Invest Like the Best with Patrick O'Shaughnessy
00:26:38 · Noah Shinn
[00:26:38] S2: As a programmer, as a technologist, I just don't want to build that reality. I think that's a very dangerous reality. Instinct should act on behalf of what the user wants. We take this very seriously when we're building product through the various research projects that we have. Unlike any other AI product, Instinct is not a task accomplisher. So what I mean by that is with most other AI products, you write a prompt, and then it does the task, and then it tells you what happened. That seems good in theory, but what happens is that if the user is now asking for something that might not be well intentioned, if you have a task accomplisher, it's just going to do that and listen to the user. Instinct follows higher level objectives. So Instinct will follow learn to build trust with the user. Learn to make the user genuinely feel safer with you. Learn to watch over the user and have their back when things might be dropped. When the user asks it to do something, if it is well intentioned and well meaning, one way to communicate safety and trust is to just to do the task. So we end up just doing a superset of what most other AI products are able to do. But I think focusing on higher level objectives is very important here because it enables InSync to be more robust to these edge cases. So we don't want to influence users' behavior in a way that is not aligned with what the user truly wants. Even if you look at the business model side of this too, there's over a billion dollars flowing through the platform now every year, and we're just getting started. And we're growing at 10% day over day. The transaction volume is also compounding 10% day over day. So that's not just a billion dollars now. That's 1.1 tomorrow, 1.2 something the next day, and 1.3 something the next day. It's still very early, but when I see transaction volume that is so high that flows through the platform, what I see is very basic case. It's similar to, like, an Apple Pay, an Amex, or any other platform that provides distribution to underlying services and a great user experience. Apple Pay is a great experience. Right? You can go anywhere and you can scan your card, and the user doesn't have to pay for it. The user is getting a free great experience, and the merchants on the other end who are benefiting from the business are paying to be a part of that platform.
00:28:40 · Noah Shinn, Patrick O'Shaughnessy
So I see a blanket transaction take rate being enforced across the platform, which is just us exchanging distribution for being able to serve products on behalf of merchants. [00:28:49] S1: Can you say a little bit more about how that runs into the existing world? So I can imagine the layers being... You could be a card issuer. You could be something like Stripe. You could be Visa, Mastercard. There are sort of rails that have been built in the payments world that create convenience and reduce friction and take a vague as a percent of the transaction, and those are some amazing businesses to be sure. How do you think about which of those are partners? Which of those are potential things you would displace? How does that vision of a small take rate on the transaction volume on Instinct, because it's a free product, how does that slot into the existing world, do you think?
00:29:23 · Noah Shinn
[00:29:23] S2: Just to put that into context, those are very great businesses, and there's so many people along this... You know, you make one digital transaction, and there are, like, 40 people along the line that make money on that. And just to take a step back, those 40 people making money at each line of the stack are really sharing two and a half percent, 2%. It depends on where the transaction's coming from. So it's a very actually small piece of the pie. We're not primarily interested in doing what Amex does best and have the network to do or even what Stripe does on the Internet or some of the underlying payment infrastructure do because it's such a small piece of the pie, I think that they're providing real value. Where I see the majority of the value on the business side is if you look at most of the other major platforms in the world and what take rates that they're able to achieve. It's free for the user. It's a great free experience for the user, and the merchant is now recognizing the distribution source. You have Shopify that I believe is, like, between two and a half and 3% that are providing their services and taking some take rate from those businesses. I'm not sure where Stripe is. Think it's maybe on the lower end of that. And then you have Amazon that has a great platform and taking upwards of 10%. And then, of course, the Premier, you have Apple where you make any in app purchase, which is 30%. I'm So not saying that we're gonna be 30%. I think it's very unrealistic for a lot of businesses. But what I'm saying is that we still don't know where along this curve of distribution power versus take rate that we're going to be. I just wanna call this out again because I don't want it to be misunderstood. It's a free experience for the user. It's a free, great experience. For the service that we're providing to all of the underlying providers, I'm not focused on finding, like, 30 bps on the 2.5 with some partnership, with some payment provider. I'm looking at, can we provide so much value that we're on the upper end scale of this? The reason why I think that this is possible is very practically 50% of the transaction volume flowing through the platform is travel alone. And we all know the travel industry and some of the rates that
00:31:12 · Patrick O'Shaughnessy, Noah Shinn
[00:31:12] S1: The OTA rates are high. [00:31:13] S2: Yeah. It's very high for flights. You know, maybe it's on the lower scale, but how many single digit percentages can you take off of a flight? For hotels, you know, some of these boutique hotels, they're often to pay upwards of 30% for every transaction that you're able to deliver for them. I'm And not saying, again, we're gonna be at 30%, but you can see the range. These are existing business models that we can boot shop off of in the early days. But then what would it be like to take that and extend it to effectively every major industry? This is only the case. We only have the ability to do this if it is true that most digital behavior then moves to these new types of interfaces, which is, again, no interface. It is only the case if there's significant distribution power. I think it's actually a quite interesting intellectual question here about how this evolves over time.
00:31:58 · Patrick O'Shaughnessy
[00:31:58] S1: It seems to me like there's going to be a serious corporate agent war that... You've already seen this with Amazon and news. You've got all these established players with tremendous vested interest and relationship with customers that both instinct and their agents could really disrupt in a major way. What are you thinking about that? Like, how do you interface with the other great services out there? I'll pick a random one. I use Uber Eats a lot. Like, I work from Uber Eats all the time. It's kind of a pain in the ass to click through the thing. I can imagine a lot better experience on a snappy WhatsApp connection with Instinct or something saying, hey. I want my usual from this restaurant, and that's it. Like, there's nothing else. And that it's got its computer, and it goes on to Uber Eats, and it orders or whatever. At what point does Uber Eats not like that anymore? At what point do these great businesses that have been built up start to be adversarial against agents, do you think? Like, what do you think are the most likely sources of conflict and reconciliation? It's gonna be really interesting to watch.
00:32:53 · Noah Shinn
[00:32:53] S2: I'm serious when I say... I mean, you're alluding to this too that I think most digital services or industries are going to be not disrupted, but just changed and transformed. I was running through an exercise the other day of pulling effectively, like, every digital service or business or application from various different verticals and industries and plotting it along the line of saying, what proportion is the user's attention, experience on the product as a proportion of revenue, and then what proportion of it is delivering the underlying service? Meaning, if the user didn't use the app, what proportion of their revenue is due to the underlying good being provided or service being provided? So I think that your question is of that upper end of the scale where, let's say, the majority or some significant amount of revenue is due to attention on the application or advertisement or things like that. So, yes, that's Uber. I actually don't know what Uber's number is. A lot of the food delivery services, travel agencies, or even Amazon themselves with the upselling that they do on their platform. There's one simple way to look at this, which is, okay. Well, it's 70% ads, 30% good, and so, therefore, you're gonna slash the 70%, and they're gonna be a 30% business moving forward. There's another way to look at it, which is take any business. Let's take Uber Eats or DoorDash as an example. I don't know the numbers, but they know the numbers of... As they reduce the number of clicks needed to check out to order food to your house or to order an Uber, as they reduce that time to check out, that transaction volume increases because it's reduced friction to get the same underlying good. We're taking something like Instinct and making that friction to do anything almost zero. It is literally zero in the case that there is proactive behavior. For Uber, let's say for ride sharing. If Instinct has access to your calendar and owns your calendar and is booking, you know, all of these events and knows where you need to be in person here and in person there, what if Instinct always had a car lined up for you every time where you need to be so that it's out of your mind to know, five minutes, I need to order this Uber because I need to be in this place in forty five minutes.