Bloomberg Businessweek Weekend - November 30th, 2019

with Amazon. What's going on at that company. They're spending a ton of money on lobbying efforts in the nation's capital also locally, but it's not necessarily having the impact that they thought it might. Also going to talk a little bit about Warby Parker. It's a company that we followed for a long time. Austin Carr wrote that story. We had an interesting conversation with him, and so it's another thing for you to feast on. In this post

Thanksgiving edition, they're eyeing a new business. How do you like that? Oh boy, the puns. The puns are fast and furious. Also one of my favorite stories. You might be thinking about traveling. You may be traveling right now, amtrack. Uh, They've got a Channel Jing road ahead of them. As it were. A new CEO man, he means business plus Google at war. It's the cover story. The search giant wants the military business, but many of his employees do not.

All right, that's a great story and a very good deep dive. But first up, private equity continuing to look for ways to put massive amounts of money to work could lead to the biggest leverage buyout of all time. We're talking about KKR and Walgreens. Twenty nineteen has been an interesting one when it comes to deals in the public and private markets, and there's one that's out there

in the news that combines both markets. We're talking about KKR approaching drugstore giant Walgreen's Boots Alliance about a deal to take the company private. It would be the biggest ever leveraged buyout. Well, as you know, I'm obsessed with this story for so many reasons, and very proud of the team here at Bloomberg for breaking news on this continuously.

It's a fast moving story, we should point out, but we wanted to take a step back with Nabilla Ahmed because she has some great insights in the magazine this week about how this all came about and maybe what it means for the broader market. She's here where us in New York City? So wow, this is potentially a huge deal. The fact that we're even talking about it seems important. How did this all? How do we get here? I think we traveled back in time and it's two

thousand and seven. Guys, we've gone back in time. Look, how did we get here? As we know, private equity has so much money to put to work. I think it's something like more than two trillion now. Just in the past couple of years, it's doubled so much money. So they're looking at increasingly bigger and more complicated deals to sort of have a bit of an edge, looking at industries that they know about, looking at companies they have already worked with. And this is Westefano Pissina comes in.

He is a CEO of Walgreens and he is an incredible maverick, an incredible dealmaker. He started off with a struggling, one single, struggling drug wholesaler in Naples in nineties seventies. It's a shop that his dad gave him to fix it. And he fixed that business, and he went on to fix his dad's friends businesses. Then he expanded to Spain and France and in the UK and now he is leading the biggest drug store retailer in the world. How

did you get there? Though? That's interesting. She talked about really starting kind of at you know, ground level, the ground level here, and how did he get there to the point where he was involved with Walgreens and also Boots. So he sold his UK company to Alliance Boots and then he did a deal with KKR to take that company private. Eventually they went on to buy Walgreens here in the US and they have actually made over the nine year association, him and KKR out of that deal

have made three times their money. They started off with two point one billion dollars, they made seven billion for their investors. It's gone really, really well. And so it's no surprise then that when KKR dealmakers are looking around and saying, no, what's out there to buy? We got this part of money. What do we know what might be a little bit undervalued, maybe not distressed quite but certainly not distressed exactly. If not distressed, a little bit stressed. Uh.

And this is a guy we know. K CA are well known for sort of cultivating these managers. I guess now that we've dealt with the equity side. Let's go to the debt side, because the leverage and the leverage buyout means you've got to borrow in this case tens and tens of billions of dollars. Is that even possible? That's the thing. Analysts is saying that you're going to need about fifty billion dollars zero five zero of debt for this company. Not for no reason? Is it the

biggest buyout in history? Would it be? And there are questions about whether that can actually be raised in the leverage loan market, which has traditionally been the market where M and A buyouts are funded. Because people are starting to kind of push back. In the past few months, you've seen the single B rated, which is where most

M and A loans are rated. People are selling those off because people are starting to get a bit worried about riskier assets and they're gravitating more towards investment grade. So if they were to do this deal, they would have to do some kind of financial engineering, some kind of cool clever things to make it happen. Well, and I do wonder do they have to pull in somebody

else to help get that deal done? You know what it was so that maybe pulls in something on the equity side or something like would they need to could they pull in another person beyond KKR. We know that other private equity firms had also looked at all Greens, so there are probably others out there who could potentially

partner with them, as I mean they would exactly there. Also, we know have been talking to their LPs so their fund investors about going in with them, because you know, pension funds and sovereign well funds also have a lot of money to put to work, So there are a lot of people looking at this deal. You know. I think they would need about thirty billion dollars of equity

as well as the fifty billion dollars of debt. Yes, the other thing I think about is what happens to Walgreens even if this deal doesn't work out, right, they need to do something. It seems like, Yeah, they are definitely stressed. They are under so much pressure on a number of different fronts. They tried to do this buy out of Wright Aid a couple of years ago. They weren't able to do the deal at full scale that they wanted to do, so they're now closing some stores.

They said that they're going to cut about one point eight billion dollars over the next couple of years. That's an annual save. So they're having to really scramble to figure out what's next. And that's Nobilla. I'med great to catch up with her. She's on the M and A beat, the Deal's beat, and man, this one has really caught people's attention. The size, the scope, the names involved, fascinating,

pretty remarkable. We'll see how it ends up. Spending heavily unlobbing efforts in Washington Check lobbing more US government entities than any other technology company. Yet they've got that one covered. To lobbing locally, Jason, they're doing that as well. They're doing it all well. Amazon. Were used to them being ubiquitous and comprehensive in many ways. Eric Newcomer is here with us. He's got a great story in this week's edition of the magazine. It's about Amazon on K Street,

the famous abbying corridor there hasn't gone so well. They also hasn't gone so well in some of these local races, right, So they spend a ton of money on lobbying, you know, four million dollars in a quarter. I think they lobbied more than on more issues than any tech company. Last year, they spent about one point five million just on their local Seattle race. So Amazon is flooding politics with money.

But then you know, as I documented, the story has a lot of problems, like issue to issue, just really struggling sort of with this tech lash and to to win the political battles with all that money. So is it the company at large has problems or there are a few individuals who really have some problems. Well, the

company is a business obviously is doing great. But then you know Jay Karney runs, you know, former Obama Press secretary, runs this huge policy shop with his deputy, this guy Brian Hughesman, former Publican Administration, Federal Trade Commission lawyer, and and together they've really tried to staff up so they're ready to fight and so on a lot of issues, you know, whether it's like trade wars. You know they have somebody in talking to the administration trying to lobby.

But then on some of these bigger, more iconic issues, you know, we talked about the move to New York, We could talk about Seattle, We could talk about this huge Jedi contract where Amazon was competing to win a ten billion dollar government contract, and then Microsoft came out of nowhere and took it from them. So so Amazon has had just a lot of trouble on the policy front. Well, and it's interesting too, because you document very well a number of these cases which you which you just described

in brief. But what strikes me too is that on paper, it looks like they did all the right things. They hire a big time Democrat, they hire a big time Republican, they've got the team in place, and then and this feels very twenty nineteen, it's a bunch of unforced errors in a lot of ways that ultimately sort of set them back. Tell us about that, right, So if we take you know, Jay Carney, this very polished communicator, I think coming you know, he's hired during the Obama administration

when it seems like Hillary Clinton might win. And again Amazon takes, you know, responding to Trump tweets, a sort of almost hostile posture towards Trump, then Trump exactly during the campaign, and then Trump selected and so they Bezos and Trump have this very negative relationship, partially because Bezos owns the Washington Post. Then they have a Democrat as

their chief sort of spokesman. So that's a challenge, and then time passes and Carney has now more recently given an interview where he suggested that there weren't any patriots working in the Trump administration unlike the Obama and Bush administrations, which he apologized for. He made this really bad tweet about umpires during the National Games, which so he's just had some challenges as sort of the public voice of Amazon.

And then the other character is this guy, Brian Hughesman, who's sort of the inside operator and he staffed up this team. But there's just been a lot of drama internally well. And that's what's interesting because right you're seeing the drama player within the company as well. So they've done apologies externally as well as having to apologize to

everybody inside as well. Right, so with people questioning what they're doing exactly, you know, with Carney, he wrote an email titled self criticism to his staff just talking about the umpire tweets, reflecting that he's not just some you know guy out on Twitter. He reflects this global powerhouse of a company. And when can I just can I read that tweet um calling the umpires quote a bunch

of overweight, diabetic, half blind geriatrics. He ended his tweet with a call to bring in the machines, right, And you know, obviously the first half is what everyone is upset about. But then for a company that's accused all the time of automation, it's just very strange to be hitting a message of you know, automating out the umpire Like in every way the tweet is just odd. Where's Jeff Bezos and all of this? I mean, these are

his key people here. I mean, he's you know, very behind the scenes, and I think, given his ownership of The Washington Post, has wanted to take a more or you know, confrontational or at least sort of strong position against Trump. And and you know that that he's picked Carney to sort of be a guide. But the basis is very behind the scenes. I mean, it's it's hard to know exactly what the CEO is thinking about, you know, the small sort of the in fighting within in his

DC office. And so Eric White the aperture for us a little bit because you look across the tech landscape you understand how these companies work, not just Amazon, but you know the whole array. I guess of social media companies, tech companies who all of a sudden really have to care more about Washington, in part because Washington is all of a sudden caring a lot about them, and maybe not in a good way. Yeah, I'm growing tired of the phrase. But we're in a tech clash, right, That's what.

And there's you know, an anti trust investigations, the Federal Trade Commission, the Department of Justice, that was, judiciary committee, state attorneys general, you know, everybody is investigating big tech companies, including Amazon, into ant trust. They're the punching bag. And

so that's the situation Amazon faces. You know, in my story, I talk about a lobbyists who uh, you know, has a generally positive view of Amazon, sort of defending them, saying, you know, some of the problems are just they've you know, grown so much. I think they doubled sort of the lobby staff over the last three years, so that's part of the reason. But he says Amazon might have trouble, but they're doing better than Google and Facebook, and I think that is a sort of fair defense. You know,

I don't dig in to Google and Facebook. That has a whole another dive, but there is a general sense that the tech companies in general are struggling to respond because as much as the President himself has gone after Jeff Bezos, we haven't seen Jeff Bezos testifying on Capitol Hill. We have seen Mark Zuckerberg and Charles sand you know, so there is this element that despite some of the headwinds that you describe, that maybe they're doing okay. Yeah, well,

and some of the problems are relative. Yeah, I think definitely when it comes to testifying front of Congress in general, sort of uh, sort of congress men animosity towards the CEO, Mark Zuckerberg is winning that fight in Bezos looks a lot better. But you know, Amazon has a lot of has had a lot of problems, like in Seattle, in New York, so they're not all sort of the federal

like election type problems that Facebook has had. But I do think about as these big tech companies look to broaden out their revenue streams, you know, the cloud and particularly playing into those government contracts. Those are big deal contracts, And I mean I think about our audience investors. I mean, they're watching this to see whether or not they're able to make some inroads, right, and you know, Jedi, This Defense Department contra isn't just about that ten billion dollar deals.

It's sort of that's what's getting you in deeper with the Defense Department. And so I don't think it's just that amount of money. It's significant, but Amazon is a eight seventies something billion dollar market cap company, you know. But it's about the long term relationship that deerk newcomer love this story about what Amazon is up to. Their spending heavily and lobbing efforts in Washington. They're lobbing more US government entities at any other tech company. But it's interesting, Jason.

It doesn't seem to be paying off. It's not working at all. You're exactly right, Carol. And this is coming at a time where the relationship between Washington and Silicon Valley and the words of Facebook, it's complicated, Jason. You had me at You're exactly right. So, Carol, I caught up with the co founders of Adams you see me where they're I have. I wanted to know the story underneath it, and I have to say it is even more fascinating than I thought. It's a husband and wife team.

What Kassa Ali and Sidra Kassim. They met in their village in Pakistan. They came to Brooklyn via y Combinator. It's so cool. Here's your conversation, all right, So this is a shoe that I really like. I have to say, I'm a bit of a sneaker head and I love the different feel and just the whole different vibe of this shoe. So I'm a little bias coming into this interview. What I want to start with you because the story of this company Pakistan, y Combinator, Brooklyn. How did that happen? Um?

It's it is a kind of crazy story and we did not intended it to be like this when we were starting off, We had no idea. We started our first two company in in our hometown in Pakistan, Kada, and then we kept going. It was a small project, became a kick Starter project. Then we applied into y Combinator. First shoe company to get into y Combinator, first company from Pakistan to get into y Combinator, and we moved to the US in San Francisco and So Sidro. Why

do you think the pitch resonated so much? There are a lot of first there. What was it about this particular company? That you think caught the interests of Y Combinator and ultimately a lot of big name investors. Yeah, so this company is not part of Y Combinator. Our previous shoe company was part of Y Combat. But I think the exciting thing is that these shoes is not just a shoes. This is a very very personal shoes, like very comfortable, very durable, very breathable and as well

as the fit is very precise for you. And uh, like when we were inviting our friends to try on the first sample, and I still remember like their impressions, like they were super super excited to try on the shoes. And we started this as a very small project and somehow like it started becoming bigger and bigger, and so

what was the inspiration recast for this particular ship. So we were making and selling dress shoes already, we we and when we were in Pakistan, we had no idea that people are actually more mainly were sneakers every day. They don't wear dress shoes as much. Even that trend is declining, even you're wearing your atoms right now. Absolutely, so we noticed that and then we were like, hey, we weren't We both are very passionate about product, particularly

in shoes. It's one of the hardest products to ever make. Shoes, very difficult, and we were like, hey, can we make a shoe that people would want to wear every day? Not that we want to sell. Can we build a shoe that people would want to wear every day? And that is where this idea of a casual very very simple. All the products we wear every single day, they tend

to be very simple, still extremely extremely comfortable. We were going after the best of the bast in the industry after Nike, and it it doesn't comfort uh, And we only make one shoes, so we put a lot of effort into the precision sizing, the quarter sizing, the comfort

of the shoes. The lace says how how high or how house small something is like this Midso it took us six months to work on that to just make it more comfortable than it does six months on the mids Earlieah, it was very It was one of the hardest things because if you only make one shoes and your pitch is that you're going to wear it every day when you make this one product, you can't just like compromise on that. You have to get it right. Otherwise you have no business, right of course, And so

why is manufacturing so difficult for shoes? Because this is something you've worked on for a long time, You've worked in Korea, I believe on that particular aspect of the business. Why are shoes so difficult? I think one of the most important reason is you have all your body weight on the shoes, and then she would actually go into different environment like you sit in the office, with different sitting positions. Some people they stand a lot, some people

they walk a lot. So basically shoes is not just like a simple product like your handbag where you store things. She was as something which basically you carry on throughout the day from morning to evening. So that's why, like making a product which is basically accommodate your throughout the day and as well as super comfortable, it is very hard to make. I guess I've never really thought about that. I mean, there's a lot of physics involved, I guess in our interaction with shoes in a way that we

don't have with a lot of other products. So why do you think, especially having been in the dress shoe business and now in the sneaker business, why are sneakers having such a moment. Mainly it is because of a lot of cultural icons are the face of this movement. That is one part America especially and world in general is becoming more and more passionate because we have so many young people coming into the world these days, and

they are they are not hesitant. They're not hesitant about ideas, they're not hesitant about movement, They're not hesitant about their interest or passion about certain celebrities or icons or whatever we want to call them. So that is like what we we learned. We actually have a name for our customer called the new creative, and these are people who are very considerate about what they buy, where they buy it from, what things look like. And every brand like

Nike and ADI does they championed with sportsmanship. And now we're seeing a lot more uh entertainment, a lot more lifestyle. And that's wakas Ali and Sidric has seen the husband and wife team behind Adams. It was so cool to catch up with them. I have to say, I love their sneakers. I wanted to meet them. I really didn't know what to expect and it was an amazing story, great story, Jason and I love the backstory to about this company and these two individuals. It's this week's Bloomberg

Business Week Extra podcast, So check it out. Everyone. Google the early years, all about the company's search engine, all about online advertising, and yet the company hitting middle age Jason, so it's looking for some different revenue streams. Well, we talk a lot about sort of existential questions around companies. I feel like this story hits at Google's in a

lot of ways. Don't be evil that was back in the day and now in the business with the military trying to figure out what they're going to be, as you say, in middle ages, and that they get grow more and more grown up. Joshua Brucine here with us. It's a terrific story and I love the headline it had me from that Google and the general tell us about this intersection that this tech company Silicon Valley is

having with the military industrial complex. Sure, so we tell the story of Google's basically tortured relationship with the Pentagon, and we really saw this come out into the public view UM early last year when Google employees began objecting to what had been a secret military program called Project Maven to use um advanced artificial intelligence technology to analyze drone imagery. Um. And so this was a program that

drones gather an immense amount of video. Actually analysts watch it for the most part, and the Pentagon said, if we could have some sort of automated analysis that would just tell them which parts to watch, that would be useful. Google was one of the company who was helping with this. Some of its employees said that seems like we're getting too close to building weapons and basically broke out into this huge public spat and Google backed out right and

eventually Google decided not to renew its work on the contract. Yeah, and stopped working on it earlier this year. Well, it's interesting, and I think it speaks to the kind of tortured relationship that Google has with the government. Like we were talking in the news room about for such a long time, Silicon Valley, big tech, we're kind of proud to kind of, you know, um, tell Washington to kiss off, basically, thank

you very much. And now they're embracing Washington right because they are looking for new business lines, particularly AI or the cloud. They want to be more involved. Yeah. I think what's interesting here is you have this very sort of visceral um reaction to a specific military program. I think of defense work makes a lot of people uncomfortable. Um, but if you look a little bit below that, you also see another transition happening at Google that is making

people at the company uncomfortable, which is it's moving. It's trying to supplement its consumer business, the search engines, the email all based on advertising, with a cloud computing business, and that means basically entering into specific relationships with large institutions and helping them analyze their data and do something with it. And so talk to us about Google specifically in this case because as sort of set up the conversation, we do go back to this you know, kind of

rag tag startup back in Silicon Valley. I mean, it was in many ways the quintessential you know, sort of you know, university dropout, create this company that changes the world type situation. But as it's grown up, it's really had to wrestle with its own image and its own values in a lot of ways, and a lot of those came to the four in the project may even protest. But this hasn't really died down that much. In many ways,

these discussions are still pretty fierce within the company. Absolutely, I think in comparison to other large tech companies, Google has always kind of been the most extreme case of this Silicon Valley idealism. I think, you know that a lot of the work the company does is actually just kind of academic research. Um. Its original mission was to organize the world's information. Uh. You know. Initially even uh was um concerned about maybe even going into a vertizing.

It really just wanted to do the tech. Eventually it kind of got over that, and obviously the advertising is you know, the the business right now. Um, but you do see it's moving into new businesses and challenging its own assumptions at a time that sort of the Silicon Valleys culture generally is being challenged in many ways. But it's interesting because I feel like different members of big

tech and Silicon Valley in particular, are challenged differently. In other words, Microsoft gets a big government cloud contract and it seems to be okay. But Google gets involved and there's a lot of pushback internally from its employees and I even think publicly, So what's the difference. How are we breaking out big tech in terms of their relationships and involvement with the government, particularly defense. Well, so I think Microsoft is actually a pretty good contrast. There's I

think two differences between Google and Microsoft. I think the first is an internal difference, which is that Google has always had this culture where they kind of debate everything. There's a series, there's a long history of these message boards where like everything came up for kind of rigorous debate.

Microsoft a very buttoned up company, top down. And then the second thing, to allude to your point about sort of the way the public looks at them, you know, Microsoft has kind of receded as a real consumer facing company. Most of its business has been an enterprise computing lately. Google is like one of the things we think about

as the Internet. So when people, um, you know, people use Google Search every day and then they think, wait, they're building weapons or you know, they're hearing you know, they're building military something, and that makes people uneasy in a way it doesn't maybe with companies that have that

are not in their day to day uh, you know, consciousness. Well, and I want to go back to something you said a minute ago, because it really sort of flips this around in a really interesting way, and it ties to another story I believe you were involved in in the magazine. This week around Amazon and its lobbying and you know, trying to find its way in a much more complicated

nation's capital in a lot of ways. And then nation's capital filled with lawmakers, regulators, and politicians who are a little more skeptical about tech than they were ten years ago. So how does that play into the decision making it Google? When you have antitrust investigations and this sort of skepticism and dare I say tech lash? Yeah? Absolutely, And you mentioned at Amazon is also in a very difficult although I think different, yes, situation for Google. What happened was

it publicly rejected the military. I don't think that was its intention. It certainly wasn't such leadership's intention, but it did it. And Google has a lot of enemies, um on the right who saw this as an opportunity to attack the company as being unpatriotic, especially because it does some work in China. Um. I think there was some genuine confusion and outrage within the Pentagon. You saw senior Mility Harry officials criticizing a commercial company, which is not usual.

And Google has basically spent the last year backpedaling, trying to reassure the government and the military specifically that Hey, no, we're willing. We're good actors here, We're willing to work with you. I get the feeling that within the pentagon that has been working interesting, but within the political class not as much. But it's interesting, you say, Joshua, their backpedaling, but they're also courting big time, right the U. S.

Government and the Defense Department. Oh yeah, I think Google wants in the the the the format of backpedaling is to say, oh, we're backpedaling, we'll take your contracts, which is what they want anyway. So it is kind of self serving backpedal, if you will. And so what do you make of the current state of the internal debate at Google. You talk to a lot of people there. As you say, the message boards still pretty lively. There has been some action taken against employees around media, leagues

and other elements here. It still feels unsettled when it comes to the internal politics of the company. It's definitely unsettled. Google has been in a very contentious relationship with some faction of its workforce. UM. You've seen action taken against internal activists, mostly for doing things like accessing information that companies leadership said was confidential. UM. And you see the company really not wanting to back down UM like it

did with Maven. And at the same time, you see people within the company UM who want to shape its future trying to extend beyond military contracting into things like border contracts, even into things like dealing with the oil and gas industry. So there is a real tension going on there where both sides are trying to kind of claim as much ground as they can in their own internal debate. How important is all of this in terms of branching out and being more involved in government contracts

important for Google's future. So I think that Google sees cloud computing as a big part of his future. UM Right now, it is clearly in third place behind Amazon and Microsoft. The actual government contracts are big. Uh, this big cloud computing contract Jedi, which Microsoft just wanted ten billion dollars, that's big, but it's not really big in

the big the large scheme of cloud computing contracts. I think what Google is hoping is to if it could win some government contracts, it's sort of a sign of confidence for the rest of the market that hey, we can do the serious work, and that's really what it wants to do. Here well, and what's interesting is you talk about Google's history that they should have been in this market early on. Correct in terms of the cloud, they understood what was going on very early on. Yeah. Absolutely.

If you look at what cloud computing is, it's basically being good at building large data centers, which weeps been doing, and being the best at artificial intelligence software that can take an enormous amount of data, analyze it and do something with it. Now, that's Google specialty. Um For whatever reason, it has fallen behind some of its key competitors, and I think that stays. That's Joshua Brewsting on our cover story Google at War. It's Google looking to expand their

revenue streams. But it's not going to be so easy, especially when you've got employees internally not happy about that internal strife. I think is one of the most fascinating aspects of all of this, and really a window into Silicon Valley right now, and it's very complicated relationship with Washington and even itself. It's not your father's our grandfather's Wall Street, that's for sure. And get ready for even more changes as trading firms look to get into gaming

and sports betting markets. Jason, we know the world of financial world is definitely changing. Well, it's trading firms, it's exchanges as well. And this came up in a conversation we had not too long ago with the diner Freedman over at the nazac Any Massa is here with us, taking us into the world of sports and exchanges and trading. So what do you find? Wall Street firms are dipping

a toe in the water of sports betting. And it's an interesting time right now because a federal ban on sports betting was lifted in the US last year, and you're starting to see about thirteen state legalizing the practice, with more potentially to come, and you've got a couple of different kinds of firms looking for ways in. This is so interesting because I think about how many conversations

we had with our sports team about this. They were all looking forward, you know, to the ruling and what it meant for online betting firms, But I didn't really think about the potential for Wall Street firms benefiting from it as well. And that's what this is about exactly. There is some overlap for certain types of firms. The most obvious example is that NASDAC has licensed some of its exchange technology to horse race markets in Hong Kong

and Australia and Sweden. It's a trading platform exactly. It's a trading platform, and as they were saying, there's no need to reinvent the wheel when it comes to handling large volumes of transactions on these kinds of markets. And UM they recently also licensed matching engine technology to a UK based UM sports betting platform where you can UM own stakes and players. So that's one way that UM,

a Wall Street firm, is getting into this business. So talk to us about who is the most interested in from your perspective, most interesting name here? Well, one really compelling UM case that we go into in the story is UM Susquehanna, which has created a sports betting division, UM operating out of Dublin right now and they're betting on the outcomes of US sports games. But UM the idea is to kind of almost make markets, make two sided markets on online exchanges that exists in the UK,

for example. And it's interesting because there are some parallels there. Just as they operate in as a market maker in financial markets, they can do a similar thing in sports betting markets too, and I think about the potential. I mean people the sports betting market, it's a huge one, right, So this is potentially a big revenue stream for some of these financial firms. Potentially potentially it isn't as big as financial as other financial markets, which I think will

actually limit its growth. Some of the projections are all over the place for how big this could be in the US, but we found projections that it could be about seventeen billion dollars, which if you think for for huge market making or hedge fund firms, that's not gigantic. So who's likely to get involved? So we're not talking about your big Wall Street firms potentially right who you know?

We mentioned Susquehanna. Who else might get involved? It seems like a kniche opportunity for expert market makers where you could leverage some of your technology in these kinds of places. When you think about this more broadly, this is coming into time. This is what you look after every day, your primary person looking after Black Rocket. A number of the big money managers folks are looking for different ways

to make money right now. We had a conversation with a long time Wall Street guy, former broker, who was saying look, these guys are gonna make money somewhere, especially in the age of zero fees. Yeah, so that's why I think that you're seeing different kinds of firms looking

for ways in. While I could never really see in the immediate term like a black Rock getting into sports betting, on the brokerage side, there are some interesting opportunities and both t D and merrig Trade and Interactive Brokers have some sports betting related projects in the works. I don't know, I'm thinking as investors, like, what should we be watching out for. What kind of you know, developments do we

anticipate are coming in the new year. Well, on the individual investors side, TD and merrit Trade has said that they're exploring ways into this market. Interactive Brokers is kind of an interesting case where they have a platform that they run that's all kind of a game of sports betting, but you can't you have the potential to earn um

free credits and trading commissions. I will say, I'm not sure how that has changed in the aftermath of the few wars where you have commissions going to zero, but you have opportunities to um win some real returns of some kind and um I think the whole idea there

is to expose their users to the concept. If you think about it, these brokerages have these platforms with users existing who might, yeah, who might want to participate in some way, so they're looking for a way into well, and it does feel like there are a couple sort of mega trends here. I mean, one is sort of gamification, right, I mean, people love betting for a lot of obvious reasons. They loved it for centuries, literally because it ties ties

to to lots of different games. But also this idea that these companies, these firms want broader, deeper, more meaningful, and ultimately more profitable relationships with their customers. And so if you can give them another reason to hit the app or hit the website. I mean, I don't know if anybody actually like calls their broker anymore, but you know, to extend and deepen that relationship, it would make sense, yeah, and a way to just apply some of the technology

they already have to another kind of market. It doesn't have to go gang busters, but it could just be another little way to eat out some more revenue for them, which sort of takes us back to Nastac and the conversation that we had with the Dina Friedman when she was our guest on Business Week Talks. I mean she talked about this because to your exact point, Annie, is this idea is like, look, we got this technology, like, we know how this works. This is ultimately a market.

This is technology that we have that maybe no one else does. We're global. So yeah, and the exchange space is interesting too, because that's a place where you've seen the revenue that you can earn from just trading operations shrinking in the very developed stock market. So I think that's part of the reason that NASDAC has looked for how else can we apply our technology? And that's Annie Massa a look into Wall Street, maybe from a little

bit of a different lens. A callback definitely to a conversation we had a little earlier this year with the CEO of Nastack. And we should note Interactive Brokers is a sponsor of Bloomberg Radio. It's eyeglass frames are everywhere now wants to take that success and applied to contact. We're talking about Warby Parker. I have the glasses. I'm not wearing them. Austin Carr has glasses. He is wearing them.

He went deep into this company. It's a fascinating story because we talked with Joel Weber, the editor of Business Week, about this. This isn't part of strategy story in a lot of ways, because this was a company that launched a whole line of imitators in various businesses. Tell us

where Warby is right now? Totally yeah. I mean this was the company that sparked this, you know, crazy trend of what we call direct to consumer companies sort of if you have all Birds or Casper mattresses, or want to order a razor online or underwear short shorts, what

have you. There's a zillion unicorns out there that have built a huge brand off of being the Warby Parker of X. And the big question for Warby Parker, which has a billion dollar plus valuation itself, was do they want to become a platform, a retail platform and sort of instead of just selling glasses like the ones I'm wearing, do they want to launch into all these other verticals or double down on vision care. I'm gonna make you

take a step back. I'm gonna assume we all know what this company is, but just remind us about what they do because they really have upended the way you sell things totally. I mean, just a few years ago we were talking about the retail apocalypse, and in many ways we're still talking about. This is the one store company that sort of bucked that trend. They back in Neil Blumenthal and Dave lle Boa came up with this idea to disrupt Lexotica, which was this massive conglomerate in

the eyewear space that was sort of a monopoly. A lot of analysts think when it comes to distributional licensing everything rayband, sunglass, high pro vision, what have you. And they often marked up their frames massive rates. I mean, just if you you buy ray bands for a couple hundred dollars, they're they're pretty expensive. With Warby Parker, they had one low price point of ninety five dollars. Uh.

It was just very straight forward direct consuper marketing. So they sold online then eventually moved on offline into physical retail and they're they've they've really become known for as this sort of bespoke brand that has this end to end customer experience that's that's very seamless, and you've seen a lot of copycats in that trend well, and it is this sort of threading of the needle as it were getting toward where it feels like we are especially

high end consumers who expect high touch retail, but also the convenience that you get from online. I mean the process of warby Parker, it's pretty great. It's pretty I mean what they became known for was this at home try and experience. If you've ever gone to a store and you look in front of that little mirror, you know, it's self conscious, You feel a little awkward doing that.

They send you five pairs in the mail, you get to try them on for free, then send them back, and they send the one that you pick once you pay for it. It's a very seamless experience. And if you've been to the stores, especially around in York, they're beautiful, they're gorgeous. They're very seamless, and it doesn't feel like a stodgy optometry office. If you've ever had that experience of being up sold by your your doctor and you

really went right there too. One of the tensions of this story, which is okay, selling a razor online not that complicated, Selling socks online not that complicated, But when it comes to your eyes, it is a little more complicated. There's a whole sort of established way that people do this. Let me screw up. You can really scrap somebody's eye. Really. Yeah. There can be infections, there can be eye disease um.

So that's a big thing. It's a much harder category to get into, but they think it's a build an eleven billion dollar more contacts contacts category and eye exams. That's one of the big things that they have to push into because although they've done prescription eyeglasses for a while, for for many years, putting something on a piece of plastic, a piece of silicon on the end of your eye, obviously is a little bit more dangerous, especially when you're

ordering these things online. Uh. They're also part of a big category that Luxotica also owns, which is, you know, they they have people that prescribe the contacts. They own i med, which is the second largest vision insurer in the company, and they've really locked Warby Parker out of

that market. You can't buy your glasses in network through vision insurance, and so they basically said, you know, we're going to do this on our own instead of just glasses, We're also going to offer UM contacts and do the eye exams. They're tripling the number of optometrips they have on staff who are going to basically help you with your insurance and then hopefully you know, sell you contacts and Warby Parker glasses downstairs one of the things you

get into though Austin. So here they are like looking to go from glasses now to contact kind of build out the vertical if you want, if you want UM. But what's interesting is is, you know, I think the question is are they spending too late? Like, are they you know here they created this model and now that they're express spreading out, did they just wait too long

to do this? I think that's a fantastic question. Especially we note in the story one of their co founders, UM Jeff Frader, actually left in the early days to launch another unicorn, which is Harry's another the Warry Parker of of of shaving, which is has a one point four billion dollar valuation I think, and then a couple of their other executives went on to find found a way, which is the Warby Parker of luggage, which again has one point four billion dollar valuation. So it's a really

good question whether or not they waited too long. At the same time, they really pitched this idea that they don't want to chase the flash in the pan, you know, sort of different verticals. A lot of the vcs that they were talking with in the early days said, oh, become the next shoot ass will become the next group on and they said, you know, we're just gonna be focused on this one thing. We do it really well, and now we're going to expand a little bit more.

And they pitched this as sort of the anti we work that they don't want to be this crazy, you know, massive hundred million dollars a hundred billion dollar overnight soft bank investment. They want to be the mature, step by step, increm mental growth company. Well, and I feel like that speaks to who these two guys are. You got you get into a little bit of of kind of how they manage this company. Their approach. They're very I mean, if you spend time with Neil and Dave, they're very precise.

They you know, there as precises the prescriptions and their glasses. I mean, they really have this attention to detail. They're not you know, the Adam Newman type characters that are just going to uh, sort of brag about, you know, tomorrow, we're gonna triple the size of this that one of the guys said, you know, we're we're comfortable launching thirty three stores this year, forty next year, forty five year

after that. This is not We're gonna launch stores tomorrow. Well, and it's also interesting to think about this business, especially this expansion into contacts and I exams and you alluded to this earlier. Austin is the people intensive business. I mean, there's in addition to the manufacturing they're doing. You know, these are big jobs, a lot of jobs in a lot of ways, and high touch. It's it's not you

know what. What they've also been pitching is it's not just the in store experience, but all the under the hood refinements. They have an optical lab where they do a lot of their manufacturing and upstate New York that has about a hundred jobs. And they're also pushing into telemedicine, which is a massive category that we've seen other eyewear

makers move into. And that's basically the process of can you update your prescription using just your phone in a MacBook Essentially you can measure the distance between your laptop and your phone, and you can check your eyesight. Doing an eye exam at home seems risky, but that could be the future. And if you and if they're pitching it is not a replacement but a compliment to eye exams. UH.

Some people think it's risky. A lot of optometry community really felt this is a bad move by the industry, but it seems to be words headed. That's Austin Car great dive into warby Parker, the individuals, the two co founders behind the company. I mean, their model really impacted the retail industry overall, UH and created so many other

companies in other business lines. But what's interesting is speaking of business lines, whereby Parker now wants to do contacts well, and this decision to go essentially verticals, staying with the eyewear industry when so many people have mimicked their model to get into all sorts of things. Claus Summer is back with us, the president and c of Porsche Cars Porsche Cars North America, back in New York City. Hannah Elliott, I know I corrected myself. Listen anyway, great to have

you back this last time. You're here, we're downstairs with a car this year. You're here for the Year Ahead event, so let's start there. What is in store for the year ahead in your business? Oh, it's all about the brand. You know. In former times, actually products were building the brand, and now you have to define your brand, your brand purpose, and then you built the products, which is a huge shift for us in terms of product planning and in

terms of communications. I love what you see about brand purpose because a big theme of the Year Ahead this year is all about sustainability and companies thinking about kind of the broader impact that they're having on our world. How does that obviously work into in terms of um I think about, you know, alternatives to carbon field vehicles and so on and so forth. Talk to us about though,

how that plays in with what you're doing. Well. When the first phase actually a transition to better electric vehicles. Our car sold in will have a plug so it will have either a combustion engine or with a plug in modules or hybrid or better electric vehicles. So that transition is taking place as we speak. The first car is out and about. It's the Takon, and we're pretty happy about the reception here in the United States. I have to say I am very excited. I just had

a chance to drive it. Congratulations on that car. I would love to know. Why was Porsche of the right company to bring out an electric sedan in the performance segment. We actually had a long discussion when we started looking at the source of business to then launch a battery electric vehicle, whether it should be what everybody looks at, which is SUVs, or whether we should stay closer to our brand heritage and have a fly line that looks more like a n or like a real sports car.

So we decided at the end of the day, let's not look at the business potential, Let's look at the brand. Let's look at what people associate with, what Porsche has been known for for decades. And that's why the Taikon is actually the right car. It's a bit bigger than the nine eleven course, because we need battery size and battery space in order to also fulfill our customers expectation when it comes when it comes to a performance range, charging speed and so on and so forth. So class.

When you think about the Porsche customer, how does he or she feel right now about the economy, What are they saying to you about the sort of how they're feeling, how they're spending as they look ahead to the next year when they come to buy a car. Well, if you look at our figures were in good shape even without the tai Kon, we're above previous year six point

five pc, while the market is slightly down. So I think we've got the right strategy, the right products, the right communications, the right sales force with our US dealers, so we are confident they are confident buying into the brand. But we're not boiling the ocean here with three cars out of a thousand UH that are sold here in the United States. So we probably in a spot that we consider being fortunate. What makes sense for Porsche in

terms of luxury brand doing an electric vehicle. I think if you have the right technology, and if you say this car speaks Porsche, this car is d n a Porsche and the right technology is there. Now we have an ache involved system with the first manufacturer applying that to a car. We have everything we know about the chassis and the drive train embedded in the car, and now you drove it, it behaves like a true sports car. Thumbs up, Thank you for that. So it's it's the

right time, um. And looking at our order intake and we're not talking numbers. Just before you ask me, our order intake is exceeding our expectations to to put it that way, all right, So what worries you? Because I do think about how many times we sit around the table here clouds and we're talking about some of the big macro issues, whether it's US trying to trade or trade wars in general, or a global economic slowdown of some sort, interest rates, interest rates, Like, what are we missing?

What is it that you guys spend a lot of time discussing. Obviously you want to focus on your brand, getting your message out there, getting a great vehicle out there, um. But what else? Um? Well, for us internally, its customer experience. But let's put that aside. If we look at macro economics at this point of time, now, our biggest warrior, of course, we're the tariff. The tariff discussion. That that was something that was hanging like a black cloud above us.

Now it's not gone the cloud, but it has lightened up a bit. Very recent reports show that I think our messaging has arrived. And I'm not talking just for Porchia. I'm also talking for our mother company BW. They have just announced eight hundred million investment in Chattanooga, creating another thousand jobs for better electric vehicles that will be produced there. We've done our homework as car manufacturers in this wonderful country.

We've invested billions and there are many thousands of people dependent on on those cars being produced here and and even export it to other countries. So that's because it makes business sense, correct, It completely makes business sense, yes, absolutely, So you know, that's a responsibility we are very aware of and we're living up to it. And I think that has not arrived with the administration. UM and I just hope that everybody stays calm and believes in free

and fair right. And that's Klaus Zelmer back with us. He's the president and CEO of Porsche Cars North America, along with Hannah Elliott, our car expert. Love catching up with them. Of course, the last time he came to see us, he brought a car. We have to sit around, play around with a car. What's interesting too, is it you know, it's more about electric vehicles and hybrids, but we also talked a little bit more broadly about the

infrastructure needed to support all of this. So a great conversation. So you love it, you hate it, And if you live on the East Coast, you most likely have found yourself on the northeast court of Amtrak for work or pleasure at some point in time. But I didn't know this, Jason. There are so many more roots and thousands of miles more that make up the Amtrack long distance network. I'm going to say this is my favorite story in the magazine this week. It's such a great tale. Devin Leonard

is here with this. He wrote the story. He was on the trains, he was with the man that was on the charge of the whole enterprise right now, a plane guy turned trained guy, Richard Anderson, running Amtrak. Devin Leonard here this in New York City. So what was the inspiration for this to begin with? I don't I

think Joel. I think Joel had the idea. But we we knew, we meloved beloved editor, but no that we we just knew that there's controversy, people getting upset with this guy who was a guy from the airline industry. And uh, it seemed as though some people in sort of the the Amtrak ecosystem, sort of trained ecosystem, we're sort of rejecting him, so we wanted to find out what was going on. Well, the magazine has done stories on the Northeast quarter, right, and the problems in the

infrastructure problems. Yeah, exactly, but and that's actually a profitable part of the business of the Amtrak business. But you went much more broader out into the country. Yeah. I took the Crescent down to New Orleans. What is the Crescent. That's a train that us daily from Penn Station and it's uh, leaves in the afternoon. It's supposed to arrive you know, kind of you know, in the evening in New Orleans the next day, but it rarely arrives on time.

I don't think about three quarters of the time, only about you know, about three quarters at the time. It's late, often two hours late. And uh, I wrote it and it was late. But it was kind of a wild experience, and I talked to all kinds of interesting people and why they took the train, and it was it was

pretty cool. And it's a microcosm in some ways because you go through big cities, you know, you sort of lead the Northeast corridor that Carol was talking about, and you go all the way to New Orleans, through you know, Georgia, Alabama, Mississippi into Louisiana, and as you say, there are different people who have sort of different relationships with with the

am track. What did you learn? Well, I think the biggest thing, Jason, is that you know, we all think of I guess, I guess you just think of Amtrak, as you know, they owned the trains, and they own the tracks, and and you know, and the story, but that's not that's not the reality. The reality is that they owned most of the Northeast Corridor from Austin to

to Washington. Throughout the rest of the country, they're running pretty much on freight railroad tracks and they have a very sort of difficult relationship with the freight railroads and their their freight rail is just supposed to give them preference, pull over to the side, let Amtrak trains past. But that's not what happens most of the time. And it didn't happen on the crest of what I took it.

And this blew me away. And I love the the sort of phraseology everybody talks about, like the freights right saying this our God, that is limited to this world they called the class ones and anyway. But yeah, so you can really go deep on this, but you're right,

this has created a very tense relationship. And going back to Richard Anderson who's now running Amtrack, this is the main thing he's really got to figure out, is this relationship, right right, right, because because I mean basically, people will take a train that that that's on time, and you know that's why the Northeast Corridor it's very successful. Of course, there's a ton of people, it's very can you know, dense test populated area. It's hard to get around on

the highways and all this stuff. But the throughout the rest of the country, well, really these roots they go back a hundred years. The long distance routes, the Crescent you know, pretty much goes back a hundred years and they were created at a time when America is a really different place. You know, of course far fewer people. But also say on the Crescent city like Charlotte was kind of a you know, an afterthought, and it was

it was no big deal. The Crescent goes through there, you know, in the middle of the night, that's the only time you can catch you know, trade in Charlotte. Of course today it's the headquarters of Bank of America. It's a big, blooming city. And it's kind of ridiculous that that. I mean, the crescent set up just end to end. You want to leave New York and at a reasonable time get into New Orleans at a certain

time time for dinner, of course, you know. But but but everything else along the way is sort of you know, I guess it's good to get into a Lanta in the morning, maybe get into d C around around dinner time. But everything else is just kind of like stops on the way. And it's based largely to kind of how we travel around America, right. We don't think twice. We just automatically get on a plane and go somewhere if it's a short hop. You know. You go over to

Europe and they're using trains so much more. And I do wonder if there's a way to kind of reorient our country so that the trains are more in demand and they can be better systems. Carol, That's what Richard Anderson wants to do. And you know what he wants to do is Amtrak has a right of way. You know, well, actually it has a right, well it is the right way, but it is a right to operate trains on these freight uh, these freight tracks because the railroads agreed to that.

When you know, they turned over their passenger service to Amtrak, which is sorry, do you want to Amtrak which is losing money in two thousand and seventy one. So he wants to do is instead of running trains that basically you know, go these long distances that would be much easier to fly and cheaper at this point, he wants

to segment the routes. So so for instance, they'll be more trains in between Atlanta and Charlotte, you know, these these sort of urban centers that needs service and or you know, or you know at Atlanta birminghammers you know,

or something like that. These look these corridors and because the roots aren't as long, there won't be as many opportunities for delay and also hopefully but but for that to work, you have to work something when the freight railroads, so not delaying the trains, but if these shorter routes, routes between cities that that are much bigger than they were in nineteen seventy, let alone a hundred years ago and these roots were created that that's his vision. It's

a really interesting idea. Yeah. Well, and it does speak to something that is building maybe quietly right now, which is questions around sustainability and climate and there have been footprinted all these different things and the way that we move around lesson cars and maybe lesson planes, which takes this back to Richard Anderson in many ways, very successful at Delta. Anyone who flew Delta during his tenure knows who he is because he was the Richard Anderson Delta

you know, he would pop up on the screen campion. Yeah, but you know he was a guy who came in the airline had gone bankrupt. He engineers the merger with Northwest and really puts Delta on a path where it is now to be a top airline. But he didn't make a lot of friends doing that. He's not making a lot of friends doing this. Well, No, that's the thing. I mean. The unions are upset with them because of

his cost cutting. And then you have these senators from the rural parts of the country and they're they're worried about, oh, if you know, changed the long distance routes there, you know, their constituents are going to you know, lose service, you know, you know, as paltry as it is. And these sort of little stations, I don't want to send them to nowhere, but they're not they're not not in big cities, but you know, they're very important to a small group of people,

and that makes them very important to these senators. And on top of that, you have people just love trains, and that was really interesting to kind of talk to some of those folks. But they feel really strongly about how Amtrak should be run and they don't want to see things changed. And some of the things that Anderson is doing, like changing the service in the dining cars, and you know even you know, suggested substante bus service on part of the south West Chief that's people just

go berserk over that, right. Well, and it's interesting, and I do wonder about the financials. Right, it's still getting what two billion dollars and subsidies from the US government. Right, it's still operating at a loss, and I do wonder what the financial viability of this is going forward. Well, he's got a plan for that too. Better no, no, but but his his plan is let's get amtrack. You know, profitable or at least break even on an operating basis.

And he's gotten it better, right Yeah, well, yeah, yeah, he's I guess the the adjusted operating loss this year was was thirty million dollars. That's way down even last year it was a hundred and seventy one million. So he's on track to break even next year. And you know, fisical. What he wants to do is then is take the money that they get every year from Congress and use that to fix up the system, which needs a lot

of work. They're already getting new trains and doing things like that, but the ideas, the idea is to show Congress and look, we can run amtrack, you know, efficiently and probably and probably profitably. Excuse me, So, now let's do something about addressing the bigger problems. That includes the Northeast Corridor, which needs forty one billion dollars in you know, in sort of infrastructure repairs to because the systems crumbling

at Penn Station one billion dollars. Yeah no, but it's kind of interesting, and I do wonder whether or not he can make this work ultimately. Well, that's the thing. It's the typical problem when you bring in somebody from the business world into a government agency. This is something that's happened at the Postal Service over the years too. But people say, this thing needs to be run like a business, and let's let's get somebody, you know, some

successful corporate executives. So they bring them in. But these government agencies are not businesses. There's all sorts of red tape and constraints and all these different constituencies. Yeah, the government corporation is yeah, yeah, yeah. So the things he could do a delta and you know, you know, and despite the fact that they upset people, he could do them, you know, and if he showed that they worked, you know,

people ultimately accepted them. But here it's a much more complicated thing because I mean, you know, as he said testifying on the hill to you know, people who were upset with him in the senators like, look, you're my boss, you know so, But whatever the term is, having all those bosses, that's not something that you know, I Gotic Bridger danatation has used to. So I think he's trying trying to do his best. We'll see, we'll we'll we'll

see if it if it works. But this is the first time these are I think that's the first time Amtract has had, you know, these sort of new ideas and innovation. You know. Ever, you know it's certainly not not not not in decades, and it's a really important system and it needs to be changed, and you know it's about time somebody was you know, some fresh ideas

was in there. That's Devin Leonard And I always loved Jason when he does a story because he actually took a train ride to get a feel of what it's like. He got to see the delays upfront and personal, but also talked to individuals why they choose trains over planes, and uh, it just tells you about some of the successes and some of the failures that is Amtrak. It's a great story and certainly worth reading at a time when everybody's traveling around the country. And that wraps up

Bloomberg Business Week's Weekend podcast. Thanks so much for joining us. I'm Jason Kelly and I'm Carol Masster. Be sure to tune into Bloomberg Business Week Radio Live Monday through Friday starting at two pm Wall Street Time. And if you can't catch us live, get our daily podcast. Check that out at Bloomberg dot com or wherever you get your podcast, and of course you can get this week's edition of the magazine that is on newstands now. We'll be back

right here next week at the same time. This is Bloomberg