All right, everybody. Welcome back to the number one podcast in the world, the AllIn podcast. First up on the docket. A code red has been called by Sam Altman. He sent a memo on Monday. He told employees to stop working on side quests, you know, like ads, etc., and focus on the core chat GPT, the core experience. Make it faster, make it better. And I think we all know why because Gemini and Grock and Claude from Anthropic have been crushing it. Chat GPT5, let's call it what it is, was a bit of a flop. It didn't perform to expectations.

Anthropic is beating OpenAI in enterprise revenue starting this summer. And I talked about how, you know, previous episodes on the streets. I'm seeing more startups want to use Anthropic API and also Google Gemini's API and and they don't essentially trust Open AI to not steal their business. So, it's big changes right now. Most of Anthropics revenue here is corporate. Most of OpenAI's as everybody knows is consumer. A lot of deals being made, but competition is fierce. Chimath, your thoughts here on the game on the field. Code red for people who don't know in our industry is when everybody reports to the office and gets focused on one thing. And uh that's apparently what Sam's doing. How do you interpret it?

Look, I think that there are two things. Let's do the strategic lens and then the tactical lens. the strategic lens is that this is an incredibly vibrant and dynamic market and I think it's too difficult and too early to pick winners other than at the silicon layer where largely that die has been cast. But above it at the model market. It reminds me, frankly, a lot of when we were building Facebook. I remember sitting around our senior executive team, six of us, looking at MySpace, who was an order of magnitude bigger than us. And at some point, we were like, you know what, our product is just fundamentally better than theirs. And they had 100 million plus users and we had sort of 15. But we knew that we were eventually going to beat them. Nobody else knew. And I feel like this market is similarly evolving, which is that you have these early winners, but there's still so much work to do. There's still so many consumer expectations to define that it's too early to know who's going to win.

And ultimately, what we are learning, especially as all these markets converge, is that distribution still matters a ton, which favors Google. It favors Meta, although Meta's quite behind. And now it will still favor OpenAI because they have 800 million monthly activives. So then the tactical thing is what do you do knowing that this dynamic is set up to have a lot of competition and I think what you have to do is streamline the focus and try to make a crisis out of every opportunity. I think if Sam can use different points in time to tighten the core focus, they'll be better off. And I think that is what Google did a while back. If you remember the whole black George Washington thing, they were able to use that as a rallying cry to streamline the organization and to focus and to get their best and smartest people to work on the most highly leveraged tasks. And what you see now is an incredible overperformance from where they were. I've said this before, but Gemini is is incredible. So, I think that that's what's happening. Too early to call. It's a three or four horse race and Sam needs to batten down the hatches.

Yeah. And as we saw, Sergey called a personal code red. He said, "I have to get in the office. I have to inspire everybody because this is existential for us if we lose the search franchise, which they haven't. The code red works." So David Freeberg, maybe you could discuss a little bit code red as a management technique. You were at Google. I don't know if they were calling code reds back then because you didn't have any competition, but we're in a much different world here.

I think Google had an early lead in search and then Microsoft launched and it formed a code red model at Google that was called Project Canada as the code word for Microsoft. And there was a weekly war room meeting and a whole bunch of strategy and product decision-making that was driven around the impending threat from Microsoft. It is a very powerful method. It is how the United States got to the moon in a race with Russia. It is how we are now in a race for supremacy in technology and AI against China. Having an impending threat is a very strong motivational tactic. It is a very focusing setting and it drives innovation.

Chat GPT was basically the market monopoly in AI or LLM chat interface and it only had one way to go which was down. Google I think at this point has roughly 14%. So here you can see OpenAI is on the decline. Obviously a little over a year ago they were at 90% plus market share in generative AI traffic and today Gemini is at 14 15%. the depth, the flywheel that Google has built gives them such extraordinary advantage.

Okay, let's go to Emperor Palpatine. Uh, this is coming together as exactly as you orchestrated you as thesar of AI and crypto. Thank you for your service, civil servant David Sachs. You wanted to see vibrant competition. Well, here we have it. Assess the playing field as you see it from DC.

Well, first of all, let me give credit to Sam for calling this code red, breaking the glass, and pulling the the alarm. I think it's so easy for CEOs in general to engage in happy talk and ignore problems, especially when discussing them is going to create a PR story that they don't like. And I do think one of the things that's unique about Silicon Valley is just that the founders and CEOs do treat the situation of their companies in a more existential way because we actually do have tremendous competition. And so anytime I think a CEO is willing to again take a bad PR story in order to focus their troops on a real business problem, I think they deserve credit for it.

Now with respect to the a whole, it is very competitive and I think we've got five major companies and they all have their strengths. So chat GPT is the leader in consumer. But then Google came out with their new Gemini 3 and they were starting to take share. Then you've got anthropic like you mentioned where their products are very good. Everybody seems to say that they have the best coding assistant and they're carving out a very lucrative niche in enterprise. And then you've got XAI which I think is the best at current events because of the integration with X. And also Elon seems to be able to scale his data center, his training cluster the fastest. I guess Meta has sort of hit some headwinds, but they're going to continue investing tremendously in AI and they've got deep pockets to do it. So, you know what you see is all these companies are kind of leapronging each other. you get a new version and then they sort of leaprog each other in terms of the leaderboards.

And so I've described this as sort of a a goldilock scenario where you're making a lot of progress in AI but the market is remaining very competitive ideally it does not consolidate just to on monopoly player like we've seen in other tech markets. Versus China. What does it say versus us versus China? Well, look, competition brings out the best in the American system. And I think that that is what creates the most progress and that's what's going to allow us to win the AI race against China. China has a lot of competition too, but they do tend to anoint national champions more. There's no question that in the American system, it's competition that brings out the best. And that's what we're seeing right now.

The way I'm sort of seeing this is now chat GPT versus the world 36 months ago, chat GPT, OpenAI had 100%, right? And their decline in market share is increasing in velocity. Uh if we were looking at just 12 months ago, they had 84% of the space and uh now they're at 68. So this is accelerating. You pointed out Chamath correctly why it's accelerating. Distribution matters. Meta is forcing you to use their AI search, just like Slack face competition from Microsoft Teams when it bundled. And so I just tracked this out and this is what I think is going to happen over the next four years. I think we're going to see Open AI go down to about a third of the market and I think the other players are going to take two/3s. The reason I think this is because to Sax's point, specialization's happening. I think what we're going to see here if we're sitting here in the next 12 to 24 months they're going to be under 50%. And these companies are explicitly trying to kill open AI. The amount of bad will that Sam has built is colossal.

They can still be in a good place. I think you're right that this market probably gets split up three or four ways. And so the winner probably gets a third of the market. But a third of a market can still be very valuable if that market has five or six billion people using it. And that can still support a multi-trillion dollar market cap. So I don't think it's by any means a death nail for open AI, but it does mean that a lot of these projects probably need to get shuttered because you need to just do a few things very very well because consumers will start to split their usage decisions across vertical things for specific purposes. So yes, I may use Grock image because I love that and it's just much better. But then I may use Enthropic for codegen while I use Gemini for deep research and then I use chat GPT for conversational search. Now all of a sudden I'm using all four. That's highly realistic that outcome.

Here's what Google and other folks are planning. They're going to take the main revenue stream of OpenAI and they're going to suck the oxygen out of the room and they're going to try to strangle Sam and the team over there by making it free. That's my prediction for Google and I think Meta will be right behind them. Why? They have the ad network already built. I think this is going to be very analogous to what happened with Netscape. People used to pay 50 bucks for a Netscape browser and then the idea when Microsoft came in and made it free. Same thing's going to happen to Chat GPT. Right now 80% of the revenue comes from $20 subscriptions. That's going to get decimated to zero. I don't think consumers are going to pay for this product because Google and Meta will make it free.

I think it's different reason actually. The reason why they will do it, is because they have such an inordinate amount of cash and that cash is valueless on the balance sheet. So you either need to spend it on M&A, spend it on buybacks, or spend it to subsidize a product so that you can maintain your leadership in the broader market. And so what you're going to see is these big companies do this capital allocation model in a much more aggressive way. It just doesn't lift the stock price the same way it does when you actually show leadership in a product category. So if you want to make Gemini even more incredible, just get pour another billion users into it. And if that cost you 50 billion, it's okay because you'll make a trillion of market cap. It's like a no-brainer.

I don't think that the battle is going to be won and lost on LLMs. I think that there's several fronts and we're so early in AI. It's not going to necessarily just be about textbased token production. These non-LLM models, the complexity to them and the differentiation is so much wider than it is in LLM. In video for example, right, there are multiple models that have to interact and work together to render video. And so the amount of differentiation that's possible in video AI is I would say this point today so much wider than the differentiation in textbased AI like what we see with LLMs. As those things start to become more mainstream, I think that applications that we are not necessarily thinking about today are going to become a bigger use case for how we spend our time. And that is really when you'll start to see this horse race start to kind of play out a little bit more differently than it does today where everything's all about usage on a chat interface.

Just a few months ago on this show we were all like giving eulogies for Google. A lot of people were basically saying that this was it for Google because obviously LLMs are so much better at web search than the 10 blue links. And the point that Brad and Bill were making is again, even if Google catches up, they'll never have the dominant position in AI that they have in search. But the point is just everyone was saying that Google was in deep trouble just 6 months ago and then I think Sergey came back and that gave them a major shot in the arm and they got more focused and now they've launched what appears to be the best or one of the best models. But look these other companies there's there's a lot of leaprogging going on.

I think really importantly it's not just about Sergey coming back it's about giving themselves permission to take risk. The reason Google didn't lead into AI for years, even though they had the technology sacks, is because they were nervous about cannibalization to search, they were nervous about the the quality of the product. And then they changed their posture and they became a more risk-taking posture. And that gave them the permission to run, which by the way, I would argue is the opposite at OpenAI in the last couple of months. Chat GPT is now acting and OpenAI has been acting like an incumbent, fearful of losing market share and fearful of getting attacked in the media and attacked by consumers for saying the wrong thing. And so they've taken this kind of defensive posture that I think has fundamentally damaged the product and the brand.

The New York Times versus Mr. David Sachs. On Sunday, the New York Times published an article titled Silicon Valley's man in the White House is benefiting himself and his friends. Saxs are obviously the man they're referring to. Five reporters worked on this story for approximately 5 months is what we hear and the story attempted to frame you Sachs as conflicted first that your firm Craft has investments in companies. Second major claim, raising the profile of Allin. But Saxs, uh, obviously you got a ton of air cover. People thought the story was biased and a hit job and it fell pretty flat. What's your take on this? Maybe take us behind the story.

Well, I think maybe a good place to start is with the reaction to it. Like you said, there was this huge outpouring of people in Silicon Valley who reacted in a way that showed that they understood that this story was a hit piece, that it was biased, and I'd say most importantly, it didn't even live up to its own headline. It didn't prove the thing that they were asserting in the headline. And so, everyone could just see on its face that it was a hatchet job. And it was nice to kind of get that outpouring of support from so many different people in Silicon Valley, including many of the companies who we just talked about are so vigorously competing with each other. I mean, I think this might be the only thing that Sam and Elon have agreed on in the last year.

Let me just say I do think that this outpouring of support does illustrate something important which is just how much power and respect the New York Times has lost. You know 10 years ago if the New York Times ran a hit piece on somebody even if other people didn't like it they wouldn't want to say anything because they'd be afraid that they would be the next target. And that mystique and that fear has completely broken down. people can kind of see the New York Times for what it is, which is basically a bunch of political activists who are pretending to be reporters and essentially they just launder the point of view of their anonymous sources who are basically left-wing Democrats and try to portray those viewpoints as somehow being neutral or objective truth.

Let me ask you a question. So, one of the statements that was made and then Governor Nuome repeated it at Andrew Ross Orcen Steelbook Conference yesterday is that you did not put all of your investments into a blind trust. You should have done that is what Newsome said on stage. Can you just address that like and what actions you actually took when you chose to take the office? What were you legally required to take?

Sorry, S. Just give me a second. I just want to say this because you're not going to say this yourself, but I remember when you were going through this, you were so concerned about the perception of a conflict of interest that you took such extraordinary measures about the degree at which you were selling things and getting rid of things to make sure that you could do the job cleanly and holy. I watched you do this and I watched you do something that I thought was so over the top. I'm like, "Holy you really are doing this for the country." And I was so shocked and surprised by it.

That I think is the central lie of this piece. Not only is the piece not true, it's the anti-truth. Because the truth is that I devested hundreds of millions of dollars of positions in promising technology ventures at a substantial cost to my net worth. So not only is this job not benefiting me, it's actually cost me a lot of money to serve, but I did it because it's an honor to be asked by the president to serve. Now, to your question here, on the blind trust. My ethics lawyer who teaches a course on conflicts of interest at Harvard said that that reporter should really take his course because he would actually learn something about the the conflicts laws. The blind trust idea is rarely used and in my case it would not have worked because I have minor children. You can only use the blind trust to have your kids be beneficiaries if they're adults. That's the way the conflict laws work. So it just wasn't even applicable in my case. And what I did instead of creating a blind trust is I devested the positions.

They try to mention that I have 449 investments tied to AI. And they say their investigation uncovered this. I disclosed them. They didn't uncover them. I disclosed them. They're on the White House website in my ethics letter. Now in that ethics letter they said that I had devested I had initiated or completed devestment of over 99% of the positions that could pose a conflict for AI and it's in there and this is where I think they were very deceptive is it was the OGE the office of government ethics the career civil servants the lawyers the accountants at OG who approved that letter and all the contents of that letter who reviewed all those disclosures and they're the ones who concluded that I did not have any conflicts. So really what the New York Times' beef is with the career civil servants at OG.

This article has nothing to do with everything you guys just spent all this time talking about. There is nothing here. Okay? There was no crime here. There's no smoke here. There's no fire here. What you did get right though is the headline was the goal. And what is the goal of that headline? The goal of that headline is to insinuate and to pressure Sachs, but subtly it's to pressure everyone else that looks like Sachs. Now, what does it mean to look like Sachs? You're in industry. You know something very specific. You've done very well applying that knowledge. Now all of a sudden you're in a position where you could go and positively impact the trajectory of the United States. What this article does is it tries to intimidate those kinds of people to say, "Wow, this is not worth it. This is just too much of a headache."

What do they want instead? What they want instead are people that they can work with very closely and ultimately co-opt. If you look at people like Lena Khan who's beloved by the New York Times as well, what's the through line? It's a total and complete lack of experience. And so what you're creating is essentially a very simple litmus test. If you have experience, we're going to paint you as conflicted. So stay away. But if you're completely inexperienced and have no experience whatsoever, we'll work with you and so we will leave you alone. That is the point of this article and that is what is on trial here.

It doesn't. And here's ex such a good point that we have a choice right now. Do we want to have lawyers and academics with no experience in the real world setting policy in Washington DC or do you want to have experts? Do you want more Mike Bloombergs? Do you want more Jeff Bezos, more David Sachs? That's what the founders wanted. The founding fathers of this country wanted people to do short stints. We don't want career politicians like Nancy Pelosi or, you know, Mitch McConnell in there for 30, 40, 600 years. We want people in their prime of their careers to go in there and kick ass for us for four or eight years and then come back. It's a gift that you went there, Sachs. It's a gift.

There are two quotes from Thomas Jefferson. He said in a letter in 1788, I apprehend that the total abandonment of the principle of rotation in the elected offices will end in abuse. And then he also later said, nature intended me for the tranquil pursuits of science, but the enormities of the times in which I have lived have forced me to take a part in resisting them and to commit myself on the boisterous ocean of political passions. The founding fathers were vehemently committed to the United States being a place where people could pursue with absolute liberty their interests. And the action of political office was out of a requirement to serve out of civil service to this country. And if you look at the wealth that's been accumulated by these career politicians, it is no surprise that they are attacking Sachs and others who have had success in private life and who have chosen out of a commitment to patriotism to spend their time to try and get the government and the country on the track that they hope it will go on.

Another story that's been trending is the new poverty line. Mike Green, an investor and fund manager, went viral last week for claiming the US poverty line math is very wrong. Historically, the poverty line has been measured as three times the cost of a minimum food diet in 1963 adjusted for inflation. Based on that measures, the poverty line for a family is set at $31,000 in 2025. Green says the real number is over 4x higher at 140,000. He gets that number by factoring the cost of childare which has surpassed housing as the largest average expense. He says measuring this number for decades has quietly broken America and it could explain why America's middle class feels poorer despite healthy GDP and historically low unemployment. Chimath, your thoughts.

I read this I found his claim to be pretty shocking. So, I just I wanted to dig into it. Food costs used to be a third of living costs. And so, you would multiply it by three and say, well, the total cost of living is 33,000. That's the poverty line. But what this person was saying is like hey hold on a second food costs are now five or 6%. And so if you gross it up for the other components, shouldn't the poverty line be something closer to 140k? And that's a shocking claim. Now he has subsequently come back and refined some of the things he said. For example, he was looking at a bunch of data from a high-cost suburb of New York City. If you look at a median American city. The example that I think other people were using was Lynchburg, Virginia. You can use this thing called the MIT living wage calculator which we did. And if you are in Lynchburg, Virginia, the income required for a family of four to meet all expenses there is not 140k, but it's about 93k. That's still quite a big difference.

And when you double click into where these variances come, a lot of it looks like it's around housing and childare. And I didn't depreciate how much and how expensive child care has actually become. There is a very specific part of though what he said which I think we should focus on which is there is an area between $45,000 a year and $63,000 a year which actually looks like a bit of a stagnation zone. So to the extent that one is to read this article, the thing that is important is to narrowly focus on this one issue, which is that we do have some policy failures in this zone where earning an extra dollar often results in losing a dollar of benefits. But the good news is the American economy seems to be doing a good job of not just getting people out of poverty, but getting people out of that struggling bracket, out of that death valley, and into a place where they're making 200% of that poverty line.

This is the spiral of socialism. The government programs that are meant to provide support to people require an increase in taxation. That revenue has to come from somewhere. that taxation ultimately leads to an attrition of economic value in that region and then you have to increase taxation more and then you end up in this spiral and we're seeing this now not just in New York but across the entire West Coast. We talked about the 5% billionaire tax that's being proposed. There's also a major challenge underway in Oregon where the governor is now trying to figure out how to keep businesses in the state. And in Washington, there is a proposed bill right now to implement a 5% tax on the payroll of employees making over $125,000 per year. and Microsoft, Amazon, Costco, and some of the other big employers in that state are now trying to figure out what they should do.

Once you're hooked on the government for some sort of benefit, it's very hard to unhook yourself. You will not give up that benefit. And so you have to spend incrementally more and more and more and more and as you raise taxes, you end up losing the tax base and it becomes a deficit spiral. That's what leads to socialism. And we have seen it time and again. It's not a big revolution. Socialism emerges slowly. It's like a quiet sort of hum and then it becomes a roar and all of a sudden you're a frog in a pot and you don't realize you're being boiled.

I don't think democracies end with a bang. I think they end with a whimper. The problem with progress is that progress is asymmetric. You have some people who progress at a much greater rate than most. And and it is that delta that motivates the end of that system ultimately. While everyone in the United States or the average and even the bottom quartile of the population in the US is better off than they were 50 years ago. The top 1% of the US is further ahead than the median. And it is that delta that motivates the end of democracy. And it is that is which is then perceived to be be unfair about this governing system. And that ultimately results in fascism or or socialism.

Have you guys been tracking the California wealth tax? As a former California resident, I'm curious how you're interpreting these recent moves.

I think we're all seriously thinking about moving out. I mean, it's kind of crazy. But did you see I think Nuome came out and said that he was going to oppose it. Is that right? Let's not look a gift horse in the mouth here. I think this is a moment to thank Governor for representing the interests of tech logarchs like us. We really appreciate you coming out against this wealth tax.

What do you think happens if Fitch just tax 5% of all net worth and you have a bunch of illquid private assets? What are you supposed to do?

And it doesn't it doesn't stop there. So, think about where this goes. In the proposed billionaire tax, it actually gives power and authority to the California state legislature that they can actually redo this wealth tax at a different level and a different rate in the future. Think about what that does. It now gives property seizure rights to the California state legislature to set a value level. So anyone now that's got over a hundred million net worth and then it becomes over 10 million and then anyone with a million dollar net worth and the state can take 5% of your assets every year. very quickly it becomes the process by which socialism and the socialization of assets that gets seized by the government is realized.

Let me give it to you. I understand that's how people feel and it is true that we have this disparity in wealth. I think the counterargument that most people would make is well what is our unemployment rate? If we didn't have the problem with housing and education and healthcare, those are the big three. That's what I think this is really about. If you solve housing, which was solved in Texas and Florida and Nevada, they let you build supply. People don't feel as bad about their lot in life. If we solved tuition and we paired it, like we've talked about countless times here, and the loans matched the outcomes, we would not have this. And if people felt didn't feel the fear of going bankrupt from healthcare, I think we would have a much different country. I think that's what the referendum is going to be in 2028 is those three issues.

I think AI is a path if we get if leverage into the hands of every person in the United States in the world. If we get abundant free energy through new energy systems and if we can extend human lifespan and health span, I think those are the three abundance vectors. And if those three vectors hit, I think all bets are off. and we can get out of this nasty spiral. But I do think we have the choice every day. Do we want to go into the enlightenment or do we want to go into the dark ages? I keep saying that.