00:00welcome to the a 16z podcast I'm Michael
00:02Copeland and I am sitting here with
00:04Frank Chen and Chris Dixon welcome guys
00:07hey we are here to discuss Verizon and
00:11AOL 4.4 billion for AOL what does that
00:14say about Verizon in the carrier
00:16business and what does it say about hey
00:18oels business yeah I mean if you'd asked
00:21before I saw this who the likely
00:24acquisitions today this would be not on
00:26this to be low on the list or not I
00:29think the you know the short answer to
00:31probably every tech M&A you see anywhere
00:35for the last five years is mobile right
00:38you can pretty much answer any you can
00:40go to any tech cocktail party and just
00:41answer everything with mobile and you'll
00:43sound like you know what you're talking
00:44about I think increasingly it's probably
00:46also a mobile video is is the answer to
00:49all these things so somewhere there's a
00:51you know there's a power probably
00:52McKinsey PowerPoint that has the words
00:55mobile video programmatic advertising
00:57sooner the user tracking etc which you
01:02know was the the kind of justification
01:04for this the you know the I think that
01:08they're sort of broadly like sort of a
01:11positive and a negative it kind of spin
01:13on this the positive spin is you know
01:15Verizon sees the future which is you
01:18know the cable bundle is going away more
01:22and more you know it's like Millennials
01:24now it's something like the stats are
01:25like five hours a day they spent on
01:26their mobile phones it's going to be all
01:28of their time on the mobile phone
01:29right video you know TV is going to move
01:32to the mobile phone HBO has already gone
01:33on bundled sports is going to go
01:34unbundled and it verizon did the NFL
01:38deal last year right which is for their
01:40premium subscribers you could get any
01:43that's right and so they want to be at
01:45the forefront of this and they want to
01:47be and they don't want to be a dumb pipe
01:49exactly so they're trying to layer value
01:51on top of what they just the classic I
01:53mean this is just a class the pipe this
01:54is the classic you know the the Battle
01:57of the pipes right I'm Comcast member
01:59years ago they bought it was like Taylor
02:00candy Fandango and plaque so believe it
02:03or not in their content I'm still
02:06getting plaque so requests my book I
02:09so I mean yeah so there's always so the
02:11cynical view is this is always the dream
02:13of the dumb pipe to become this you know
02:14the smart pipe or something the positive
02:17view is these they're seeing the future
02:19and the future is mobile phones and
02:20they're getting ahead of it and if it's
02:23as big as probably we think it's going
02:25to be even if they may be overpaid
02:27somewhat and maybe bought the wrong
02:29company or something they still are
02:30probably on the right track so you can
02:32argue the price you could even argue the
02:33company I guess but then let's not argue
02:35the company what does AOL bring to
02:37verizon that Verizon wants and needs I
02:39mean I think it's so the smartest
02:41interpretation I just saw was at age
02:44which said it's not about the content I
02:46don't think it doesn't make sense that
02:47it would be the Huffington Post and
02:48TechCrunch and things their argument was
02:52so much of the online ad industry was
02:54based on cookie tracking so tracking
02:56user sessions and then now people are
02:58multi-device and a lot of these devices
03:00don't allow cookies and that Verizon
03:02would be able to say oh look this is the
03:04same person that was on his or her phone
03:07and now they're on the iPad and they're
03:09they're on a different app and a
03:11different website and so they would have
03:12this special ability to kind of mix
03:14their verizon data network user tracking
03:17together with AOL's ad tech I don't know
03:21frankly that's a yeah so there's ad
03:24technology there's also sort of video
03:26production technology which is if you
03:27think about how videos are going to be
03:29created compare and contrast or you know
03:31how is gameofthrones funded and created
03:34right in hbo's Studios funded it and
03:35there was a massive studio effort to
03:37create this what we're moving towards is
03:39a world in which most of the video
03:41content will get crowd-sourced all right
03:43there'll be an independent it showrunner
03:44or video producer they do small shows
03:46right and then they go into a o L
03:48studios they actually have HD studios to
03:50create their content and then AOS
03:52studios can also bring distribution
03:54right let me just back up when you say
03:56crowdsource do you mean that the ideas
03:58kind of get validated by the crowd not
03:59necessarily created by the crowd well
04:02we're moving to our world in which the
04:03crowd might actually fund their favorite
04:05shows okay right so instead of studios
04:06right somebody will get money from a
04:10thousand fans that somebody will walk
04:12into a o L Studios produce their thing
04:14and then AOL and Verizon can now bring
04:16distribution right for that brand-new
04:18video content so I think if you look at
04:20the historical view net monetization
04:22moderation right sort of the AdTech who
04:24watched how many right what counts as a
04:26watch right 30 seconds already right so
04:30if you think about it from the
04:30historical point of view which is how I
04:32like to think about these things
04:33everything is up for grabs in the video
04:36to mobile value chain right how are we
04:39going to fund the shows that we watch
04:40how are we going to distribute the shows
04:43that we watch how are you going to
04:44discover the shows that we watch right
04:46that entire value chain is gonna get
04:47upset and I think the positive to spend
04:49on the Verizon AOL deal as they see it
04:52and they want to be at the front of it
04:53yeah I think I think you techo that that
04:56it's sort of like now it's 1995 and
04:59instead of the newspaper industry it's
05:01the TV industry right look it's about to
05:03be you know if according to this sort of
05:06bullish view internet bullish view it's
05:07about to the tsunamis about to hit right
05:09and you know you need to you need to
05:12sort of get you know get ready for it
05:14it's also interesting that now it used
05:17to be that these companies would more
05:18kind of stay in their lanes so you'd
05:20have this sort of the different layers
05:21of the network it's now kind of just
05:24total war where everyone is fighting
05:26everyone you know Google and Facebook
05:28are building Internet access and Verizon
05:30is getting into content and they're
05:32getting into TV and they're just you
05:33know so there's no you know in some ways
05:35all bets are off and no one stays in
05:37their lane the way that they used I was
05:39gonna say like Google launched our MVNO
05:42fi so they're sort of getting into
05:43Verizon's face and business does Verizon
05:47now know something though as a carrier
05:49that you know and as a pipe that that
05:52other tech companies who are in this
05:54space kind of don't know
05:56well controlling the smartphone's you
05:58know exactly who your users are where
06:01they go to sleep which means that
06:02wherever your cell phone went to sleep
06:04is probably where you live so they know
06:06the zip code of where you live so they
06:08do know a lot of things about you the
06:10question has always been should there be
06:12a Chinese wall between network
06:13operations which knows that stuff and an
06:15advertising business which could take
06:17advantage of that stuff and that'll be a
06:18question to be settled here which is I
06:20know exactly where you are and where you
06:21live and go and I know where you are at
06:23any moment in time in the darker theory
06:26I have to wonder if this is it all
06:27related to the net neutrality stuff the
06:29well there's a couple of regulatory
06:30things that fit in one is you know if
06:32you go a lot bigger than a
06:34well you know at some point like this is
06:36probably the biggest company you can buy
06:37and not have major regulatory oversight
06:40and then like so that's number one and
06:42the number two that is like in a world
06:45where and you net neutrality is banned
06:47is this more is it are you are they
06:50looking for workaround so like the big
06:52the most popular workaround for net
06:53neutral of net neutrality is zero rating
06:56it's called which is which is a flagrant
06:58violation it's just somehow it they've
07:02made it look like it isn't but it's
07:03basically saying hey we'll give you 300
07:05access of you for our websites and you
07:06have to pay normal rates for everything
07:08else you know with with this and
07:10potentially you're you could do you know
07:12you could imagine their content I don't
07:14know what's you know you you get your
07:15you get your your data caps and Verizon
07:18waived for all the AOL content and you
07:21know I don't know how and and and if you
07:24if you run your ad network through our
07:26system and share revenue with us you'll
07:30have better user tracking and you know
07:31you can imagine a lot of ways in which
07:33the the network and the content and the
07:36monetization interact in you know quote
07:39synergistic ways which which the whole
07:41point of the net neutrality debate was
07:43to avoid things like that right right
07:45I like your preamble in a world where
07:48net neutrality is banned it sounds like
07:50a movie albeit a bad movie so I wanted
07:53to go back to your comment about people
07:55staying out of each other swim lanes and
07:57that's over yeah like the battle has all
08:00the people have always gotten into each
08:02other swim lanes so let's go back sort
08:03of in history you might have listened to
08:06the RSA RCA Symphony Orchestra which was
08:10funded by RCA Victor on an RCA radio
08:13like manufactured by RCA right so the
08:16person who managed factored the device
08:18the distribution the creative agency and
08:22the art like they were all initiated
08:24right and so you get used to whoever is
08:27in that swimlane right sort of where you
08:29grew up that there's always been massive
08:31battles over who's gonna fund this
08:33content how will you discover it right
08:35how what device will you listen to it on
08:37and this is just the latest
08:38manifestation of that I think there used
08:40to be the more I think in the business
08:42theory world a stronger belief in kind
08:45of core competency and that people
08:48it was sort of the it was it was the
08:51Microsoft model as opposed to the Apple
08:53model right it was like let me do one
08:54thing well and like own this strategic
08:57point and I'll let other people do the
08:59work around me and now you know it's the
09:02Apple model which is I want to own a
09:04whole bunch of different things that
09:05interlock and create the optimal
09:06experience Chris I want to get to
09:08something that you tweeted you said
09:09waves for ad tech M&A we've gone one
09:13display to social three mobile four TV
09:17yeah so like the first wave I think it
09:19was double-click which Google bought and
09:21then immediately Yahoo bought right
09:24media for you know approaching a billion
09:26and then there think there was a third
09:28one at the time and so sort of basically
09:30you know shot gets fired first first
09:33thing happens and then suddenly everyone
09:34pairs up and I was an angel investor
09:36personally in a bunch of ad tech
09:37companies in the past and my advice is
09:39always when that happens you got it like
09:40it's like musical chairs and if you
09:42don't get a seat you know you're you're
09:43probably screwed because now these guys
09:44are all part of you now have a direct
09:46competitor is now part of Google and
09:48part of Facebook and part of whatever
09:49other dominant you know incumbent is
09:52there so it happened in display with the
09:54with double-click it happened social was
09:57what buddy media and wildfire and I'm
09:59forgetting there's two other Oracle
10:02bought one reversed virtru or some
10:04writing right and then in mobile it was
10:07AdMob and Quattro I don't know if there
10:10was ever a SEM wave like that was never
10:14really but got bought I think because it
10:15was who they're all just so depending on
10:17Google there was only one kind of
10:19incumbent um so so if I were an ad tech
10:23entrepreneur or advisor right now I'd be
10:26thinking is this going to be you know
10:27because the way big companies operate
10:29they kind of ignore our VC world like we
10:31think we're you know we get all this we
10:32think we know we're important in the sin
10:34of the world and in fact most people
10:35don't really care and the big companies
10:37really don't care and they think all
10:37those VCS are all insane until something
10:39gets really big and until specifically
10:41until one of the better one of their
10:43peers takes something and like crosses
10:46over into our world or something and so
10:49I'm sure there are meetings going on at
10:52all of Verizon's competitors and anyone
10:55you know including internationally now
10:57and they're all thinking about like
10:58what's going on here what's our strategy
11:00are we getting out flying
11:02and so you know it's just just
11:03interesting to watch like I don't really
11:05have a dog in this fight so this is this
11:07is a continuation of sort of the mobile
11:09M&A wave or is this kind of the
11:11beginning of a new way of you think of
11:13acquisition yeah I mean I think well so
11:17the mobile I've you know it's all so
11:20complicated that particular mobile wave
11:22my impression was a little bit of a
11:24frankly you think I feel like that was
11:26kind of actually fizzled out like I
11:28don't think those those two companies
11:29are actually in yeah I think the mobile
11:31ad tech wave kind of fizzled out and
11:33then what got popular was sort of mobile
11:35production mobile apps right how do I
11:37create videos and then apps right yeah
11:39who went on a buying binge and they
11:40bought 20 of these things yeah because
11:42the the mobile ads the prior mobile ad
11:45wave was predicated on the notion that
11:47ads would become a dominant monetization
11:49model on mobile which they actually
11:50haven't really he didn't worry spend
11:52more paid and so that was sort of in
11:54some ways a false start I think now
11:56there is it is again mobile but it's
11:59much more around like mobile tracking
12:01and attribution and probably some kind
12:04you know if you have like a network of
12:05apps that use your you know that that
12:07that use your your your programmatic ad
12:12buying service things like that well so
12:14it'll be interesting to see then if you
12:15know we're starting another game of
12:16musical chairs like you say and things
12:19will get busy for people on the carrier
12:21side and all the competitors to Verizon
12:23and then others who might compete in the
12:25ad tech space as well yeah Frank Chris
12:27thank you guys okay thanks
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