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This is Bloomberg Business Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy, plus global business, finance and tech news as it happens. The Bloomberg Business Weekdaily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Hi, everyone, welcome to the Bloomberg Business Wee Weekend Podcast. We are coming off a FED meeting that played out as many investors expected, with FED officials lowering their benchmark interest rate by a quarter percentage point and penciling in two more rate reductions this year. Policymakers pointed to growing signs of weakness in the labor market, while also acknowledging that inflation has quote moved up and remained somewhat elevated.
End quote. For the latest on that FED decision and all the analysis that we did here at Bloomberg and post market action, head to the Bloomberg or Bloomberg dot Com.
Also happening this week, President Trump's second state visit as president to the UK, bringing along with him the CEOs of Apple, Nvidia, and Microsoft, among many others, to an ounce deals and spend tens of billions of dollars on tech infrastructure in the UK.
We meantime, focused on the data center build out and spend in the United States. We did that with the CEO of the seventy seven billion dollar market cap reate Equinis.
Plus the CMBs pioneer who's thrown his hat into the California governor's race.
All that to come, we begin with a big story in the chip world, and Vidia agreed to invest five billion dollars in Intel and said the two will co develop chips for PCs and data centers, a surprise move to help prop up an ailing arch rival that sent Intel shares soaring on the news.
For more on this, we were joined by Chris Miller, professor at the Fletcher School at Tufts University. He's also non resident Senior Fellow at the American Enterprise Institute and advises businesses and more at the consultancy Green Mantle. He of course, also is the author of the book Chipwar, The Fight for the World's Most Critical Technology.
I think from the perspective of ten years ago, this would have been a pretty surprising pair up, but today there's a real logic for it. In Vidia is a leader in AI chips. Intel has been trying to catch up when it comes to AI. But also Intel's got a lot of unique know how when it comes to building processor chips, which AI servers still require. So certainly on the chip design side, there's differing areas of expertise that both of these companies can bring together, all.
Right, but just all of it together. The US taking that ten percent, approximately ten percent stake in Intel over this summer, You've got SoftBank, there are two billion dollar investment now in Nvidia. What is this? I mean, is this what you thought would happened need to happen to ensure us remain a dominant player in the semi space.
Well, I think we're going to need to wait and see what implication this announcement has, if any, for Intel's manufacturing business. I think there's no doubt that Intel's going to be an important chip designer in the future, perhaps smaller than it used to be, but they've got a unique position in the market on the chip design side.
But from a national perspective, what really matters is Intel's manufacturing arm and that's where Intel has really struggled the last couple of years to stay at the cutting edge technologically and also to win customers away from TSMC, the Taiwanese market rival, and today in Vidia produces almost all
of its most advanced ships with TSMC. There's been a big push from Washington to get companies like in Nvidia to diversify their supply and to try to help Intel become a more successful manufacturer of chips for other companies. The announcement doesn't really say anything about that, but I think a lot of people will ask whether this is a stepping stone for other US companies in video or some of its peers to bring more of their manufacturing business to Intel's manufacturing arm.
So tip war it is on? Or where are we? Is it the beginning of the chip war? And I'm just curious, are you starting to think about I don't know, another book and where it goes from here? Give us your thought here?
Why I think we're in the thick of the chip war right now? Next to this news about in Nvidia and Intel, there's a big debate going on in Beijing and in Washington about which company should be allowed to buy which type of the AI accelerators that Nvidia specializes in designing that are almost exclusively today produced in Taiwan.
And so you've got these competitive commercial dynamics intersecting with high geopolitics, and today you can't really separate the chip industry from the decisions of President Trump or from Chairman she Well.
That's a really good point and kind of brings me to my question about Intel specifically in the US taking this unprecedented stake in this chip maker earlier this year. What did you think of that, Chris.
Well, I think the US has been pretty clear in its desire, going all the way back to the first Trump administration through the Bide administration, as well as both houses at Congress, both parties that it sees Intel's success
in manufacturing as important for US national security. Right now, most of the world's advanced processor chips are produced by one company in one country, Taiwan, and the US wants a more diversified base of manufacturing these ultra critical chips that are key both for smartphones and computers, but especially for ai and Intel is one of the three companies in the world, alongside Samsung and TSMC, that can produce these cutting edge chips, and it's the only US company,
the only company with a major US footprint, at least right now. And so that's why the US government has been trying to find ways to help Intel out. So what wouldations get going?
Well, what would it take for Intel to be able to compete with TSMC? I mean it got money from the US government. It got money. It's getting money from Intel here. As Carol always says, the devil's in the details. And you said, we need to see exactly where this money goes. But what do we need to see to say, Okay, this company, this US company, is now competing with TSMC.
So there's no doubt that Intel needs money, and it's raised some money from soft Bank and the US government, But the key thing that it needs is customers for its advanced manufacturing processes. You'd only prove whether or not they work if you've got at least medium sized, but ideally large scale customers that are going to let you produce thousands, tens of thousands, eventually millions of chips on
your manufacturing process. You can't scale up without customers, and right now, Intel's got a couple of smaller customers for its manufacturing business, but it's thus far failed to win a very large scale customer, and Nvidia's one example of a company. There are others that could provide a really large contract that would let Intel test out its cutting
edge manufacturing. And right now I think the entire ecosystem is waiting to see will it win some big customers that lets it complete that scale out and testing of its cutting edge manufacturing.
All right, so we're talking abou Chris Miiler, professor of International History at the Fletcher School at Tufts University, author of Chip War, The Fight for the World's Most Critical Technology. Hey, Chris, one thing I want to ask you, and I want to go back to China. There was a story I was reading by our Javi R. Bloss an opinion police piece, and was asking why is China stockpiling so much surp
plus oil? And one of there were like five or six different reasons, and one of it was does China fear an interruption and supply beyond US and European sanctions? Oil traders who traffic and intrigue at are only one word Taiwan. Do you believe that there is a strong possibility that there will be a conflict involving Taiwan? And what does that mean for TSMC, who is so crucial in terms of the global chip supply chain, what could that potentially mean for the United States the global economy?
I mean, can you play that out and what the likelihood is?
Well, there's no doubt it's a possibility. Nobody knows for certain what the likelihood is. But I think the magnitude of impact is so large that even if you think it's only five or ten percent likely, you've got to take steps to prepare. All of the biggest, most valuable companies in the United States require silicon that today can in some cases only be sourced from Taiwan. That's true for Nvidia, Troop, for Apple Group, for Google Trooper, Microsoft Proof,
for Meta. The entire US tech ecosystem relies on Taiwan's expertise. And that's why there's been this push for the last couple of years to find ways to diversify the US from being so centrally exposed to China's decisions about war and peace and the Taiwan Straits.
And the reality is that the US is still very, very exposed, correct because of how much TSMC still produces.
That's right. I think the US has made a bit of progress, but there's still a long way to go. And it's a long way to go because TSMC is an extraordinarily capable company and the entire Taiwan's ecosystem is just so central to producing the semiconductor hardware that our tech firms and aifirms beend on.
What do you think of the politics of this and the fact that TSMC, you know, has this facility in Arizona and is working to increase its presence here in the United States, does it put that at risk?
No, I don't think so. I think TSMC has got a strong signal from its customers that they want US space production. Its uncertainty created by the tariffs that incentivizes more investment in the United States, and it's got a signal from the US government again across multiple administrations both parties, that they're going to keep pushing for a bigger US footprint.
But I think the challenge that TSMC faces is twofold. First, all of its keyr and D remains in Taiwan and will be in Taiwan as far as we can see in the future. So Arizona is helpful and diversifying today's manufacturing, but it doesn't really get you diversification of the next generation.
The second thing is that the ecosystem in Arizona is still less developed than it is in Taiwan, and so sourcing the gases and the materials and all the spare parts and specialized equipment you need for a cutting edge chip plant, it's still harder and more expensive in Arizona than in Taiwan. And that's going to be the case for some time until we keep building out the scale
of Arizona. And all of that means that Taiwan's going to stay very, very important were our techie ecosystem for many years to come.
Chris really quickly thirty seconds here, I mean, was President Trump wright in his increasing tensions on China. It started in his first term and wrapped up in the second. Was he right, especially when you think about semiconductors, and just quickly if you could.
Well, I think the key driver of tensions in this sector is actually China's desire to become self sufficient. We were in a pretty stable gulibrium in twenty fifteen before the Made in China twenty twenty five plan was released. That happened before any of the US policies to support its own chip industry, and that was really the catalyst for introducing geopolitical tension as a central facet in the chip industry.
All right, So glad we could get some time with you, So relevant as always, Chris Miller, author of Chip War and professor of international history at the Fletcher School at Tufts University.
You're listening to the Bloomberg Business Weekdaily podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube. Hey.
Over the summer, one of the things that caught our attention Bloomberg News reporting the world's largest technology companies that we're talking Microsoft, Amazon, Google, all of them planning to spend billions of dollars more than three hundred and forty four billion dollars on capital expenditures, with much of it tim going to data centers for AI models.
According to Bloomberg intelligence analyst Amandy saying, companies have quote basically tripled capex investment in cloud due to AI, with executives emphasizing they need to invest quickly to get ahead. Our next guests is helping those hyper scalers scale up when it comes to AI with a in studio as a dere Fox Martin presidency of Equinix, the nearly seventy six billion dollar market cap data center readA trades under ticker EQIX down so far this year about eighteen percent.
Dear, welcome, good to see.
You, Thank you so much, Thank you for having me.
Nice to have you.
So, how's business?
Business is very good?
Like the best you've seen it.
Like we're in the middle of a very strong cyclical demand cycle for you know, the products and services that we offer.
When you say we're in the middle, help us understand how long that means of a runway there is to go here?
Sure? You know, at Equinos we see a very significant trend from the training of models in the AI economy that you refer to in your opening there with the hyperscalters, to the deployment of those models in enterprise systems, and that deployment is called imprints. And we see that opportunity as potentially double the size of the training opportunity. And at our company, we feel we we're built for this moment.
Has that happened faster than everybody anticipated? Because I do feel like the converse. Although we've been talking about AI of now almost two and a half years, well or well into two and a half years, but we are now increasingly talking about all this stuff starting to be put to work.
Right, you can certainly seek organizations. We have ten thousand customers across the world moving from proof of concepts into production systems and applications of the technology.
One of the things I think we're curious about is, as you know that the news flow is fast and furious from the White House and out of Washington, and there have been some announcements out of Trump administration about AI infrastructure initiatives specifically, So I'm curious, a dare have you seen any impact of that on your existing properties leasing effort? And I'm curious how you compete with how does that kind of compete their program with your own development program.
Look, we very much welcome the focus that the current administration has on data centers and the importance and the recognition of data centers and their important role in the
infrastructure of any economy. And we certainly are looking at, you know, some of the the properties that have been you know, identified as potential for RFPs, and we would choose based on locations that would be a creative to our business because we're very focused in cities, in metro areas close to where humans are who will use this technology.
Are you getting pushed back from cities and humans who don't necessarily want.
Those data is interesting, not hugely. I mean, we're very conscious of the role that we play and you know, the role that we play with communities where we have data centers, and we're very considered about our approach there.
What makes a good location for a data center because it doesn't actually apart from the construction, it doesn't actually involve that many people to keep it up and running relative to the amount of money that's spent on it and what actually happens in there.
Yeah, it's really interesting because I think you know, when you think about the operations of a data center, you tend in your mind to go immediately to technicians and technology, but actually there's a whole series of unsung heroes in the operation of a data center, which are the craftsmen and the tradesmen and women, you know, the plumbers, the electricians, the engineers who basically keep the Internet up and running, you know, through this data center infrastructure.
So difficulties in finding those workers. We've done some reporting about that that there's you know, okay, yay, great the spend and the build, but there's not enough workers to diet.
So I think, you know, the constraints that the industry are facing, or you know, are around energy and power, around skilled workforce, and then into the supply chain for the equipment. That's that's part and parcel of a data center.
So that's structuring the build that you guys are trying to do and meet the demand.
It is something that you have to actively manage as you are looking to build. You know, for example, in our case, around some of our supply chain portfolio, we've pre purchased in order to ensure that we can have the delivery dates that we need to bring capacity online.
We talked about the three hundred and forty four billion dollars that some of the world's largest tech companies are planning to spend. When it comes to CAPEX, it's like the thing we look for now quarterly when a company reports results, how much of hyperscalers Capex budgets actually flow through your company.
We have a very significant approach on a part of the data center industry that we call co location because not all data centers are the same, and so colocation is where enterprise customers businesses sixty percent of the Fortune five hundred for instance, would locate their workloads or their
machinery with us and the inner shared facility. We have a JV structure that works with the hyperscalers to build to suit for the hyperscalers, and so that's how we service the Hyperscaler opportunity and maintain that very important partnership that we have with I mean, I guess we're.
Trying to figure out your exposure. I think your top ten customers represent about sixteen percent of monthly recurring revenue, so your exposure to the hyperscalers is pretty big, right idea? Is it manageable?
It's manageable. You know, the hyperscaltors, for example, when they operate in our retail facilities, they do so because of the connectivity of ex X. So that's going to be a requirement, you know, for inferencing and for the actual activation of these AI workloads. So it is for us about connectivity. Connectivity is the secret source of as a data center p I don.
Means specifically by that because I think we can use the word connectivity to mean a lot of different things. Certainly in the business world, what does it mean specifically for us?
So in our world, it essentially means we're located in two hundred and seventy three data centers right across the planet. Inside those data centers, we have ecosystems of customers, customers whose value chains are connected to each other, and we physically connect them, you know, literally internect interconnect those customers one to the other. That's the first part of interconnection. So that allows for low latency transactions to happen, say
for example, on a trading floor. That allows for that to happen in real times.
Yeah right, we're speaking right now with the dere Fox Martin presidency of Equinex joining us here. In the Bloomberg Business Week studio, you mentioned the difference between training and.
In inference. Thank you.
When you think about this, like a company like corwe for example, where does that fit into this, Well, a.
Core Weave is a neo cloud. They're a company you know, that provides GPU capability to companies who want to train their models, so they fit into the ecosystem in the same way for us as.
Other cloud like a GPU as a service correct, okay, So what are the average lease terms for an agreement with GPU as a service comorganization?
It would depend, you know, they can be relatively short. For us are leasing in our wholesale side is ten years plus.
Okay.
Now, one of the things I think is interesting is I think we're all trying to figure out the boom and bust of this. And there was an investor, Jack Selby. He is a z VC founder managing partner. He's longtime managing director of billionaire entrepreneurs Peter Tiele's family office, and he said the euphoria around AI may have led to the biggest bubble yet in private technology, and so sounding
warning bells that a correction startup valuations is in the cards. Now, we understand when you throw AI there's a lot of different players, but behind it all is the data center spend. And we have had a lot of conversations about the hyperscalers making you know, multiple duplicate arrangements with power providers that they're not going to use all of them, but they just want to make sure they've got the power
where they need it. Is there any signs to you that there's exuberance that the spend is slowing down, starting to will start to slow down. Maybe next year you're seeing it. You've got a front row seat.
Yeah, I guess we believe in the enduring nature of the transformation that AI and the technology associated with it can bring and can bring to businesses. I mean, as I said, we support moneyfold workloads of our customers, you know, not just AI workloads, but you know, standard business process workloads, and we really are about that, being that connectivity and and so you know, I think in many ways our business model is you know, somewhat protected from any any potential.
Before we let you go.
As I mentioned some headlines on TikTok from the Wall Street Journal, the deal would create a new US entity Oracle and recent horror with silver Lake.
Are you involved in this at all?
Well, we partner very closely with Oracles, so it would be through that partnership that we would be supporting.
So you think you will support an independent TikTok.
Potentially with Oracle with Oracle, yes, I very key partner.
One last question, your stocks down? Why if it's so, I mean, I know there's also an incredible spend in what you are doing. You've got to spend in order to meet the demand, you know, and so maybe that is why there isn't some reward from some of your investors. Is it kind of a conflict.
Well, we're very focused on long term value creation for our shareholders, and you know, we announced that we are going to bring on as much capacity in the next five years we have done in the previous twenty seven years of our operations, and so we're very focused on executing against our strategy. We believe in the opportunity that we see in the market and hope to deliver proof points to that to our investor community very soon.
That was a Deare Fox Martin, President and CEO of Aquinix.
We should point out that we talked to a Dare that was ahead of President Trump's visit to the UK, where we know a lot was talked about when it came to the tech CEOs that was with him, that were with him, excuse me, and that also talked about investments over there in the UK. When it comes to the tech world, we should also point out that it was also before we got news of Nvidia's big investment in Intel. So have to say when it comes to
the tech world, semi world. There's a lot going on, but nonetheless an interesting conversation because it really plays into the bigger sex, bigger story, if you will, of why all of this is going on, because of the AI spend and then the spend on data centers, it's all kind of connected.
Yeah too.
That and Carol. Something else that's connected is the news that we got on Thursday morning and that Huawei is unveiled new technology from memory chips to AI accelerators, outlining publicly for the first time, it's multi your plan to challenge in video's dominance in a growing market.
Yeah, Huawei's approach seen as a significant milestone in China's AI chipset industry, reflecting breakthroughs in system design and interconnect technologies, and it really signals a stronger push toward self reliance and resilience in the face of export restrictions. This again reporting all done by our team on the ground at Bloomberg News, but it's just you know, this is what
it's all about. It really we go back to I feel like when we talk so much about the war that's out there, it's not just geopolitical, it's really a tech war, right, and tech dominance, and you're seeing China making some moves. You and I talk about the EV space and how advanced China has really become in that world and dominating it feels like electric vehicles.
I think one thing that's important to keep in mind is where Huawei sits in the tech sphere in China and globally. It's actually China's most advanced chip designer. It's the strongest contender to build alternatives too in Vidia's industry leading AI hardware, and as you mentioned, Carol, it also is part of a bargaining chip when it comes to
trade negotiations between the US and China. And to that end, we did get news Thursday morning as well when we're recording this that the call between President Trump and Shijin Ping is set to happen at nine am on Friday.
So before we put this to bed.
Yeah, and what's interesting too, I want to just say from a market perspective, Chinese tech stocs have surged in past weeks, driven by a perception that the nation's industry leaders are making steady progress and developing homegrown AI and chips. So Ali, Baba by Do are among the companies that have secured important clients for their in house designs and others. But we've just seen kind of a big spend there.
For the latest, head on over to Bloomberg dot com and check out everything on the Bloomberg terminal. Still ahead on Bloomberg BusinessWeek. He's a trader who helped transform the way commercial property our finance.
And now he's launched a bid to become California's next governor. Ethan Penner is next. This is Bloomberg.
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The gubernatorial race in California definitely picking up momentum just a little bit more than a year away. We featured a few possible candidates on air, and our next guest launched his own bid to become California's next governor, Targeting voters disillusioned with Democratic rule but tim not ready to vote Republican.
Our next guest launch his bid to become California's next governor. He's here in the studio with us Ethan Penner. As we mentioned, he's twenty twenty six candidate for governor of California, also founder and managing partner of Mosaic Real Estate Investors.
Ethan Welcome. How are you.
I'm I'm very busy.
Well you're you're going to run for governor of California. Yeah, but you're in New York. Why are you in New York?
Hmmm, because you're.
Here talking to us. Well, why do you want to run?
Well?
I really didn't see anyone who was qualified to do the job raising their hand, and so I decided I would do it. I feel that we're in a desperate place. I think that California has been so grossly mismanaged for so long. All the statistics bear that out. The quality of life has deteriorated so amazingly over the last decade and even two, and it's time for somebody with the real qualifications to do this job to step up.
And that's what I decided I would do.
What would you do differently? What don't you like? What needs to be changed that you think would change the course of California? In what you would perceive as a good way.
There are a number of things, but the most obvious thing, the starter, is that we've repelled people. So we've been last in net migration for five consecutive years, which means people in the United States have preferred to live anywhere but California, which is shocking considering it's California, right gorgeous, And I think that we need to be more welcoming and inviting to businesses. We need to grow our economy.
Our economy is important for everyone. It's important to create opportunities for our young people, but it's also important so that we have the funds to make good on the retirement benefit promises that people are counting on.
So I would do.
The first thing I would do is change our tax policy.
Well, let's talk about this, because our understanding is you are releasing a tax plan that would turn California from one of the least friendly tax dates to one of the top five. So what details. That's a big broad statement. The devil's always in the details. So what's specific?
So the Tax Foundation ranks all fifty states by their tax policy. We're currently ranked forty ninth, and pro form on my policy would move us to third according to the Tax Foundation.
How do you do that?
How do you do that well? And what do you do specific because you also talked about needing revenues for things, so I'm just curious.
How you get Yeah, so it would be importantly, Carol. It will be a revenue neutral to revenue growth plan. So everyone else on everyone that talks about changing our tax plan talks about cutting taxes, and I understand kind of the intuitive appeal to some people, but of course that that really doesn't the math doesn't work. We need to actually pay for the things we need in California to support our society. So mine is a revenue neutral
that will ultimately be a revenue growth idea. It's about replacing income tax with a consumption tax.
Fun mentally, that's the plant, so explain the details there.
We will eliminate all state income tax, both corporate and personal. Wow, amazing. We will replace all state sales tax, including our horrible gasoline tax, and all of that will be replaced by a single fifteen percent consumption tax on goods and search.
But does California Okay, So you're coming at this from the angle where California has been a net loss when it comes to migration, Yes, do you want can California handle more people because the real estate price is there well in so many places and very desirable places to live are out of.
Controls a phenomenal question.
But the challenge is on a local level because you have all these people that say, yes, we want more affordable housing, but do not build that multi family house right here.
Our problem has really nothing to do with having too many people. It has to do with too few housing units. So the RAND Corporation published a paper last year that showed that it costs one hundred and ten thousand dollars more to build an apartment unit in the state of California than in the neighboring state of Arizona or most other states.
For regulatory reasons.
That's all driven by regulatory red tape. That's the second thing I would have to do is really streamline our regulatory approval processes. So the tax plan is stage one. Stage two is the mining of regulatory processes.
How do you think about it against a backdrop or climate change is certainly impacting California neighborhoods in a big way, and so the build back has also got to think about how do you make it safer.
So environmental greatness is really at the foundation of California. I mean, you're from California and you know this. I I take all of my vacations hiking in the nature of California. It's amazing, right, And so first trip to I'm a few months ago for Carol, it's incredible.
Gorgeous, everything exactly right, I really, and passing a massive wind farm to get there. So it's certainly embracing.
So I think that we we have to be as vigilant as we've ever been about protecting our natural beauty and our resources. But but we don't need nineteen different organizations that a developer of an apartment has to go through an approval process for. We need one, one very good one powered by AI with great responsiveness. Rather than five years, how about five days to get your feedback,
how about fifteen minutes to get your feedback. There's no reason that we can't use technology intelligently, and there's no reason we can't have both both the things. We can have environmental beauty and environmental soundness and make it easy for people to build the units that we actually need to drop costs and make living more affordable.
One of the thing you're talking about too, when it comes to housing, and tim see it. You know, we see it when we've been to Seattle. We live in New York City. Go any place where it's warm, the.
Heart its warm, and there's a high cost of living, high.
Cost, but the homeless populations and it's you know, I went to college here in New York many many years ago and it was a homeless problem. And here we are again in twenty twenty five and we haven't figured this out. What you are looking to build some communities from my understanding in rural areas for homeless people to live in, how would you fund that? How long do you would you expect it to take to get that done? How do you roll that all up?
So it gets back to the original question of bringing true competence, the required competence to lead the state at this moment. We need the skills that I bring to the table. We need an understanding of how to build things. We need an understanding and appreciation for how to have transparency. It's not that we don't have the money. We've spent twenty five billion dollars in the last state money in the last four years and all that's gotten us is
nothing but twenty five percent more homeless. So nothing's been solved. We have systems that don't work. We have a management system that's failing us. We don't know where the money is, there's no accountability, So how do you do this?
Then you're saying that with this consumption to actually have the money to do this, and how do you get how quickly can you get it built?
Well, so it's a combination of things.
One is, yes, the money is there, although we've squandered so much money ready, the money is there for this. Second of all, we have to use smart building. We don't have government. We need public private partnerships and my government will lean very heavily on private excells to work in tandem with public oversight to get things done fast.
And I think that.
Modular housing is definitely one of the answers. Yeah, but we have to combine competence, a commitment to safety, and a love for our fellow people. Right especially I'm proud to be in California. We care for our most vulnerable neighbors. That will never change, but we need to do it the right way. These people, unfortunately, with all the money we've spent still sleep on the pavement.
We're speaking with Ethan Penner, twenty twenty six, candidate for Governor of California and also the founder and managing partner of Mosaic Real Estate Investors, on the homelessness question. It obviously has to do with housing, it has to do.
With mental health.
There's no easy solution, as we've learned on the regulatory side of things. You said, for building housing, you want to streamline regulations, get rid of red tape. But how specifically do you do that? Because it's an easy thing to say. But as we're learning in the wake of the fires in Pacific palac aids and the waste removal going to New Calabasas and the landfill there, people are not happy about that, Like, how do you do this in a way that satisfies these constituents.
Well, I think it's top down, actually, So I think we have to set a standard from the from the Governor's office and Sacramento, and that standard has to be Look, if I get elected, it will be with a mandate for change.
Right.
I'm the consummate outsider. I don't belong to either of the main parties. I've never had a day in political office. So I'm running for a mandate for change with specific policies in mind, and I believe the people's will will be heard through me, and that will that will empower me to actually make change.
But you understand, I mean.
I do understand me.
I understand bureaucracy very well, have worked in big companies.
But I'm just thinking about Elon musk Doze even in the federal government, and yes, USA dismantled other offices or other built departments. But it's not easy to kind of you know, all of these regulatory checkpoints. I mean, how do you really do it when it gets down to it, how.
Do you do it?
In you know, I'll tell you two things. One, I am not willing to accept that it's hard or impossible to do. And I'm going to commit myself fully to doing that. And I know for sure, if people like you and I don't commit ourselves to positve change, the answer is one hundred percent bad. So I'm going to commit myself and I'm going to do as as good
a job as I can. Second, I really do believe that most people in government, in state government in California go into their jobs wanting to do the right thing for their people. I really do believe that, and I think that as a non partisan and a non career politician who's not trying to advance my career at all, I think I'm going to be very uniquely well received by the legislature because I won't be viewed as oppositional in any way.
We got to talk property taxes. Do you think something has to change with property taxes in California? And the context is that somebody like my parents, who've lived in the same house since the nineteen nineties, pay basically nothing in property taxes thanks to the passing of a certain proposition many years ago. But if somebody were to buy that house, like you know, the next family to own that house, the property taxes would be debilitating. And it makes it so people stay in homes for a very
long time and contributes to the housing crisis. Some critics say, you.
Know what, I don't believe that's true. Well, I don't accept that.
I think that I think that we our society, our community is served well by continuity, and I think that having people be forced out of their homes because of appreciation it detegrates our community. It denigrates the continuity of our community. So I would I would not try to change that policy. I think that's a wonderful policy.
Got to ask you, Aback, Governor Newsom, his feed with the President, the President's attention on California on many states, how we would you posture yourself toward President Trump?
Well, I think that.
Both parties are busy fighting with each other about the president pro or against the President, and I feel that it's a gigantic distraction from the incompetence that they've brought to the table in actually doing their job for the citizens of California. I will not be engaged in that distraction. For me, I'm laser focused on serving the needs of the people in California who would be electing.
Me, who I care for.
But what do you do, though, Ethan? If President Trump you do a policy and you are a social media post at seven am in the morning of something he doesn't like, and he says, maybe we're going to go down to California and talk to Governor Penner, Well, what do you do?
I think that every leader Carol has to approach their job with humility, and I don't see that as often as I would like, so Governor Penner would remember that Governor Penner is a servant for the people, and Governor Penner would understand that whatever he says or does he has to take in mind. Is this in the best interests of the people who he's serving and fighting with the President of the United States, It's not in the best interests of the people. Okay, this is definitely not.
So I would try to have a workable relationship with both the legislatives, the legislature that I would need to work with, but also the federal government, because, as you point out, that's a very important relationship. Whether it's this president or another president. It's not about my personality and the personality of another, which I think, unfortunately we see today becoming the story. I don't need to be the story.
My personality is not that important to me. My job as serving the needs of the people who elected me is the only thing I care about.
Well, stay in touch as this year progresses. I love to see how things are going. Ethan, thank you so much.
Thanks for having me.
Yeah, I really appreciate Ethan Penner twenty twenty six, candidate for Governor of California, Founder and managing director of mosaic real estate investors. We did not get to talk about the CMBs markets. May be next time around. Next time Ethan.
Thank you.
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Plenty ahead on our second hour of the weekend edition of Bloomberg Business Week, including how artificial intelligence is making the grade big time with the Dean of the ko Good School of Business.
Plus speaking of AI is AI helping or herding the language learning business at Babbel. The CEO joins us later on First Up this hour.
You might recall a story earlier this month from our Bloomberg News team. It was about Apollo Global Management being poised to launch a five billion dollar strategy to invest in sports deals, marking another major asset manager target the booming sector.
It's about long term lending of strategic capital with sports leagues and clubs. Apollo's strategy is set to specialize in lending long term strategic capital to sports leagues and clubs. It will also consider owning stakes and teams, though this wouldn't be a priority and may hire new staff. Our next guest, too, is investing in sports teams for his investors.
He is, indeed, Jeff Luno is CEO Blue Crow Sports Group. He's also former Houston Astros President of baseball Operations. He joined us from our Dallas News bureau alongside Bloomberg News Texas Bureau chief Julie fine Well.
You rightly pointed out there's a lot of interest in sports. A lot of American investors are investing in European football, etc. We started as a startup four years ago. We wanted to pick our niche. Our niche is to find own and operate clubs in desirable locations that have big growth opportunities. So we invested in KANKUNFC and Mexico Glub Deportivo GOSS in the suburbs of Madrid and luav in the Normandy area of France. And those are the three teams, one
in first division and two in second division. And the key for us is to operate those clubs well and allow them to make money and to win games.
Jeff, you talk about the key is to operate them well and to win money in games but really, what's the long term plan? Are you looking at other sports? Do you want to stay in the in the soccer world, what's next?
Well, we've got a lot of work to do in football. We want Leganes to get back to first Division. We want LUOV to establish itself in second Division, and now that promotion relegation is coming back to Mexico, we'd like KANCUNFC to get into LEGAMX. So I think our to do list for the next five years is pretty busy and pretty filled, but I think over time we will certainly look at other sports, where right now our focus is football.
I want to talk a little bit. You were with the Houston Astros. You were fired after a baseball scandal. You have denied any wrongdoing, but you are going now and asking people for money. Has there been any issue when it comes to.
Trust now, Not at all.
In fact, many of the investors in Blue Crow are people that were either investors in the Astros or knew me from that time. If anything, it's been an advantage because people knew of what happened with the Astros after we got involved in getting the World Series in twenty seventeen and reaching it in twenty nineteen, and you know,
making money for the club and its investors. So we have a very diverse group of investors, people from private equity, entrepreneurs, technologists, et cetera, and they're all very bullish on what we're building.
Does it ever come up though? I am curious, Jeff, Like I know, we all have our past and histories, and I just think, you know, sometimes when it comes to money, people do at least be like, well, just let me just talk to you a little bit about this before maybe I think about investing.
Well, I think a lot of people want to know about my time in baseball and what we did and how it relates to football.
It's never come up as a negative.
I was telling Julie earlier that in Europe, base is not a very big sport, so people don't even know who the astros are or who josel To is, so they really just care about whether we're going to win on Sunday and whether we're going to get three points or one.
Hey. One thing I want to ask you too, though, Jeff, when it comes to owning a team, is it a buy and hold strategy or because you have investors, is it buy hold, build up and then sell for a premium so that there are returns to your investors. I'm just curious.
That's a great question.
And the way to make money and football, as you noticed, is you can either hold and sell for more than you bought, but you usually have to cover losses in the meantime. But we're trying to run these clubs to win and grow revenue and eventually be profitable so that we can potentially return some money to our investors as we go along. We're not looking to buy and flip.
A lot of the things that we do in our clubs require three or four years, five years for them to start working, and that's why for us, we're talking about more long term holds.
Talking about long term and working.
We talked earlier about technology and analytics.
What role is AI playing in.
All of that.
Well, the world of football has lagged baseball and basketball and other major sports in terms of the use of analytics and technology, but that's changing. And part of the reason it's changing is in football, you have eleven v eleven, so there's a ton of data, and there's a ton of games all over the world, and it's hard to analyze that with just a few data scientists, So AI allows you to analyze a much much larger volume of
data and to generate insights from it. So I think it's going to be increasingly important in our world.
Jeff, we talk a lot here in the US about ballooning sports team valuations. I mean, you're certainly familiar with this. We just had the deal news about the New York Giants, for example, with American football, and I'm curious if you think the growth here in the US will start to slow down and the real opportunity for valuations to grow as they did here in the US in the last two decades. That opportunity is outside of the US now.
I think that, well, first of all, I've always been skeptical about valuations of major US sports, but I've always been wrong. I've been saying that things are overvalued for the last thirty years, and they keep selling for more and more down the road. So I'm not good at predicting that. I do think that buyer beware on European football because there is relegation and promotion and you have to do things well in order to increase value, and there's a lot of investors that are losing money in
this sector as well. So we're hoping to be one of the winners, but we're being very cautious about what we invest in and how.
We do it.
What makes you skeptical about US team valuations? It's a supply and demand question, right Is it more complicated than that?
Well, I think that generally the revenue is driven from TV contracts for most of the sports, and I just can't see those continuing to grow at the rate that
they've grown. But I know it's happened, so, like I said, I'm not a good predict sure of that, but I think ultimately everybody's going to want to consume sports on their mobile or on their you know, their handheld, and that that changes the dynamic a little bit, and some of these bigger contracts, you know, may not get renewed at the increases that have happened in the past.
This is going to be a very big time for football coming up with the World Cup. We have here in Dallas, we have the most matches. Houston, your hometown has a lot of matches as well. What do you think this attention on the sport in the United States will do for it overall?
I think it's going to be great for all of North America, Mexico, United States, and Canada. I'm very bullish on North American football. I have been since the beginning when we invested in Cancun. And you know, I lived through the ninety four World Cup and everybody who's expecting football to suddenly become one of the big four sports. I think it has grown, but I think it's poised
to continue to grow. It's never going to beat NFL, it's never going to beat MLB or NBA, but I think it can continue to grow its fan base and I think it can continue to produce good results.
You know you are now in soccer, you came from baseball. I want to know what your future is. Well, like I said, we're just at the beginning. We've been doing this for four years. We've got a lot on our to do list. I'm going to be focused on building Blue Crow for the foreseeable future.
Is there an investor that you would love to have with you for the ride? Is there a team that you would love to go after? And I know who's going to talk, right because you don't want to kick up the valuation, But I am just curious because and anything you can share on your investors or who else you'd like to have with you.
Well, we have a great cap table. We've got some people that have in the NBA, in the NFL and MLB, etc. I don't like to disclose who they are because that's their business. But we're well funded. All of our investors have offered to put more money in if they need to. So really, at this point, I think we have an all star cap table. We've got a plan and now it's just a matter of going out and continue execute.
Jeff twenty seconds. Women's sports. How does that play into it? It's kind of popular. I don't know if you've heard that really quickly.
It is, and there's a lot of money going into women's sports. We have a female team in Spain. We're looking at the sector very closely and trying to figure out what our strategy is. But it's growing in the US a lot, and it's growing in Europe quite a lot, and I think it's going to continue to grow.
All right, Well, you're always welcome to come back and share some more, Jeff, thank you so much. Jeff Leno, CEO Blue Crow Sports Group, along with our Bloomberg News Texas Bureau Chief Julie Fine. This is Bloomberg Business Weekdaily.
This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and the Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa played Bloomberg eleven thirty.
All right, So we've talked a bit about the resistance to artificial intelligence and classrooms here on Business Week, with some educators raising concerns on how to effectively integrate AI into their teaching practices, students overly relying on AI for homework, and of course the effect that AI is going to have on the labor market. There's a lot of play here. Tim, our next.
Guest, is looking to infuse more AI across the classroom by helping students collaborate with the technology. David Marchik is dean of the co God School of Business at American University. He also served in different capacities in the Biden and Clinton administrations, as well as spending a dozen years at the private equity giant Carlisle Group.
So I'm not a techie person, but we had the president of Google, Kent Walker, who basically said that AI was going to be as profound as fire or electricity. And I said, well, that seems like a strong statement, but even if it's zero point one percent true, it's big. Then we had a fellow named Brett Wilson, who's a CEO of an AI venture capital firm, and a student raised his hand and said, am I going to be
replaced by AI? And Brett said, you likely won't be replaced by AI, but you could be replaced by someone who knows AI if you don't. So at that moment, I said, we need to infuse AI into everything we do to prepare our students for an AI workforce. And we've done that over the last three years.
So what does that actually look like in the classroom.
So when you start at co God School of Business, if you're an eighteen year old, the first day is you do you undergrad, undergrad and grad. The first day of orientation, we tell you you're going to use AI every day. Most students were prohibited from using AI in high school, but they did it anyway. So we want
to teach students how to use it properly. We actually start by teaching what's wrong with AI before we teach them what's right with AI, and then over the four years or if you're getting an MBA, we want them to learn how to underwrite an investment, how to do fundamental research, how to develop a marketing plan, how to learn to negotiate, all using AI because they'll be expected to use AI in the workforce.
That's what we keep hearing increasingly is the people who know and understand how to use it as a tool will really do well going forward. Okay, so talk to us little bit more though about because I think one of the things that we're playing around with David is that we use it too and then it's like okay, but then we kind of check it out because we
just don't totally trust all of it. So tell us how you guys teach that aspect of it, like what to trust, what not to how do you fact check some of this information that comes across Still, so we.
Have a professor Ed Walsall who teaches advanced Data Management data analytics. His whole class is used to show how AI comes up with wrong answers in correct information. So he has students analyze data sets come up with predictive analytics, and he shows that AI makes mistakes all the time. That's as valuable as learning what's right with AI. So AI can be a powerful tool, but you need to
be skeptical. You need to test it, you need to probe, and you need to be able to shape it to produce the right answers.
You know, I want to talk about your background a little bit and then talk more about AI and perhaps why you approach it this way. You have a really interesting background a lawyer. You served in the Clinton and Biden administrations in very different capacities. You did more than a dozen years as a managing director and member of the management committee at Carlisle. You've written a book, a
co author to book on presidential transition transitions. You don't have the traditional background of a dean, like traditional academic background of a dean.
I also had poor grades and was not the best student.
That wasn't in the bio that I read. But I'm glad you're bringing us that color. How does that perhaps make you think differently about the workforce and what they need to be prepared to do once they leave the academic world.
So I had the best boss ever who actually hosts a show at Bloomberg David Rubinstein. David also was probably the least likely person to run an equity firm, he had no private equity background. What I learned from David is surround yourself with people that are better and smarter than you in each of their areas and empower them and you can do anything. So what we're basically focused on is ensuring that our students are prepared for the
AI workforce, the AI economy, which is changing rapidly. Stanford just put out a study that shows that AI exposed jobs for twenty two to twenty five year olds are shrinking between thirteen and twenty percent.
It's terrifying.
It's a very hard time. My daughter graduated last year. It was very hard for her to get a job. We see it every day, and so what we're trying to do is make sure that our students have a leg up when they apply for jobs, which means you need to have the fundamentals of a business education marketing, accounting, management, finance, et cetera, plus know how to use AI and everything you do. And we're also doubling down on what used to be considered soft skilled communication teamwork, the ability to
think on your feet. Those skills are more important today than in an AI economy. Look at your jobs. You have to think on your feet every day, react to.
News from times.
It works, sometimes it doesn't, But.
Having an entrepreneur mindset and being able to think and create is essential for today's economy.
How do you, as an educator but also somebody from the business world think about how important it is? Though? When somebody their first couple of jobs or their first job at they're learning so much. The learning curve is so much, but it teaches their brain to think in maybe different ways that they maybe didn't get when they
were at university or at college. And so I'm just wondering, like, are we cutting that out of younger generations, that ability to mess up learn I learned so much from mistakes I made in kind of my first couple of jobs, and I'm just wondering, are we getting rid of that?
So I think we are getting rid of at and ways because AI will replace some jobs. In my view, is incumbent on universities and educational institutions to be able to foresee that and to give students the skills that you may have learned in your first job. We're trying to give them those skills at the university through in classroom and out of classroom experiences. So we have a lot of competitions for students to learn how to pitch,
where they have to answer questions on their feet. We have investment clubs where students are investing actual money and they need to present and defend and investment ideas. The ability to give a pitch, to communicate orally, to work in teams is as important as ever.
How do you have to think about the admissions process differently as a result of what happens now or what you want to have happen in a school right now.
Traditionally, and maybe this is why I wasn't a great student, a teacher stands in front of a classroom and communicates, disseminates information, which is student absorbs, and then the student is assessed on how good they are by how much they can retain and regurgitate AI replaces all that. You can get any piece of information on your fingertips. So now the best students are going to be ones that
are most curious, that have an entrepreneurial mindset. They're going to be able to take risk they're going to be able to figure out stuff on their own, and so we're looking for that in the admissions process.
You know, it's funny, Karl and I talked about this a lot because one of the things that we found these lllms are so good at is if you prompt it properly, it can essentially write you a paper to answer question and that a teacher. I mean, I'm not giving anyone any news here that they don't already know who.
Students starre way ahead of us.
You are ahead of us here.
I mean for me, as somebody who graduated from what like twenty ish years ago, this is like kind of crazy. But I think back to my own experience in college. I went to a liberal arts school, and some of those aha moments that occurred for me were like late at night when I was trying to write a term paper or trying to write some sort of analysis of a book I read, And those are the moments that stuck with me. Those are the moments where I learned
how to make those connections. Do we lose the ability to make those connections because of this technology.
I don't think so. I think it actually aids you. So you were probably a better student than I was. But when I was writing an essay, I had a hard time figuring out topic sentences, structuring an essay, structuring an argument. AI can help you do that. It's a collaborator, and so those aha moments are still there, they're just different. Also, the ability to work in teams is going to be much more important today than it was when we were
growing up. And I have students come to me all the time and say, boy, this team work is hard. This one student is a show off, this one doesn't do their work, this one has views that I can't understand, and they don't change. And I'm like, welcome to the real world. I have that every day in my job, and I've had it every day in my job for
the last forty years. So teaching students not only the fundamental basic skills that you learn reading right now, reasoning, plus AI skills and these soft skills which I call power skills, that's the future of education in my view.
But are we also losing though, the ability of people kind of struggling David through something and like maybe having to work a little bit hard and understanding the idea that Okay, maybe spend a little bit more time with it, dig a little bit deeper, I don't know, look at some different sources and like figure something out versus going like I'm blown away by some of the stuff that you get off of chat, GPT and other chatbots, if you will, And I'm just kind of wondering, are we losing something?
Maybe they're still struggling. But let's say I were a twenty two year old and I wanted to be your research assistant. You would expect me to be able to find any piece of information at my fingertips any day and deliver it to you. You'd expect me to have much more advanced skills today than if I were applying twenty years ago or in my case, forty years ago. So it's just a different type of struggle, and the students today need to learn how to do the stuff that's required in an AI economy.
Can I ask you about teachers how they've had to rethink how they teach, because that's something you guys have had to deal with as well.
That is a great question. Faculty traditionally are very resistant to change. We have faculty that have taught the same thing over and over again for we've actually created a very arentrepreneural culture among our faculty, where we started with a few early adopters, then we had some others that we dragged along. Today, ninety percent of our faculty are infusing AI and in their classroom. At the end of
the spring semester it was fifty. So over the summer there was just a cultural change where everybody said, the parades leaving, either need to get in front of it or I'm going to be left behind.
So what do you think David is constructive for we as communicators and having guests and we're talking about A I feel like every conversation somehow, you know, all roads lead back to AI.
Are you trying to get him to give us advice about how we AI prove our no no, because I would be open to that too.
Just thinking about the smart way to deal with it, because I think it's really easy to get caught up in the exuberance around it. There's so much spending that's going on and we're trying to Like we even today did kind of a reality check about where we are in AI.
Like it's kind of a wild world where we're talking about two hundred million dollar salaries for people who are poached and brought to metaplatforms for specific technology, just trying.
To understand what do you think is constructive based on kind of the experience you have had reorienting your approaches there.
So I think what we're seeing is a technology revolution in a much more abbreviated version than we've seen it before. It's the fastest technology ever to be adopted. So chat GPT has acquired the same number of users. They you know, five times as fast as Netflix or Amazon, twenty times as fast as Facebook. So when the mobile revolution took place, which we all live through, it took thirty years for us to really use the phone for everything. AI is changing that in a matter of months. So I do
think this is a transformational change that we're seeing. It's going to change everything in the economy faster than any technology change that ever has happened to.
Do you think we know if yet it's good for the economy.
I don't think we know. I think there's big pluses and I think there's big minuses. My view is that there will be winners and losers, and my focus is taking care of the students that are at my school to help them prepare well.
Let's talk a little bit about the outcomes that you've seen thus far. You're really still early into this experiment. Three years ago, as Carol mentioned, was when you set out to become the first AI first business school in the country. What can you tell us about graduates who are finding full time employment on the undergrad side, then also on the MBA side.
It's helping them. It's helping them have a leg up in me or be more competitive. One of the things I'm most excited about this year is we're offering an AI minor to non business schools. So let's say you're a student that wants to go to med school. You've done what traditionally as student does, taking a biodegree, you have some labs, you're applying to med school. If you have an AI minor, you're going to be much more attractive because AI is going to transform healthcare more than
perhaps any other field. If you want to be a policy major and go work for a United States senator, and that senator the chief of staff says, Okay, you're a policy major from a good school and you have an AI minor, I know you're going to be able to do research for me for any hearing for any questions for anything, I need to know much faster, and you're going to be able to analyze data much better than others. So I think it's a huge leg up for both business students and non business students.
Do you ever envision a class where it's just someone talking to you like chat, GPT or whatever version might ultimately come out, like you just think about the We always talk about a great conversation, how much we can learn if you need to ask the right questions. But I think about that back and forth.
I think duelingo CEO has said that AI could replace teachers.
AI could disintermediate the whole education system. Okay, and we're experimenting. I'll give you an example. We have a professor named Tommy White. He runs our entrepreneurship program. He's incredible, one of those popular professors. He created a class this year using all AI to create the class. It has no books, no reading. The only assignments are prompts prompts plus teamwork. We'll see how it goes.
Will it work?
I don't know, but we're trying so maybe so maybe. I mean, we're experimenting, and that's one of the things that we've done to create this AI first culture is We've told our faculty it's okay to fail because nobody really knows what's going on or what we're doing because it's so new. So try something. It doesn't work, try something else, really interesting stuff.
Hopefully you'll find some time to come back to us in case with lot of conversation. Love love. Maybe we talked to some students at some point.
That'd be great. We have some incredible students.
Yeah, I think that would be a lot of fun.
Get on the road.
I'm happy to do that.
Come to teach a class.
Try that good stuff. Thank you, David. Thanks really appreciate David Marcheck. He is the dean of the co God School of Business at American University. Really fascinating conversation. If you've missed any of it, but please be sure to check out our podcast. You can download it whether they are.
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
All Right, so, earlier we talked about AI's role as a tool in academia and how it can help students better prepare for the future of work. On the other hand, certain AI tools can be seen as a real competitive threat to companies in the language learning space.
Apple unveiled its new AirPods three with a live translation feature, giving us a glimpse into a future where global communication might be seamless. What does that mean though, for the way we actually learn languages and how does AI fit into that picture.
So to help us answer some of those questions, we were joined by the CEO of Babbel, Tim Allen.
You know, language learning is the oldest software known demand, so it's not going anywhere. What I love about what Apple and Google have done is it actually generates more interest in the space. So what we find interesting, especially on our product Babble, is when users or learners go to take a trip or go into a foreign country, they actually come back and they're more interested in learning
the language. So we see all of this as a tailwind because we think that ultimately, you know, I think the technology is really cool as well, Right, it's so interesting put in AirPods you can go from one to the other. But what people will then do is adopt and go Oh, I really want to get into the language. I really want to belong to the language.
That's happening right now because it's volume. Well, so Tim, I get that that's happening right now because that technology isn't widespread. But I can just imagine in a few years, you know, we won't even need maybe we won't even need another device.
We'll have it.
It'll be a wearable and then it'll be even more seamless. Do you see that continuing to drive demandin.
What's interesting about that is, like I think, short of a neural implant, people are going to always be learning languages, right, so that in a universal language, those are the two things that could disrupt the market. So what will end up happening is that the iPhone when it came out, everyone declared the death of language learning, right because you could hold up your phone you could do the same translation that the AirPods are offered today. Even a wearable
can do it. The difference is that people actually want to live and breathe inside of the language. In fact, we just launched a part of our new technology that explores AI that brings both the pedagogy and the human learning aspect of it together with AI called babble Speak, and what that does. It allows people to actually practice the language of learning with with an AI coach, an AI tuner, So there's pre defined conversations you can practice with.
It does small corrections, but we see this as a compliment. We see this as a way for people to actually learn and accelerate the transmission of the language. I think the new technies are really going to allow for dabbling inside of the language. It's going to be great on the go, it's going to be great for those one time use cases, but people will always want to learn and live inside of a language themselves.
How do you do them? More generally? Tim kind of the landscape of learning apps With the introduction of GPT five, we saw the team create a custom language learning app in minutes during the demos. I mean, it's kind of amazing how quickly all this is happening and how quickly you can do things. Do you view AI products like this is a real competitive threat and what can you do to keep your user base and sustain growth?
Yeah?
I watched the same demonstration. It was a cool friendship that they had created. It has limitation.
Is it cool?
Are you like, oh, my god, this is going to be what was difficult for us?
It was cool. No, definitely not in Oh my god. It was a cool because it was created so quickly. And what I think is so cool about it is people are starting to learn on demand. What the difference is though, is I think that people will want want pedagogy, they'll want lessons, they'll want content. They'll want to be able to actually know that they're getting a trusted guide through the language learning process. Large language models, as you know,
are good at many things. They're good everywhere. They've been declaring for now almost two years that they're going to take away all of the jobs and just really disrupt all the markets. But I think what ends up happening is when you start to get into really narrow spaces such as language learning, people want to know that they have a real lesson plan, that they have really the transmission of the language in a way that's going to adapt to them. And that's what we think AI is
going to empower. Inside of babble, we think it's really going to allow for the personalization of your individual learning plan, but with the content, the pedagogy, the transmission, so you retain you're able to speak it, you feel fluent and you actually feel comfortable with it. So I think from a build perspective, it's really interesting. We look at it as a tool to really help facilitate and go to
market a lot faster. I think for a transmission and a trusted content, it'll actually end up being niche markets with real players such as ourselves.
All Right, So the truth I'll probably be in usage or the stickiness. And I'm assuming then you're signing up more and more people. You're very enthusiastic amid all of this potential competition. So give us an idea of customers, usership, people sticking to the platform. Give us some metrics.
We're growing, we're going on, we have large demand. In fact, September is one of our larger months. Just give it back to school and back to office after the summertime that in New Year's as you can tell, the New Year's resolutions tend to be really heavy periods for us. What I can say is we have millions of subscribing customers. We're signing up thousands every single day. Demand has not waned on this side of the equation. We're really excited
about the future. I actually get more excited about more of the players showing interest and actually saying, hey, look, this is cool. Understand a language. Play with a language. But when you want to go really learn a language, go to the providers you trust to.
TAMU say millions, it'd be great if you get one millions, a lot different than ten million or twenty million. So just give us an idea if you could. And how much is corporate versus kind of individual and what are folks paying for a subscription and how long do they stay with you?
Yeah?
No, probably have over two thousand business clients B to B clients. So I can tell you that we just signed Inner Miami Football Club. They're using it for their players, their coaches, their teams in order to teach them the languages and what they need to be. We've created custom content for them as well, which gets really exciting. But
I can tell you it's millions of consumer customers. And I can tell you it's more than one million, and it's more than two million, and it's more than three million, So it goes on up from there.
Yeah. So, and what do people pay corporate versus individuals?
Yeah?
Yeah, So on individuals, there's a variety of packages. As you can imagine, there's a variety of price points. We have a lifetime price point that we can that users can subscribe for a life and they get all of the features and all of the things that we actually upsell to and then you know, there's monthly plans. It is the normal subscription model for what users want from any moment of time.
All right, but give me an idea. So Tim wants to learn what language, Spanish? Spanish?
Practice my Spanish better.
He just wants to kind of learn Spanish, So give us an idea. So he signs up, and what would he be paying, like on a monthly basis or if you wanted the lifetime yes, yeah.
Yeah, So if Tim you came to the site and signed up and downloaded the app, you could pay one hundred and ninety nine for the lifetime and then there's also disicates available, as all good subscription sites have. But then there's the monthly fee of twenty nine ninety nine that you could be paying as well.
So okay, so why could do one n nine for life?
Yeah, that's a lot less expensive than competitors such as du Lingo, which is you know that plus sum I think per year so no catch.
Come on, no catch, So Tim signs up. I mean, and that's provided you stick around. No, I'm not trying to say, but right like you got to be around, right.
Yeah.
Look, with any language learning, there has to be a real commitment to it and you have to actually practice and utilize it.
Right.
But we see the life happens right the families.
You know, I have kids.
I'm learning German right now, right, I've moved to Berlin for the job. I knew very little German altogether. But what I could tell you is I have life about the kids of school. The kids have activities. I will pick up, I will put down. I will pick up and put down.
But the one nine nights at life, okay, interesting. We I'm curious about do a lingo in the competition that you see there. I'm wondering if you've considered moving outside of languages. We use dual linguo at home, but more so for chess and reading with our kids.
I don't know if it works, but it's great.
The six year old has fun than we do for Spanish right now.
Yeah, you hit the core market there, which is the games are great and the great learning transmission, especially for the younger audiences right now. Our specialty is language learning, where we're we really focus on that. We focus on the transmission of language learning. We want to make sure that you have the most effective means in order to go from a zero to one conversation. And the way we look at that is you feel confident walking into a room and being able to know that you're speaking
the language in which you're looking to speak. So we focus all of our our linguistics, all of our teachers, all of the human centric pieces, and then we actually use AI as the tool to facilitate that in order to help make that happen faster. So that Will Speak is a good example of that, where we continue to allow you to practice speaking, continue to allow you the conversations. But we're hyper focused there. We really think that the
games are going to lead to other people. We're focused on the languages you are.
Okay, So that's a note like moving outside of languages.
Okay, Yeah, languages are sweet spot.
When it comes to the AI spend and something we talk about a lot, right, I'm curious about what you guys are spending. What are you spending it on? Is it on engineering? Talent? Is a data centers, is it content, is it something else?
Yeah, we've been cashful positives since twenty eleven. It's a private company, so we're not out there raising capital. We are well funded. We're doing very well. Where we reinvest on our capex is. We look for engineers, we're looking on AI talent, We're looking at the infrastructure. We're investing in what's going to actually transmit and actually forward the future.
We actually think that this is an exciting time to be really looking looking at product features with our proprietary data set and our proprietary motes that we have inside of our ecosystem. You know, we have hundreds of millions of lessons completed a year. That's very rich data to be taking into proprietary llms and data models and really working inside of the AI to work towards the most effective products in terms of transmitting the language.
Are you at this point able to use AI to create language courses? Are you able to use AI to do what humans used to do in recent years?
We actually married the two. You know, where the real sweet spot was is not in removing people from creating the languages. It's a facilitating the people to create the languages.
So we do.
Just answer your question directly, we do use AI, but we use it with the human centric piece. We've always found that our linguists and are also our teachers are the best to formulate all of the content so it can transmit better than anyone else and more effective. And so what we find is we marry the human with the AI tools, so we're using the blend of both roles. We haven't replaced jobs in order just to replace jobs.
All right, I got one really really important last question for you, Tim, how's the German going? Sure, how's the German going?
You know, I'm beschinspec and de Deutsch so babel every day very little, but I'm learning very slowly.
So okay, maybe next time he's on we do the interview in German, we get Matt Miller in here.
Oh I'm on, I'm game.
Matt would definitely do that really really well. All right, Tim, thanks so much. Fun to talk with you and get some time and hear what you guys are doing, especially when it comes to AI to incorporated and get in Tim allan, chief executive officer of Babbel, joining us from Berlin, Germany.
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Mm hmm