The Contrarians with Adam and Adir

Wesfarmers Catch of the Day Disaster, Netflix Brilliant Strategy, Bumble’s Troubles and ROKT Triumphs

The guys discuss Wesfarmers $800 million Catch of the Day horror show – Adam argues the disaster should cost Rob Scott his job (Adir disagrees), Netflix incredible growth story, Bumble’s founder returns but is the online dating business a goner and the brilliant execution of Bruce Buchanan at ROKT

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Duration:: 1h 54m
Broadcast on:: 27 Jan 2025
Audio Format:: other

This is a fundamental inability to understand the law, understand consumers, understand basic morality. - Well, the law according to Adam Schwab, which may or may not be the law of Australia. We'll see you soon. - I'm Adam Schwab. - I'm a dear Shiffman. And this is The Contrerenes with Adam and Adir. (upbeat music) - Adir, you work with some serious businesses, as well as lots of startups. Do you know what ISO 2701 and SOC II are? - I've definitely heard of them, but to be honest with you, I'm not 100% sure exactly what they are. - They're actually super important for two reasons. And if you're not compliant, it can be a really serious problem. ISO and SOC are essentially global standards for managing your customer data. - Well, as you can guess, I have some familiarity because customer data security is such a massive thing. We talk a lot about it on this podcast. I deal a lot with it in some of my businesses. And we've seen how many big brands have been really impacted by customer data breaches. - You're absolutely right. And the challenge is before Vanta, it was super hard for startups and even scale-ups to know where to start. And even if you're super focused on getting your customer data secure, it was such an expensive, difficult and long process. - I've heard it can take years and there are a ton of horror stories of businesses that spend hundreds of thousands of dollars and even then they don't quite get this stuff right. - Oh yeah, that's why Vanta's so good. They've built market leading tech that automates the ISO and SOC processes. So instead of taking two years, you actually get certified in a couple of months for what actually is a fraction of the cost. - Well, I think that's really good news because one of the things that so many startups don't do is focus enough on cutting costs and even worse than that, they can ignore customer data completely. And if they get this wrong, potentially that's quite literally the end of the business. - Totally. And I think the other really important thing about ISO 2701 and SOC 2 is if you want to sell to enterprise level customers like catapulted cars like luxury scapes do, a lot of them actually require you to be certified in the first place. If you want to generate serious enterprise revenue, being certified is just a core component otherwise you're not in the game. There's no surprise that 8,000 global companies, including Atlassian, Dovetail, Fire Ant, and Tactic I/O use Vanta to manage risk and prove security in real time. And there's a special offer for contrarians listeners. You can get $1,000 off Vanta at Vanta.com.au/contrarians. - Do you, how would you check your life trauma or TPD insurance? - I would say I never check it and I'm quite neglectful with that altogether. - I mean, I think I checked mine for about 10 years. I just kept paying more and more every year and it's got like ridiculous. - Yeah, I'm totally with you on that. I mean, people approach me about life insurance periodically and I kind of just fob them off and really don't pay any attention to it. I wouldn't even know where to pay attention. - Actually, I have it, but I was so slack. I just kept paying it year on year and then I've got all the team from Safety Nest and I'm furious for not doing this sooner. - Why? - So the Safety Nest team did a complete check of all my different policies, life, trauma, TPD. And that literally in a few hours I would have restructured my policies and remove all this unnecessary stuff I was paying for I didn't need. And I'd actually save $5,000 a year. - Oh my God, that seems like there's nobody that will be more frustrated about wasting money than you. Think of all of the things that you can spend it on. I mean, literally no food or drink. (laughing) - Well, it's been a sweet 'cause I love saving money but I hate the fact I wasn't saving money for 10 years. - Yeah, I get it. - So what's just the cash saving? The Safety Nest team also recommended different cover for our kids. So I didn't realize you can get kid insurance as well. Which gives you extra peace of mind. The last thing you want to do is leave your partner and family in a really tough position. If God forbid, something terrible happens. And if you don't have, or aren't properly being advised for critical insurances to protect you and your family, you can get in touch with the team at Safety Nest who will give our listeners a free no obligation consultation to make sure you're optimizing spend and policies. Just go to safetyness.com.au and click to get started. Or give them a call on 1-300-055-922. (upbeat music) - And we're back episode 77. You look at a strange location. I see some leather in the background. (laughing) I think the leather is unrelated to the location. I'm in Mumbai or Bombay. It is actually quite tricky to work out which one, which term people use here. It definitely either is acceptable. You know, the airport is BOM still. Is the code for the airports. - Yeah. - My view is that people to me seem to be sticking to Bombay in Mumbai. - I actually reckon of all the names, obviously they changed most of the names. I think Mumbai is the best of the new names. It rolls off the tongue versus Kalkatta. It's not so Kalkatta is cool. Like Kalkatta ones a bit weird. - Is Kalkatta, I think. - Yeah. - I'm not going there. But like, I think basically all of these are just the inability of English people to hear words. And so, and so I think it was always Mumbai. There isn't it's Mumbai. You probably know this. But there isn't it's Mumbai. There's some temple here called the Mumbai temple, and that's what the city was named after. But you know, whenever you don't have a British accent, and you say a word to the British, they somehow seem unable to hear what you're saying. And so they said Mumbai, and they heard Bombay, and that's how it became Bombay. - I didn't know that actually. - Yeah, that's the reason for all of these name changes, basically. And so, my view on it is I don't, whatever they want to call it, they can call it. There's a whole lot of name changes going on for different reasons. I think this is the most benign of them. And so, my experience is that the locals think Bombay sounds better. And so they tend to stick to it. And so, look at this, I wrote a situation where they called the temple a Mumbai temple. The British came along and heard Bombay. They called it Bombay. And I talk to all these people who are like, yeah, that sounds better. So, whatever. - It was a bit like the Ho Chi Minh Saigon. I think most locals in Vietnam use Saigon. It's a much better sounding name than Ho Chi Minh. - Well, there's a lot of syllables in Ho Chi Minh city. Right, so. - And obviously, there's some south versus north stuff going on there. So you've obviously left Israel, you know, and yeah, is this a work trip, or is it so? - Yeah, it's a mixture. Yeah, it's all, there's a lot of work stuff. What do I think? I mean, I haven't been here before. - Oh, I put your hat? - No, I've never been here. I had this picture in my head that it would be crazy and that it would be dirty and that it would be a bit scary. I don't know why I had, I think too many movies that show India being crazy. Probably Mumbai is not as hectic as other places, even though there are 25 million people. Bangalore's far more court rustic than Mumbai. - But the level of development going on here is insane. The rule of law, like despite the fact that the, so the lines on the roads, I call them decorative. Like they have no relationship to where cars are. The rule of law seems to be enforced quite strictly here. It's very orderly in its own way. And compared to Kathmandu where I was last year, like this is pretty calm, to be honest. And mostly what I feel about Bombay is that you sell stuff in Australia and it feels like a market. And then you come here and there's as many people in this one city as there are in Australia. And it feels like there's just endless opportunity to do business in this place. That's how I feel about it. - Do you know where I am there? - You're in a five star hotel somewhere and the weather is warm 'cause you've got the fan going and you've picked a time very convenient to you as opposed to me. So it's probably the middle of the afternoon or something. - I thought we chose a time that you wanted. I could have done a different time. Well, give it up. I've been doing 5.45 a.m. times to your 4 p.m. So I think this is a-- - Oh yeah, but that's already three as after you've woken up, probably. So you've been for a run already. I would say, are you in on an island? - I'm on an island. - I'm on an island. - Like a small island? - Yeah, a small island. - Very small island. You can walk around probably and I walk from one end to the other in about half an hour this morning. - Really? - Yeah. - That sounds claustrophobic. I don't know. - It's a volcano. - Literally, the island itself is a volcano. - Papayetti? - No, but you're not miles off. - Where are you? - I'm an island off Fiji called Vomo. - I would never have guessed that 'cause I'd never have heard of it. I'd have to come up with like-- - Oh yeah. - You know the-- - Bit of a ridiculous question. - Well, you know the monkeys typing on the typewriters and eventually they write Shakespeare. I would have had to just pick random combinations of four letters. - Yeah. - I would have to go through one letter, two letters. One letter wouldn't take long to be fair. But like, yeah, so tell me about that place. I've never ever heard of it. - No, it's good. There's probably, Fiji was never known for luxury till probably 15 years ago. - Oh. - And now there's probably the most expensive places called Como, C-O-M-O, which is, it was, I think, developed by the, you know, the guy who owned Red Bull, the Austrian guy, not a Thai guy. He obviously passed away quite recently. And I think he's sometimes over. They need the Como, the Asian Singaporean base brand, manage it. It's around sort of the $8,000, $10,000 night mark. It's where Oprah stays and the Google guys. So the Como is probably the most expensive. Then you've got Kokomo, developed by Lang Walker, who passed away also recently. - Kokomo, that's like, isn't it, the place from-- - Tom Cruise's movie, different Kokomo. - And you've got, I'm sorry, Vomor, I'm staying, Likku, Likku, Royal Devouille. That's the next episode, which is like, well, obviously, they're pretty generous with me in letting me stay here. But you'd be up for sort of five, six, seven K and I, generally. - Oh gosh, and these all separate islands, right? - Different, yeah, some are actually not, actually, all those are on islands. Some are results on the mainland as well, obviously. But the ultra lux places tend to be on islands. - Is this all part of Fiji? - Yeah, absolutely. So Fiji's got quite a few islands. So we arrived here, thanks to the generosity of island hoppers. Island hoppers are great businesses, run by a New Zealand guy, Craig. And he bought the business in 2006. He runs, I think six or seven shoppers, they're constantly on the go. So just ferrying people to resorts like this one. So I got from airport to here. If you go to a boat, takes about four hours, by the time you go to the airport, get all your stuff, all that kind of stuff. We got from plane to here in about 45 minutes, which is pretty exceptional. - You know, the only time I've been on a helicopter is I got invited to the Grand Prix one year by the Grand Prix Corporation. And it was the day before, one of the practice days it must have been, they said, come to this helicopter and we'll give you a tour above the track and you'll be able to see everything from the air. I'd never been on it before, not to diminish the great business that you just spoke about, but I'm not sure I'd be that keen on getting on one again. I just found it a very disconcerting experience to be hanging in the air, but not moving, like as you know, you hover above and it's a weird experience. - It's amazing how, like when you hell you ski, they land the chopper within a foot, though there's like a, usually a pole in the ground in the middle of a sort of a mountain with snow on it. And they can land the chopper within a couple of centimetres. - Look at that pole. It's pretty incredible. The choppers are pretty big, especially the 10 centres. And they can get it so close. And the skill of these choppers, I think they're probably the most skillful pilots out of any way to be able to fly and land those choppers is pretty incredible. Good road, and so I think of Virgin Flight to get here. It was probably 30% full, it was as good a flight. I was, we were in an economy, it was as good an economy flight as it ever been, I reckon, we had the front road of ourselves. People had, the service was incredible, the internet was super fast. It was, I think it was a 40. This was the average in Melbourne to Nandy. It's a great, great Virgin Flight to get here as well. It was, it was, and it was a new Virgin plane. It was almost like, I felt like a brand new plane. It's a great way to travel. - Well, you know, we should talk about planes and flights. I think that's a good, 'cause a lot's been happening in the aviation world in the last few, I don't know, a few weeks. I will say, there's one guy I know that's a helicopter pilot. It's not a civilian helicopter that he flies. And he is always telling me about the relative complexity of a helicopter versus a plane. And like he explains it pretty clearly, it's absolutely true. Like, not to diminish how hard it is to fly a plane, but you know, the way that a helicopter needs to be constantly controlled to be maneuvered. - Oh, for sure, yeah. - Much harder. - Yeah. - Planes on autopilot most of the time. Anyway, even I've flown planes before, it actually wasn't particularly. Obviously landing's been more tricky. Well, I'm not sure the planes of the people I speak to are necessarily on autopilot. But they fly a bit differently, they fly a bit differently. And also, you know, they're often, I mean, they're not always high, but often, like they fly much higher than a helicopter and like just the maneuverability of helicopters is insane. I don't know if you've seen like, there's some, if you've seen videos ever of helicopters and they can virtually just flip themselves upside down and look, they can't fly on their sides, but they're not far off there. And although, you know, I was at an air show last year at the Gold Coast and they brought the F-22s, which are very rare to see. I think we spoke about it at the time. And those planes, 'cause the jets at the back of them are maneuverable, those planes can do things at planes you should not be able to do as well. So it's absolutely remarkable. - Yeah. When you think of a car, you're going left and right and straight and back, and a plane, you're going up and down as well, and a choppy, you're going every direction. So it's just that extra-- There's also the Z-axis at play when you're in the air, which hopefully is not often a play in a car. That's occasionally. So yeah, I'll tell you, I mean, like a couple of things that I've noted with regards to airlines and planes on my trip, I want to tell you the greatest feature, the greatest simple feature I've ever discovered on a plane. So I was flying Fly Dubai, which is owned by the Emirates government, but it's not part of Emirates, but you sign in and access it with your Emirates frequent flyer details, like Skyward, Zodiver, it's called. And however, the lounge access is different. So it's got like, it's kind of 50 to 80% feels like Emirates. I thought I'm going to get on this, and it's not going to be as nice as the Emirates experience. I think it was as nice as the Emirates experience. It was short, only three hours. It was really, really nice. - What type of plane was it? Double aisle or single aisle? - It was a single aisle plane. So it was not a big plane. I didn't actually check what sort of plane it was. It might have been an A320 or something like that. It might have been bigger than I can't remember. - Well, a 320 single aisle, right? It's like a 737 equivalent. - Yeah, a 320 and a 737 basically feel like the same plane. I don't understand how two aircraft manufacturers can have built the same product simultaneously. - Well, I think a 737 was such a fit for purpose product, Airbus, and we'll make our own version. - Oh, so is that what happened? They came second. I'm pretty sure a 737 was first. - It basically feels identical. The plane feels identical. Anyway, and so I was watching some entertainment on the three hour flight. I was watching a show called the Goldbergs. I don't know if you've ever seen that. It's a sitcom with some famous people in it, his names. I'm not going to remember and be able to recall now. - I don't think I watched that actually. - I actually always find it quite emotional, which is very much par for the course for me. But I find it very, very funny. Like a laugh out loud, kind of funny. And so, you know, I didn't have the headphone. - So I can't just quickly jump in in terms of that, that 32737. So 737s were 1966 and 320s were 1986. That's when they first started each one. So well, 320s were way after. - So at some point Airbus said, oh, this 737 is good. And then over the next 20 years replicated it. So it might have taken them five years to figure it out. - Yeah. - So we did the same with a 380 and the 737 really as well. - Yeah. So I'm watching the show "The Goldbergs". Well, I'm watching it. I think Jeff Garland is going to, you know, Jeff Garland. He was in "Curb". I'm sure you know who he is. Okay. So he's in it. Like he's only kind of got one character. And so he plays that character in "The Goldbergs". - Yeah. - And so I find it's very funny. And so I had brought my own headphones, but they didn't have the airline connector. And they had these airline headphones. And they'd never great the headphones. The airlines give you in my experience. And then I see this button next to the entertainment system. I don't know if you've ever encountered this before. And the button has got a Bluetooth logo on it. So I hold this button. And sure enough, it turns blue. And then it connects to my headphones. And now I'm using my own headphones on a Bluetooth connection to the entertainment system. How good is that? Have you ever heard of that before? - Well, I haven't heard of that. But I've heard of our good friends at Signet just released a product that you plug into the airline entertainment system. And effectively does the same thing. And of course, I think it's about 50 bucks, 70 bucks. So you can, if you don't fly a fly to bike and obviously jump on that signal web page, jump on that friends at Signet and they can sell you a product, that's the same thing. But great, great product. - That sounds very good. And I'll tell you some other things I picked up while I was flying. All right. So firstly, Dubai, we've talked about that airport a lot. I'm not going to talk about it much more. I will just say, you want to connect to the airport into Dubai, you press connect. You don't have to put your details in. You don't have to sign up to anything. You don't have to, that is what every airport around the world should be doing. What are they doing with your personal information? - It's so good. - It's so pointless. - It'd be so pointless. - I feel like the governments are so paranoid over privacy and the whole GDPRS, like the whole, you got to click on this stupid except cookie thing in Europe now, which is the pure tax on people's time. Yet they're more than happy to allow and often the airport's government owned to just collect information unnecessarily. Like it's governments are just like, just a disgrace. So I flew Air India, that was a great experience. Yeah, people disparage air. - Oh, really? - India. - Every Indian person, I know, hates Air India. - Yeah, it was a really nice experience. You know, as you know, India generally is unbelievably cheap. And so one of the tricks here is you can pay like very slightly more to have much better experiences. - Yeah. - And my Air India experience was really positive. So I'm not sure about on the long haul, like I don't know, 'cause I haven't flown them. But on, you know, I'm sure the haul flights, it's very good. - Well, I've got a Melbourne deli flight, which is super convenient. That's how you're flying home or not, but it's a super convenient flight for to connect the countries. - I'm actually flying through Singapore to go home, which is I'm flying a flight that is about to be canned to get home from Singapore. Emirates flight from Singapore to Melbourne. - Oh, yeah, I thought that had been canned. - No, it has been canned, but I think they're ending it in March. And so I managed to get redemption. It was the only thing I could get redemption flights on back from Singapore. - Yeah, yeah. - And so, but it's not, you know, it's on a very good flight. Like business class is two, two, two, or two, three, two or more. - Ah, yeah, it's shocking. It's terrible. - On a seven-hour day flight. - Yeah, it's not right. - I'll stay awake for it, but like, but that's the end of that flight. So we're all gonna have to just get rewards on Singapore Airlines, which is a good segue into your remarks about Singapore Airlines, which we were talking about off air, which, I mean, that airline has got some problems, right? Singapore Airlines. - Well, it's been a fine problem. I think from a financial perspective, they're going incredibly well. Best of ever gone. - It might be that is the problem. - Yeah, and this is the problem. - But we've seen the same way. Obviously Singapore's changed their redemption. They've made it 50% more expensive. And if you look at Qantas over this week, have made redemption slightly more expensive. Although I think with Qantas's case, they were probably too cheap. I think the issue with Qantas Steve, our good friend Steve Hoi, friend of the pod pointed out, last we had a very popular LinkedIn post that went viral. There was not a bunch of different newspapers and all this stuff. The problem with Qantas is basically, these cannot get redemptions now at all. You used to be able to get before COVID, you'd get them a bit. Not when they were never easy, but you'd get them. And then after COVID, it became pretty hard. And now it's just impossible. And the problem is they're just too good at selling flights. They're almost a victim of their own success. They're share price at record highs. They're going so well financially. And the people that sort of suffer is the frequent flyers who simply just can't give them seats because they can sell them for too much for cash. - And they've checked. So I think this is, in my view, these are the mistakes that Qantas has made. The frequent, we've spoken about this before, the frequent flyer programs are so effective because as a consumer, it's not because you get free travel. It's because you get to have free travel in a way that is luxurious and that you wouldn't pay for and that radiates across the entire brand and provides this huge halo and this huge gazirability to getting points. And what Qantas is this? - Status credits, I think is the other thing as well. - Definitely. Basically, the airlines are great. The airlines are great offering you various incentives that make you live a luxurious life and feel special. And that is what they're superpowers with these frequent flyer programs/status credits. - And they're so good at the branding. Like Emirates did it brilliantly with the racing sponsorship. And then I thought we were very well the tennis. Qantas has done a great job as well with just that great exuding luxury. Like the luxury that exude is actually far better than what you experience. Like the business class now generally has been dimmed to so much as not that amazing experience, but it's got that look and feel that it is a real luxury experience. It's actually quite incredible how good the airlines have been at branding. - Yeah, I agree. And so what Qantas has done is one, they've just jacked their frequent flyer points requirements for more, especially for more expensive types of travel, like better cabins. So I get that, like they're just responding to supply and demand and... - It's minimal. I think that, yeah, it's pretty minimal. I think Qantas is still too cheap to be fair. I think that should increase the classical rewards a lot. - So I've got much of less of an issue about that. But what they've done, essentially, is that they've made premium cabins inaccessible for frequent flyers. And I don't think, I might be totally wrong about this. And you can say, well, you're out of touch, but I think this is the opposite to being out of touch because the less you can afford to fly on premium, yeah, that's exactly. I think you've nailed the antenna. The less you can afford to be in premium cabins, the more important and valuable frequent flyer points are to get you into premium cabins. And what they've done in effectively, making of any availability is pretty much in economy cabins that I think that defeats most of the purpose of frequent flyer programs. I think it's a huge mistake. - Well, the question is, like, obviously you've got airlines. In Qantas, for Qantas put into growers, there's multiple divisions, but there's called airline loyalty, the two big divisions. And then they sort of split airline to international domestic, et cetera, et cetera. So you've got Cam Wallace, who's a great operator who's running the airline. And he's going, well, I can sell these flights for a fortune and make you guys lots of money. Every time I have to give a seat to a classic rewards for Qantas business redemption, I'm getting stuff all money for it. I can't give you guys any seats. So they created this mid-tier called Qantas Plus, which, remember we talked around in the pod, maybe six months ago. I was glowing over, I think this is a great idea. It increases the, effectively increasing as the cost of redemption, but gives you opportunity to make, and the time they said you can always, that you can always use Plus. If there's a cash sheet available, we'll just convert it at 1.5 cents per point, which is certainly not per dollar, which is at 1.5 cents per point, which is certainly not cheap. I think it's a much worse conversion than the three to five cents classic is, but you know, it's better than nothing. So I thought it's actually really great for customers. The problem is now they're not available. So, which I think is really disappointing from Qantas. I think I actually understand the lack of, well, I don't agree with it, but I understand the lack of classical rewards. So it's kind of short-term greedy, and I got sympathy for that, because if people are willing to pay 15, 20K, it's hard to sell that seat for 3K. But they promised this Plus thing, which is sort of this middle ground, where, okay, we're going to kind of give you the really cheap ones. Here's a kind of semi cheap one. You can always use your points, and they've got rid of that as well, although that's quickly, quietly, every time I check, nothing there. So that was the really disappointing part from Qantas. They've sort of screwed customers twice. - As you consistently talk about, everything does revert to the main over time, and this boom is not going to last forever. And so Qantas will wear the, and it's not just Qantas, like everyone who is not making seats available in premium cabins now, they will wear the consequences of this in the next downturn for travel, because this is real erosion of brand equity that's going on now, in my opinion. - Yeah, I think they're clearly not being long term greedy. That said, like, it's Qantas really hard to get business redemptions on now. Like, it's Qantas by far the best product in the sky, as you know, I've talked about a lot without peer, but getting really hard to get redemption. Singapore, you can actually get redemptions, but the product's kind of dropped off a bit, sadly. Qatar is actually not too bad. But overall, Emirates is not too bad to be expensive. So it's actually, there's no free lunches out there. - Singapore is the delay airline. They should rebrand as the delay airline, because they are always delayed to the point of missing connections, changing flights. - Oh, really? I've used to find Singapore the best. That's the last couple times I've been delayed, but I used to find them the best by far. They're always early. - I can only tell you about my personal experience. And like, they change flights. I was gonna go in an A380. I actually didn't need to take this leg in the end, but I was gonna go in a long haul A380, and they just send an email two weeks before, saying, by the way, we've changed it to whatever other 777 or whatever it was. I mean, that is not the same experience. And I find that it's this so much chopping and changing. The most amazing experience I had with Air India is they actually brought a flight forward by 40 minutes. So they sent me an email the night before, and they said we're actually gonna bring this flight forward by 40 minutes, and then it took off right on time and arrived like 40 minutes early. It was, I've never had that experience on any airline before. You know, when you asked me why I came to India, and I kind of gave this like blow off kind of answer to you. But the real reason is because we spoke about something on the podcast last week and or two weeks ago. I mean, obviously I'm not gonna remember when we spoke about it. And I found it almost implausible. And so I just wanted to come over here to confirm whether it was true or not. And I can confirm that sketches definitely feels much bigger than Nike and Adidas over in India. Like their stores are everywhere, everywhere. And so I think that's true. I think sketches does have huge growth in India and it's pretty remarkable. Like they're the dominant, they feel like the dominant runner's brand over here. I can also say that like some things are really, really cheap here. Like if I wanna buy a book here and I certainly bought quite a few books over here, a book that costs $40 in Australia and maybe even $30 on Amazon, it costs $15 over here. And so like books are really cheap. Obviously Uber's a dirt cheap over here, although there's a bit of a drop in the car quality generally speaking. Mumbai has Uber Black. No other city has Uber Black as far as I know. And Uber premium, I'm not even sure they'd let that drive XL in Australia. Sorry, Uber X is a cold in Australia. They wouldn't even let it drive X. So Uber is dirt cheap over here. I can't believe how cheap it is. But on the flip side, if you wanna buy a pair of Essex shoes, they'll cost you twice as much as they cost you in Australia. So it's just extremely... Almost everything is dirt cheap. And then all of a sudden, some things are unbelievably expensive. Hotels are expensive here. Nice hotels, like they cost more than I pay in Australia. Yeah, well, I've talked about Oberoi before, but we do a fair bit of work with Oberoi. I'm not sure if you've stayed in one while you're there, but they are next level. And so that the way Oberoi, like a lot of businesses, they have like a Oberoi University. So you can sort of come straight, I think come straight out of school and join this Oberoi University and they teach you how to do everything with hospitality. And it's statistically far harder to get into Oberoi than Harvard. Like, multiples harder. Oh, that's interesting. So it takes like 100 out of 40,000. So like there's some crazy figure, which is, so you get such incredible service, the foods, next level, the rooms are unbelievable. It's a great product. Yeah, yeah. Well, that's a lot of people here. So anybody that gets to the top of anything has been a lot of people. Next time you speak to your Indian call center, you can have a lot of respect for them because they've all been through tertiary education here. And it's not easy to get there's a lot of competition. So yeah, it's a crazy place. Well, let's move on to our first. We'll talk on big, this is a big story, especially for us 'cause we're so close to this company. We have been for a long time. And in a move that stunned a lot of people, West Farmers announced this week that it was completely shutting the once dominant catch the day e-commerce business on 30th of April. Our West Farmers boss, Rob Scott, told investors on Tuesday that the decision to close catch was in their best interests. Mr. Scott, who last year said Amazon team who kept him awake last night cited a significant increase in competitive intensity as the reason behind the decision. The increased competition had impacted catch's ability to generate returns over the long term, Mr. Scott said. Of course, Amazon was well and truly established in Australia when West Farmers bought catch. In fact, it was probably the main reason Gabby and has he sold the business in what now looks like a master's stroke where they received $223 million in cold hard cash. Since then, and these are my calculations, but I think it's pretty close, West Farmers has lost around $500 million owning catch, which means in total, when you add $60 million in shutdown costs, West Farmers has smoked around $800 million in shareholders cash on the disaster. And if you think this is just a rounding error, that's about four months of West Farmers net profit. So this is actually pretty significant. This is 100,000 people toiling away for four months blown by this stupid decision. And in a final fronting of consumers, not only did West Destroy a fantastic business, but it will give consumers till 30 of April to use their gift cards, which seems completely illegal. I dare you famously wrote a brilliant article, probably one of the best articles I've ever read. I reckon on anything, that catch back in '22, when you said, and you sagely called the purchase a cautionary tale on how large companies get into trouble when they buy a startup built on hustle, and that the most rational decision for Rob Scott to put this experience down in the COVID-19 fever and ask Gabby and Hezi what they'd pay for a third shot at catch. I'm guessing there will be any amount of money to take that business back now. Your thoughts on this debacle? - That's a nice comment on that article. - It was actually amazing. Type in out of your shipment catapult. Sorry, addition front catch. And for those listening, it's worth a read. It's actually a really good article. - You know what you've done now, that you've caused me a lot of headaches because there's just gonna be this spate of people that say it's firewalled. And it's like, I'm sorry that we live in capitalism. (laughing) Go read the ABC if you want to, I mean, I would not advise that by the way. So what do I think about this? I mean, there's like a lot to say and not much to say. What Rob Scott has pretty much said is that we haven't really been very good at running this business, and now it's got even harder to run this business, so we should stop running this business. I mean, that's effectively in one sentence what West farmers has done. Definitely the right decision for West farmers not to continue running the business. We can talk in a second about agency costs and why they maybe didn't sell it. 'Cause I think that is, if buying it is a cautionary tale, then I think not selling it is an even bigger cautionary tale because Rosalind Cogan said openly on LinkedIn, I would have bought, I mean, what he really means is I would have bought the brand for not much money, but like, but still he would have paid something for it. - And then we'd have to shut it down, which is it? - Exactly, and fire 200 people. I mean, although, I think that's the saddest part of this story. Obviously, we're very happy for Gabby and Fezi 'cause if there's one thing they need in life, it's money. And so they got more of that. (laughs) - Forget the money either way, I think for gas in hair is the, I think it's a bit of sweat. It's definitely redemption in that there was a, I never thought, I thought it was a mass struggle when they sold it, but there was definitely people out there who criticized them in 2020 and 2021. They sold too early, left all these money on the table, Cogan's worth two billion. This clearly redeems them. Like, I always thought the sale was incredible. They'll be unlucky timing the COVID happened after, but the sale was, they knew Amazon was coming, Amazon was here, and they read it perfectly, and West farmers will play it like fools. - And they pivoted to a marketplace, which I think is what really got the sale away, if you're honest about it. - Yeah, 'cause it was, they were always tracking, I think you're talking about your article and Jason Andrew, who writes some really good articles. Oh, he does some business tear downs, he does not LinkedIn, he's got his own webpage, he does on Smart Company. And Jason wrote a great piece on, not maybe not as good as yours, but a very good, really good article. And he's basically extracted the information over the last six years before West farmers bought it. And Catra making about 10 million bucks a year each year. There was a forecast that I'm gonna make 20 in 2019, but obviously it was sold halfway through. But I'm making that 10 million bucks a year, sort of net, maybe that was EBITDA. So the price, 230 is like an incredible price. I think you talked about at the time being a topic price. So they got an amazing price for it. It's looked like one of the best, like, obviously, menu logs the greatest sale, but this isn't too far behind. - Yeah, totally agree. And like the only thing that could have gone better for them is if they haven't owned it at the end of 2020 and sold it then, they probably would have gotten a billion dollars for it. - Yeah, sure. - But how can you, but you can't. Like that's just, yeah, about the app. - So I didn't think it was, I don't wanna say it wasn't a smart purchase because inside West farmers, there will have been a thesis about why this would benefit them. And I think there is a universe in which this was tremendously beneficial to West farmers. The universe just didn't include trying to force the corporate entity to take it over and to run it. I think that was the biggest problem because-- - Yeah. - They were there-- - Oh, kind of the same. - One pass product. What was it called when they ran it? Was it called One Pass, yeah. So they're one-- - Oh, I was caught club catch. Was the catch one and One Pass is the question. - Yeah, so that was, I won't say it was ahead of its time, but it was early. I mean, obviously it was much later than prime and it's no prime. But like, it jumped in relatively early to that space and I think that has been the main benefit to West farmers in acquiring this. They basically paid $800 million to acquire One Pass and that whole thing. - I think it being very kind 'cause I don't think One Pass is actually worth anything. - Well, I think it drives, look, I sign, I'm subscribed to it and definitely-- - They could have done an invite. It's not hard to repop it. We whipped up a distribution plan with a couple of people. Like, how is that an achievement? - You don't have 100,000 staff spread across your business with a bureaucracy in hierarchy and who knows how long it would have taken them to produce that themselves. - Oh, okay. I think that, and you touched on it, but the lesson here, and we've seen this so many times, the great, look at the great acquisitions and all the great acquisitions. We've talked about great acquisition on our show before, but Instagram, classic one. Booking.com, another one, YouTube, another one. They pretty much always leave the business alone and say, mothership pilot, you guys run it and eventually it's slow, maybe five or eight or 10 years later, kind of slowly comes back in, but basically, and Facebook's probably the absolute best example of this. They basically let Instagram run it autonomously. Eventually it came back in and they said, "You can utilize the Facebook expertise," 'cause there was a lot of stuff that Facebook were really good at, really the growth stuff and some of the engineering stuff. And they didn't have that Instagram hustle and you talked about it in your article about hustle. So what West farmers clearly should have done, and this is hardly a secret play, but this is what every good acquisition ever done is. They should have made sure to keep, like catch had some incredible, not just Gabby and Hazy, Gabby and Hazy built an incredible team. There was probably 30, 40 superstars from Ryan, from Adam Crone. There was a bunch of really smart people who worked there. I think, obviously, obviously Naddy left and Jason had gone by before then, but there was some really good, they should definitely should have retained Naddy 'cause he was sort of the glue in there and they should have kept that sort of people who are the real hustle and loot. They basically lost every single person in 12 months and that was an absolute death now. And it was like suicidly stupid from West farmers and it's a disgrace that no one's been fired for this 'cause this is just like, textbook, hey, don't do an acquisition. Like it's hard to get right, but it really is get wrong. And they basically take every box on hand not to do an acquisition. They were so arrogant. I thought, we can do it better than these catch guys. There's little guys from Bentley who don't know how to run a business. Well, catch guys proved they were far better at running the business than these guys. Well, you don't have all the competitive advantages that came out and that West farmers and office works and bunnings are built. It's much harder to run a business. And clearly I've just shown you how hard it is to run a business and how bad West farmers were and stuffing it up. This is just unforgettable. - I mean, everybody would have found this business hard to run over the last post-COVID period, but the catch brand was strong when they bought it and the catch brand is not strong today. It's weak, the brand is weak. It's not zero, but it's weak. And so then let's talk about this. So let's say you're Rob Scott and let's say I'm going to make Russ pay much more than he would pay for this, but just for illustrative purposes. Let's say he comes to you and says, we'll pay you $30 million and we'll keep 50 of the 200 staff that you're firing. 'Cause I think they've got 300 staff, 100 being redeployed, 200 being exited. That's part of most of the 60 mil of cost, I guess. If you're Rob Scott, not Adam Schwab being Rob Scott, but if you're in his shoes with his world and his corporate career or whatever, are you selling this to Russ for $30 million and you take 50 of my 200 staff? - Yes, I would. - You would. All right, well, and so the headline has now become, Rob Scott turns $800 million into 30 with catch. And I think that gives a lot more fuel to this story in corporate land, as opposed to saying, no, nobody wanted this, we had to shut it down, it was too bad. I personally think what is called the agency cost, that means the motivation or incentives that I have as a CEO running one of these big companies is such that I can't sell it for next to nothing and my bigger agency cost risk, even bigger than the headlines, is what if Roslyn turned it around and suddenly it's worth $300 million in generating profits? No, that's not, I don't think that's what he would do with the business. - Yeah, I have a comment there. - It could have been, right? So someone could have done that, someone could have taken it out. - I don't think this brand has turned around a ball now. - It might not be, but let's say there's a 1% chance. If I'm running, if I'm CEO of a massive company that's doing all these different things and I sell this business for next to nothing and I write down hundreds of millions of dollars and three years later, somebody has turned it into a proper business. I think my corporate career, I was gonna say political career, that's the same thing, right? My corporate career, I think it's severely dented by that happening and is much less damaged by just shutting this thing down and nobody ever thinks about it again. Like why would I want to continue the life of this brand as a corporate leader? - You know, I think you're probably right in that sense. Like I wrote, I was running LinkedIn Post. I got a fair bit of engagement. There was a guy, actually some guy called Zach who writes for the Motley Fool, which I quite like Scott Phillips who runs the Motley Fool, but this guy posted a couple of ridiculous comments. He actually then deleted it, maybe out of shame. But one of the comments he posted was basically saying how good Rob Scott was and what do I know, et cetera. So I did a little, just a little bit of work into sort of West Pharma over the last six years. - What do you know? You should have just put a link to this podcast and he would figure it out. - Yeah. - I don't like getting into sort of arguments like that, personal arguments on LinkedIn. I just sort of went back with facts because the facts make for themselves. But if you look at West Pharma as it's hard to say, they obviously demerge coal. So it makes the comparison a little bit trickier. But if you go back to 2017, 18, the business is making about 2.6 billion. It's now makes about 2.6 billion still, but I've demerged coal since it makes about 1.1. So it's making, so if you look at West Pharma's earnings in the last seven years, it's gone from 2.6 to 3.7. And I'm being a bit sort of rough here, but it's kind of illustrative. But we've had inflation in that period. So if you just assume it, forgetting comparing to gold price or other stuff, which is a pretty good benchmark, but if you just adjust for inflation, the earnings have only increased about 15%, or maybe 20% max in that period. This is seven years. That's not great. I would question, I think Rob Scott has to go. I think this, like you can say, it's 800 million. This is a $60 billion business. I think this is illustrative a guy who shouldn't be running the, obviously ex Olympian is well-liked. People like him, big guys, charismatic. But I don't, I think this is illustrative a guy who isn't up to the job and needs to go. And when you destroy hundreds of jobs and a great brand and catch, and yes, it's smallish in the scheme of West Pharma's, but it just goes to competence. And I'm just not sure he's got the competence to anybody. Like they've got some amazing franchises, West Pharma. Bunnings is an incredible business. Office Works is an incredible business. Kmart's becoming a incredible business. Like anybody can run this portfolio of assets. They've got GMs who run them or COS that run them. I question from a portfolio from a capital allocation perspective. If you're doing deals like this and this is how you run them, I don't think you're qualified to run the business. - So their share price is up 66%, two thirds in five years. - Yeah, but that's margin expansion 'cause the whole market's gone crazy. I think you've got to look at earnings, not P, multiple. - But that's not what investors look at. Like if you've got a CEO and they've delivered 66% growth on a business this size whilst paying heavy dividends, they're a good dividend payer. - They're a good impact. - And so you get these, I don't know what they're paying now, two and a half percent fully franked yield, probably something in that vicinity. And they're up two thirds in five years. - I think they've had 88% TSR. - All right, well he's not going anywhere. - Yeah, but that's a stupid way of looking at it. If you look at the actual earnings growth, the earnings growth has been terrible. Like if you look at inflation adjusted earnings growth. And remember this is blue, these are blue chip assets. Like he hasn't been running bunnings. Like I've had CEO's running the businesses. He hasn't been running, came up. That was, all these businesses are performing very well before he got there. - That doesn't matter. Like basically there is-- - I'm not saying it. - I'm not saying it. - We knew a sale for business of this size. This like your job is mostly long-term strategy, shareholder investor relations and hiring the right people to run businesses. - What's capital allocation? - And so it's the first point. - Okay, you're right, capital allocation. And so this 800 mil was not great capital allocation. We can agree on that. But let's look at some of the other stuff that he's done. I mean, we talked a lot about Kmart and Anko. That was under his tenure. So he found-- - That was cool. Guy Russell did that 15 years ago. That was not even heard of this golden child. If I adopt a kid, if I adopt a kid who's a concert pianist, does that make me a genius for teaching? Like, he inherited this by this incredible culture. - Yeah, but you just have a, so capital allocation, hiring the right people, making the long-term strategic decisions. So he continues to allocate capital to expand the Anko brand. He kept the right people in charge. He made some changes now. - Same people. That's the same people. - It's the same people. - The people are in charge. - Well, they're before him. He has fired them. I guess that's if that's your benchmark. - Well, that is something, well, for these. - This is for you? - Well, you're not going to fire the people. That's hardly right. Like, you have no one doing this job and it would have been, the business wouldn't run exactly the same. - You have a great spinning off Anko and trying to make it its own thing. Definitely the last five years Anko was strengthened versus the five years before. It's been really, really strong. Now it's been kind of spun off into a D.T. system. - You're criticizing the last week for stealing the ideas of young Australian businesses. - Well, I'm not sure he's the guy that's doing that, but like, I don't know, Rob Scott. I'm kind of just-- - We just say no. This guy gets all the credit for the good stuff they inherited and none of the blame for the bad stuff he did. - Yeah, well, no. I think because like, I don't give him credit for low-level stuff either, but like, he's made a strategic decision to say we think we can extract much more value from Anko. So we're gonna make these personnel changes, which I think were brought to him. But that's fine. Here's the CEO. Look, my only argument is this. There's a lot of metrics in support of him having done a good job. And then there's your arguments against, which are also compelling of him having done a bad job. I don't think it's cut and dry. Look, I don't think I definitely would not call him incompetent. Like he's not incompetent based on a lot of these metrics. I would say if you're an investor, and all you care about is making money, and I think I've just summarized investors pretty well there, then he's made you money. Like he's made you know the value of investment go up. Like the level of, this is a relatively safe company to invest in. Your risk of capital loss or extreme capital loss is low. And he's delivered you an 88% TSR over five years with a relatively low risk of capital loss. I take that. And so I don't think he's going anywhere until he wants to go somewhere. And I think that- - I think TSR's absolutely the wrong metric you use. I think he needs to use an inflation-adjusted earnings growth. And that is a far, far less, a far, far less pet on the back. If you're looking, TSR's sure, like how do you have everything's a great result? But that's a gerrymand. - Well, that's why he starts to be compensated on one day, TSR. That's what the long two-- - What happens when the multiple reverse to the mean of 18, and the share price harves, and then what happens? - Well, what is, what pair are they on 33? Well, that is pretty extreme. (laughing) - So when it goes back to 17, the long-term multiple, and the share price drops, and TSR goes back to 30%. Then what, is it the same guy? Like, he can't control the rationaling jubre and some markets. I don't blame him when it drops. I'm saying I don't give him credit when it goes up. - Well, I think a good time to retire might be on a PE of 33. (laughing) - But two-shot. - Yeah, can I raise a couple other points? Just one, this is a relation to court that founders, but so obviously, Gavin has had a great result getting the cash, but obviously the brand they created that's much loved, it was an incredible brand, is now about to die. How much would that sort of weigh on your decision to sell a bit? So you've got to, you've built a, kind of also a bad example, 'cause of it. But usually for me, for luxury scapes, would you, if you were in my position, and you could sell luxury scapes for an okay price, but there's a risk that the buyer might stuff it up and kill it. How important is the legacy of the brand, and the people, like, I think you want to, we all want to build this 50, 100 year businesses, very few businesses last 50 years, even fewer last 100, small bits last 100. How much is legacy important to a founder when it comes to selling a business? Or is it just all about the money and something else? - Well, unsurprisingly, you've gone, maybe tried to make me choose between the two extremes. (laughing) But I'll just use a slider in this one. I think luxury scapes is going to be more important to you than most things are so me, but maybe not catapult. And I think part of it depends on, I was going to say why you started it, but like, that's not a good metric for you at all, and not for some things. In fact, some things that I thought I am actually very, very passionate about starting them, and they may not be big things, but also like, kind of, how much of yourself you've put into them is perhaps like the way I talk about it. And so, I think the catch business ceasing to exist as a brand would be very painful. Like, obviously, they're building businesses to try and make money, and not in their wildest dreams when they started this. Would they have imagined that it was going to generate this much of a return for them? Let alone, you know, it's the other stuff that they saw along the way that was somehow connected to this thing they'd built. And so I think that would be painful, but I think also, like there are businesses that where I get involved pretty early, and I build those businesses, but because I'm involved in a whole lot of different things, I'll say it less about, from my perspective, and more what I might say to a founder. So a founder's been involved in the business for eight or nine years, and it's struggled, let's say, for the first five or six years, and then it found its feet, and it's really growing, and someone comes along and they're going to pay a big price for it, and maybe I think the price is too expensive, and maybe I think they're not going to do great things to the brand, but my view is, you've got to take advantage of that, because what you can do with that money is a whole lot of other things, and so you should take that money because it's going to be a much better feeling than missing that opportunity and navigating again, and maybe you'll run the business into the ground. I mean, there is no guarantee that a founder is not going to run a brand into the ground. I've got particular thoughts on the business I was involved in, and some founders that are still there, and like I think that brand may cease to exist, and so I think to me, - That's an unusual event of example of founders losing the plot. - To me though, it's like, it's a balance. Like the extreme way you can think about this is to say, a company says, we want to buy the business that you've created, but really what we like is, I don't know, your physical locations, your supply chain, whatever, something but not your brand, and so over the course of the next two years we're going to transition all of your stuff across to our brand. How would I feel about selling that? I think if there was a really high price for it that was much higher than the value, then I would take it and feel a bit sad about that. But like, I can go and do other things, but if the price was just a normal price, and I still had energy, I wouldn't take that price. It would be too important to me to take that price. - I think it depends on the business. I think that's an interesting couple points you raise, but if the business is one where the brand equity maybe isn't that strong, you'd sort of do that transition away from brand when the brand isn't that strong. I'm trying to think of an example, I cut nothing jumps to me on the spot, but I think as a vendor, as I found that you kind of understand, I haven't built that stronger brand. Person X wants to buy it and spend a lot of money, and give me a lot of money for it. I think the difference here is, Catra's a really good brand, and Gavin Hesley built this great brand. And I think in selling it to West Farmers, they thought this would become a 50 year brand. I think you'd think, West Farm, look at what I've done with Ospa Office Works, and Bunnings, and great brands that built and these are 100 year brands, most likely. And you would have entrusted West Farmers to not stuff it up. Not only that stuff's up, they've just relentlessly killed, it just goes to, I guess the early thing we're talking about, that would this make someone think twice about selling to West Farmers, given they're shown such scant, disregant, disregard sort of mismanaged it and killed it? Because maybe it makes Rob Scott look better or less bad. I think this is another reason why I shouldn't have just killed it like that. - Oh, I don't, look, listen, there's also a flip side to this, which is if you sell a brand, and you sell it for $200 million, and then five years later, it's worth $2 billion, 'cause it's been run really well, then what you think is, oh, I could have gotten it to $2 billion, like that's what goes through your mind. And then you feel like you just left 90% of the value on the table when you sold it, and like, you know, I've never met someone who's made a lot of money that thinks, well, that's enough money. So like, so I think that's the flip side, is that like you have this seller's remorse, if it does too well, what you want to have in an ideal world, if psychologically as a founder, is to sell a business for an inflated valuation to a company that you feel really good about, in an exit that really builds your reputation, and for the next five years, it grows a little bit, but not too much, and while you go on and do great things with the money that you got, that's the dream. And so I think, like, I'm not too worried about them shutting it in terms of other founders selling, like if they paid this kind of multiple to other founders, other founders would absolutely be selling this business to them, I've got no doubt about that whatsoever. If you can, I think the main thing with this, that is casted in a particular light, is that catch was a much, much better business than my deal. Like, it was almost, it was almost incomparable to my deal. They both had marketplaces, catch it a direct sales business, a much better brand, maybe catch was number two or three brand in the marketplace, like you probably have Amazon and Cogan, and my deal was very six. And Woolley's bought my deal, and my deal is still going, and they brought on new people into my deal. - They paid more. - They paid more for it. It's still going. They're pushing the brand hard. They seem committed to it. Like, Paul Greenberg is floating around there, Ryan Gracie is floating around there, like, in serious roles, I say floating. - Well, it's just that's exact opposite to it. - Yeah, they brought in good, they kept, I think they kept Sean, I'm pretty sure Sean's still certainly written. - I think he's still there. - Yes, they kept the smart founder, the hard working smart founder. - And by the way, we can say, honestly, like, Sean deserved that exit from the perspective of persistence and some of the stuff he had to go through, but not in terms of the quality of business that he had built. - Yeah, and being a great guy, but yeah, I think everybody thinks that was a great result, but it's more that, like, I think I've criticized Woolworths for that price repeatedly, but what they were smart about was, like, if you're, so if you compare, if you're going to sell a business, you sell to Woolworths over West farmers in a heartbeat, because Woolworths were smart, I got, I got ex-catch people in there to run it, they kept the smart people around, they did everything you should be doing. Maybe I've learned from easy buy, I've learned the vehicles I've had, but they did the right things, whereas West farmers did all the wrong things. - So we can modify this and come up with, like, an answer to this question, which is, maybe it's less about who you would sell to, but maybe the pitch is this, if West farmers and Woolies are both coming to you with some kind of retail business that you own, and they're both offering you the same price, and they're both saying the deal is contingent on you retaining a 25% stake in the business, then it would be much easier after those two examples were just raised to take that deal with Woolworths than it would be with West farmers. I think that's the rod they've possibly made for their back with the way they've traded catch. - Totally, can I spend one more small point for me to move on to such a great story, but I guess 'cause we know what the character is involved, but they matter really strange now, and they said gift cards can be used until 30 April. - Oh, God. - And this is, they stopped selling gift cards like two days ago, as we know. - We've got 20 other brands that you can use gift cards with. - Yeah, so we all say a part of the same business, but we're just saying, since we're shouting this brand, we're gonna do these gift cards to zero. - How is this legal, if I sell a gift card, it's got three years full of E on it, and we'll generally extend it past there, if somebody asks, how are these guys able to say, you've got a two month full of, surely this is illegal? And even if it's not illegal, how is this good customer service? Like you basically said-- - Well, I think it's immoral. We can say it's immoral. Illegal we can't say, 'cause I can't, 'cause I don't know the law on this, and I think that the ACCC is currently working through what the law is on this, 'cause this would be a great case for the ACCC. I mean, you got this high profile case against-- - Yeah. - It's the biggest employer in Australia. - And fighting for consumers with their gift card-- - I know where are you? - That's at your EMA triple C. Well, no, she's there, she's, they're investigating it. - Yeah. - They've said they're investigating it. - Well, I think it's pretty clear. But the rules are, if the business is insolvent, you become an unsecured creator, which itself, we've got issues with that-- - Well, we don't support that as a concept card, we've spoken about that before. - Yeah, and we have, and you made a good point there, but this has been voluntarily shut down when the, you can either say, okay, you can't use the catch, you can redeem when it came up. That's the obvious thing, 'cause it's the pretty much substitutable end of it. Or maybe Office work, but certainly Kmart. That would be the smart customer-friendly thing to do. What they've done to say you can't use it is, I'm 100% sure this is illegal. - Yeah, well, I don't know, I'm no-percentual, but like, there you go, we're at the extreme end on that one. But we both think it's immoral, and I also feel like, just to recap something we discussed earlier, like, you know, a customer that has paid for goods and hasn't received them, which is what a gift card is, but it's also customers have put orders in, placed orders and haven't received stuff. There is nothing about that that should be treated further down in the stack of a liquidation event than a supplier that's provided materials or a bank that's provided loans. Like, we should just be switching to a situation where customers with unfulfilled orders are secured creditors. And if that was the case, we wouldn't be having this conversation about what to do with these gift cards because they would have to be honored. - Yeah, I think it's orders, and I think the reason for this is, just not just 'cause they're customers, because if you're a business applying another business, you can look at ASIC, you can do, this is a big enterprise transaction that the onus is on two sophisticated business people to do enough data on each other. If you're buying a $20 gift card, I'm not gonna download an ASIC, do an ASIC search to see the financial business. It's a completely different level of sophistication, which is why you can't treat a supplier, same as you treat a consumer. - Yeah, yeah, agree. And so, like, surely, surely, West farmers is gonna get in front of this one, and say we're converting the gift cards so you can use them across any of our brands, because the cost of them is gonna be negligible. Like how many gift cards can there be like? - No, of course we're not that, and you get a customer at this new business anyway, so it's just, I don't know what, so it's in the first place. - Yes, exactly. I'm trying to, you know, when these things happen, I try to think about the room in which the decision was made, and I just can't understand what happened in the room where this decision was made. It just seems like a very strange thing to do. - Well, this goes to my view on Rob Scott. Rob Scott, the most senior guy in the organization. West farmers launched an ASX release talking about this. In that ASX release, they talked about gift cards, or certainly in the main West farmers' press release, aren't they, dear? He would've had, like, if you're the CEO of a business, and you're not checking an announcement like this, before it goes out, and he surely did, he must have, and if he didn't, so either he didn't check it, or he did check and he's incompetent. So, in both, this adds to my view that Rob has to go. - It's not incompetent. You call it incompetent. - Absolutely it's incompetent. - It's not incompetent. It's just mistaken. Like, this is a mistake. Just, no, this is beyond a mistake. This is not a mistake. This is not a mistake. This is not a spelling error. That's a mistake. This is a fundamental inability to understand the law, understand consumers, understand basic morality. Well, the law, according to Adam Schwab, which may or may not be the law of Australia, we'll see soon. But look, we'll see what the ACC says. And also, it's like, I just, I totally, you know, you say things that make it very easy to agree with you. That's 90% of everything you say. Maybe 99. And then one piece of this, because Rob's got to prove doing this with the gift cards and let the release go out, he's incompetent, he should be fired. And so, I think, oh, I can't agree. But I do think, but just to not look like an apologist for Rob Scott, this is absolutely the wrong decision. He should have and almost certainly did look at it and was aware of this. He should have reversed this in very harsh terms. Absolutely, he's looking at releases that go out to the market. And even more than that, and I can tell you this with, you know, the experience in a public company, he's going to have to do a lot of investor calls about this, a lot of investor calls. There's going to be a big investor relations issue. And so, what goes out and what he said about this matter will have materially importance to Rob Scott. So, yeah, it was a dreadful decision on the gift cards, but I don't call it incompetence. I just call it, like, it was misguided and a significant mistake and an optics disaster, but it doesn't make him incompetent. That was a great discussion, condolences to catch the day. It was a great one of the great Australian e-commerce brands that we're both very sad that it's gone, all that being said. Quick break back in a couple minutes. We've got some great stories to talk about still, so don't turn off. Whether you're starting or scaling up your company security program, demonstrating top-notch security processes and establishing trust is more important than ever. Vanta automates compliance for global framework, like ISO 27001 and SOC 2, and the latest Australian frameworks, like CPS 2, 3, 4, or Essential 8. And if you haven't heard of this stuff, listen up. And there's two really big reasons this is super important for your business. First, keeping customer data secure is really important. We're seeing big brands hugely impacted by data breaches in the last few years. And if you're a startup or even a scale up, a significant data breach can be catastrophic to your business. 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If you want to learn more about Temified, and discover how outsourced resource team can save up to 70% of cost, they've got an exclusive offer just for our listeners. Temified is providing a private and confidential onshore, offshore resource health check. Hit them up and mention health check to book in. (upbeat music) - We're back, and Netflix's Golden Runners continued with the company's share price up. How much do you reckon, I'll get a question for you, idea? 'Cause I'm sure you haven't read the run sheet yet, so you're not cheating. How much is Netflix up this year? 12 months. - You're right that I don't know. You know, before I answer this question, let me emphasize that I got Netflix wrong. Like it doesn't sound like I got it wrong because since this podcast I've gotten it right, but before we started this podcast, I was really wrong. I thought Netflix in the face of Prime, for example, I thought they were gonna struggle to remain independent as a business. Because Prime doesn't need to worry about what the cost of content is because of all of their other business. And I thought that I disagree, I disagree with that. - Well, that's what I thought before. Like I turned out to be wrong. So I'm not agreeing with it, I was wrong about it. - Okay, no, I disagree with the fact that Prime is not, Prime and Apple, I think definitely we're always concerned about content costs, just less so. - They could, well maybe a bit of what I'm saying it is, when I saw Prime, I saw a business that could heavily offset its content costs with the fact that it's using Prime as a way to generate this e-commerce business. Now it turned out that the e-commerce business is not the greatest of business, and then it turned out that it is the greatest of businesses once you pay businesses to advertise and have slots on its marketplace. But like Netflix has exceeded my expectations, and this, my view changed probably three or four years ago on that. How much do I think it's up? I don't know, I'm gonna say it's tripled. Oh no, it's way too much, it's ridiculous, but they're gonna say it, what's the answer? - In the last 12 months, I think it's tripled. - It's kind of tripled in the last 12 months, but I just wanted to go big, because I just feel like this, the tech market is out of control, and Netflix is a darling again, and like, I don't know, somewhere between two and three X. - Oh, you kind of know, it's two Xs, so it's double, which is so you, you were about far off. It's market value is now $407 billion, so it's-- - Which by the way, it's ridiculous, but it's like, it's basically added $200 billion. I don't mean it's ridiculous for the company, I mean, the fact that we just talked about it flippantly is like, how much do you think, look, we can say it a different way, how much more do you think Netflix is worth today than people thought it was worth 12 months ago? I don't know, $200 billion? I mean, it's remarkable, right? It's remarkable. - But when you compare it to like Nvidia and Apple, which I think Apple's, like Nvidia arguably deserves, Apple's worth like 3.5 trillion. So it's like eight times, and Apple's main product is shrinking every year for the last five years, which is the iPhone. So if you're talking about like crazy valuations, Apple's that takes the cake. So in the last quarter, Netflix added 19 million subscribers. And this is the last time, actually, it's not gonna disclose subscriber data going forward. It has 300 million global subs, up 41 million this year. And that was partly driven by the, remember the crackdown on password sharing it had last year. Revenue was up 16% year on year, and earnings were 1.9 billion US last quarter. And this is a business, as we talk about, with extraordinary power, it's got amazing brand, huge scale, and dare I say it, to open up Pandora's Box, increasing switching costs. Obviously, this is the bait we've had repeatedly on the show. And I think justifying my view on the switching costs is Netflix appears so confident that its customers aren't churning. It's increasing subscription fees by $2.50 on its standard monthly plan without ads. Its ad account is increasing by $1, and its highest premium tier, the 4K version, is increasing $2.25 a month. Netflix attributed the service access to the Mike Tyson, Jake Paul, boxing match in November, which drew 108 million viewers, making it the most streamed sport event ever. Netflix also hosted two Christmas Day NFL games, which average 30 million global viewers, making them the most streamed football games in history. Subs have also been buoyed by the SES of Squid Game Series 2, the platform's biggest ever premiere, which drew 68 million views. And another big one, which kind of has been forgotten about, but I think it's actually a massive one. And Netflix has added WWE Raw, which is the Monday night broadcast that started a couple of weeks ago, which you can get when you're with Netflix. So they are, they're done. They never said they put ads on, and then we're going to do live streaming sport. Now they've completely backflipped and done it brilliantly. - So let's begin with why your characterization of switching costs is completely wrong. - Here you go. - What you've just described is pricing power. That means this thing is really good. People will pay more for it, and they do pay more, and that's fine. That's about how much value you're giving people. Switching cost is how painful is it for me to leave the platform and go somewhere else? And the reason it's hard to talk about Netflix switching costs is because mostly what people are doing is not leaving the platform, either they're leaving temporarily, or they're taking multiple platforms at the same time, and the ones that leave temporarily tend to come back. And so I think Netflix churn number, it's very hard to know how to think about churn, because a subscriber that leaves in month, let's say a subscriber's been signed up for six months, and then they leave in month seven, and they come back in month 10, and they stay until month 16. To me, that's not a churn subscriber, but it would appear on a monthly churn number. And so I think the challenge with these kind of businesses, where people come and go, because there are low... I don't switch, it's gonna be called switching costs, 'cause you are switching, and then you're coming back, but it's more... - Nah, it's not switching costs. I agree it's not churn, it's not churn. It's just a lower appu, it's a lower appu. - It's not churn, exactly, it's hard to know how to treat that. So I think they do have low switching costs, because discontinuing your subscription, the only thing that hurts is that you can't watch the content anymore, and that's not about the switching costs, that's about the value that you're getting from the service. So I think all you're describing by price increases is pricing power, because there's more value than people are being charged for. - As we discussed last time, I'd disagree with that, because the whole point of switching costs is it's a combination of two factors. How much value does a person get, and how much hassle is it to switch? It's two issues. So if you're getting great value, that's higher switching costs. This is why I actually think Atlassian's Giro product is actually a great product for switching costs, because even though the product isn't very good, it's got really good switching costs, because you're getting great value from it, 'cause it's so cheap. So I think it's the same point. - Maybe the two questions I'd ask. - It's switching costs isn't just the hassle. Switching costs isn't just the hassle. - No, I agree. - It's the hassle of switching for the value you get. - So maybe the two questions I'd ask to assess switching costs, just as I think about this now, would be what do I lose when I move away, and how much do I suffer? Like losing stuff is stuff you have that you don't have anymore, and suffering is things that will find that are now not fine, because you've had to switch, and so what do I lose and how do I suffer? And so Netflix, yeah, you lose, but you can just get it back. There's not really any suffering swapping away from Netflix. There's just losing. - There's hassle. There's hassle in having to erase and describe. There is a little bit of friction. I'm not saying it's SAP. I've never said it's Oracle SAP. I'm saying there is some switching costs there. We can't just benchmark everything to SaaS. - No, but I can even say, I said to you, I think Apple's got weak switching costs, but they're real moving over to Android, and it's not even that. Like it's even-- - No, Apple's got switching costs. No, Apple's absolutely got switching costs. - I says it's got switching costs. They've got a bit of switching costs. It's a bit annoying to go to Android, and I think that moving away from Netflix and then coming back is even less annoying than that. So I don't know. Look, you know what? I'm not trying to argue with you that they've got zero switching costs 'cause like arguing zero and arguing a bit. Zero is a tough argument, and a bit you'll probably concede. So I'll just say a bit, but I think that them increasing prices is more about people really feel like they're getting a lot of value from it. I want to talk about the metrics of this business. So you mentioned Apple. Apple trades on 33 times earnings. It's ridiculous. I don't have to persuade you. - Well, it's ridiculous because it's core products shrinking year-on-year. - Yeah, that's right. It's under 33 times earnings business, in my view. - They're the 20 times. - Netflix trades on 55 times earnings. I want to tell you what happened with Netflix's metrics in the last, you know, these results they've just reported. So their revenue, as you said, it went up like 15 or 16%, that is what their revenue growth. But their operating profit went up 50%. And so that is extreme leverage. - How's the leverage? - And like their net operating margin went from 21% to 27%. Like, I've got to know, if you've got a business that's going up, it's like, got its profit growing at 50% on revenue growth of 16 or 16%. And it's running 27% operating margins. Like, I don't know, 55 is the right number, but there's an earnings multiple. But it's like not ridiculous. Like it's in the right ballpark. And if they can sustain this, the value of this business is going to be crazy. I mean, they generated $10 billion in operating profits. - Netflix was a fang stock, obviously. Facebook, Apple, Amazon, Netflix, Google, come with the last one. But it's not in the MAG 7, which is Alphabet, Amazon, Apple, Meta, Nvidia. So the different end. Here's Latin Microsoft, so Netflix became that sort of dropped out of the glamest stock kind of club. - 'Cause it's not AI. Well, every stock you just mentioned can use the letters AI somewhere in what it's saying. - Well, Apple, try. - Well, they all of them like pitch AI and Netflix can pitch AI and Netflix will certainly be using AI. But like, it's just not the same. They're not the core players in AI or they haven't positioned themselves as such. - Yeah. So Netflix has sort of lost that, but what a great business it is. Like it's the fact they've been a pivot to live sport. I love the fact they're doing live sport. I think it's, I think it's just a mate. I think it's perfect. We talked about a few weeks. They've got the lowest distribution cost. They can afford to pay the most. They can industrialize this sport, increases their time massively. I love it. I love the fact they continue to do these sort of exclusive, the squid game type, they own the shows, they create the franchises. This is a business that's creating that cornered resource. I love that. That just feels like they've read Hamilton Elmer's books and just, how do we increase our powers? And I think 50... - Well, he did read Hamilton Elmer's book. - Yeah. I think he did. I think Ray Hastings is a big fan of it, wasn't he? Yeah. - Isn't like, wasn't he the original person that talked about it? - I think he was. I actually think he was. You're right. Yeah, good point. So I think I just loved this bit. Our great 50 times is expensive for any business. But we talked about the great, we talked about technology, one in Australia. They were expensive on a paid basis, but it's such a great business. I think Netflix is in that same bucket that it's one of the few business I'd sort of hold my breath and pay that 50 times because they just got such a building to just leverage this business. - But we've watched this business grow. And I think this, if you're gonna do a Harvard Business School case study on how to think about strategic power over the long term, then in fact, my own vague recollection of this. I've read seven powers a few times. My recollection is, well, I've read a lot of other things in the meantime, but like, I think Netflix might have been one of the case studies in the book on how they switched from paying a percentage of revenue for every show to saying, let's get away from variable costs and let's focus on driving up our fixed costs, which is totally counter-insured for almost every business. But what they understood is they were gonna have this enormous growth spurt. And they thought that if they moved it to a fixed cost and amortized it over all of their customers once they grew, then essentially that would end up being a much lower variable cost over time than if they kept paying a percentage of each show. And the only way to do that was to create their own content. I think the thing that's been most surprising is they've been able to create consistently good content or a lot of good content. Now they have created thousands of shows and I'm sure a ton of them are not very good. But the ones that people love are Netflix-owned content, that's also 'cause they put it at the top of the list and they keep pushing their own staff. - Yeah, they distribute it beautifully. Yeah, baby Randy is classic case. Like no, baby Randy wouldn't work on any other platform but Netflix. - Yeah. But obviously the content does need to be a certain quality in order for people to wanna watch it. Like if it's young people are not gonna watch it. So yeah, I think they are almost the prime case study. Certainly they are the case study and entertainment industry but they're a prime case study on what strategy means compared to operational execution. - I think there's also another reason why investors and we talk about the old one guys and so many smart investors and this is not a secret that they love family-led businesses and this is a classic case family. So what you talked about willing to take a hit in the short term to move to a fixed pricing on the content because they know it's gonna be sort of long term greedy, short term destructive. And that's hard for a paid sort of corporate executive. It doesn't have the gravitas of a founder like Red Hastings. So I think there's some inherent advantages the founders have and this is a classic case of unbelievable and it reads now sort of handed over to Ted Sarando so I think he's still exact chairman but Ted's almost like a refounder but you've got the spirit of Reed just permeating through this business even though he's not technically CEO. This is how a business should be run. They think five years ahead these guys. Yeah, and they've also got a business with that can do that, right? Look, it's a great business. Not every business can think five years ahead 'cause a lot of businesses just have to survive day to day 'cause I mean, there are not many businesses of this quality. Lastly, let me ask you about this. So they've decided they're not gonna do subscriber metrics anymore in their investor presentation and there's only two reasons that you do something like that. One reason is that you think that at some point in the near future, those subscriber metrics are not gonna look good anymore. - Can bad. - Yeah, can bad. But there is another reason as well. You might do is a less cynical reason which is you think subscriber metrics are no longer the best way to characterize your business. And that's not, and so for example, if you thought that actually most of your business is gonna come from APU growth as opposed to subscriber growth, then you would start moving across to APU as a metric and start retiring subscriber growth. I mean, the time to retire metric is when you're on top. When you're retiring, you're not on top. People are just cynical about it. What do you think is their motivation for retiring the metric? - Yeah, I don't love retiring metrics. As we talk about Atlassian, not talking about the customer growth, they've talked about a different metric. That said, I never use subscriber growth in my metrics. I'm talking to investors. I think it's a kind of irrelevant metric. So I'm broadly good with getting rid of useless metrics, but the fact that I have used at this time, you almost make your bed and you kind of gotta sit in it. But yeah, from a pure set of first principles, I think subscriber numbers is a bullshit metric. That means nothing. - Yeah, I mean, also, as we just discussed, like what is a subscriber? And maybe I would say, until someone who cancels this month, should they really drop off being a subscriber? 'Cause what if the metrics tell them they're gonna come back three months later? And so like they need this rolling number and I think they're possibly trying to work out as they transition to an even better business, which metrics give investors the best insight? Because there are cynical investors that think that public companies are always just trying to pull the wool over their eyes and just trying to talk their own book. In my experience, most public company leaders are trying to figure out, in a very noisy market, where there are lots of alternatives for investors to look at research and buy, how do they communicate simply some metrics that will provide insight into, like what is driving the business? That is mostly why public company CEOs are choosing particular metrics. - If I'm being critical, I wonder if I'll stop reporting ARPU, 'cause certainly you're just back calc, a subscriber number if they still report ARPU. So if you stop reporting subscriber numbers, do you have to stop reporting ARPU as well? Well, that's a number I would like to see. So I hope they still report that. And if they do, then you kind of can work out as a subscriber numbers. But yeah, overall, obviously big tick to Netflix. I don't love that metric sort of change, but this is a business that really is doing everything right. And as a consumer, the product is just getting better. We wanna see, we talked about frequent flyers, like airlines continue to diminish the utility of their product, business class gets worse, how to use points, how to evaluate your points. Netflix has actually been the opposite. Can you use to add value? You keep giving more and more stuff. I'm getting used to be able to watch started with crappy movies. They could buy like a light picket license. Then they started doing their own originals and with the house of cards. Now they're starting to do their own bespoke, like Logan Paul boxing. Now they got raw. Then they got NFL. They're getting all this extra stuff at a very little extra cost. So you're actually getting more and more value as a customer. - I did, you know, I don't watch much of anything. So I tried to downgrade my Netflix to the ad supported one just to see what I wanted to see what it feels like. Like how, just as a research, like what, actually, if I'm honest, there is no downgrade. I wanted to see how long I took my kids to complain, which would give me an idea of how much I actually utilized the service. And it backfired badly because I went to Israel and like I had a bit of time like where I was sitting down. And so I watched this series over, you know, like not binge it, but over a lot of days called The Good Cop. It's an Israeli series. One thing I love about Netflix is they are so good on local content, like there's always local content on the platform. And so I'd watched it and it was only one series. Like, you know, I don't watch much. So I got through maybe it's like 10 episodes or something. And like I was up to episode nine when it switched across to being the ad supported version. 'Cause, you know, you pre pay for this stuff, which is part of the genius as well. Like, you're always a month in advance. And then I went to press play and you know what message came up? Ad supported Netflix is not available in your region. - Oh, honey. - And so I was like, okay, I better flick back. Yeah, and I flicked back. And once you go to pay, that it goes immediately across. And they give you, even though you're paying a month in advance, the minute you flick back, you get the benefit immediately. And so, you know, I could watch the last episode, but I still can't tell you what it feels like to have ad supported because I couldn't do it. - And moving from a really well performing company to one that isn't going quite as well, Bumble, the once high flying dating app, continues to struggle. Last with the company announced that founder, Whitney Wolf-Herd, is returning to the CEO role and succeeding Lydia and Jones, the current CEO who has left for personal reasons. Jones, the former CEO of Slack, will continue in a role up for the next couple of weeks. How much do you reckon Bumble share prices fallen from its pandemic induced highs idea? - I literally didn't even know it was listed. So that's news to me. - We've actually talked about on the show before. Sorry, obviously I'm paying out. I tend to drought out of signing content. - From its pandemic highs, 90%. - Yeah, 90%. I wouldn't accuse you of cheating and reading the run sheet, but we all know you haven't. So I was an honest, correct guess. - But I just said 90% because all of these things have fallen 90%. Like it's so obvious which of these businesses have fallen 90% and that this was going to be one of them, which is ironic because in the pandemic, you couldn't go and date anyone. - Yeah, exactly. It was worth almost $8 billion in 2021, when at least of now it's down to 792 million US. That's it, Bumble's underlying performance. Has been gradually improving. Revenue has grown from US 532 million in 2021 to 844 million in 2023. The problem for Bumble is last quarter actually saw revenue drop by 1%. That was despite a 10% increase in users, which means that ARPA was down significantly from 23 to 21. For nine months in September, the business recorded a pretty big net loss of 777 million, but that was a lot of impairment charges. So if you actually look at the underlying net result, the $825 million profit. So it's actually a business that's generating cash, 120 out million cash for nine months with very little stock-based comp before you ask. So it's actually a business that profit-wise isn't going that badly. There's a big issue and it's not growing. It's actually shrinking. Its balance sheet is diabolically bad. Pretty much all its assets is intangible. I think it's had a hard assets of $500 million in debts of $1.3 billion. So that obviously impacts that as well. So you kind of add an extra 800 million bucks towards AV, but nevertheless, it still feels like a business that but for the sort of revenue drop, it has been really hit hard 'cause it still makes money. - Well, but it makes money. But when I just have a glance at its pay, it doesn't have a pay. So it must not have had a full year of earnings, actual end pet. - Yeah, because it's got that impairment. It's got, that's the big impairment charge. - But what you're saying is, if the thing is worth, like maybe a way I would talk about it is like this. So it's worth, what did you say, 750 mil USD on an, it's the market cap. - That's market cap. Not any way. - But you want to chuck another 800 mil of net debt onto it. And so now let's call it just random out and call it like 1.5 bill. And you're making, what did you say for nine months? 120 something. - Yep. - And so let's call that 150 for the full year. So you're trading on 10 times cash on a business that is going, well, we can't say it's going backwards. It went backwards for a quarter. So the bet that you're making is, one, are they going to breach covenants, but probably not if they're making cash. They can probably service the debt, but who knows what their covenants are? I'll give you a tip, the covenants are not linked to earnings 'cause they've never had any. So, but they're probably linked to EBITDA or something like that. And so they're probably not going to breach covenants, that would be a disaster on the first shareholders. And your bet is, if this goes back to growth, then you might have picked up a relatively cheap business at an enterprise value of 10 times cash. But even if it was to grow 5% a year, rather than going backwards 1% in a quarter, it wouldn't be a screaming bargain at 10 times cash. You're not paying three times cash generation. And so I think I can see why this is so unpopular with investors. I think the broader question is, are these apps Tinder, Bumble, Match, Hinge, whatever? Are they businesses that are real businesses? Like, clearly it makes a bit of money here, but are they businesses that will continue to grow? Are we talking about it? I'm confident Netflix will continue to grow for the next 20 years. Like, it's got a great product. People love it, blah, blah, blah. Obviously, with dating apps, you've got the problem that the better it does, the more churn you have 'cause people get hooked up and don't need to decide anymore. So you've got that natural churn built into the business, which is a problem. Is it a possibility they just aren't great businesses? - I know that that is the thing that people talk about. Like, it's hard to hold onto customers, subscribers. And I do agree with that. But really what's happening here is not that the industry is going backwards or it's, what seems to be happening is that a dating app appears, it booms, and then another dating app takes over and it becomes successful. And the bigger question is, why has this market not become one in which the leading app becomes completely dominant and everybody uses that? Because this is just a marketplace, this business, and most marketplace industries end up with a one dominant marketplace and then a second strong performer but with some distance to number one. And this market has absolutely not played out like that. And I just wonder what is going on. And it's, my only guess can be that with each sub-generation of people dating, they wanna use an app that the older generation didn't use or something new becomes cool. And this is like your nightclub. Maybe these apps are much more like your nightclub example than they are like a traditional consumer subscription business and that is why you struggle to get any long-term traction. Because once you become mainstream, the next generation of consumers wants to use something different that's not mainstream. I'm surprised Barry Gillier hasn't bought this thing in IAC and just put it with all the other dating apps at this price. - I'm pretty sure he tried. I'm pretty confident he's tried to buy it a number of times but it would have been a lot more expensive at the time. - Yeah, I mean, he would probably be quite happy with like his business thesis on this category seems to be, I'm just gonna try and buy as many of them as I can and get economies of scale at the back end. And whichever one people wanna swap to at any point in time like they'll swap to and I'll just try and grow them as much as I can, but I'll just get economies of scale and overall net growth across all of my properties. And so at this price. - Yeah, and he's had that with him. I thought he just done really well and Tinder's come off. So they sort of had that diversification. - Yeah, I think the strategy is maybe the right strategy for this weird industry that just behaves in this unusual way. - I think you're really right with the sort of coolness factor that people stop using something. And I think the challenge is to monetize and they've actually improved their appoo. Sorry, they know if appoo has dropped off which goes to that point. I think the challenge of the sector is to monetize you've got to build strength. You've got to really build your market position and as soon as you build market position start monetizing people go. So I think it's, I think that maybe the challenge is if you look at the metrics it doesn't feel like an overvalued business. If you look at the sector and first principles it's not a business people really want to own. - Yeah, and so look, I think, then you have to ask yourself about the macro environment. Now I keep reading these articles that say Gen Z, I'll hesitantly call them. When I say Z my son gets very worked up but that is seems to be what it's called. - He means Z or what? - Yeah, he does not like me saying Z. - I don't think you say Generation Z, that doesn't work. - Well, he tells me I'm being Americanized. - I know, but that's what it is. - I think it sounds wrong here. - So Gen Z, like it seems, there's lots of articles I keep reading about how they do not want to use these apps and how they want to go back to meeting people in person. And the question is whether there is a macro headwind against this kind of online dating because definitely 15 years ago there was a macro tailwind. Like everyone piled into these apps. - Well, if you look at their customer numbers they're up year on year by significant, I think 20% of them. - I wouldn't know if that's... - So the numbers don't back that up. Although it's still pretty small. It's like $4 million, that's pretty small numbers. - We need data though on the industry 'cause the thing is this, if their customers are up 20%, are other people down 20% or 19 or 25? Like I don't know what the overall... - Well, the bigger issue is the app who's down. So if you can't monetize, these businesses only work if you get customers locked in and you can start charging them more for effectively getting more ability to swipe and effectively making it easier to sort of go on dates, essentially, and you can charge for that. But like a bit like skins in League of Legends, like all that sort of stuff. So you're paying to get an advantage in a way or... - Well, it's much more than skins because look, we have to be honest about something here. Like we've heard about all this sophistication on this show. It's all very interesting, hopefully. But fundamentally, human evolution is pretty much about sex and relationships. Like that's what human... That's all animal evolution, that's what it's about. And so it is why anything to do with sex on the internet has been such an enormous industry. And this is sex, but it's also relationships. Maybe a more significant evolutionary motivator than sex, maybe not, I don't know. So this should be like this natural, really strong tailwind industry for the most fundamental desires of human beings, way ahead of whatever we were talking about with Catch of the Day. And it's just not playing out that way. And so when you say you can get these extra things when you pay, and it's similar to Fortnite or whatever it is, and skins, the only issue I take is that makes you cooler, a bit cooler, and like social capital, like we understand the role of social capital in society, and that's what that's doing. But ultimately, most social capital in society is to try and get yourself a relationship or sex in some way. And so this is letting you buy something even closer to achieving that. And so it should be easiest to monetize. - Well, yes, no, I don't think it actually makes you cool, ugly makes you less cool, because you need, that's the problem. - Well, that could be the issue, right? That could be the issue. And I think the issue might also be, like I really don't know this industry as you don't, like as a customer. But I just wonder if there's tons of free stuff out there that you can use that's almost as effective and that you don't have to pay for. There's something wrong with this industry, basically, is what I'm saying. - Well, Scott Galloway, I wonder that this is maybe part of the answer. Scott Galloway has a better data than me, but it's something like the top 10% of males, something like 80% of females are only going for 10% of males. So what happens in real life is the most desirable males, the people who effectively be at the wealthiest, be at the best looking, whatever it is. - Movie stuff. - In, yeah, that's the ultimate extreme example. I'm just talking about relatively normal people. In real life, they have more chance of mating, but the fact that often happens at work, a third of relationships used to start at work, there's a bit of equalization happens due to court geography and circumstance. That's taken away with, I met my wife as we walked into a bar at the same time, but that was pure happenstance, serendipity. With the apps, that's removed. So it's purely who's good looking, and maybe who's rich if you can work it out. So it's able to funnel this small number of attractive, I say attractive, I say attractive not just physically, but attractive from a mating perspective males. So it's tiny percentage of males, and being sort of, they get all the attention, and the 80% of males, or 80 or 90 who aren't in that elite group aren't getting. So it's a real problem that it's making mating and racism much more unequal. And I think if you're in the 80% or 90% who aren't getting chosen, you go, why would I be on this? Like I'm constantly swiping, and nobody's swiping back at me. I think that's part of the issue. - Well, that's a great point. That's a great point. And like we talk about dating apps quite a bit, and I think the main reason we talk about them is because they're so different to most other businesses because of this deep psychological behavioral element to them that like humanity doesn't really understand this stuff yet, and we're trying to build businesses around it, and like learning on the go. And a long time ago in medicine, like jaundice, you know what, jaundice is, it's when you look yellow. Yeah, and it's like, yeah, build up a bilirubin or whatever in your body. And like, and so they thought jaundice was a disease. And because they really didn't know much about eating something. - Is it not eating a certain vegetable? - No, it's basically some, it's usually, it's to do with some problem that you've got with your liver that we're not metabolizing properly. Generally, let's just keep it simple. And so, and so people thought that was a disease and say, I traded it as a disease and you say little. And now as we've learned more and more and more, we realize jaundice is a sign of other diseases, liver disease, and there are other diseases as well. And so it's not a disease discreetly. And so trying to trade it as a disease completely misunderstood things, and it was not very effective. And I think like it's a bit of a long boat to draw, but it feels like we are with all this dating stuff. Like, we know so little about what is actually motivating these behaviors and this human psychology. And we're trying to build businesses around them. And my guess is a lot of what we think is going on in terms of drivers and motivators is actually downstream of the true motivation. And so that's why I find them just such interesting businesses because you're trying to build a business in an area that is poorly understood. - Try to add one more point to that last point on the 80%, 80, 20 rule. So Match Group, which is the kind of the Goliath of intent dating, it's got Hinge and Tinder and a bunch of others, it's the Barry Dilla one. That's off that. - What's that worth? - That's off about 80 billion. So it's off 80%, and a pair of 15. So that's four and about half as much, if that makes sense. So is it possible Bumble, of course, is the women have to make the first move? Which is, I mean, Whitney had a reason for doing it and it was differentiating. I think that's a problem for Bumble. I think it's backfire. I think in his world of Trump's DEI, it's a real problem. But I think moreover, it exacerbates the problem of women going for too few men. And I think when you've got a world where we make the first move, and men can't, it makes it even worse. So we're in a world where DEI flips. - Well, it's an interesting theory. - And I think Whitney has to reassess whether her sort of business practices are the right way going forward. The market doesn't seem to think now. - Well, none of these businesses should be standalone is also probably the lesson out of all of this because they're just too volatile over time. - Yeah, that's right. Can we just before we head off, I was going to give a shout out to my mate Bruce Buchanan at Rockt. One of the sort of best performing, it's called startup, startup anymore, scale-ups. They raise, they're doing their secondary rounds. This isn't, as we talked about primary versus secondary, this is a real money. So people are buying shares of existing employees, essentially, and early investors. And after valuation of 5.6 billion Australian, they're raising about $500 million in a secondary tender offer with the likes of Tiger, Square Peg, Baron Joey, second quarter, so really good investors coming in or increasing their stake. I think this makes Rock the third most successful Australian tech startup ever. I think, can you name the two better? - So I think I know that two most successful startups, aren't they Cameron Atlassian? - They are. - All right, so that's a pretty straightforward question, God, it was such a basic question that you maybe start second-guessing myself, but now I want to say to you, so let me say congratulations to the Rock team, and they've obviously built a great business, and it was very good that they just took this money off the table. I just have my issue with the top three businesses and startups. Canva, that really makes things better for people, like that has brought some genuine value into the world for consumers. And I see people all over the place using Canva, and I was in Israel, and I was talking to, look, I'm out with the two biggest clubs in Israel, and we were talking, and I made this joke, I said, ah, it's good to see you're using more than one great Australian company, because they were using Canva for their, and they didn't even want to be Australian, right? And so you can't argue with the value that Canva's brought, and unless in for all the criticism that we, by that I mean you, level it up, I see it. (laughing) Like it has, like the service that it provides, the reason it's sticky is 'cause people get real value out of the service. Oh, yeah, it's a good product, yeah, it's, yeah, people use it, yeah, we use it, so, like I'm not this great. - I don't feel that way about rock, like I don't think it does not add economic value to the world, it does add economic value, people are paying for something, and it drives economic value, but I think what it does is of marginal utility, and the way that it does it, I really don't like, like I don't like the experience, I think it degrades my internet experience. - Do you think what, is what Google does in marginal utility for businesses? I'm not about, I'm not the consumer product, the business product, the business side of Google. Do you think that's got marginal utility as well? - AdWords, I think that AdWords is, you can compare it in the way that you're trying to, which is all it's doing is driving leads and sales for businesses, and I think that's fine. I think the reason it adds so much utility is because it is so broad in who it allows to acquire customers, and so the plumber down the street, who I would encourage to use high pages, can go on to Google, it's obviously biased, 'cause I sit on the high pages board, someone probably have a go at me if I don't say that, and so the plumber can go on and put an ad on Google if they want to, and so can like, I don't know, Mecca, for example, and so that's why I think Google is special, and that's why I think it adds utility to the world, because it's such an equalizer in terms of who can advertise, and yes, we know all of the downsides of how it takes advantage, and nobody, has anyone ever underspent their bid on Google, or probably not, right? But like, so that's how I feel it differs, and that is why it is a great business, and I take nothing away from rock, and it's creating real economic value, and that's why it's worth so much, but in terms of contributing to the potential of the internet and technology, I just don't think you can put it in the same category as Can for Atlassian. - Oh, and obviously, Can for Atlassian, a much more valuable business, 'cause Can is probably 40 billion, and Atlassian's now 100 billion, so the market's, that's a 20x, but I think what Bruce has built, and he obviously didn't found the business but he effectively re-founded it, 'cause when he took it over from Ben and Justin, it was a small business, and Justin obviously worked for a long time thereafter, but I think this came to the, this is well after Google established, well after Facebook was established, to be able to carve out an ad tech business in what was already a super competitive field, I think is, in terms of impressive achievements, arguably more impressive. Atlassian started in 2006, it was Greenfield, nobody was doing Sats, they kind of had a rails around, they did a great job, but this to me was the harder, I'm not gonna talk about the sort of core value to society, I'm not that bothered, but in terms of the more impressive entrepreneurial achievement, I always put this at number one, and I think Mel and Cliff did an incredible job with Can for as well, and especially in raising money, but to be able to compete, the rock essentially competes against Google and Facebook, they're in general and selling leads to customers, and they do it via co-regs, they're a bit different, but to be able to compete with the business like, no one competes with Google and wins, and nobody competes with Facebook and wins, and these guys from Australia, and obviously now Bruce is in the US, but to do it from Australia is, I find, in terms of degree of, this is a triple-park, three-summer salts, off a 10-meter board, this is hard, and they've done an incredible job. - I'm not disagreeing with that, and you would say nobody except Bruce Buchanan could do it, and I wouldn't disagree with that, like I think I don't know him, but it's like, well, the stuff that people say about him, one of the common themes, is that he's so capable at leadership, and so I would definitely not dispute that. I think, I would just say I'm slightly different to what you're saying with that, disagreeing with anything you just said. The opportunity that he has carved out, fighting Google and other big, like customer, because just a Facebook matter, whatever, that still exists, like that window still exists, because you don't want to spend so much on Google and Meta, and I don't want to spend so much on Google and Meta, we all want other ways to spend our money, because it gets worse and worse every year to spend with those two enormous players, and so, like, Rockter's giving you another alternative, especially for big companies, really, or bigger companies as well, understanding, to go and spend that money. I think that's good, that there's that other alternative, but I think the door is still wide open for some platform to figure out, how do I make it available in a much more democratized kind of way, as people call it, which is democracy, in a democracy kind of way, for smaller or all businesses to continue to provide alternatives to spend money away from the major platforms, because there is not a single advertiser that you would ever meet that would say to you, "I don't want an alternative to Google and Meta." - Yeah, I think that's my point. Well, that's my point, the point is Google and Meta, especially Google, are so good. So, I think we were in agreement here, but I think that was what makes the rock story so impressive, from a shareholder wealth perspective. - Exactly, and frankly, most VCs don't really care how you make the money, as long as it's legal, and maybe I'll say it's as long as it's not too unethical, although maybe that's not even true, which this is not unethical at all, just to emphasize. No, this is not even in that category, like that. - Yes, I agree with you, I'm just saying VCs, like what they want to do is make as much money as possible, they don't want to make it illegally, most of them don't want to make it too unethically, but I think this is the perfect investment for VC, this rock business. - If you think how, just to compare, so go back to it, 15 years ago, rock didn't exist really, and if you look at the value of every Australian media business, it probably was about five or six people, maybe more, so like 10, nine, Fairfax, seven media, I'm not sure there are any other ones, but if you combine the value of those businesses, it would have been six or seven billion back in 2010. Now, if you add them all up, you take out domain from nine, maybe you get to a billion and a half, maybe, if you add them all up, and if you're adding Chucking Southern Cross and ARN as well, and rock just sort of forex the every other Australian media business, that's how impressive it is. - Well, it's not a media business. - 100% it's a media business, I'd say it's a media business. - If you add up the size of like every Apple, it's a certain size, and then if you add up the size of the sun, look how much bigger it is. Like, of course, it's not the same thing. - But it's a, it gets leads for business, like media businesses get leads for businesses, and this gets leads for businesses. - No, no, like, this creates no content, it's not a platform that people come to, it's not like driving, it's completely dependent on distribution from its partners, like that's not a media business, it's an ad business. - But media business is an ad business. - Compared to other ad businesses. - The content is irrelevant, it's the, it's what you're charging, I'm talking about the relationship that businesses have with customers. - Is Netflix an ads business? - No, Netflix gets money from consumers, all like nine, seven, Fairfax gets money from advertisers. - Well. - A little bit of subscription, but, and that inhibited the model a bit now, but historically it was from advertisers. - I just think certainly TV stations are. - I think your analogy's wrong for two reasons. One is because unfortunately all the other media, all of, I won't tell you other, all of the media businesses that you've mentioned, I've got the disadvantage of having to be valued on earnings, so that's a disadvantage that venture-backed businesses. - No, rock, rock does value on earnings, this is, this is the makes money. - I'm not saying it as a value. - Absolutely does. - Is it valued on, is it valued on an earnings multiple? Is that the value? - I'm pretty sure it is. - I'll be shocked if that was the case and you should correct me, you should find out if that's case and correct me. And the second thing is, all of these other businesses, they create content and then they monetize that content. They are the primary creators of content and rock is not a creator of content. And so I'm not diminishing, like this conversation makes us sound like I'm diminishing the business, I'm not at all, like I have the same view on the difficulty in carving out a space for these businesses you do and how astonishingly successful it has been in doing that. It is more like a media buyer than a media business. - No, it's not a buyer, it deals with companies, it creates a two-sided marketplace and allows companies to get leads and-- - Well, that's a media buyer. It creates consumers money. - A media buyer goes to-- - A media buyer is somebody who places ads on behalf of somebody else on somebody else's platform. That's not what rock does. Rock runs the platform. - No, well, like it's kind of splitting hands. Like a media buyer goes to a company that wants to advertise and says, I'll find media where you can advertise. Often it has a creative arm that builds some creative for the ads as well and then it goes in place as that and it gets a percentage. And by the way, it gets 10% whereas rock gets 50%. So I'd rather be running rock to business than the platform pitch, which is real. Like it's technology probably does something good, but I think the amazing thing that rock does done is it's become a technology-based media buyer that has gone to inventory that wasn't previously being monetized, so it was worth zero. - No, I disagree because it creates the inventory, it owns the inventory. Media buys just a-- - How does it create the inventory? - Because it works with, we don't work with it at the moment, it works with call it electricity scapes or a ticket master. After someone completes transaction, it shows an advertisement to a consumer. So it creates that platform without rock, or the other business is starting to do it now, or without rock, ticket master wouldn't have the inventory to sell. To me, it's no different to a TV station or radio station except it's just as much smarter way to do it, which is why it's grown its market value, so much in all these other platforms who just weren't smart about it and struggled. - So do you agree if at the beginning of media if nobody realized that you could sell ads below the stories in newspapers, and someone came along and said, we'll sell ads below those stories, would you call the company that did that like a media company, 'cause that's effectively what you've characterized this business as. It wouldn't be a media company. It's just, I agree with you like it's not a straight, I didn't say, like it's not a straight forward, it's a media buyer, because-- - No, because it's like the newspaper, because it owns the news, it doesn't own the newspaper, but it creates the inventory on both sides. It also builds the tech to allow the newspaper to do it as well, so it's much more than a media buyer. - Your pages were already there, and it just came and said to you, we'll build something that lets you run ads when people see those pages. I think that's very good, I'm not diminishing it, it was a very smart idea. - No, I know you're not, I know you're not, I think you're just talking about the comparison. - But I don't think that that's a media business, and I also think like-- - I don't know, I'm saying it's an ad tech business, but my point is, what the ad tech, what it really is, is it connects businesses and consumers, and that's what 10 does, that's what Fairfax did, that's what 9 does, that's what they all do, that's what magazines do, connect consumers and businesses. It just does it in a different way. - And do you think Google's not in this business, 'cause it's still too small for Google to worry about, right? - There's probably an element of size, like Google's, what, $3 trillion, this is $5 billion, you know, it's very different size, and obviously it's co-reg, Google kind of, like it's, Google's business is very different, I just don't think it's worth their while to do it. Remember, this is top, top, funnel, this is like, you think sort of Facebook's top, like Google's obviously lower in the funnel, Facebook's higher in the funnel, this is even higher, this is co-reg, so I'm generally not, as an avatar, I don't love co-reg, which is obviously people sort of anonymously, lead, becoming a lead, but obviously pay a lot less for it, so some businesses have a great results with it, so, and clearly rocks proven that it's, they've created $6 billion in economic value. - While we're doing this on your site, like when someone buys on your site, why you're not trying to secondarily monetize that person once you've already got their credit card? - Well, we don't, because obviously, we sell a high-priced product, but when we had sort of cheaper sites, like the big social, we did, and it's just actually great to create some revenue, and the pitch is, rocked because we all technology that does it better than you can, so we're a product that, like, you can do it yourself, or you can let us do it, and we're gonna do it better, and clearly, you presume they do, because otherwise no one would use them. - Yeah, I think, listen, I definitely think there is an irrefutable argument that they've been fantastic at monetizing this inventory, and a business that takes 50% is great. I've seen some startups in the last three or four months, I would say six of them, that are doing, they're targeting the same market from a standing start, not easy. - Yep, there's others, yeah. - With a user experience that I would characterize as significantly superior to the rock user experience, but I think that they will struggle possibly to match rock's ability to monetize, because that ugly inventory that rock runs is seems to be unbelievably good at converting, and so there's probably a trade-off there, essentially. So I think, look, I would never run it on a luxury escape, because, or any of the businesses I'm involved in, because once you get a purchase, you can upsell with the credit card already there, and like, well, whatever you give up, that opportunity, it's so lucrative. - Well, we don't, because we sort of upsell earlier in the funnel, and the post-sale upsell doesn't really happen, but it's more us getting a dollar or two dollars when an average basket size is three grand, kind of does doesn't really work. It's not great for customer experience. - Why don't you upsell like a car transfer or something at the post-purchase? - We find it up, cars hard, we're about to start upselling. So we obviously have a customer journey, post-purchase, where we offer lots of stuff to customers between purchase and gen. If you're talking about the immediate post-purchase upsell, we've just never done, had great success with it. But car rental is one where we actually are about, we're going to basically say, do you want to rent a car? And then the reason why you can't put a car in a normal flow, it actually impacts conversion more than you make from the car upsell. So we basically have, now I have a checkbox, check the box after we'll offer it to you, that we've certainly looked at, we've had rocked over the journey, we've been advertised on rocked, so we know the business really well, we think it's a great business, but it's much more appropriate for, where it's perfect is the high, like ticket master's perfect, high volume business, selling somebody else's stuff, i.e. tickets, they can get extra buck or two, per transaction, that's a great result. It's only making a buck or two per transaction potentially. - Well, we can definitely end by saying we're both very, like, pleased for them that they've growing so well and they're getting such a strong valuation, and I'm especially pleased that they got a secondary sell-down and that probably employees get to take a chunk of cash off the table. - Or it's all secondary, so it's also an endless combination, and obviously we know the square pair guys, we're great guys and the TDM guys are great guys, we've been supporters of rock from very early, so not only Bruce and the team have done well, but the investors who we like and know have done extremely well. So, congratulations everyone involved, great Australian business success story that we love to see. - Well, let's wrap it up, great episode as always. We will be back in person next week, and can't wait, it's been a long time. - Looking forward to it and happy Australia day. - I dare you work with some serious businesses, as well as lots of startups. Do you know what ISO 2701 and SOC 2 are? - I've definitely heard of them, but to be honest with you, I'm not 100% sure exactly what they are. - They're actually super important for two reasons, and if you're not compliant, it can be a really serious problem. ISO and SOC are essentially global standards for managing your customer data. - Well, as you can guess, I have some familiarity because customer data security is such a massive thing. We talk a lot about it on this podcast, I deal a lot with it in some of my businesses, and we've seen how many big brands have been really impacted by customer data breaches. - You're absolutely right, and the challenge is before Vanta, it was super hard for startups, and even scale-ups to know where to start. And even if you were super focused on getting your customer data secure, it was such an expensive, difficult, and long process. - I've heard it can take years, and there are a ton of horror stories of businesses that spend hundreds of thousands of dollars, and even then they don't quite get this stuff right. - That's why Vanta's so good. They've built market-leading tech that automates the ISO and SOC processes, so instead of taking two years, you actually get certified in a couple of months for what actually is a fraction of the cost. - Well, I think that's really good news because one of the things that so many startups don't do is focus enough on cutting costs, and even worse than that, they can ignore customer data completely, and if they get this wrong, potentially that's quite literally the end of the business. - Totally. - Another really important thing about ISO 2701 and SOC 2 is if you want to sell to enterprise-level customers, like catapult bars, like luxury scapes do, a lot of them actually require you to be certified in the first place. If you want to generate serious enterprise revenue, being certified is just a core component, otherwise you're not in the game. There's no surprise that 8,000 global companies, including Atlassian, Dovetail, Fire Ant, and Tactic I/O use Vanta to manage risk and prove security in real time. And there's a special offer for contrarians listeners. You can get $1,000 off Vanta at vanta.com.au/contrarians. contrarians.

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