Steven Sinofsky & Balaji Srinivasan on the Future of AI, Tech, & the Global World Order

Host: For four years, it was just a desert. The state blocked IPOs. They're blocking M&As. It was just an all-out anti-tech assault.

Balaji Srinivasan: DC is the zero-sum game. There's something positive out there, so it has to accrue to the DC power base. Figma managed to make its way through that. Absolutely no thanks to the state attacking it. And then Lina Khan decided to take a victory lap on this, which was, as I said, it's like the assassin congratulating themselves for helping to elect Trump.

Host: There's been a wave of M&A chaos lately: Meta and Scale, Windsurf and Google. A lot of it points to something bigger: how regulation, capital, and innovation are colliding in 2025. In today's episode, I brought on Steven Sinofsky and Balaji Srinivasan to break it all down. We get into how dealmaking is changing, from acquihires to what Balaji calls "acquifires," plus the deeper power struggle between the state and the network, and what it all means for AI, startups, and the future of tech. Let's get into it.

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Host: There's been a lot going on in the world of M&A in the last month. There's been the Meta-Scale deal, there's been the Windsurf saga, there's been the Lina Khan discourse surrounding Figma. I wanted to bring both Balaji and Steven together to reflect and discuss at a higher level how we make sense of what's happening in M&A land. Balaji, I know you've had some thoughts recently, so I thought I'd let you open.

Balaji Srinivasan: Yeah, so there are actually three separate issues that are all kind of interrelated. They're all related to how U.S. capital markets are becoming tougher, but the internet capital markets are opening up. Those are the Windsurf, Scale, Character, and so on—this new kind of deal structure—then the Figma IPO, and finally the new Genius Act.

To briefly summarize: since Sarbanes-Oxley in the early 2000s, which was passed in the wake of Enron, the intent was to stop Enrons, but it actually stopped IPOs. The number of public companies has just declined, the number of IPOs has declined, and tech companies started going private for longer. Then with the FTC antitrust harassment of the last several years, that also started to cut off the M&A window. For four years, it was just a desert. The DOJ went to interfere, for example, with JetBlue's acquisition of Spirit. Spirit went bust. Roblox had issues. A bunch of companies suddenly died.

Steven Sinofsky: Go ahead. Roomba.

Balaji Srinivasan: Roomba. I mean, they killed a robot tech company.

Steven Sinofsky: Yes, they said Roblox is fine. Sorry, Roomba. You're right.

Balaji Srinivasan: So first, the state blocked IPOs. We had to go private for longer and build a whole PE kind of model. Then they blocked M&As. Among other things, there was also the assault on AI with limiting the number of flops, the assault on crypto with the SEC essentially doing lawfare against the whole space and debanking companies. It was just an all-out anti-tech assault.

The amazing thing was Figma managed to make its way through that and actually get to IPO. Absolutely no thanks to the state attacking it. Then Lina Khan decided to take a victory lap on this, which was, as I said, like the assassin congratulating themselves for helping to elect Trump. It was quite a remarkable statement, but it really gets to the heart of the way that DC is the zero-sum game. There's something positive out there, so it has to accrue to the DC power base, because otherwise there's not enough positive left over. It was absorbing the one glimmer of hope and ignoring the long tail of carnage they've recently caused.

Steven Sinofsky: That's right. They take credit for the good things, and the bad things—"Oh, that company must have sucked anyway."

Balaji Srinivasan: The DC thing—I'm not sure this is apocryphal, but I remember Gates said something in the late 90s or early 2000s, before the whole antitrust thing that you guys actually had to go through. He wanted nothing to do with Washington at all. Some politician said, "That's fine, but we're just going to hold hearings on you, and then you're going to have to donate to us." Do you remember that?

Steven Sinofsky: I remember somebody wrote that up. Part of what you said brought up two things for me. One is that the whole thing about computing is that, except for the IBM antitrust case which started in the late 1960s and lasted through my high school, the whole role of computing arose without government regulation, without government oversight. Even with the internet, it was just government funding it. It's a very weird thing if you're in the business of governing and regulating, that this giant thing that swallowed the economy happened without you.

To be fair, the entire software industry happened that way. You never needed to be licensed to be a software engineer. There was never approval to sell software. The most approval the government got involved in was preventing mail-order laptops and desktop computers because they had radios in them. They needed FCC approval to ship computers to home. A guy named Dana Lewin, who ran the Computer History Museum, cracked that working for Apple in the early 1980s. That's how Macintosh made it to campuses—they figured out how to work around the FCC. Michael Dell had to do the same thing in the PC world. So you have this whole industry that swallowed the economy happen without any hearings. It's remarkable when you think about it.

Balaji Srinivasan: My framework on that, not that I use this for everything, but I think it's useful: network versus state. The network, the internet, versus the state—the regulations and the government, also informal things aligned with the state. The network is intangible. The scale of the internet and how quickly it grew is still something that, even today, people don't fully grasp. Orwell had the saying: "It takes an enormous effort to see what's in front of one's own face." What's in front of one's own face? It's a phone, it's a screen. The internet is simply the most popular thing in the world, perhaps in human history. It's completely ubiquitous. It's upstream of AI, upstream of phones, upstream of drones, upstream of everything on social media, upstream of the election. Twitter elected Trump, then Twitter de-platformed Trump, then X elected Trump. The internet is upstream of everything. Yet because it's invisible, we don't think of it as a primary actor.

The other thing is, I think future historians writing about this era will say: "You need a license to cut hair, you need a license to do this and that. But you didn't need a license to own a computer—the most powerful device ever created." What an oversight.

Steven Sinofsky: You raise a really good point. I'm not going to try to be the other side, but I can sort of defend that side. It is true: you needed a license to apply makeup in a salon or give a massage, but not to write software to change the world. It's interesting to think about the mindset of the regulator. All of the antitrust laws—whether the Sherman Act or the Clayton Act—were based on a very tangible, distribution-constrained, resource-constrained world. "You can't own the railroad tracks, the railroad cars, and the coal that ships on all of them" because that's vertical integration. The PC industry didn't have any of those constraints. The computing industry, only for that brief time with IBM, where it cost tens of millions of dollars and IBM chose to only lease them, not sell them—which makes sense in technology, because owning a depreciating asset that doesn't matter in a year is a bad idea.

All of those laws came about for that. Even the crazy elements, like when they do merger and acquisition analysis and try to understand market share—which is not in the law. There's nowhere in the law that says this, but they hire people and compute the HHI index. They take all the players in a market, presume the market is well-defined with N players, take each one's share, square it, add them up, divide by the number of players, and decide if it's greater than 0.25 or less than 0.75. Then they say, "Monopoly." This has been the challenge in computing forever. What is the market for word processors? Is it the thing called a word processor? Is it everywhere you can type? Is it only if you print it? You can't figure out what the share of email is. Is it the client? Is it the server? Does it depend on features? Is it mainframe-hosted, minicomputer-hosted, PC-hosted, or cloud?

Steve Jobs put up a slide at the iPhone launch of mobile phone share. He deliberately chose to measure it by the manufacturer of phones to diminish the share of Windows Phone. He could have done it by operating system, which would have made a completely different chart. What was the right way to define it? When Microsoft was going through its antitrust case, we had 100% share of the Windows market. Well, duh. This is what you get into when you look at a deal like robot vacuum cleaners. Do you count Optimus in the share of robot vacuum cleaners, or is it only the spinning ones that cats sit on top of? They've always struggled with this, but they don't admit it. They apply this sort of econometrics to make it seem like a perfectly well-defined, well-reasoned thing. Even today, it would be incorrect to define the phone market as iOS versus Android, because China would have something to say about that. Android itself is not the same product across them.

Balaji Srinivasan: I have three reactions to that. First, on the definition of market—Eric Schmidt talked about this. When the iPhone came out, people didn't think of it as a competitor in terms of being a camera, but it became one of the most popular cameras because it was ubiquitous, had zero incremental cost, was internet-connected, and programmable. Even though the image quality was poor relative to a DSLR, it was a very popular camera, but it wasn't thought of as a camera. The Christensen framework—the late Clay Christensen's disruptive innovation concept—is about something coming in that isn't recognizable as a peer to existing products, but it's better on some critical axis and gains adoption that way. Eventually it becomes a substitute, but it takes time for people to acknowledge it.

Second, there's a fuzzy set sort of thing. Google and Apple compete on operating systems, Google and Facebook compete on ads, Facebook and Apple compete on headsets, and so on. There's lots of fuzzy set overlap.

Third, the entire concept—Benny Devin said this: "Think about all the tech monopolies. There are so many of them." The issue is they use these formulas as a substitute for judgment and sometimes a mask for animus. Elizabeth Warren said she wanted to build an anti-crypto army, but really she wanted to build an anti-tech army. She's in a tribe that's against our tribe.

Put yourself in their shoes. People of the network versus people of the state. It took me a while to understand them. Fundamentally, what they want more than anything else is to get a piece of the state—to get a baton, to be assemblyman or undersecretary, to have a piece of the state. They can allocate capital and do things for the good of the world, forcing you to do this and that. It's all about coercion, power over others, and the use of force implicitly or explicitly. Our framework is the total opposite. We don't want anyone to have power over us. We're not asking to tell anybody what to do. We didn't consent to being in our organization. We just want a bare domain name, like reddit.com—a field we can build up on ourselves, and no one tells us what to do. Maybe an investment, maybe a board seat. But in general, you're able to build on your own.

These two things can coexist for a long time as long as we're just typing and doing math, and they're off regulating or bombing countries. But as the network grew to tens of millions, hundreds of millions, and eventually billions of people, we were like, "This thing just grew to state level." These two things started to conflict. We felt legitimately that we're the CEOs, the founders of these companies. We built them from scratch. We should have authority over what happens on these networks. They started to see that their authority on paper was being limited in practice. For example, if you're a taxi regulator, the actual regulator of taxis is Uber or Lyft, because they have real-time tracking and star ratings on both sides. If you're the FCC issuing licenses, the actual regulator of speech is YouTube or Facebook. Our peaceful, visible internet expansion started implicitly taking market share away from them and usurping regulatory power. So the empire struck back. They attacked us hard.

If I squint, I can understand how they think. They don't want others to have power over them. They don't like that the network is getting so big it can dwarf them. How would we want to have power over something? Within our organizations, we want to be able to flip a switch and make something happen. If there's resistance, that's a huge pain. We'll reorganize the company to be better and more functional.

Have you guys ever seen the political compass? [Gestures] Top left: authoritarian left. Authoritarian right. Libertarian left. Libertarian right. Roughly speaking, adjacent quadrants are often allied, but diagonals don't get along. As a libertarian right, I can sometimes understand the nationalists and the libertarian left, but the lizard foreign quadrant always seemed foreign to me—until I ran a large tech platform. Steve, you probably had this experience too. The libertarian right framework is everybody has consent, you pay them to do something, it's a market-based process. That works for many things. But if you're running a giant tech platform with hundreds of millions or billions of people, and you want to change some parameters, you cannot put that up for auction or discussion with everybody on everything. You're going to flip a switch, and they're all going to be opted into this, not get paid, and just do it. Otherwise, there would be no way to handle the complexity. Every algorithm change, every update, every parameter setting—Chrome has a zillion settings with defaults. You have to pick defaults. For the most part, the platform will know better than the people because it has all the analytics. You can put yourself into the Elizabeth Warren headspace if you think of yourself as a system administrator of a platform where you have lawful authority and you built it from scratch.

The difference boils down to the competence law. These platforms are at least competing with other platforms. If Apple, Microsoft, or Google makes too bad a decision, the people on those platforms have exit. They have choice. They can move between platforms. There's ultimately a market constraint. But the actual monopoly is at the DC level, where there wasn't a practical switching option. They could mess up the platform all the time. If you think of the state as a platform and companies as the apps on that platform, we wouldn't have that much choice.

Steven Sinofsky: That's a fantastic observation. One way to think about that—and we probably won't even agree on some of this—is to look at what the European Union has done with app stores. You see that dynamic playing out precisely. Apple said, "We want to build a platform like we built PC platforms. We understand how security violations happen, how privacy violations happen, how quality degrades over time due to software and third parties and apps. We know kernel mode versus user mode." When they built the iPhone and the App Store, they whiteboarded it out and deliberately constrained the API so apps couldn't steal information from other apps. They made it secure. No third-party drivers, no kernel mode. Then the European Union comes along after the success of that and says, "Good idea, but we want to return the phones to being PCs again." The Digital Markets Act basically says phones have to be like PCs. Apple says, "You do understand we literally set out to be more secure and private. You, the GDPR people, we wanted to solve this problem." And they say, "You're right. So we're going to put in a thing that says vendors should be allowed to be secure." Apple says, "What does that mean?" They say, "You have to figure that out. But as regulators, we demand you be as open and free as the PC and secure." Apple says, "We did that once already. That's why we locked it down."

You get into these crazy loops. It's not unlike the loop the media had with the internet. They believed in curation, editorial, and control, and owning the distribution. The internet had a different view on curation and control. The media decided they liked the distribution but wanted to constrain it, wanted to editorialize it. Then the regulators come in. That diagonal on the political compass is really about walking in your shoes and realizing what you did, but wanting that without the tyranny of the oar. I want security and openness.

Balaji Srinivasan: I think a big part of it boils down to the fact that they are simply not numerical. AI agents were helpful because they allowed me to model. I think all three of us are fairly verbal people—we can write and so on. But we also have system two thinking, in Kahneman's phrase. You can go heads down, program, do the math. The numbers have to add up. You have to do the spreadsheets. A good chunk of the people in the American state—not the Chinese state, that's different—are selected for having verbal and not numerical or mathematical skill. Distinct from the 1950s, when marginal tax rates were at 90% in America and 100% in Soviet Russia. There's a book by William Whyte called *The Organization Man* about this extremely centralized environment. You couldn't really found a company. It was hard for Shockley and Fairchild to do what they did. At that time, the Elons of the world would have worked at NASA or run NASA. The Patrick Collisons would have run the Federal Trade Commission. Whatever was written down legally, they would call each other and make it work. Founder-level people were channeled into the government. Similarly, in the Soviet Union, when they couldn't do entrepreneurship, they put all their energy into pure math and science. That's why there are amazing Soviet mathematicians and physicists.

Because they're selected for this, one example: do you remember Lorena Sanchez or Lorena Gonzalez telling Michael Saylor that he was a billionaire? Or Bernie Sanders saying "millionaires and billionaires," which is like saying "meters and kilometers"—a thousand X difference. Or when Brian Williams Maragay of the NYT editorial board said Bloomberg could give his fortune and give a million dollars to everybody. These are examples where I really think they don't understand. They think "billion" means "big number." A primitive tribe has numbers for one, two, and many. They don't understand 1E9—the difference between a billion and a million, or between someone with a billion dollars liquid, a billion dollars net worth, a billion dollar fund, or a billion dollar valuation. They literally can't do machine learning, gradient descent, or division. To have some sympathy for them: if I said, "What's the difference between a picofarad and a microfarad?" unless you've done hardware, you wouldn't have an intuition for it. They have no intuition for scales of money beyond their personal experience—a thousand bucks. Beyond what's in their checking account, they don't know what's above that because they haven't run organizations or done investments. A billion might as well be a trillion, might as well be a quadrillion.

Host: Let's bubble it up a little bit and talk more about this M&A stuff. I'm completely fascinated by this kind of crazy revisionist thing that goes on with M&A. You have to start from the premise that when a giant corporation does M&A, it's literally like a speculative investment that has a power law return. I love that you said that. There are only two truisms about corporate M&A. One is that it is provably a net destroyer of value. No matter how many studies get done at HBS or MIT Sloan—I spent hours in the library pulling papers with math and calculus that were against M&A, because I found M&A at Microsoft very difficult to pull off. Bill was mandating constant synergy across products, and M&A was a huge perturbation. With the exception of something like PowerPoint, which was a huge one. All the business literature says M&A destroys value. You would think regulators would be against M&A because of the failure, not the success. They should be saying, "Companies, you shouldn't buy companies because you just destroy them." But you never hear them doing that. No company sets out to destroy value.

I brought my visual aid this time. [Holds up screen] This is what the New York Times said when Google acquired YouTube. The headline on the front page: "Dot-com boom is echoed in the deal for YouTube," followed by 500 words about copyright infringement, overpayment, "it's just five guys and kitten videos." Pull quotes from people explaining what a disaster it's going to be.

Balaji Srinivasan: I love that. Can you put this one on screen? [Points] Instagram. At the time, Jon Stewart said—because Instagram had no revenue when Facebook bought it—"Little square pictures with retro filters." He said, "The only thing that would be worth a billion dollars would be something that would instantly get me a gram of Coke." Instagram today is being retconned as this evil, obvious move for the evil monopolist. At the time, Zuck was supposedly an idiot for doing it. First, Instagram had raised $500 million the day before Zuck offered a billion—double valuation. Second, that was about 25% of Facebook's $4 billion cash on hand. Third, it was weeks before the Facebook IPO. Fourth, the board wasn't consulted. Fifth, Instagram had no revenue. The balls to do that when you're going into an IPO, needing to reassure the market that the boy genius CEO needs idle supervision. "Why would Facebook pay $1 billion for a company with no revenue? With Facebook's public offering only a few weeks away, spontaneous and improvisational business moves become more curious." Or Hacker News: "This is not going to be one of the best tech acquisitions of the next decade. Instagram is a photo service in a sea of other photo services. Can someone please tell me how Instagram's actual content is worth anything?"

Host: Seems like mostly a huge waste of cash. And then Alex Wilhelm, at a market cap of $950 million, the New York Times is worth, quote, less than Instagram. True, true. That one I'll give them, that's true.

Steven Sinofsky: But I think it's also like, you have to actually read the reasons why people thought, because the reasons end up being these very pedestrian, sort of non-math, unable to see exponential growth, like not strategic. They just, they always fall back on something. Like in fact, you know, Instagram was on revenue. YouTube had no revenue, but also it was like this morass of copyright violations and how will Google ever figure that out? And no one ever wrote about the potential.

Balaji Srinivasan: And of course the potential—

Steven Sinofsky: Yeah, and go ahead.

Balaji Srinivasan: The potential is the part that it's the venture bet that the company is making. And the interesting thing is big companies make the wrong potential bet 90% of the time. Like they generally always think, you know, like they'll do like a HP Autonomy acquisition, which is a very famous went off the rails acquisition during the enterprise software world, where HP just thought, well, this is sort of this nth tier player in enterprise search and information retrieval, but we'll buy them and we'll put our magical sales force and platform strength behind it. And that will fix everything, which is like 90% of the M&A that happens. The big company just assumes that whatever it's strong at, it will just wave that dust over this failing business and it will make it great.

Steven Sinofsky: And I think, and I think that that's what, it's always like this venture aspect of it that's missing in this retcon that, that they should have stopped it or that they should go back and stop it because it got made into a success against all of the conventional wisdom at the time. It just completely blows my mind that that's the framework for evaluating an M&A that people would use. I mean, you know, like nobody's going to go back and retroactively consider whether, you know, Roomba really would have been better off being bought by Amazon, even though it should have been.

Host: You know what it is? Everybody wants a piece of reward. No one wants a piece of risk, right? So when the state goes and blocks these acquisitions, they assume no downside risk. They're not like taking, you know, hey, like for example, Adobe had to pay a billion of Figma for the breakup, right? Like the breakup fee or what have you, you know, the fact that the deal didn't go through. So the state just goes in medals. And then these people at the chutzpah to take a victory lap, you know, as really just, you know, you know, Stolen Valor, right? It's like Stolen Valor, right? Lina Khan, Stolen Valor, right? And genuinely, like, Dylan Field, like, and the Figma team, superhero, but just to talk about that for a second, like, with an M&A, you made a bunch of good points, Stephen. I want to kind of add to that. First is, absolutely, there's a power law for M&A, just like there's a power law for startups. And the best M&A you do can completely transform your company. A lot of the returns essentially fail. And sometimes it's a little bit unpredictable.

Steven Sinofsky: Number two, I think, is in general, a company usually needs, in my view, and you may disagree, it needs to be about 100x the size of the small company in order to acquire them. And the reason is, it's even only 10x. I can only think about one deal where it was about 10x and it worked, and that was Illumina's acquisition of Solexa, where it's like a must-win, that's in the genome sequencing space, but that, or genome sequencing space, That's where there was like a really important technology that became like the basis for everything Illumina did for the next decade. And the entire executive team was bought in on it because 10% of your cap table, 10% of your equity is like a huge amount. It's basically more than you're going to spend for the whole year, maybe for multiple years at a time. And so a 10% bite is massive. It has to really be 1% and that's still a whole integration effort. That's number two. And the reason I say it is lots of founders at various stages will be like, oh, I'm acquiring another startup. And I'm like, startup deals never work in general because neither of them have money. Maybe one of them can shut down and join the other one. That sometimes works once in a while, but in general, they don't work. That's why M doesn't work, but A works. Like merger usually doesn't work, but acquisition works.

Host: Well, AOL and Time Warner and stuff. What a huge disaster that was.

Steven Sinofsky: Yeah, exactly. And again, once in a while, it's something like Steve Jobs, Pixar, and all the ones that work are sui generis where it's like they really acquired some amazing founder as part of that who then leads the company or something.

Balaji Srinivasan: The third thing about M&A, as you again said, is that the smart big company values them on the basis of the big company's distribution, right? And it's this product times that distribution is something. However, the dumb big company just thinks they can just roll up anything and sell it, and that just doesn't work, right? I think one of the huge, I mean, the response is, by the way, on this Figma thing. And then let's get to actually Windsurf if I want to talk about that as well. And then also the Genius Hack. The response on the Figma thing, I think, fell into one of three categories. The first was the Elizabeth Warren School, which is just anti-crypto army, anti-tech army. They hate tech guys. And I actually like that because that's just like pure tribal animus. Okay, meet me on the 50-yard line. You bring your guys. We bring our guys. let's, you know, win the battle through the idea. Let's go, right? I actually prefer that because that's like explicit conflict and it's just, you know, tribe versus tribe, you know, got the war paint on. Okay.

Steven Sinofsky: Then you've got the, like, well-meaning maybe, but, you know, I often can't tell if they're trying to kill us or they're just actually arsonists or what have you, right? Which is, oh, we're going to have more startups if we allow them to become big and not be eaten by these other companies or what have you. And I struggle for the analogy or what have you, but it's like, I don't know, you can't hire somebody until you interview 20 people because then they'll be like the best of 20 people and we're going to let you hire the best of 20 people. What it does is, first of all, you shouldn't be interfering with that choice. Second is that if you cut off the flow of M&As, obviously, most companies aren't either good enough or it's really tough to make it all the way to IPO. Like Oculus, for example, down 10 years ago, they were burning a lot of cash. They probably couldn't have made it to IPO. A lot of companies are like that. They're burning cash, but they're valuable to a big deep pocketed acquirer. And there's like maybe one of five guys who could buy them, 10 guys, 20 guys, whatever the number is, but they really can't operate as a standalone company. They got to prove concept enough, right? So in that circumstance, airlines are often like this where there's a ton of fixed costs that go into it. And, you know, like mergers make sense because they have routes and stuff like that, the JetBlue Spirit one, right? So when they block those deals, they are actually destroying value, right? And moreover, one of the biggest issues, and this is related to regulation in general, is they think of it as, oh, this is punishing the big tech companies, the punishing of the companies. It's actually, even though it's an annoyance to them in the short run, in the medium to longer, it makes them stronger. because if the big companies can't buy, well, first of all, figure out other things because we'll get to these complex deal structures. But second is, that means less money for startups because when a big company makes a big acquisition, that's a big surrender because it means a big company couldn't have built it themselves. Like Google had Google Video, but it had to buy YouTube for 1.6 bill, which certainly caused, I'm sure, some churning internally by the Google Video guys, right? And most of the time at big companies, there's some faction inside It was like, we could build it ourselves or, you know, no, no, we're paying too much or something like that. So it's often a surrender for a big company to do this. It's not what they wanted to do. They didn't want to pay a billion dollars or whatever for this. And then that surrender money, it goes and excites everybody. They're like, let's make a million Instagrams when you see a big billion dollars for the Instagram acquisition. And then you get Snapchat and then you get TikTok and you get all these other competitors. So Facebook, it's like throwing fertilizer on, you know, to spring up a thousand competitors that, you know, all start attacking you, right? And so the actual way of regulating big companies is with a thousand startup piranhas, not by dysregulation.

Host: Let me pause here. No, that's a fantastic observation because you always remember that in a big company, whenever something new that's adjacent pops up, the immediate reaction is, okay, we're selling this giant blob in software. We're selling this giant blob of software and this thing is adjacent to it. So our blob needs to have that thing. And that's what immediately gets the antitrust regulators. Oh, but that's expansion by leverage or by tying or something like that. Tying, oh my God. What does tying mean? Tying means you're tying peanut butter and jelly together in a sandwich. Tying is like business strategy one-on-one. Now, 10 years later, the truth can be told, I'll tell you. Microsoft did nothing wrong. But it is, and so you have all these meetings at a big company, which is, well, should we make it or should we buy it? And it's just make versus buy. And that's the conversation that you're going to have.

Steven Sinofsky: Of course, this is the funny part about— Big companies find it hard to make though, but go ahead.

Host: But this is the funny thing, because if the regulators get involved, then they get all the memos and all the emails. And it turns out inside the company, half people said we could make it and half people said we could buy it. And all the people said, we have to have this thing. And they said it with varying levels of hysteria. And it's like, we have to have this, this is going to put us out of business. Or, well, this would be really nice. and we have some customers on the peripheral asking for it. So which one of those enters the discovery for the regulators? The hysterical person who's probably the person on point losing a deal in sales or the engineer that just is mesmerized by the exciting implementation of something. And that's exactly what, that's the reality.

Steven Sinofsky: But then they still go back and have the make versus buy. They always make one of two choices. They almost never really just try to make it. But if they have to because the one that they want there only one they can buy it or whatever it very very hard to succeed on the make versus buy when you go to choose make So then you go buy and there a fork in the road About two-thirds of the time, the big company says, wow, the leader is really expensive. But we have our magic distribution beans, so we're going to pick the number two or number three that's like way, way cheaper and get it in a fire sale. And of course, that never, ever, ever works. Like Microsoft- When has that ever worked? I'm actually trying to think. It doesn't. Like you have Google bought Motorola. Oh yeah, double click. Google bought, double click. And then what is it? A-Quantive. Microsoft bought a Quantive for $5 billion. You had Sprint merging with Nextel, which was like two number fours, if that was a possibility. You have Microsoft and Nokia. I made a giant long list. You had everybody in the phone business that needed, or everybody in the chip business that needed modems. And so then they went and everybody bought these like number two or three modem makers. Like NVIDIA almost got overtaken by a PE raider because it bought a modem company. And that was a signal to the market that it was completely confused about gaming graphics. Why would you compete with Qualcomm from a gaming graphics company? And this just goes on and on and on with that kind of thing. But then you still get to the point where you want to buy something, which is still a power law return. But again, one of the things that doesn't get taken into account is that in a venture investments or acquisitions from a company can actually be really transformative to the big company, which is a thing that the regulators don't really see because they see the world as a static fixed pie. So they think like once a company is like IBM and owns mainframes or is Microsoft and owns Windows, well, that's just what it should do. It should then just make Windows forever and just be the Windows company. This is where tech people are very, very different because they just assume tech has this finite, you know, sell-by date and that the tech is just not gonna be all that useful down the road. So you know you have to reinvent yourself. And, you know, like it's not like people in, 1985 thought Apple was going to be a phone company. And that whole mindset, it just sort of escapes people. Here's an example of an acquisition that was hugely transformative for Microsoft that nobody knows about today, which was in the throes of the rise of the internet in 1996 or so, we bought a company called FrontPage, which was basically a word processor for the web. And it was a way to design a whole website and to also do something that nobody else did, which was you could edit on a PC, push a button, and those things would end up on the internet. Like that was a – Yeah. At the time, it was actually pretty good. It was super cool. Really. But what it did to Microsoft was it like saw – you know, I was in office. We did the deal. But then we had a fight with the Internet Explorer team who thought they should do the deal. But they didn't want to do the deal until they saw us wanting to do the deal, which is a whole how things work in a big company. And so we ended up – first we had to solve the bidding war within our company. And then we had to get on the phone with Mark and do the bidding war against Netscape for this company in Boston. But the thing that it did was it galvanized Microsoft to say, you know what's really important on the internet is editing. And nobody was really solving the way to edit this very finite thing called HTML and publish it to an Apache web server. And so we finally figured out that like editing on the Internet was not going to be like Word. And it was going to be a different kind of tool that involved script, that involved programming. And that's what led to a series of things. But the people we brought in were experts in the Internet and editing on the Internet, which we just didn't have. And although the product never materialized as a big Microsoft thing, the people infused that DNA into the company that enabled Microsoft to go and figure out how to do editing in a browser, which turned out to be incredibly important. And that kind of thing is transformative, but it also transformed the whole industry. Like, where would we be today had we not figured out these dynamic websites and the way you could edit web in the browser and stuff? Like that wouldn't have happened because we were just not innovating there. And I feel like that whole thing is missing, even from the Figma, which, again, the specifics of Figma aren't really super important, but it was a whole new innovative category of how to do tooling, which then gets to AI and tooling. So I think that's a good way to get us to Windsurf and everybody else.

Host: Okay. Yes. in general one of the things that's been happening is due to the not just past people what are the people can only remember maybe a name it's like a fleeting kind of thing they're like well Lina Khan is gone so therefore nothing has changed us first Google is a giant antitrust case still going FTC first Meta still going all the antitrust stuff is also not just the US all these other countries that ganged up on this Figma thing there's just every lawyer at all these companies like their number one priority is do not get us into some, you know, antitrust situation. So because of that, a lot of the big companies have been forced to innovate on deal structures and do things that are new. Scale, character, inflection, adept, covariant are all and Windsurf. They're all very similar, right? Where essentially they are, they're not all the same, but, you know, we have, so there's a typical acquisition where you have an acquirer, let's call it Google, and it buys a company. And what it does when it buys a company, there's a process which most people watching the show will know, but if they don't, there's something called the capitalization table, which says who owns what shares. And there's something associated with it called the liquidation waterfall that says who gets what money when. And so, for example, if there's debt providers, how they get paid and who gets paid in the middle, who gets paid at the top of the preference stack, who's at the bottom, common holders, and so on and so forth, right? So the capitalization table and liquidation waterfall very well-defined process for who gets paid when you just buy the whole company, right? Eat the whole thing. Okay. Then you've got something which is like an acqui-hire. An acqui-hire is something where, and I'm just describing these basic things just to set the context for what this Windsurf thing was. So an acqui-hire is something where the acquired company doesn't really get any money. It's not usually done through the liquidation waterfall. Instead, the company just shuts down. But there is a press release that says it was acquired. and then the team goes and gets jobs at the new company. Maybe there's some cash it's giving to the investors, but essentially it's way better to at least get an acquihire than to have a total go to zero moment because you get the status, if not the money. That's one way of thinking about it. And now we get to the third thing, which is what these deal structures have, where they have an acquihire component, but they also have what I'm calling the acquifire. Okay, so the Acquifire, the Acquifire component is in these like six deals in scale, character, inflection, adept, covariant, and Windsurf, the big company basically bought the top AI researchers and engineers out of the smaller company and paid a huge sum for that. But then it wasn't actually buying the company. The company was left as a shell or as actually an existing entity. And then let's say, for example, the case of Windsurf, you had 40 people go to Google and about 200 people were left behind. But there was a huge chunk of money that was left in the bank account of the left behind entity. and it's usually set up, and it was in the case of Windsurf, in such a way that the money that was left in the company is what they would have received through the liquidation waterfall, right? And so the point is that in an acqui-hire, you get the status, but not the money. In an acquifire, you get the money, but not the status, okay? So that leads to the whole Windsurf drama. In the other five acquisitions, you know, you've seen the Dark Knight, you know Bain, he's like, we need one of us to be in the wreckage, brother, right? But so whoever was in the left behind, you know, company, right, was somebody who was well behaved enough to basically be like, OK, salute. I'm going to go kind of down with the vehicle. I'm going to dividend the money out, you know, deal with it silently and so on and so forth. Right. It was, you know, you know, like there's a line of succession for the presidency. It's like president, vice president, like I think it's the speaker of the House, blah, blah. and you get to like number 37, it's like the Secretary of Interior or something like that. It's Kiefer Sutherland, the Housing and Urban Development. Kiefer Sutherland, right, right, exactly, right? So the Kiefer Sutherland is the designated successor if the entire leadership structure is decapitated or, in this case, acquired, right? If they're all raptured, right? That is the person who's behind who's now the president. Now, one of the things I think we need to do in our contracts is we need to have, you know what comes with a key man provision? Yeah, yeah. We need to have a non-key man provision, which is, this is the designated executive who is in the event of an acquifire-like thing, and we can decide how to describe it. It's not an acquisition, because there's an acquisition, then you have all the FTC, blah, blah, blah, blah, blah stuff, right? But in the event of an acquifire, this non-key man stays behind. He gets maybe a little more money than he were, a lot more money, whatever, very, very negotiates, because he's not getting the status of being acquired, okay? But he executes an orderly shutdown of the company, doesn't have any drama, and just dividends out the money, okay? The issue is that this deal structure was new enough that the other five times it went fairly well, but in this context, what had happened, and just to give you some details that I'm aware of, first, most of the Windsurf employees are just being hired in the last few months because they were all sales guys. Second, Google, when acquiring the company, didn't want to acquire these sales guys because Google has its own sales team. Google just wanted the engineers, right? Third, Google put 100 million plus in the bank account of Windsurf where the intent was to dividend it out. But the guys who were left behind didn't understand what was happening because they're sales guys that just think about money or whatever. And the problem was it was so constrained in terms of what could be said about what was going on. Since it's not an acquisition, guys, right? Since they couldn't say anything about what was actually happening, the people who were doing the deal couldn't communicate clearly about what was happening. So it just looked like, oh my God, the founders left and they left everybody in the lurch. Oh, they broke the social contract. And so that's not actually what happened at all. What happened was the FTC and others had made acquisitions so difficult that they had to do this other structure. And it resulted in the people left behind not getting the hint about this. That's one interpretation. The other interpretation is the people left behind got money but not status. So after all, if you put yourselves in their position, like normally in an acquisition, Google might have acquired a 250-person company and they might have kept 40 people and the other 200 people, they said, hey, we're not acquiring it. But those people would have had a face-saving thing and they would have had a line on their CV saying my company was bought by Google. I decided to do something else afterwards. And you know what? That's actually a common thing because it has to be both parties have to agree. Both the big company and small guy have to agree, hey, I want to still work at Google rather than do another startup. And it's very common. Everybody has a broad, warm halo. Your exact exit number isn't published online. Whether you've got an offer letter isn't published online. So everybody who is acquired has a junction point where they can choose to go to the big company or not. And they have the status and the money, right? So the issue with the FTC interference in that is it broke the status part of the transaction where the guys left behind didn't get status. But they did have money. So what do they do? Rationally for them, they negotiated a second acquisition with Cognition where they got the status of being acquired. Now, the issue is Cognition's like 60 people and acquiring the 200 people of Windsurf, that gets back to our earlier point. Usually a company can't buy something that it's not 10x greater than. So it'll be very challenging for Cognition. By the way, I have nothing against Cognition, nothing against Windsurf, nothing against any of the people here. I wish everybody the best. Cognition's an awesome company. Windsurf's awesome. Varun is awesome. I have nothing bad to say about anybody. Just describing the incentives, right? So Cognition will find it challenging, I think, to integrate those 200 people. And it'll be also challenging for them to lay anybody off because they said, oh, we brought everybody on. I think on the Windsurf side, basically, like Varun's side, he's muzzled, so he can't say anything. And in general, my view is, usually the guy who's getting pummeled on social media and can't speak is usually not as bad a guy as it's made out to be. He just literally can't defend himself, right? But to defend him, this deal is essentially the same as the other five deals. The difference is the people left behind, you know, didn't want to play the Kiefer Sutherland role or what have you just because, you know, for an hour reason, which is their prerogative. The way we saw it in the future is a non-keyman clause. And there's so many who's maybe paid more to shut down the company, turn off the lights, because that does suck. I grant that that sucks. And I understand why their egos were wounded and so on and so forth. But ultimately, the person to blame, one of the other things that happens here is in something like this, the last person with a face is the one who's blamed. Because Varun has a face, but Google doesn't, and the FTC doesn't. And then the general anti-tech, antitrust, US versus Google, FTC versus Meta kind of stuff doesn't. So the last guy with a face is blamed, but the faceless stuff isn't. It's almost like Bastiat seen and unseen. But blame the FTC, blame Lina Khan. And there's one thing, which is someone asked, well, why isn't the current administration reversing this? And the answer is the current administration for totally different reasons. I think they have a legitimate bone to pick with big tech because of the censorship and so on and so forth. But as a consequence of that, many of the cases that were started have been continued, right?

Host: So it's not like this thing's just completely went away. The new administration is friendly to little tech, mostly, but unfriendly to big tech and continuing those cases. And then this is the big tech, little tech interaction effect that's going on there. All right, that's a lot I just said. Let me pause there as more I can say.

Steven Sinofsky: Well, those are super, I mean, very tough stories to hear. And two things really jump out at me. One is just purely on the shaping of the landscape and what's going on. I think these are extremely important, let's just call them deals. And the reason they're extremely important deals is because the way our, I would say, with near certainty or in general, but for me personally, we're undergoing a platform shift now with AI. We don't know, I can't say who the winner is. I don't want to say, it's not really important, but there is a shift in where the nexus of the broad tech ecosystem energy is going to be from mobile and cloud to AI. Now, whether or not that's a complete break or the same players move to that transition, don't know. But what that means is first and foremost, the most exciting things that are going to be going on in the near term are in the tooling to enable the platform. And that's especially true because the way that the AI and platform shift is happening is there's just a lot of players and there's a lot of people.

Steven Sinofsky: It reminds me a great deal of the consolidation of the PC operating system world, which was, there were dozens of PC operating systems in 1980. And when IBM came out with the PC and Microsoft came out with DOS, part of that consolidation was due to the implementation of the basic programming language that had already gained strength across many of the platforms. But this consolidation that on boot up, there was basic, and then this proliferation of tooling that appeared on DOS because Microsoft invested irrationally in tooling, IBM invested irrationally in tooling far more than there were any independent toolmakers. And I think what's happening in AI right now, when you look at all of the energy around coding, is that this is really building the tooling for the AI era. And so it's going to be an irrational investment because tooling itself is never a really huge business because you have to have it. And so it's sort of this, well, if you have to have it, then there's going to be many alternatives and there are going to be some low-priced ones, some high-priced ones, but the people that want to have the predominant platform will invest irrationally in tooling. And so that's why you're getting these deals that don't look rational because there's just a bunch of tooling.

Steven Sinofsky: The second thing is, it's really important to put this in perspective if you're one of those people who think that this is kind of gross or hacking the rules in some way, which is antitrust law was itself designed. If you go back to the Sherman Act, it was this very vague. It was barely three pages of legislation. And it was really designed to attack one specific thing. And the word trust in that context just meant contract. And so what was happening is between the railroads and manufacturing and resources and stuff, the way that interstate commerce happened, a company in one geography would sign a contract with a company, a provider or a vertical partner in another geography. And the interstate commerce laws had not yet really been established. And so it was sort of this free-for-all of like these exclusive contracts by geography, by resource type, by train tracks. And it was locking out whole parts of the country from the availability of those things. So this antitrust became break up these vertically integrated or these horizontally constrained entities. And then when the Clayton Antitrust Act came along, it said, oh, you know, the real problem is pricing and tying. And so then all the laws became about how much you can charge. Can you have exclusive deals, not exclusive deals?

Steven Sinofsky: And at each step, well, you know, the first time, well, then Delaware came along and started being really favorable to companies that were doing business in multiple states. And so you ended up with this sort of... and I don't want to get criticized by legal historians or business historians or whatever. I'm not playing fast and loose. I'm trying to be abstract about what took place over 30 years. But then, when pricing came along, businesses just started to develop all of these different ways of dealing with pricing. Like one of the most common things people know is like if you buy a lot of something, you get a better price. But if you actually read the Clayton Act, that doesn't appear to be legal. And so then it took a whole bunch of court cases to just make this very basic premise, which is the more you buy, the better price you get because I like good customers. Or if you commit to not buying my competitors' products, we'll give you a good price. And the Clayton Act was like you cannot do that. And you like but that seems to be a fairly reasonable constraint. You're not going to buy it from me and play that off my competitor and I be nice to you. And so all of these things. And so at each juncture in the evolution of regulatory oversight, the next step of it was what could be viewed as a hack to the systems that got put in place which generates this animosity with regulators.

Steven Sinofsky: Of course, you can go back, banking is a classic one where checking accounts didn't have interest. And so someone clever with software invented this notion that you have a checking account and a savings account and your savings account has all your money in it. And the minute you write a check, we move money from your savings account to your checking account. So it stops earning interest. We pay the check and you're covered. And that was called a NOW account. And that innovation allowed you to have interest on a checking account, which turned out to be a really big thing. When MCI came out with like, we want you to use our deregulated long distance, but we want you to only get a really good price when you call 10 friends and family. We'll give you a really good price. So everybody around the country signed up for MCI when phones were deregulated and had to make a list of all of their friends, which of course turned out to be this massively great marketing tool because then they would take that list you gave them, give you a discount for calling those 10 people, and then hit those 10 people up to be part of friends and family. But that was just like a software innovation that completely worked around this idea that the price of long distance should be the same for everyone everywhere. And then AT&T did it with free minutes up to unlimited long distance calling.

Steven Sinofsky: And so what's happening now is just like, okay, the regulations have been fixed for a long time. We want to invest irrationally in platforms. You're making this part of it very difficult. So we're just going to go figure out an innovative way. And so we have to be careful because, of course, they are going to circle back and make this difficult in some way. And that's the cycle that you get in with regulatory oversight. And, you know, you could be like... I've always been the guy who used to stand up and fight about like this feels like the guy in basketball who decided that when there's seven seconds left, you should intentionally foul someone. I always thought that is like the most unsportsmanlike thing because I'm like, they didn't invent fouls to be executed on purpose. They did it so you wouldn't poke the other guy's eyes out. But it became part of the strategy. And that is like the ultimate American capitalism is exploiting the rules that way. And it's also Silicon Valley.

Balaji Srinivasan: Yeah, yeah. So I think that what happens is the following, is that you start out in a totally honorable, I think fairly honorable, capitalistic way. And then what happens is when the government attacks you enough, then sometimes the companies that survive that get a taste for the one rank. Yeah, yeah. Right? And they're like, okay, well, you know what? We just built this huge lobbying team to defend ourselves. What if we go on offense, right? And they're kind of corrupted by it, right? in a certain way. And the one issue, there's like, I think, you know, in chemistry, if you think about like reaction kinetics, sometimes you can have a bunch of time constants where you have this reaction, this reaction, this reaction, they're all going and you have to actually do the math, figure out which one goes first. And so I think there's several things that are all hitting at the same time in this space that I'll just give them in quick succession.

Balaji Srinivasan: The first is, these big companies are now getting the taste. They're forced to, they wouldn't actually want to consider this in the first place, but of getting like, rather than buying the cow, they're getting the milk for free, right? Decapitation rather than acquisition, right? Now that they know that that's a thing, actually it's faster than an acquisition. Just leave the money in the car. It's almost like a deal. You're just buying something from somebody. It's closer to just like a big, big purchase order almost than it is to an acquisition with all the complexities that are involved in that. So now they're like, oh, I can do that faster and less overhead. Let me have five of those, right?

Steven Sinofsky: Yeah, yeah, yeah.

Balaji Srinivasan: So that's like one thing that's happening where you're giving big companies now a taste of this. And it's like, so we'll have to figure out our deal terms to account for that as something that counts as an exit, but doesn't count as an exit. We'll figure it out.

Balaji Srinivasan: The second thing is, AI is making it so that you can do more with less, more with fewer people, right? So this will be a more common thing where there's an internal, amplified intelligence rather than artificial intelligence. You're going to have a stratification within every company and between companies where the top people will become more and more and more valuable because they can just do so much more so much more quickly, right?

Balaji Srinivasan: And the third thing is, one thing people say about AI that I actually didn't agree with then and actually I don't agree with now is this is the worst it'll ever be. That's what they used to say, right? But I remember with Napster, Napster was actually the best it was and then all the copyright lawsuits and attacks and it made it worse and worse over time. Google Books was amazing and then all these copyright lawsuits gelled at it enough so that you could get like some little snippet preview and then you couldn't see the whole thing, right? And so it's quite possible, I would even say probable, that the combination of all the copyright lawsuits, these are desperate lawsuits, by the way, desperate attacks by all these journalists and authors, writers, et cetera, who hate AI. And I understand why they hate it, but they just hate it. So they just want to kill the thing. And they'll say, are you an AI supporter? With like venom in their voice. It's like, have you not heard that one?

Steven Sinofsky: Yeah, go ahead. I'll follow up, I promise. I will let you just get away with that.

Balaji Srinivasan: Okay, okay. Yeah, so it's like, because they'd say like, are you a Trump supporter? Are you an AI supporter? And some there was some company, there's a few that, it's similar to actually like when Discord tried to roll out crypto people were like, you're doing crypto? People got super, super mad, right? And that is a building thing of an anti-AI, anti-crypto, anti-tech, and it's setting fire to the Waymos. It's a real thing that we should not just watch out for, I think it's going to become actually the future political axis between futurism and primitivism. That's going to be the new left-right, the whole thing finishes rotating.

Balaji Srinivasan: So the issue is that those attacks from a copyright standpoint and also the energy constraints, because data center build-outs are going to just start hitting spare energy constraints. And the fact that the Chinese models are open and they're actually pretty good and they're distributing them quickly. And China's... do you see my post on AI overproduction a few months ago, right? That's happening now. You've got Kimi, you've got Qwen, you've got DeepSeek. These are good models and they're open. I shouldn't say fully open source because they're open coefficients, but not open source because they haven't released the full source code to build them and all the complexity that involves and so on and so forth. But they are open coefficients.

Balaji Srinivasan: And so the combination of those three things means it's quite possible. And then the fourth is, I already saw something where some government restriction on using hosted DeepSeek. Okay, I can understand that hosted DeepSeek is going to China, but I wouldn't be surprised to see something where it all combines such that, A, US AI companies are hit with copyright lawsuits. B, they're blocked by the lack of energy. C, the Chinese open models are out there. And D, US regulations prohibit people from using the Chinese open models so that actually that lead in AI is actually lost and it becomes harder to do AI in the US. And it's similar to what happened with crypto where crypto had to decentralize outside the US in the 2020 and 2024 range. I don't think that's the intent, but I can see those storm clouds coming.

Balaji Srinivasan: And the one other thing I'd say is because AI does middle to middle, not end to end, it doesn't do everything, but it does do a lot of bureaucratic jobs, jobs that lawyers do, that doctors do, that teachers do, professors, artists, journalists. This is going after the blue base, really going after them. And so, doing all of this AI in San Francisco and publicly making millions or even billions of dollars and being demographically different with all these immigrants and being very publicly rich and recognizable in the blue city and the blue state in the union, to me, is not a good long-term recipe for peace and prosperity, right? It results in accumulating too much capital too publicly. And then you just start to see some very, very nasty things happening. So because of all that, I think I am bullish on decentralized AI, but I'm not so sure how centralized American AI is going to...

Host: I think this is a good way to close. I'm going to do the impossible thing with eulogy, which is I'm going to try to get the last word in and let Eric just say thank you very much. Go, go, go. We opened up a lot of topics and I would encourage comments and dialogue out on X for where we should take the next part of this because we should keep going. But I want to say broadly and deeply, I agree on the biggest issue we all face right now in the technology sector of the economy is the risk to the AI innovation trajectory in the US. And you can look at that from a technology perspective, a regulatory perspective, a business practices perspective, an immigration perspective, a research funding, any way you want to look at it, there are arrows aimed at from various perspectives from preventing it. When the right answer is we need to just let the market work, the market for talent, the market for technology, the market for people. There's just a very strong market that can really, really work.

Host: Because from the Clay Christensen perspective, what China is trying to do is commoditizing our strength. And so the release of a bunch of pure open source, open weight models coming from China is specifically designed to go after a rigid or complacent American view of AI, which is cloud hosted by a few big players, closed source. China is just doing, and I can look at this very emotionally and personally, which is this is Google releasing Google Docs for free.

Steven Sinofsky: Yeah, yeah, yeah. Exactly.

Host: And I'm running Microsoft Office, and Google is just like, we're never going to make money from this. And here we are in 2025, they still don't make any money from it. But what Microsoft had to end up relying on is the worst part of the business, which is just enterprise distribution lock-in as your core part of your business, not innovation, not moving forward, which bums me out.

Steven Sinofsky: I mean, they make money from G Suite. The host of G Suite is starting to get expensive. So they are-

Host: It gets expensive, but-

Steven Sinofsky: Relative to what you guys are making. It's like, the profits from Office are still the profits of Microsoft with Windows and stuff. But the other angle is like, copyright, I'm going to come at it from a different angle and we should maybe think about talking about this. Because I think people are rightfully panicked about the US position and then point to one of those slings and arrows being copyright, which, of course, has no issue in China at all. Like they have no problem with copyrights. Ask the pharma industry. I lived in China. I worked on copyright. I know exactly what they're doing. But the truth is, is that copyright also created the technology industry in the world. And it was Microsoft and Intel with intellectual property and copyright and Apple that enabled the industry. And so we have to look at it a little bit more critically and not think just about the starving novelist in Brooklyn who is frustrated by being used as training data. There's a lot more depth.

Host: Totally. There's a lot more depth. Of course, of course. There's a lot of depth to the copyright issue.

Steven Sinofsky: Finally, I do think that there is, to wrap up just the M&A side, the recent wave of deals is going to get looked at with scrutiny. And the truth is, is that something will change in what's permitted in deal structures in terms of oversight, because I think they're too big to get ignored by regulators in a tech industry that they're no longer just going to ignore. But I also think that there's a lot of opportunity to have much more clarity in deal structure. Maybe it's a great idea from that Balaji raised, like to have designated survivors as part of corporate governance. I mean, there's a lot of interesting things you can think of to make that kind of outcome something that's thought about. Because, of course, today, people who take on money from very late stage private equity investors or corporate venture, they know the terms and conditions that you have to have in those deals to attract that money. And so in the same way, if you know the kinds of things that might happen, you structure your cap table, you structure your corporate governance to facilitate that or prevent it. And right now, it becomes part of the business practice and then it becomes formalized and it's less likely to be something that could just be stopped by sort of an arbitrary ruling by an appellate court in the 8th district who doesn't like a deal that happened to a local company. Which I think is where we end up with the risk right now is that it'll just be arbitrary and nothing is worse for anybody than arbitrary. But I feel like we had this very long arc of discussion that was super interesting in terms of M&A and where we're heading and look to where to pick it up.

Host: Great. If Lina Khan a few years ago when she was sort of, if she was asking for advice or perspective, is your view, hey, let the markets work because M&A helps everybody from big companies to small companies to the tech ecosystem to the consumer? Or how should we think about antitrust?

Steven Sinofsky: Well, I'll go first and then, but we should wrap up on eulogy for sure, which is just the truth is because M&A will almost certainly fail unless they want to come out on the regulatory side of like defending against the potential for failure. They really can't come out on the we predict that this one will be successful because it's statistically not a supportable public policy approach to the action. And the markets are much, much better. Otherwise, they're just basically instituting rent control on investing, which is definitely not going to be the right way.

Balaji Srinivasan: Yeah, so it... I was just hiding in there for a second. Can you hear that over there?

Host: Yeah.

Balaji Srinivasan: Oh, is it lightning, you said?

Host: Okay, fine. Not an earthquake. We're good, right? So, yeah.

Balaji Srinivasan: So, Eric, to your question, I would say we have to actually think more deeply in the following sense, which is if you model the public sector as a platform and the private sector as the apps on that platform, sometimes an app gets big enough that you just have to actually build a platform or become the platform. Right. Like, Google was search and then it grew and grew and grew and actually had to build its own platform. Right. And like essentially Google, with Chrome, it kind of became something as Steve is aware, built things. And so what we have to do is we have to stop being reactive to Lina Khan or like Scott Wiener on the AI bill or things like that. And we have to be proactive in the following way.

Balaji Srinivasan: A, for every space that we're in, we figure out what is the ideal set of laws. B, we write model legislation for all 50 states and all 190 sovereign countries. And AI can help with this, but obviously it'll just give you a first draft. It'll get you on base. C, we build a sales team that goes down and knocks on the doors of those 50 states and 190 countries. And of course, there's subdivisions, there's cities and counties and all kinds of stuff, both within and outside the US. Next, we actually find politicians. And of course, you can rank, before you go and knock on the doors, you can rank that list by those that are the most pro-tech, the most amenable to tech, right? For example, JR Police in Colorado is friendly to accepting Bitcoin for payments there. Or you have somebody who's posted about AI and they clearly, they're conversing with it. And often you'll find some state senator or some governor, like obviously, like there's, Bukele, before he became who he is today, was a very pro-tech person in government in El Salvador. And so we identify all the pro-tech politicians around the world. And in particular, in this process, small states are the friends of little tech. Because they're the ones who don't take anything for granted. They want to build their economy and so on and so forth.

Balaji Srinivasan: And so we go to them, we say, here's a draft of a bill, and then here's 10 CEOs or 10 founders or 10 investors or whatever, 50, representing X billion dollars in AUM or Y billion dollars in revenue or some combined thing. And if you pass this legislation, then we will invest in your country, right? Because then that is now unlocked, right? Now we can build speed of physics, not permits, right? I should write an article on this, Elon Salvador. Okay? Elon Salvador is what it sounds like, which is the tie-up where in an American time zone, Elon gets some space where he can build the speed of physics, not permits, right? All 20th century barriers go away. You keep the common sense stuff like, you know, bash or not kill, assault, murder, but all those, you don't have to sunset every law, obviously, right? There's some laws that are just eternal laws, but lots of 20th century regulations are just very stupid. As I have said, after the internet, you have to kind of go back and look at a lot of laws and see if they still make sense, right? Permanent laws, this law, do they still make sense when you can build in different ways with robots or other things?

Balaji Srinivasan: So the answer is, I don't think it would be a micro answer, Eric, which is, it wouldn't just be like advising a con or a different con. It's a macro answer of like, go between countries. Essentially, rather than say, oh, how do we let them decide whether we're a monopoly or not? Assume the US government was a monopoly, the federal government, and how do we build competition to that? Right? How do we build jurisdictional competition? How do we build choice? Because 96% of the world is not American and 50% is on blue even within the US. So you've got lots of jurisdictional choice. So how do we do antitrust on that? Maybe we'll wrap on that big idea. I apologize, Stephen.

Host: This has been a fantastic conversation. Thanks so much.

Steven Sinofsky: Thank you.

Host: Thanks for listening to the a16z podcast. If you enjoyed the episode, let us know by leaving a review at ratethispodcast.com slash a16z. We've got more great conversations coming your way. See you next time.