This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Just looking at our most read on the Bloomberg We are doing a daily update, if you will, on the Israel Hamas conflict.
That's always at the top of the most read it always.
Is, right and Israel's defense minister telling the US to brace for a quote long war against Hamas. A Secretary of State Anthony Blinken returned to Israel for further talks amid a global push to prevent the conflict from spreading. President Joe Biden is also considering a visit. So we keep hearing all of this from our news team as well, but that seems to be among the latest.
I think it's really notable what Mike Reagan said a few moments ago about all of the diplomacy going on behind the scenes, and you know, not just behind the scenes, but in front of everyone right now with Lincoln back there trying to prevent this from spreading into something bigger.
All right, so let's talk about that, because that's something Tim and I have talked about a lot since this conflict broke out with US, and so appreciative. Back with US. Major General Maston Robinson Geopolitical Intelligence Robson excuse me, Geopolitical Intelligence Advisor to the Academy Securities Advisory Board. He's on Zoom from Greenville, South Carolina. The general served about thirty four years on active duty in the US Marine Corps.
He served in more than sixty countries and that includes Liberia, Desert Storm, Iraq, Afghanistan, and he did command at every operational level in the Marine Corps. Major General, thank you so much for being with us. How does what comes next determine so much longer term here?
Thanks Carol, Tim, great to be with you. Without a doubt, there's got to be an assault. Without a doubt, Israel is going to go out to Moss with every antenna of destroying them. That's not going to be easy because although they have a pretty good intelligence space, what it's in as where the tunnels are, where the buildings are, Getting that thing without significantly later or damage is going
to be really brutal. I think what we're going to see is they are trying right now their best to set up their options, make sure that they have as many partners and as much latitude as they can. But the end of the day, this part would be how much lows the home bown, how much Iran or hes will to come in to help them.
Well, talk to us about what you believe is happening behind the scenes right now from a diplomatic standpoint, because it seems like the US is doing everything it can to prevent this conflict from spiraling out of control.
I think the US is doing anything they can to ensure I don't think US has any illusions the conflict isn't going to happen, So what they're trying to do is mitigate side effects. And whether it spins right or less, how does this influence our opportunity or our relationship with Russia,
with Turkey, how Middle East relationship? Or does Saudi standard disk Is Egypt willing to come on board with the Abraham Cords and be supportive, or does the Brotherhood start to influence to take a little more empathetic position towards a monsk So there's certainly a lot of dynamics here that we're trying to shore those up. Nobody knows what theis, what Elebanon's will to do, what Ron's going to do, what Egypt's going to do, But we do know what
Israel some do. So it's how do we shore up the unknowns, how to create as stability as possible while you still can general shooting starts. It's really hard to negotiate the.
Thing though, I mean, does does Israel have a choice to not attack?
Not?
Really?
No?
And why?
I mean I understand, I understand in terms of the severity of what has happened, but why do they not? For those who might be asking that question.
I think if you consider that AMOSC was established in nineteen eighty seven and grew out of you know, that last rebellion it was unsuccessful. They've been in control of gods since two thousand and seven, whether that was by Forrester or by democratic process, it arcroized and empowered them. And the fact that they have taken fifty percent of the ground force of their trained goddist and put them
into the fight. They've never shot through five hundred rocks in a single day before, and without a doubt, planning for this had to have had some outside influence. We just can't confirm yet exactly who that was. If this doesn't take a step here, Moss will see this as a sign of weakness, and all it will do is embolden them to do more. There's no way Hamas steps back from this at this point.
Unfortunately, we've seen many civilians on the Israel Israeli side as well as in Gaza killed already. Major General, how does how do we prevent more deaths? How does Israel? What does Israel need to do to prevent more deaths?
I guess we'll try to be as surgical as they possibly can be, but it can be.
That's hard in Gaza, where it's, you know, one of the most densely populated places in the world.
It is, it's particularly hard when you don't have bunker busting bombs, which which you know they're hoping we're going to give them. That's that's a deep dive down to a whole lot of suments to be able to get to it.
You know, when you said that Israel, excuse me, Hamas had to have had some kind of outside assistance. Do you not yet rule out that Iran had a role in this, even though intelligence so far I believe even heard that from the President. I think on sixty minutes last night that so far that there's no signs that Iran has had a hand in assisting Hamas. Do you think the jury's still out on that?
Yes, enough, I think for diplomatic reasons, the President being
very wise not to make the accusations becamet proved. But I think anybody sitting on the sidelines with any kind of history in this absolutely sees Iron's fingerprints on this, and that they are all over the money they've been flowing into Hamas for the last five years, and you consider nothing's really happened five to seven years, that really is the time that Hamas longed Israel to sleep, thinking maybe they are legitimately going to put more instance on
their political influence than on their rebellions and on their desire to destroy Israel. Well, that proved to be untrue, and it was as addition, Will fell into that's the reason that they can't afford with this kind of build up. Jesus, let it go.
What do you think when when the world does understand forces that perhaps help Tomas, what should the reaction be Because we've seen war prolonged war in the region before, and it never ends.
Well, it will be divisive. I think that those who believe that what Amasu did was unconsistable will side with Israel, and those who believe that the state of the Palestinian nation is it's also reprehensible what what they have suffered through support them. So there'll be a division, without a doubt. The question is where does Saudi land, Where's Egypt land? Where does land? Where does Ue land? In that debate, if they are willing to go wait a minute, this
is the Jie Hottest type movement. This is not the Palestinian people. And we're going to in essence either stay neutral or to give at least tastily support to the Abraham Accords theory. Then I think that's a little different set of circumstances. And if everybody unifies behind Hamas, I don't really see Saudi in Egypt rallying behind Hamas in this. Keep in mind Sally his parents. Saudi is as paranoid
and afraid of Iran as anybody else is. So the last thing that I see them doing is creating some kind of partnership with the Ran.
Long term, do you ultimately see a ceasefire at some point in the near future. And I'm just curious if you think about this in terms if you have a specific time frame where you think Israel does what Israel has to do, and then things calm down and then people try to figure out the way forward.
Yeah.
There. We generally think of decision cycles in this. Is it effects based or time based. This is definitely an effects based decision cycle where Israel will say I'm only going to pause and I think that I've had the initial effects that I want to have, You'll have to do it time.
Well.
We always so appreciate your insight and your time. Once again, so thank you so much for joining US. Major General Maston Robison. Robinson excuse me, Geopolitical Intelligence advisor to the Academy Securities Advisory Board, understands battles, having served over thirty
four years active duty in the US Marine Corps. But you know, I was struck by something that our Lisa Bayer writes Tim, and she says, quote, the struggle between Arabs and Jews of our ownership of the Holy Land dates back more than a century and has given rise to seven major wars. Of course, the latest broke out October seventh, which is what we are talking about now. So my question is how do we get this struggle to stop ultimately?
I mean, this has been a defining characteristic of the Middle East during our lifetimes. And the sad part is is I don't see how it ends anytime soon.
Yeah, and we appreciate though the Major General wing, and we're gonna have another voice with an interesting and unique perspective a little bit later on on this conflict.
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Hey, we have talked earlier about the latest on the Israeli Halmus conflict and really the way forward, trying to figure it out and kind of what happens next and how much wider maybe it expands. We have another voice on this, tim who comes in comes at it from a few different angles.
Yeah, very please to have with us this afternoon. Lee or Susan a former special forces agent for the Israeli military, also the founder and managing partner of Eclipse Ventures. It's a VC firm that invests in as they know it on their website quote entrepreneurs rebuilding the world's physical industries. Leo joins us this afternoon on Zoom from Palo Alto, California. Lee,
are good to have you with us this afternoon. Just give us your view over the last week as somebody who served as a special forces agent in the Israeli military and how you're watching what's going on in Israel and Gaza.
Thank you, folks, thanks for having me and first of all, sending my prayers to all of the families that lost the lot of ones on both sides. I was started by saying people are talking about the Israeli Palestine and conflict, they must zoom out. This is not an Israeli Palestinian conflict. We are talking about the Western world fighting against it all.
It's not a coincident that the Hamas opened that terrible terror attacks on Israel exactly ten days ago when the Saudis was ready to sign historical peace process with Israel that will change the Middle East. Look what opening in the Middle list with the golf countries, with Ue, with Egypt, with Jordan. There is a prosperity, there is a new way of living next to each other's focusing on building companies,
focusing on innovation, focusing on technology. The reason that this war start is someone is feeling uncomfortable having peace in the Middle List and it's connect to China, and it's connect to Russia, and of course it's connect to Iran.
So it's complicated. As we talked earlier with someone who fought for the US Marine Corps, has done several duties at a very very high level. It's complicated because there are so many moving parts. If you will ultimately, do you see a way forward that though ultimately where I don't want to say capitalism, but a better economic way for more actually wins out.
There or any other way around. Israel is not going anywhere. On the Palestinian is not going anywhere. We must find a way to live in peace next to each other, and there is zero chance that that's will happening. While a radical toe organizations like comas controlling Gaza because they say actually on their foundation that their mission in the world is to wipe Jews and israel Is from the map. That's the only thing they believe. In death, you cannot
do business with people that wants you to die. But from a fundamental point of view, I love the Palestinians and have a lot of Palestinians friends, and we want to live next to each other in peace, focusing on building the next technology that will kill cancer. As someone that served and so the pain of war, there is nobody more incentive than I to go and fight against those tail organizations to make sure that we can go and focusing on prosperity rather than fight.
I think you served in the special forces for the Israeli military. We see many many people going back to Israel to serve once again, as hundreds of thousands have been called up. Have you been called up? Are you going back?
Unfortunately, I don't have the clearance that it's required anymore to serve for my country because I live in the
United States for more than a decade. All of my friends wants me to be here right now to focusing and explaining the world that this is not a word between the Israeli and the Palestinian This is a war between democracy and a radical world, a radical that don't believe a freedom of speech, that don't believe a freedom of religion, and don't believe in prosperity in building businesses. So unfortunately, I need to serve my country from palalto right now, So talk to us.
Though, I thought le Or what was interesting, because I do think that many think it is a war between it is between Israel and Hamas. But I think there's a feeling too of conflict between Israel and Palestine or Palestinians. You say you work with them, talk to us about in your in your role as a founder of Eclipse Ventures, I'm assuming you're investing in all kinds of businesses. Talk to us a little bit about that relationship that you are having with Palestinians.
Yeah, let me give you a sad story of a close friend. His name is Al Waldman, and he was the founder of a company called Melanox that sold in a couple of billions of dollars to Nvidia. Eyal was the first one to establish an RND centers in the West Bank as well in Gaza software engineers to support Melanox.
And trust me, he didn't receive a lot of love from the right wings in Israel by doing that, and he employeed thousands of people in the West Bank and Gaza that will do software developed and for him because like me, he believed that the only way to fight still all is true business and true friendship. Ayal's daughter was one of those kids being slaughter in that music
festival ten days ago. So how ironic is that that his daughter that was twenty three years old dance and music festival got slaughtered by Ramastel, while Ayal is the one that employeed thousands of people on the Palestine inside.
There's no words, There's absolutely no words. And I guess what I wonder too, is you know we think about this a lotly, or that we think finding an economic way out of things or capitalism ultimately will prevail and lead it to a better way for everyone. Is I guess what? We're just trying to figure out that there's been conflict in this region, in this area in particular,
for such a long time time. So I hear what you say, So how do we get the way forward, especially when you still do have terrorists who are out there like Amas.
I think it's a great example of me traveling to the UE ten times this year and doing amazing business and watching the highness leadership. It's a great example of how you winterval But which prosperity there is in Lebanon's physimalized there to free the Lebanese. Is Hamasi is there to free the Palestinians, is Isis is there to free the Surian people. Is Al Qaeda was there to free Afghanistan. We all in the Western world needs to fight Telo
so we can our kids can have a future. And I want my kids to have a future next to my Palestinians neighbors. There is no any other way around, and I will never stop fighting for it.
Are you worried about a potential ground invasion of Gaza? After all, it's been days since Israel warned people in northern Gaza to move to southern Gaza.
And do you think it's wrong considering what you just said about Palestinians.
I'm sorry and sad about the situation that is happening there, but you need to understand that Israel is not going to sit aside and let the whole west of the country. Having thirteen hundred kids and womens that've been slaughter in one day and more than one hundred and fifty people kidnapped, most of them civilians, some of them babies. On the
age of three months. Israel cannot continue to have the Hamas sitting in the south part of Israel shooting rockets when they feel comfortable with Which prosperity happened in Gaza. Israel is out of Gaza on two thousand and five. Which prosperity, which start that is being built, which infrastructure, which a great innovation is happening. Nothing can be born when there is a radical to organization control the old country.
And unfortunately, unfortunately more people are going to lose their life both sides because of that organization.
Lee Or, we have to leave it there, but I hope we can come back to you, and I hope we can come back to you at a time that's more peaceful, certainly in the Middle East at this point in Israel and Gaza specifically, Lee Or susan former special forces agent for the Israeli military, founder managing partner of Eclipse Ventures. They're an investor and they are investing in entrepreneurs who are rebuilding specifically the world's physical industries. So
you can find more information at their website. But just great to get his perspective, A very unique one and I think a really important one, joining us from Palo Alto, California.
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You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio the Bloomberg Business app YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
All right, Carol, check this out. According to the US Census Bureau, the number of people here in the US who spoke a language at home other than English almost tripled between the years nineteen eighty and twenty nineteen. So in terms of numbers, it's nearly seventy million people here in the US.
That's like a lot.
But that's a lot. But I'm not one of them. But what if you're like, you know, I want to learn a new language. Maybe brush up on that spanishlingual little not bilingual? Okay, yeah, maybe brush up on that Spanish. From the semester of broad did you study abroad?
I did not?
You speak another language?
No, but I took I don't know, eight years, ten years of Spanish. So if you throw me into a Spanish speaking country, I can I can get along oh cool.
Well, maybe you can also brush up on some of the online services that are available. There are many out there. Among them are the language learning platform Babel. We've got with us Julie Hansen. She's US CEO of Babel. It's avidly held company and it's a role that she's had since twenty seventeen. Julie also we should notice the former
COO and president at Business Insider. She was there when Actual Springer bought BI in a deal that valued the company for four hundred and fifty million dollars back in twenty fifteen. Julie joins us on Zoom from New York. Julie, good to have you with us this afternoon. How are you good.
Thanks Tim, Thanks Carol, thanks for having me.
Yeah, it's good to have you with us. Talk to us a little bit about the growth that you've seen on the platform, because I got to tell you there is no shortage of places where you can go online to learn languages.
True, but we've seen I mean, Babbel was the originator of the category of online language learning some seventeen years ago when it was founded in Germany, and we've seen double digit growth. Growth really boomed during the pandemic, but then it stayed at very elevated double digit rates ever since,
and we've been able to sustain that growth. And part of what drives it is what you said at the top of the program that you know, multi language family are growing in this country, but it's also just become something that's somehow.
More appealing to do in our culture, and we're benefiting from that.
So Jilly, wait, help me out here. You said obviously makes sense. Right, a boom during the pandemic, right, people are at home. They wanted to learn to knit, learn to make sour dough bread, and learn to speak another language. Like that's what it was about and stay healthy, no doubt about that during the pandemic. But you've held on to those levels of growth as well as subscribers give us. Are you saying that you've maintained those levels in the gains.
Yeah, I mean, not quite at the pandemic levels, but we've grown double digit ever since the pandemic, so very strong growth. I mean, Babel is the most sold language learning platform ever. We've sold more than sixteen million subscriptions over time. So yeah, I can't tell you all the reasons why, but it just seems like something about the language learning boom during the pandemic validated that as an activity people have stayed with it.
I'm curious, like, how does it work if you become you know, you sign on and you become a customer of your services, do you become a repeat customer? Is that what often? Or is it all about new customer acquisition?
That so interesting? Actually, in Europe, especially in Germany, we do see quite.
A bit of repeat purchases, whether people are coming back to a language after a pause or often there like learning the next language, which of course is very impressive.
Who are these people languages?
Over Here in the US we tend to see that people take a pause and then come back.
But language learning is, you know, a long term activity.
You can make progress in a short time period, but you don't become fluent without you know, a considerable long term effort. So people know that, and there's actually one of the reasons why lifetime subscription is a very popular option.
Talk to me about the strategy here with Babel in terms of learning and how Babel teaches in a way that's different from other platforms, and compare with dual lingo. I know, dual Lingos a company. It's publicly traded. It's got a market cap of about six point nine billion dollars. It went public just a couple of years ago, and that one certainly gets a lot of mind share with especially millennials and gen z yep.
Definitely different learning approaches at Babel. We use a lot of learning science and frankly a lot of AI embedded in the product, but we.
Do believe that human led teaching.
We have something like one hundred and fifty didactics experts on staff who've created.
Our courses that we need.
To marry their knowledge with technologies basically the essence of what we do. We also believe that you're not going to become perfectly fluent from any app, so that's why we've created other products to support and round out the languagelearning experience.
So it might.
Be a bunch of podcasts. I think we're up to twenty three different podcasts, but we also have live teacher led you know, virtual classes, and those are an important part of you know, really we care about learner success, so we believe that to get learners to succeed, you have to combine learning methods.
I mean, there's scientific research behind that's not just our belief.
So it's that combination of human and technology, especially AI, but other technologies too, and the idea of creating a whole surround sound of learning experiences.
It's really interesting how much of your business is B to B business to business I'm always curious about or is a lot of it just individuals who want to learn a language.
Well, the B to B is the fastest growing segment of our business by far. It's the newest compared to the consumer though, so it's not nearly as big, but growing fast. And those are very interesting use cases. We started that business in Europe, we found, you know, international companies, multinational companies needed help. And then we came to the US and it took a while to sort for the
use case to become clear here. But we believe the growth opportunity is massive in the US based on just migration patterns, because often babble is brought in for language teaching in situations where there's workplace safety at risk.
Yeah, we have a.
Very diverse group of clients here from a bunch of MLB teams. Maybe safety isn't quite the thing there, it's excellence. But you know, down to meat packers, landscapers. I mean places where that where language barriers create safety issues and there's a big opportunity in that.
Talk to me about mobile versus desktop right now? What's the share on mobile?
You know, when I started here, if you can imagine people, actually there was a lot of desktop usage that was just six years ago, and I.
Thought it was really peculiar, frankly from the US. But now it's We're a mobile app. There are still some.
People who use the product on their desktop or maybe their iPad, but it's a mobile world.
What does it.
Typically cost for somebody who wants to subscribe or learn a language?
I mean, you can start in the US if you want to just try a one month subscription for about fifteen bucks. If you want to subscribe for the year, more like ninety dollars. You can pick up a lifetime subscription for call it three hundred bucks.
So in that range, and your biggest market or biggest or fastest growing market, is it the US just got about thirty seconds left here.
Yes to both.
The US was late the last one that we were found success in and it took a very dedicated approach, but it's now the biggest market the fastest growing. You know, it's all about learning Mexican Spanish in the US market.
But we teach, we teach all of our fourteen languages. But that's the popular language here.
Really interesting. Thanks for the site, Really fascinating. Julie Hansen, US CEO Babbel and joining us of course on zoom in New York City. If you have to pick a language, finish yeah, yeah, yeah, yeah, me too, Absolutely.
Love it, keep learning it.
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Well, there's a common refrain that if an app is free, tim you are the product.
It's certainly been true for years when it comes to meta platforms. It's the company formerly known as Facebook. After all, Think about this list of apps. They've got Facebook, Instagram, WhatsApp,
Messenger threads. They've also got the VR app Horizon Worlds, Carol, I don't thank you you spent any time there, even though it also sells gaming headsets, smart sunglasses, and business productivity software at until accounts for more than ninety eight percent of the company's revenue ninety eight percent.
But that model, maybe it could be about to change. Could people start paying for ad free versions of all of that. We're going to get into that because in the forthcoming issue of Bloomberg BusinessWeek magazine, which will be on newstands later this week, already online at Blomberg dot com, slash BusinessWeek and on the Bloomberg is a story that gets into this. Columnist Max Chafkin wrote it about Meta's
flirtation with ad free services. He joins us here in our interactive broker studio along with the editor of BusinessWeek, Joel Weber, So Joel, lots of things.
Going on, not just advertising.
That ninety eight point four percent figure, personalized, personalized.
Personalized, those ads that follow you around.
Yeah, and so that creepy ad tracking is a hallmark of Max Chafkins reporting it's not just Meta. He's also pointed out, you know, Google in the past has had some big numbers like this.
Facebook would not say it was creepy. They would say, it's very useful. Mark Zuckerberg has said repeatedly that there's that that they like, person that people like personalized advertising. You'd be a huge loss if this, if this one away.
But raise your hand in the studio if you like personalized advertising.
You know.
Sometimes sometimes nobody raised their hand.
Sometimes it's so much halfway, you know, your halfway.
My favorite is.
You know on Amazon, when you buy something and then it's like an ad for the thing that you bought already.
It's like, come on, you want to remember the pair of shoes that you had in your cart the day before.
But but Max walk us through what this experiment looks like and how and what it really means.
For a man.
Right.
So, basically, in twenty eighteen, the EU passed the thing called GDPR. It's a big, complicated set of privacy rules that essentially require companies to ask for consent before showing personalized ads.
And Facebook has been in this kind of.
Long running battle with European regulators, which kind of reached a culmination this summer with a court ruling that essentially is forcing them to finally go ahead and do this. And the way they want to do it is by offering a paid version of the service with no advertising in Europe. So so the EU is sort of asking, hey, if you're gonna if you're going to personalized ads, you got to offer people a way out. Facebook is saying, well, our way out is no ads at all, and we're
going to charge you for it. And the amount of money they're they're talking about charging is relatively high. It's around twenty dollars a month, nineteen euros a month, twenty dollars a month, which is, you know, probably more than
most people are willing to pay. You know, it's it's more, as we point out the story, it's more than a lot of gym memberships and mobile phone plans and so on, and certainly more than many other subscriptions like you know, Disney Plus and Netflix that people get a lot of value out of.
I kind of think that, you know, people will not opt to pay for the services.
I think that's that's exactly the plan. And that's like would you pay for you?
I would pay. I would like pay to not use it. I really, how much do I have to pay in order to keep me off Instagram?
They should consider they should said, interesting, revenue stream for for meta platforms. The so I think the intent basically is that most people will not pay for it. If you if you look at the statement that they've put out there, which is in our story, which essentially says, you know, we still believe in personalized advertising.
We just want to work with regulators.
You read between the lines, are basically saying the regulators are making us do this, we don't expect anyone to take them up on it.
You know.
On the other hand, a lot of companies are playing around with this U. You know, we've seen obviously Elon Musk and Twitter and kind of very loud fashion offer his own subscriptions.
You pay you tweet a lot or post a lot? Do you pay for it? I have not yet paid for X Premium either have I? And I feel like my tweets are getting lost as a result. Well yeah, and sorry, this is like a totally different time.
Well so, and that's where it gets a little bit complicated because, among other things, uh, Elon Musk has talked about this as a way to see fewer ads, but he's also created all these other enticements, including you know, basically pay to play and even so X Premium is not doing very well despite the much price points about half of that proposed figure that Mark Zuckerberg is which I love Facebook.
You're talking about if you can't have a cage fight, you just have a cage fight and you know in the marketplace and go, you know, have half price or double the price.
Yeah, the app store is basically the cage fight of social media. Snap is also playing around is, as we report in the story, is testing an ad free version.
TikTok has done this.
You know, I think part of it is that we don't actually know what the market is. I think there are a lot of people who do not like seeing advertising obviously, I mean, it's it's coming to play with cable television and other markets. Absolutely. On the other hand, and this is where the real problem is, it is such a good business, you know, as Joel's intro pointed out,
it's it's not just as a percentage. It's just like the raw numbers we're talking about, you know, more than one hundred billion dollars a year for Facebook when you do it, when you break down a per user basis, if they wanted to do this in the US, you know, they would need to reclaim about two hundred twenty dollars per person per year who opts out of this, So you know that that works out to almost twenty dollars
a month. And when you when you consider the fact that not everyone would pay, that you'd lose some users, the real price probably have to be actually a bit higher. So it's it's a you know, it's a problem that a lot of big established businesses have had when they try to like look at different models. Not all that different from the cord cutting conversation with cable television.
So if this worked, how lucrative could it be?
Like, like, what's the math have to kind of work out to where you're obviously going to probably not get.
Everybody to do it.
It could actually just be a very small percentage of people who opt into it, but like you could have a pretty loyal group of people here who are willing to you know, pay that annual.
Again, I think people, I think, I mean, well, it's not coming to the US at least, Facebook is meta is signaling that it won't. That this is a this is a europe only thing, This is you know, a thing they're gonna you know, this has to do with regulation, not not with what they think the market wants, and I do think I mean, I'm sure they would like to have more revenue. There is a problem though, if you start eating into this network of personalized advertisements.
You know, one of the.
Source I talked to you for this story was saying that essentially that you know, this is a network business. Part of what makes this network valuable is all the people. Right now, Facebook has all this data about you that collects across the Internet, and it essentially rents it out to advertisers. If you start pulling people out of that data set, that data set arguably.
Becomes less valuable.
And you could imagine a situation where advertisers stop feeling like Facebook is a must stop destination and you know that is there. The dynamics are a little bit different. But that's what's happened to Twitter. You know, as Elon Musk has offered this new revenue stream, he's had huge
difficulties with advertisers. And so I think the challenge what Facebook really like is to create new revenue streams while also continuing to show personalized advertisements to you know, three billion people a year.
I also think so you're saying you get the cake and.
Eat it too, that's the goal.
Yeah, but maybe things go exceptionally well in Europe and you have, you know, a three year experiment and you take all those learnings and roll it into a US that's more favorable.
By this, I do think. And you know, there's another point you're making.
The story if you look at all that's wrong with social media, things that people actually don't like about it, the fact that it kind of makes us feel enraged that it throws all this information at us to try to get us to stay engaged. Which, like a lot of these things have to do with this advert with the way they make money, and if they made money in a different way, you know, maybe social media could
be a little different. They wouldn't necessarily have to have such a you know, sort of difficult relationship with news publishers. Right Like at the moment, Facebook and other social networks are at pains to keep you from reading content off site, which creates all sorts of issues with misinformation, and it makes publishers mad and so on. If you're just paying them monthly fee, right they could just refer you to
the best content. If you're paying them a monthly fee, maybe they wouldn't have to, you know, cause you to argue with your aunt, you know, for for like several months over like.
It sounds like you have familiarity with us.
Why don't they just.
I mean, they can't give away the tracking, let the ads come through, but get rid of the true So.
Yeah, privacy ad everybody would yeah, right that there's like a middle ground and that's and they don't want to do this, which is where they could just change their advertising and make it less personalized, or or make it not personalized at all and just show you contextual ads, which is kind of like how Google works.
Google does a lot of personalization now at this point too.
But anyways, just change the advertising and and continue to show you ads, and then maybe there would be a less expensive sort of middle tier payment like five dollars a month, which might.
Be more within reach.
Again, this the main business that they have is really good, and so it's really a question of are they going to be forced to do this or is there some way where demand is much greater than we expect and as a result, it's more economical than it would seem at first.
Clients in a you know, if you're a product manager, I think one way you would describe this is that you're gonna ab test in real time and you're going to have this europe experiment while the rest of the
world does its other way. I'm curious, do we have any indications if this is going to change how the algorithms implement and kind of like work your feeds, right, because in theory, like a mainstay of what appears in your feed are ads, and if you're suddenly changing that, it would just leads you believe that maybe the rest of the algorithm might change too.
Well. Sure, Yeah, and one of the arguments.
Incentivizing a different kind of engagement.
Over the years, people have asked Mark Sarker b about this a lot, and what he says, I sort of lose to this. The beginning is that you know, at Facebook, at Meta, they see ads as part of the content, just as valuable as as as your aunts or your you know, your friends engagement photos or whatever, which I think maybe strains a little bit of credulity. Of course, it's something you might say if you're an advertiser. But yeah, I mean, the the experience is going to be really different.
We don't know how it's gonna look and One of the reasons we don't know how it's going to look is because right now Meta is negotiating with European regulators on this, and so they're not really saying much because Europe has not given it, you know, the seal of approval basically again those little notifications that you.
See when you go on websites sometimes let's.
Say like, you know, do you consent to whatever. Meta has resisted that because I think they're worried that people are gonna say no, I don't consent, it's gonna mess up their business. So this is their latest basic basically effort to get around that. If if if you're offered a paid version that you opt out, then then you're effe effectively opting in by it by not paying.
We talk so often about the tech and I feel like the world in general on different in different areas that we follow kind of what the EU is doing or the Europeans are doing when it comes to oversight, especially with technology or California, like if you get into climentators of it right right.
Same with tech though with child privacy laws.
So should we assume that this is coming this way at some point? Or I mean, like Washington, kank she was a speaker or anything. Get things done.
You know, it's possible.
But over the last decade or so, efforts to to really reign in tech have have not gone super well.
And there are reasons for that, some of which have to do with the fact that, you know, Facebook is seen by many lawmakers and and and Facebook has sort of made an effort to present itself this way as an America, as a national champion, and and that you know, whenever efforts to kind of reign in meta come up, you know, the counter argument from Mark Zuckerberg is, you know, other social networks, primarily TikTok, this Chinese social network is not going.
To follow these rules.
And like, you know, we as a country have to protect our national champions, and that has to some extent worked. I also think, you know, meta has been very effective at just like parrying regulation and confusing things. And and the truth is, the last point I'll make is like, yeah, we can all sort of say we don't like Facebook or we don't like seeing ads on Facebook, but a lot of people love this thing, and and you know,
hundreds of millions of people use it. And if you said, hey, we're gonna we're gonna pass this new law and make your social media this this thing that you use to to talk to your friends, and sure you make fun of it a lot. We're gonna make that now cost twenty dollars a month, or now cost ten dollars a month, or now you have to pay any amount of money.
People are gonna be mad about that.
That's not you know, that's not necessarily gonna be popular. And yet and yeah, and so you know, the tech companies, the big tech companies and and Meta in particular, have been really really good at kind of you know, resisting efforts even even during the Trump presidency where he was very hostile to to Silicon Valley in certain ways to rain them in.
And I'd expect that to continue.
Well, Max, oh well, I'll just go ahead, Joe.
One more thing. What's the timeline for all of this?
Because the EU decision was out over the summer, right, So what's how does this unfold?
We think it's it's a matter of months, maybe even sooner.
So I would expect to happen.
Before the end of the year, although if regulators didn't go along with it, I don't know. I suppose it could drag out further because basically, like the regulators have to say that this is, you know, an acceptable way to address the court's ruling, and if they said it wasn't, then you know, Meta would have to come back and think of something else.
Hey, Max, very briefly, just in the last minute that we have, you make the point that Meta also sells some hardware, and after all, it's called meta platforms. Would they like to sell enough Oculus Quest or Meta Quest threes to offset significantly the portion of revenue they got from advertising.
I don't think. I don't think that's the business model.
I think the business model is to sell these headsets, probably you know, at break even or maybe even a loss. I mean the division Reality Labs, which the main thing they do is make this these headsets, has lost something like forty billion dollars over the last couple of.
Years, a lot of money for face.
So yeah, I don't think this is like necessarily a money making thing. And when you listen to how Mark Zuckerberg talks about it, it's more about creating a new platform to kind of apply the old business model to and I think in certain ways, right that's the genius of this, of this metaverse thing, if you really squint and look for it, is that maybe they could take the personalized advertising business, the amazing dominance that Facebook has over certain parts of the smartphone and bring it to
a new computing platform. And if they did that, of course it'd be an even more valuable company.
Yeah, where's the decimal brain? Another in their favor, great story, Bloomberg. Bloomberg's a Maxchaffkin of course, with Jill Weber and this story. It will be in the new issue of BusinessWeek magazine out on Thursdays, on newsstands, already online and on the bloom Burg.
Mark Journal.
How about you let me drive?
Oh no, no, no, no, who's going to drive?
Hory please?
I want to drive.
It's a good question.
This is the Drive to the Clothes Well by Don on Bluebirg Radio.
All right, everybody, just hap about about eighteen minutes left in today's trading session, getting ready to wrap up the Monday Trey. We've got stocks, they're up for the day. It's really interesting to see. I don't know, right, uh, And just some calm, if you will in the markets despite all the geopolitical stuff.
I can't explain it, but maybe maybe we know someone who can. Col Smeade's CEO and portfolio manager at Smeedy Capital Management. He joins us on Zoom from Phoenix, Arizona. We should know, Carol. The Smeat Value Funds got about four point five billion dollars in assets under management. It's outperformed it's peers over the past five years, returning an average annually more than eleven percent. This year the fund those up just about two percent.
Hey, Cole, good to have you back with us. It's an interesting world. First macro and then we love to talk names with you, but the macro environment, it does feel like there's some comm certainly on the US equity trade, despite you know, our focus on what's going on in Israel and elsewhere in the world. There's a lot of questions out there on so many different levels. How do you see the macro environment?
Yeah, Carol, I was.
I was rewatching for probably the ten time of my life, gone with the wind yesterday. It was just kind of one of those things I did on a Sunday. And I actually think mister Market's a lot like scarlettle Haare you know she said fiddle d d You know, all this talk of wars ruining my spring party. That's what equity investors are treating as it's not that big of
a deal. They also are treating what's going on in the bond mark with the rise in the ten year yield and the thirty year yield as though it's really not that big of a deal to them, much like Scarlett did prior to the Civil War breaking out, And that's a lot of danger. It just shows you how the psychology really hasn't woken up to the new world. We're in the post pandemic world where obviously things are
not given and cheap money is gone. And so the question, to your point is when will people rectify those things in their mind. We're just not there yet.
So what do you think of where we are in the S and P fift Are you saying the S and P five hundred inequity investors today are not taking into account how many headwinds we face.
It's a great question, Tim, and since we're since we're of the same kind of cohort millennial wise, I think about it like this. You know, in our lifetimes, are we going to see as cheap and super easy of money as we had?
And in just a cute, little.
Adorable bear market in thoughts of twenty two percent, and that's how you clean up major euphorias in capital markets. No, but it never ends like it always ends in having to really take the psychology to dire straits where people question whether they want to own stocks again. So, you know, we look at this is this is kind of like this was just the next part of the bear market. People got really excited about a few companies again and took the S and P higher while most stocks are
doing poorly. And our best guests again, you know, this is not where we make our money, but our best guess is you know, in the end, you know, peak to trough, the SMP will probably have to lose at least thirty, if not thirty five percent of its market value before you clean up the psychology.
When over what time period?
We just got to do it?
Others, we're to your point, dam We're we're a little over a year into the bear market and a twenty two percent decline didn't cause people to change their mind.
You know, ask the question, are we in a new era?
Whether we're talking you know, the geopolitical risks that have now woken up I mean to invert that. You know, we know that this as you guys do that this benefit that the S ANDP is getting is a very.
You know, very narrow group of stocks.
In comparison, the businesses that benefit from what's going on in Israel in the last week is a lot of oil companies, and yet those are a tiny part of the SMP.
So you kind of have to.
Ask the question who wins who loses in this new regime, and our investors really pricing in the winners and losers correctly, We don't think so at all.
So you're basically saying, and you expect equities will fall substantially from here or they need to fall to kind of fully reflect maybe the macro.
Well, I would say, when I say equities, I'm talking about the S and P five hundred, So to your point, Carol, I'm talking about the composition of what it owns.
Does that mean all stocks have to do poorly? No, not at all.
Just like if you look at the equal way data of the russele too, they're doing much worse than the S and P five hundred is from a total return perspective. So it just shows you, you know, the exciting stocks the big market caps out there that has to struggle for the SMP to do poorly, and so it's you know, you go out to shoot five or ten stocks out back, and you're going to change the SMP for a long time.
All right, So let's talk about what's in your portfolio. You do have a bunch of energy names. As of the end of August, I was looking at the whole things that we saw. Occidental was in their Knaco, Phillips was in there. I don't see Shell in that list, and we had that stock hitting an inter day high over in London today. Of course, they just bought Pioneer,
massive sixty billion dollar bet on Shelle. It's a big reminder that fossil fuels, at least from the big integrated oil companies, they're still betting on it that it's going to be around for a while. But why not Shell.
Well, so Shell chill has been coming out of what I call the European major problem, which is.
That you wanted to have a lot of fun at the.
Parisian cocktail parties and you know parties in Europe and selling oil and gas stories is not what the European majors have been interested in in comparison, you know, we're starting to see like the the the Exxon.
Mobiles out there wanting to do their Pioneer deal.
So if the majors wake up wanting to do deals, I think we have a very different world and the energy, you know space, because there's a lot of producers that could be acquired for attracted multiples on an all stock deal like is going on with the Exon Pioneer deal. So if Shell wants to become a US company like they flirted with in the Financial Times a few months ago, they could be a deal maker. At this time, it looks like VP and Total are the less likely one
to do that. But again, I think you have to compare to the return on equity. If you look at Shell, it's a mid teens returning equity story. It's trading cheaper than some of the other names among the American majors, but that's because they're also wasting a good amount of money and they're renewables. That's why their returns are not twenty percent return in equity.
Now, and forgive me, as you said, it was Exxon buying Pioneer, which is what I meant to say. Interesting, Hey, Cole, Let's.
Go from oil to retail, because you're a big you guys, I got a big position in Target, down twenty five percent so far this year. You have a market value of one hundreds of millions of dollars invested in Target. Give me your thoughts on Target, especially in the wake of what they did with closing stores what they said was due to shrink.
Yeah, some of that is just what's gone on in society. To your point about you know, the I'll call it, I'll call it vandalism, I'll call it, you know, crime, et cetera. But I think another thing that has to be said is this got here not by accident, but by also leadership. So, for example, I know with what the culture wars has gone on at Target, there's been talk of, you know what, what certain groups felt they were hurt by and whatnot.
I think you also have to look at the employees though, too.
So you have all this crime going on in you know, particularly urban Target centers, and then you add the culture war into where these employees are getting harassed by things that they have no control over. I think it's a big mark against the current management. I'd say Brian Cornell's made a lot of missteps. If you look at some of the culture war stuff that I'm commenting on, you just don't see that talked about with Walmart. So I think they've taken unique risks that have disadvantaged them in
this season. At the same time they benefited so much from COVID that I think some of this is also just you know, reacting to a more normal environment. They're not selling as many TVs as they did a year or two years ago, and those are just big ticket price items for Target. So we look at Target, you know, it's a twenty five to thirty percent returning equity story that Tim they were earning as much as forty to fifty percent returning equity, which just wasn't sustainable.
They were over earning in a lot of respects.
All right, Can I leave it on that note, Hey, I Cale, thank you so much for joining us. Kill Smed CEO and portfolio manager Smeed Capital Management joining us on zoom from Phoenix, Arizona.
This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from three to six Eastern on bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Journey Alone