them via an API or an inference provider. You can run them on your computer at home or if you have a series GPU from Nvidia, you can run the larger model there. Open weights is not the code. So you cannot download the code and actually extract the individual lines. But what you can think of is that weights are a bit like memory or the knowledge of the app once it was trained. And because they're open, you can see what OpenAI did. This is dramatically more transparent than the most recent generations of OpenAI models. And it is I think driving some change. So for example, uh X AI Jason in the wake of this announced uh Elon said this I think it was today that they're going to open source maybe open weight uh Grock 2 after having open sourced Grock one back in the day. So a good move by open AI. You love to call them closed AI here. They're making a good step in that direction, but it's not open- source. And so people are are mixing those two a little bit. And I think it's important to make the distinction.
Okay. So in a way when you train these things, you might wait certain information over others I think is another way to say it. Um, and so you know like maybe this is not correct. I would like to have somebody really figure out how to explain this. We understand that there's parameters and all this stuff, but how do you weight different things as being truer or more important, I guess, is how you could think about this. So if you were going to do something specifically with this model and make a cursor AI competitor, you would maybe tweak the weights and maybe you think, oh, the stuff we scraped off Stack Overflow is more important or the this GitHub stuff is more important or this GitHub ranking makes this thing more important and slide the weights around. It's always been known that Microsoft owned the source code and the weights in the OpenAI relationship where they bought like half the company or whatever it is. So, um, this feels really interesting to me because you can also run it on your local computer and we knew this was coming. And what this means is when you start thinking about IP or privacy, this is going to have a big impact on it. If you're doing something like, I don't know, I'm taking, you know, pictures of my grandparents or whatever and I'm making them into videos like people are doing. Sure. Do I want to upload those photos to open AI and give them those and then the next person who makes pictures of a grandpa it's my grandpa you know you get the idea so and then on a privacy basis if you were doing deep analysis of your documents do you really want that in the cloud with somebody else and then somebody else you happen to index I don't know salaries bonuses legal documents you know this stuff can get pretty gnarly and then it's training their model um you will have a large language model in the operating system on your phone on your computer. This is where Apple, which has been just totally disgued [Music] into their operating systems of which they have billions of users. Oh lordy. That would sync with, and I predict they'll do this. I predict Apple will use one of these models encrypted on your devices. So, you never have to use u a cloud-based service and be subpoenaed for what you do. And when you choose to subpoena Apple, because there was a terrorist attack at uh was it San Bernardino and they wouldn't unlock the iPhones. Yeah, it was San Bernardino, I believe. Right. and they were like, "Oh, there was a terrorist attack. Love to help you, CIA, FBI, everybody, but we don't have access to it." That's a bold thing to do as Apple, right? Like terrorism, you know, uh explicit images of minors. Like there there's a there's a small cohort of things that any reasonable person would say turn it over. But Apple has taken the stance quite bravely I will say of saying we don't have access to that and then giving you that information of the terrorists would compromise billions of people on our platform. Therefore we're going to make this higher level decision that ankling slowing down the next terrorist attack and finding out where the terror cell is is more important to Apple. It's more it's it's a that they're willing to pay the price of another terrorist attack occurring from a sleeper cell than compromising billions of people's um privacy by having a back door. That's a hard hard decision to make. I'm glad I don't have to make it. Yeah, this just came up. Nvidia uh put out a blog post yesterday or today, Jason, I forget exactly which. and they said there are no kill switches and no back doors in Nvidia hardware. Nvidia is currently trying to get back into selling its H20 chips in China working with the Trump administration on getting permission to do that. And I think China is a little bit worried that what they're going to get is backdoor chips just like you know the US would worry about a Chinese company sending compromised chips to the US. Uh, and so they're making a pretty clear stand about that. And then also we've seen the UK work recently to try to get companies again to break encryption and provide back doors. And Nvidia said in its post, don't forget the was it the Clipper chip that had the compromised back door that led to all the security flaws. And so in the case of Apple, I feel like what they're doing is they're just saying encryption is or is not and there's no middle ground to to offer up to law enforcement. I'm sure that if Apple could find a way to have encryption be compromised in a way that was safe, which I know sounds oxymoronic, they'd go for it. But I just think they're being technologically honest. So that's that's my take. Of course we care about children. Of course we care about stopping terrorism. But I mean either everybody's privacy. A right to privacy is uh the term I just used. That's for public figures having the right to publicity actually, is what it's called. But a right to privacy is even more core than, you know, what celebrities have to deal with. Uh, and oh, I was correct. I see here, uh, producer Claude lets us know that Tim Ferrris uh, successfully got an injunction. Um, very good. Tim Ferrris and a company he owns, Kissa Performance, obtained a default judgment against defendants alleged to have improperly used his name and likeness in connection with a fraudulent scheme. According to the case, Alliance Publishing and Pagan Twitty perpetrated a fraudulent get-rich scheme in which they published a flyer asking targets to mail $97 and $100 to a dealer and whatever blah blah blah. So anyway, people are scammers there. I mean, scammers are out there. It's like that's part of becoming a known entity in the world is that people will try to leverage um your followers into some dark place. Okay. Um, on the OpenAI point though, just a couple more small things I want to make sure we share with founders because I think this this matters for what they're building. So, um, there's two models from OpenAI you can play with. There's the 220 billion parameter model and then a 20 billion parameter model. One's more tune for data centers, one's more tune for home use. They're lots of fun. The the metrics seem to be by benchmarks pretty good. I've heard some people say there's a lot of hallucinations, but certainly I think having more open models in the market is good. And Jason on the show we've talked about how when we think about open source AI it's really a Chinese product now as American companies mostly go closed source. So here is a rejoinder from the west if you will. I think that's very important and then there's two other there's a couple more things about AI models and I'm going to just run through these but I think for all the founders out there who are building and are curious what they can build with here's the latest. So the other thing is Deep Mind which is part of Google uh released a thing called Genie 3 which is a world model that has much better context maintenance. So essentially if you're playing inside this world model JSON and you turn around it doesn't forget what you've seen. Uh, which means that it's now much more useful much more uh high fidelity. It's just great. I'm not going to go through a demo today but Genie 3 if you want to take a look at that. Anthropic dropped a very incremental improvement to Claude 4 called Claude 4.1. Again, the benchmarks say it's better, but it's gonna be more a matter of taste. So, I'll be curious to see what people think about that in the coming days. Then the big news is that tomorrow OpenAI is going to release GPT5. Oh, yeah. Well, this is the big one. Wow, that's a shebang. Maybe we should do a a live release of that. That's incredible. Um, what do people expect in the chat? GPT5. I heard a rumor, no hallucinations, more reasoning. Mhm. What is the expectation here? Have they tipped their cards and said, "Here's what's happening." And when was the when was Chad GPT4 launched? I wonder how many months between those. That's Producer Claude, can we get the gap from GPT3 to GPT4 and then GPT4 to tomorrow, please? So, we can compare those. That'd be lovely. Um, the most important reporting that I saw to answer your question though, Reuters spoke to several people who have had access to GPT5. didn't share their name because they're under NDA, but they specifically said it's better at coding. It's better at reasoning, but critically, of course, it's going to be better. The question is how much, right? Sure. They said it's not going to be as big of a jump as we saw from GPT3 to GPT4 from 4. Okay. So, they're downplaying it. That's interesting. Trying to manage expectations. So, GPT4 came out in March of 2023. GPT3 came out in June of 2020. So, that was just under three years. This is just over three years. just over two years. It's actually it's a little bit faster from four to five than three to four. Huh. Who would have thought? Interesting. There's been a big kurfluffle between Cloudflare. Yeah. And Comet. And you emailed the found you emailed the press department there. Yeah. And I CCed the founder. And we we got kind of the backstory here uh on um the Plexity versus Cloudflare. I don't know if it's on the doc. Did I not add Arvin to that email? Huh? I did. You probably didn't, but I did because I was like, Arvin should know about this. I I meant to. My bad on that one. Okay, so anyways, no apologizing, non twist. Uh, the backstory here is uh getting getting there. Getting there. A while ago, maybe a month, Cloudflare announced paper crawl. This was a big deal. We talked about it on the show. The idea was if an AI model um going out there to the internet to collect information on behalf of a user query wanted to come to Jason.tumblr.gif, GIF, you could say, "No, you have to pay us a cent or whatever to come take our information and bring it back to your user." I think we said this was pretty reasonable and an interesting experiment in economics for the internet. Uh, time passes. Paper crawl has been in closed beta now. They're working with publishers. We'll see what it looks like when it comes out. They have not responded to my notes asking how that's going, but we'll see. So, Perplexity, sorry, Cloudflare comes out this week with a post essentially accusing Perplexity of behavior online. They said that look, you know, we set up a a test website that had, you know, a big stop sign for AI and then we used Perplexity's models to take a look at this and we found they found the information and accused them essentially of being bad online citizens. And Perplexity fired back with, you guys don't know how technology works, which was an interesting moment because here we have two very different perspectives that don't seem to be talking in the same language. Jason, so maybe you can explain what you mean by they're acting in good faith because I think that's an interesting important point here.
Okay. So, you never let a good argument get in the way of reality because both companies now are being talked about. Uh, which I think is part of the point. Yes, you can send a crawler out. There's many third party services that you can fire up as a developer to go crawl websites. It will fire up a web browser, a virtual machine, and it looks like a user agent, right? So it looks like a human being is browsing say something that doesn't let you scrape it like Reddit or Kora. Like you ever go to Kora and you try to click on an answer and it gives you like maybe the first 500 words that says hey you got to log in to see this. I hate that. Well, but it's the perfect example of somebody trying to protect their IP from these crawls. Absolutely. So what Cloudflare is basically saying is Perplexity is trying to circumvent that. And I can tell you all the LLMs have tried to circumvent this. But now we're starting to get to the point where lawsuits are flying and something's at stake. And that's why uh these language models now need to behave because Disney, New York Times are suing and we've got actual court cases. So people are being more thoughtful about this. It's amazing what Cloudflare is doing by saying, "Hey, if you want to crawl our websites, that's okay. Here's the rules. Here's where you send the money." And if Cloudflare, what does Cloudflare take? 10%. I don't know what their vig is. I would think they've released that. But if it's more than 10%, we're going to take them out back and whack them with sticks. I think 10% feels like a a reasonable vig. I would pay them that. I don't think 30% would be, but 10% seems reasonable for them to manage the the buy and sell side. And you know, 10% plus your Stripe fee, so they get a full 10%. I think that would be reasonable actually. Maybe it you're literally describing the Substack model and I think that's fine. Yeah. Yeah, it's like enough for them to maintain the service and pay for their team and it's not predatory in any way. It's kind of genius, I have to say. It's a really unique way to do it. It empowers the content creators and it gives a programmatic way for LLMs to ask for permission. Now, in comes the rub. We've been talking about the browser's role in this. You could, and we talked today about OpenAI having a language model you can run locally. Y you're allowed to do whatever you want on your desktop with other people's IP. So if you paid, well, you paid for it. So if you bought my book and you decided to take screenshots and you decided to run analysis on it and you bookmarked it, more power to you as an individual, you paid for it, you can remix it. Just like you take the physical book, you could cut it up, put it on your wall, make a copy of it for a backup, but as long as you don't distribute it, right? Right. So, if you want a photocopy of my book so you have a backup and you have it in one house and the other in case the house burns down, god forbid. I mean, it's nonsensical because you could get the bound book for the same price as a photocopy. You get the point. Browsers are not detectable. These third parties are and I think what's happening is there might be some confusion that comet users using the browser are doing queries. So when I showed, hey, I'm doing a United Airlines, you know, task, and it goes and it fires off on my local desktop, the browser to go do things. What I suspect is happening here is when I just told you I had Slack summarize the channel using the comment browser powered by Claude. How does Slack look at that? It looks at it as my user agent. It looks at it as my desktop. It doesn't look at it as a backend scraper. Now, if you took that content and you trained your LLM on it, you would be using me as a proxy to back door into stealing content. Yeah. Okay. So, let's use the Corora example. Corora says, "Hey, you can't use this in your language model." But you and I go on there and we say, "Oh, give us all the questions about Corvettes." And we start reading them. We say, "Oh, get us the best answers on these Corvettes and teach us about the whole corpus of Corvette history or whatever." And we build this whole document and deep research on it. And we've queried, you know, over a number of days a thousand pages of Corvette information and history and lore that Kora owns. Corora owns that. Even though the users made it, they made it with the understanding it goes into the Corora corpus. And Kora said, "You can't have this." Well, what if that then fed uh the Perplexity language model? Well, the founder of Plexity said they're not doing that. So, whatever you're doing is not happening. So, there might just be like they're talking through each other. Perhaps some misunderstanding of the user agents, but this is where the details matter. Details really matter. And that's what a show like this week in startups is about. We get into the very nuanced granular details of these kuruffles. And uh this Donny Brook is valid. It's an important one. It's it's very important. And I think the way where I come down on this, putting aside the technical differences of of whether or not Cloudflare quote misunderstood 20 to 25 million user agent requests that are not scrapers according to Perplexity's blog post. How many? 25 million. Yeah, 20 to 25 million user agent requests are not scrapers. Uh anyways, that's from the long perplexity post about this. We will sort this out. But what I what I'm worried about is this. The idea that if I go to let's say Chad GBT and ask it a question and it pings 47 websites collects the information and brings it back to me and gives me a summarized paragraph and then open says well we're not doing that Alex is not really there there's a there's a automation and scale differential here and I I tried to talk about this for something that I wrote and I was trying to think of like the analogy as food. So Jason if you come over to my house you can eat anything you want. open the pantry at the refrigerator to the freezers, steal from the kids, I don't care. There's lots of food. Come over, eat. But if you sent like a robotic courier to my house to collect food for other people in a centralized application, which are doing it, it and the automation because it's not one to one. And so I I'm I'm concerned that people are saying as long as a user request it in some tenuous capacity, anything downstream from there counts as Alex requested it or Jason wants it and therefore it's okay. Not true. Yeah. And the other thing is these websites will also block you if you do unnatural behaviors. So people for many time for all time have been creating local index like Google does and so they'll just have their browser open a 100 LinkedIn pages and start scraping and there's infinite number of tools online you can get to do a user agent in your browser to spam people with inmails and you're paying for emails. there's a throttle on it. You can only send so many, but there were tools in the early days to just automatically like posts on Twitter, automatically retweet stuff and, you know, create all this garbage on the internet. And so, it's up to the website owner as well that if somebody does more than a 100 clicks in an hour to pause them and say, "Hey, we noticed you did a 100 page loads in an hour." A normal human being can't really do that. So what's going on here? And pause your account or freeze your account. And sophisticated people like say Crunchbase or the Wall Street Journal or the New York Times, anybody who's got a subscription product or Kora, Stack Overflow, they build these things in to know a user or what appears to be a user is doing something with malfeasants. This is incredibly niche but an important topic.
Okay, this has been another amazing episode of This Week in Startups. my amazing co-host, Alex. Uh, lon x.com Alex x.comjason x.comlonx.comtwi startups. We'll see you all on Friday. Bye-bye. Bye-bye.