Video - The Future of Innovation from the PayPal Mafia

FEMALE: Ladies and gentlemen, please welcome founder and C.E.O Techonomy David Kirkpatrick.
KIRKPATRICK: Hello, folk.  Well, thanks for coming.  I'm David Kirkpatrick.  Will the panelist please join me?  We have an incredible group here.  I don't know, I don't think of them as Mafiosi, but they are unique each in their own way and unique also and they did have a quite amazing common experience which we'll spend a little time talking about.  Just quickly from your left Reid Hoffman, Max Levchin and Jeremy Stoppelman.  I don't think in this town they need tons of introduction, but I will say one, you know, a couple, maybe I'll say a few things about each of them.  One thing, Reid -- people don't know I wrote a book about Facebook and one thing people don't know is that Reid actually built what may have been the first real social network.  And it didn't do too well but it did result in him figuring out that LinkedIn was a good idea and it also was indirectly, I guess, partly why he was able to get into Facebook in the very first round of financing where he would have been the primary investor except he felt that LinkedIn was a conflict and so he brought in Reid -- brought in Peter.
MR. HOFFMAN: Just to be precised, I thought LinkedIn would be perceived to be a conflict that actually didn't think it was a conflict.
KIRKPATRICK: But if it was really a conflict, you wouldn't have put any money?
MR. HOFFMAN: Yeah, that's right.
KIRKPATRICK: That's all right.  Now, Max, also has Facebook connection because he started a Facebook applications company among many of his serial entrepreneurial activities that he's done.  Currently, what's the name of the financial company you're doing?  No, it's Affirm?
MR. LEVCHIN: Affirm.
KIRKPATRICK: And just quickly say what that does, Max?
MR. LEVCHIN: We're going to rebuild the entirety of the consumer finance from the ground up.
KIRKPATRICK: So, you started kind of with insurance and now you're with the entirety of consumer finance, just modest?
MR. LEVCHIN We're starting with the -- modesty is never my strong suit.  We're starting to do or we have been building consumer lending platform, so we lend at the point of sale with a view to disrupt consumer lending through credit cards and the like but in the end we're just going to build the modern bank.
KIRKPATRICK: And just to keep things interesting you also has a company on the side that's helping women with fertility using technology and apps.  Jeremy Stoppelman, the C.E.O of Yelp public company.  And interestingly Marc backstage sort of did a little taxonomy of these three guys and said, you know, we have a leader, we have a visionary and we have a mentor because, you know, here is a guy who's basically handed off the reigns of LinkedIn to Jeff Wiener who's fantastic operator.  Now Reid is investing, continuing to stay involved with LinkedIn writing books.  Max continues to sort of think of new things and start new things and was really that the progenitor or in some ways of Yelp, right, and he's the chairman of Yelp.  He was the first investor of Yelp so Max has been constantly, you know, coming up with ideas.  Meanwhile, Jeremy is out there operating and running a public company so, you know, it's quite an interesting set of trajectories for three guys who work together at this amazing company PayPal which even though they said on the phone call they didn't really want to talk about it too much.  I think we have to touch on a little bit because it is hard not to ask was there something in the water at that place?  You know, that led -- it's not just these guys, I mean it's a laundry list of probably 10 or 15 other major leaders including Peter Teal and Elon Musk and on down the line who were in the management team of that company, so I guess I want to ask was there something in the water?  When you guys were there, did you feel like intimidated that you were in a crowd of like superstars?  Did it feel weird?  Did -- was it just like every startup is exciting, I mean, what -- can anybody here help me explain why PayPal was so incredibly productive of subsequent energy and innovation?
MR. LEVCHIN: Do you want to take it as a co-founder?
MR. HOFFMAN: Max, it feel like you have to start.
KIRKPATRICK: Great.
MR. LEVCHIN: So my stock answer is we're too busy so if it felt that way I can't remember anything, the four-year blur for me anyway but I think the more honest answer is that when Peter and I start at the place Peter recruited Reid, who he'd known for a long time, I had recruited bunch of people, interesting fact to it.  Jeremy and I went to the same school from where I recruited vast majority of the early PayPal --
KIRKPATRICK: University of Illinois?
MR. LEVCHIN: University of Illinois, except he and I did not know each other in school.
KIRKPATRICK: Were you there at the same time?
MR. LEVCHIN: Yes.
KIRKPATRICK: Wow.
MR. LEVCHIN: Yeah.  We're same age and the --
KIRKPATRICK: Both computer science majors there right, yeah.
MR. STOPPELMAN: I was computer engineering, but --
KIRKPATRICK: Computer engineering.
MR. STOPPELMAN: -- overlapping in class.
KIRKPATRICK: How many like me doesn't even know the difference, but okay.
MR. LEVCHIN: Anyway, he was very popular.  I was in the computer lab all times.
MR. STOPPELMAN: That's not true.
MR. LEVCHIN: So the --
MR. STOPPELMAN: There's pictures to prove it.
MR. LEVCHIN: Yeah, mutually assured, terrible pictures.
KIRKPATRICK: So you really met, yeah --
MR. STOPPELMAN: I've had that one with you with the clarinet so if you --
MR. LEVCHIN: Hey, no.  Let's keep that one under.
KIRKPATRICK: You play the clarinet?
MR. LEVCHIN: No answer.
KIRKPATRICK: So okay.  Keep going.
MR. LEVCHIN: So the PayPal answer the honest one anyway I think is not terribly surprising, but when we were trying to recruit people we recruited from our personal network.  We looked around for people that we knew in part because Silicon Valley was sort of collapsing under its own weight this was just the beginning of the bubble, self-destructing and so there's a lot of running for safety in the valley.  A lot of people wouldn't join us startup because it was just a scary thing to do, half the people we ultimately recruited came from companies that failed just right around that time.  And so we were looking for people that had just massive interest in risk-taking, they were excited to take a risk and they wanted this to be their last company because the next one will be their own.  And so, as a result we biased the selection towards entrepreneurs or proto-entrepreneurs.  These were people that are taking a break from being entrepreneur or getting ready to go.
KIRKPATRICK: Also, the vision was very big even then at PayPal, I mean, you really did want to disrupt money, right.  I mean --
MR. LEVCHIN: I think the vision for most companies, truth be told isn't always evolving thing.  You start by saying, hey this thing looks like a space I can fill and then you realized, hey, wait a second that's not nearly as big as I could fill and you sort of expand the story, so -- you know in the early days, when I was there we were going to build a cryptographic library for handheld devices, that's not a very exciting vision.
KIRKPATRICK: Started off, it was passing money between Palm Pilot was the first thing, right?
MR. LEVCHIN: That was the second thing.  The first thing what I just rattled off, but Reid in passing said something along the lines of, you know, why talk about wallets, why you talk about payments and that set off a whole train of thought.  But it took like six or seven reframing a rephrasing of the story before we said, all right, we're going to go, the new world currency t-shirts came in two years into it and the first one had far more modest slogan on it.
KIRKPATRICK: Okay, and you came in with the -- you know, a lone mass contingent, right.  So, talk quickly about how that happened and what it was like just culturally for you and I don't want to dwell on this endlessly, but I'm eager to hear what you have to say.
MR. STOPPELMAN: So there were two camps that eventually merged and created a modern day PayPal, there was confinity which was already running the PayPal service and then there was x.com which was founded by Elon Musk, it was I believe his second company was coming off a success, he'd sold another company for a few hundred million dollars and I was just extremely lucky is how I characterize it.  I decided I was leaving my current company.  I was recruited from Illinois at home networks which is one of the first cable internet providers, I was pretty unhappy there and so three months into it I start picking up the phone from recruiters.  It was 1999 for those that remember the first internet bubble, recruiters were calling very often, I think it's maybe somewhat, as far as recruiter frequency similar to today.  As I just started taking interviews and found my way to this little crappy office on University Avenue and I came in and talk to a few engineers and in my last interview was with this guy Elon Musk.  And for me, it was a bit of an eye-opening experience like I had never seen a young entrepreneur, I never seen a twenty-eight-year-old that had sold the company already for hundreds of millions of dollars.  And I had never met anyone who would be audacious as to say we're building a company that has a bank that allows for payments and we're going to take down Visa and Master Card, instead of with a straight face sort of like a little twinkle in his eye.  And my reaction was sign me up.  Like I don't know what like I don't know what -- you know, whether it'll succeed or fail but I've never met anyone like this and I just want to work in this place.  And so it ended up.  I had two offers one was you know probably 20 or 30% higher from a cash standpoint than the one Elon gave me and I remember saying to Elon that, hey, can you help me out, I try to negotiate with him and he's like, no, if you want to change the world, you know, you just need to accept this offer and so I actually got nothing I don't think he gave me a dollar, a dollar more than his original offer and I fortunately joined the company and that's how I ended up in this whole PayPal world.  And then I'll just quickly touch on, you know, after the two companies merged there was a lot of drama there, you know, the culture -- there was a bit of culture clash because, you know, engineers are very particular about their architecture and coming from University of Illinois a lot of folks on the Pay Pal side we're very familiar with Unix since we had built this whole platform, or they had built this whole platform on the Unix operating system.  Elon had come from more of a Windows background and so is a bunch of windows engineers and so when you mix that at the time it was kind of like oil and water and so it's kind of a modern miracle that PayPal eventually got through that tumultuous period is about nine months of drama, but in the end we came out, you know, stronger company and went on to great success.
KIRKPATRICK: We talk a little bit about the Peter Thiel element too because, you know, you guys went to college together which is how you got involved with him.  I -- when I wrote my book about Facebook.  Zuckerberg told me that one of the best things that Thiel did for him as his first investor board member was he told him when to sell things and when to buy things.  And he was really good at timing and I know there was a key thing that you've told me about before that PayPal did that allowed it maybe to survive and that may be a little Peter story.
MR. HOFFMAN: During the height of the, almost coming up on to the peak of the bubble.  The combined company is paypalannex.com.  We were being solicited by a lot of people trying to put in money.  We had not a dime of revenue and at the time, we were raising around which we close at one 100 million at a 500 million per year.  And a bunch of people around Peter and myself included said look there's so much demand, why don't we just raise more money and raise the price.  And one of the things that Peter did very intelligently which is that no the market's going crazy, right, we're going to close around, we're going to execute on the business where you can do it, yes, I --
KIRKPATRICK: No delay.
MR. HOFFMAN: No delay, we're just going to do this right now, right, and anyone who knows Peter knows exactly it's like let's to do this right now.
KIRKPATRICK: Timing is (inaudible 00:11:13), yes.
MR. HOFFMAN: And that was extremely wise because we closed around the day before the NASDAQ started down.
MR. LEVCHIN: So the Friday and Monday was --
MR. HOFFMAN: Yes, we should all do that, sort of, yes.
MR. LEVCHIN: It's like Monday.
KIRKPATRICK: Well, anymore thoughts about the sort of zeitgeist of the early days of PayPal that people don't already know?
MR. HOFFMAN: Well, I think, you know, the other thing was as the company -- you know, part of adding on to what Max said is became composed of the bunch of very young folks who are kind of very smart and very driven and so because PayPal sold eBay they ended up with a little bit like in a situation where Elon is after zip too, which is I still got lots of energy, I got a lot of ideas and I want to go do things.  And that's part of what caused such a kind of flowering of the PayPal network.
KIRKPATRICK: Can I just quickly ask any of you to comment about this current PayPal news, it's being bundled off as a separate company.  Does that make sense?  Do you hold, keep pretty close tabs of what PayPal is doing?  What do you think about where the company's going now?  Anyone?
MR. LEVCHIN: I think it's great that they're doing it, I think, for, you know for all the hoopla around finally they're split.  John Donahoe deserves all the credit and then some that he should because he's run eBay and PayPal combined brilliantly for a very long time extremely steadily, having said that I think much like sort of to go back to the to the metaphorical Elon and the young folks after being acquired by eBay, there's still lots of energy inside that body, like, I think PayPal, could spring up and do another reinvention of itself, there's lots of things that we never touched on anything from small business lending, seeing people's cash flow, lending against it is a fascinating idea and it's now being done by other companies.
KIRKPATRICK: That's what you're doing?
MR. LEVCHIN: I'm doing consumer lending for now anyway but --
KIRKPATRICK: Yeah.  But you're looking at making a quick analysis based on --
MR. LEVCHIN: Yes.
KIRKPATRICK: Real time data kind of?
MR. LEVCHIN: That's exactly right.  And in many ways, you know, we can rattle off companies, stripes, square, perhaps a firm that are capitalizing on the fact that PayPal has been so huge and steady for so long, letting them out into the wild making them their own currency to compensate the management team with is a good idea because people on the inside will then say, wait a second, it's just me.  If I don't do my job that stock is going to not go the right way.  So, I'm pretty bullish on that but I hope that was a deliberate decision as opposed to a response.
KIRKPATRICK: Max, when you look at this landscape --
MR. HOFFMAN: It was a deliberate decision.
KIRKPATRICK: What did you just say?
MR. HOFFMAN: I said it was a deliberate decision.  I mean, basically the strategic optionality for PayPal in terms of being able to partner well with other larger transformative companies makes more sense and dependent so Donahoe has been thinking about it for a while.
KIRKPATRICK: I mean, interestingly the second largest company of that type is Alipay which doesn't even really operate outside of China.  Did any of you think that that's a factor in any way in this equation, I mean, you didn't, I mean it's way bigger than any other companies you've mentioned although it's only in China.
MR. LEVCHIN: I am probably fiduciarily precluded from commenting on anything Alibaba related being on the board of Yelp so --
KIRKPATRICK: Oh, that's a good point.  Yes, you know, these guys have your ties.
MR. LEVCHIN: To Mafia.
MR. HOFFMAN: So I don't think it's Alipay related, it is probably, you know, Alibaba is clearly one of the major Chinese companies that is just the awesome in the scope of what it does in terms of the marketplaces in China.  It's the largest market places company in the world.  And so, the fact is how's they go out globally, that's a serious thing for actually all U.S. companies in U.S. internet companies to actually be thinking about.  And so, I'm sure that Alibaba's global aspirations fit into both eBays and PayPal's strategies.  I don't think Alipay is actually the thing that is most like that it grow beyond --
KIRKPATRICK: Hardly, because it's sort of more China --
MR. HOFFMAN: Yes.
KIRKPATRICK: -- native, yeah, that sounds to be a good point.
MR. LEVCHIN: Someone's phone is doing this, and it's not mine.
KIRKPATRICK: Is that your phone ringing?
MR. LEVCHIN: It is not my phone but it's someone's phone who would, yeah, it's amplified.
KIRKPATRICK: Well, you know, one of the great things about this session is that we really have no parameters about what we're supposed to discuss so you know you'll find out where it goes and so will I, but you know, Jeremy, you know, let's just take it to the present a little bit, you know, Yelp, I mean, you are actually in a business that if I -- I wouldn't be shocked if you were paying a close attention to what some of the Chinese companies might do, is that something that pay -- you would pay any attention to, you know, with not only Alibaba but Tencent going global, does it matter to you?
MR. STOPPELMAN: I can't say that we have paid a whole lot of Tancent, we're aware of -- you know, in particular there is one large site that I think has taken inspiration from Yelp over the years.
KIRKPATRICK: In quotes?
MR. STOPPELMAN: Yeah.  Which I -- you know, that makes sense.  And so if I was in another country watching Silicon Valley and reacting to the interesting ideas there is a very rational thing to do.
KIRKPATRICK: That's probably happen in a lot of countries, right?
MR. STOPPELMAN: Yeah.  I mean, pretty much most major countries have some sort of Yelp like site and then it varies widely how good that site is or how much attraction it has.  But, you know, we are kind of innovators from the beginning, we had this concept of capturing word of mouth bringing online particularly for local businesses and we've really stayed focus on that I think you know the biggest disruption that change through our business was mobile obviously 2008, you know, with the launch of the app store on the iPhone that changed everything.  And that's been the area where I think it's been most interesting from an innovation standpoint is to have your location just on your phone without having to articulate, you know, here's where I am which, if you think about prior to 2008, it was a pretty miserable place to be if I'm trying to describe to you where I am in a city and I want to know, you know, one of the great restaurants or where's a good dry cleaner, what have you, that's kind of painful to do but just being able to pull out your magic device and have it tell you things that, you know, you're surprised by and delighted by that's a fun experience.
KIRKPATRICK: Where is a place that might go that this audience may not be thinking about?
MR. STOPPELMAN: Where does --
KIRKPATRICK: In terms of, you know, proximity awareness and community -- you know, real location based intelligence and how it dovetails with commerce?
MR. STOPPELMAN: I mean from my perspective I think the most powerful thing that it does is it creates a layer over all businesses especially small ones that don't have a multibillion dollar marketing budget.  And so if you think about, when you're about to make that decision -- you know, all I want a cup of coffee, you have two choices.  You can either recognize a brand where you know what you're going to get and someone to create that brand has spent a ton of money to create, you know, consistency and get the messaging in your head and hit you five times every month or what have you, but if you could rely on something else a tool like Yelp that's incredibly democratic.  It suddenly means that anyone who delivers incredible value and incredible service can compete on the local stage and even potentially you know the national stage.  And so I think that's great news for innovators, you know, even outside of the technology world because it means that you can be discovered found, thanks to these powerful new tools and before that might not have happened.  If you couldn't go and raise a few million dollars to create a marketing budget, how would you get word out about your business.  I think that's an incredibly positive trend for innovators, you know, outside of tech particularly.
KIRKPATRICK: In that sort of set of issues, I'm just curious, do you think a Facebook as your friend or your enemy or your rival your partner, all of the above.  Because they do some of that themselves plus they're also a vehicle for you in many ways so how does that work?
MR. STOPPELMAN: I think it's very different thing.  Facebook is primarily about communicating with your friends, sharing photos, people certainly talk about local businesses, I mean, we talk about local businesses just whenever you go out with a person in real life.  You might, you know, share the different businesses you've experienced, your favorite new restaurant, what have you.  That's a natural part of being human, but I think what Yelp is a platform for certain people those that are particularly opinionated, that love to write to actually share and reach a much wider audience.  And the audience is focused on discovering local businesses and so it is fundamentally I think, there are two complimentary things, they feed into each other.
KIRKPATRICK: Do you think that as a publishing business?
MR. STOPPELMAN: Do I -- do I think of Yelp is a publishing business?
KIRKPATRICK: Yeah.
MR. STOPPELMAN: Absolutely.  I mean, I think it's -- you could look at it, you know, sort of an older term now but it was revolutionary at the time I started Yelp, but it is kind of a blogging platform of sorts in that, you know and we designed it actually quite consciously to be somewhat like a blog.  So when you go to your profile on Yelp things are ordered chronologically and every time you post it kind of goes to the top which is very similar to what you find on old-fashioned blogging platforms or the new ones you know like a tumbler or what have you.  And really the quality of content comes from the fact that there are certain people out there that want to share their opinions and want to invest the time to do so and actually write.  It's essentially their hobby is to write and to express themselves online through Yelp and through local reviews.
KIRKPATRICK: And you've done, you have this huge community of the reviewers that you've cultivated, it's not as widely understood and at least for me until recently that the intensity with which you've cultivated that community even within person get togethers all over the country and they're really your army in a way.
MR. STOPPELMAN: Yeah, I guess you could call it a movement of sorts.  It started here in San Francisco and then it spread city to city.  I think we're now nearing, if we haven't reached, it's already about 200 different markets.  And the people that contribute are part of Yelp, they sign up, they obviously get a profile page and the reviews go up on local business pages.  But one of the things that we created along way is we discovered the power of community and that turn to somewhat overloaded, somewhat overused but for Yelp it's actually people that have common interest they connect on the site and we actually get a lot of them to connect offline as well.  So we're actually throwing events at each of these 200 different cities all over the world.  And from those passionate people they're part of the Yelp elite squad which is, you know, we named it sort of tongue in cheek in the very beginning because of course no one wanted to be in it so it could have been that elite but we kind of, you know, we thought for it, we were thinking about individual like well, someday it will be elite it's we're going to call the Yelp elite squad and now, the most passionate members are part of that and they're really proud of it and having a great time joining our events, offline and then connecting online ensuring all these opinions.
KIRKPATRICK: I want to ask both of you guys something related to Facebook too, you know both of you know tons about it.  And I've interviewed you both for my book, but the thing I want to ask you is this because I think all three of us and I don't know Jeremy as well but I know these two guys, I think all three of us kind of in the early days of Facebook, we're pretty clear that this was a pretty big deal even before it was anywhere near those big of a deal it is today and I was lucky enough to write a book and you started a company based on it, you, one of the very first investors.  The question, I mean, anything you want to say about that, the Facebook is interesting but the question I have for any of you is is there anything that you're looking at now in the industry that you have that same sense of promise for because to me it's a very rare thing obviously for a company to grow to that scale.  Are there any things that you see out there that you think could be the next Googles and Facebook's that maybe aren't fully enough appreciate it aside from whatever it is you're working on it at the moment?
MR. HOFFMAN: Well, so I would say that one of the things that I think that is still playing out is the whole notion of network as a platform.  I mean, there's a lot of, I think that the way that plays out where your identity and the network around you is a platform for interesting applications.  And part of the reason why I think Facebook was so interesting and so clearly great about that was that it had this extremely vibrant platform which was at the time driven by a lot of communication and photo sharing, still a lot of that on it, but then you can actually build other kinds of applications on top of it.  And I think they're still going down that road figuring out how it is they connect with the rest of the web but is it the log in and, you know, is it -- you know, the canvas page has been largely decremented although it's -- you know, still there and some small cases.  And I think --
KIRKPATRICK: What does decremented mean?
MR. HOFFMAN: No long -- basically no longer available.
KIRKPATRICK: Oh, okay.  Sorry.
MR. HOFFMAN: Okay.  And so, I actually think that one of the things that we're seeing out, this will get around to answering your question in part.
KIRKPATRICK: That you for another new track, go ahead.
MR. HOFFMAN: Yes, but essentially what happens is what on the internet, what is a platform and part of what is a platform here is actually a set of services that you can build better applications on top of, it's not like an OS environment like, you know windows or backwards but it's actually in fact a set of services that are essential providing kind of much higher quality application for consumers or professionals and what not.  And so, for example, you know, like when I look out there like well, this is an investment from Greylock is Edmodo, which is the social network for K twelve, right, similar kind of platform thing, you know, when you look at -- you know kind of, to some degree Affirm what is a network that's powering it and then in terms of financial services it goes that whole stack.
KIRKPATRICK: Are you investment Affirm?
MR. HOFFMAN: No, but --
KIRKPATRICK: But this is the theme of your investing of yours, really saying to us.
MR. HOFFMAN: Yes.  And it's a theme of when you look forward to the future in terms of what kinds of things that you think are interesting, I actually think network as a platform.  It's actually one of the things that, you know, if you use the baseball analogy, we're only somewhere in the first inning.
KIRKPATRICK: So what could that make possible that we don't have now, just for example?
MR. HOFFMAN: Well, so I mean, well, so for example one of the ones that I'm sure actually Max have been thinking about the same too, but take health, right.  So, if you can actually get the cost of sequencing are coming down at --
KIRKPATRICK: D.N.A, yeah.
MR. HOFFMAN: D.N.A, cost of sequencing genetic D.N.A is coming down at a faster than Moore's Law cost curve, which means that you can essentially get D.N.A. registry for everybody at some very predictable point in the future.  At that point you can begin to see which kinds of things, what are the actual different forms of cancer, how do you cure them, what is the reaction of various kinds of drug therapy.  What kinds of things are genetic conditions spotting those genetic conditions early.  There's a technology called CRISPR which allows you to edit the existing genome which can actually allow you of fix genetic conditions that could otherwise drop you in the tracks at a young age.  You know, these kind of things, I think are all process and how that becomes to a network is, you begin to actually have all of the network data and you been understand kind of family relationships, relationships to a drugs, relationships to other therapeutic processes that sort of thing.  That's a one instance of lots of things.
KIRKPATRICK: Well, that's a pretty powerful thing to converge with networking is -- you know, the information about what we're made of.  Max, you had any thoughts on this?
MR. LEVCHIN: So I think in general, it's always very -- not very but it's -- it's easy to predict and/or call out themes and it's always dangerous to call out companies, you know, when we were looking at the Facebook revolution, it was very clear that a network of social connections would emerge and it would through some combination of APIs and ubiquity enable other businesses.  I define platforms very, in a very pedestrian way but essentially a company that enabled other companies or business that enables other businesses and maybe some of the more socially relevant other ones are just commercial but ultimately a platform is something that propels other companies maybe other platforms forward.  The theme that is pulsating in my mind for the last few years is data as commodity, data as a fuel to propel forward new types of application, in terms of platforms I think a lot of what sales force has done to its product to plug or our host mark has been all about leveraging corporate data.  The first love, so to say, of my life is finance.  And it's very -- it's painfully clear to me that as we are finally leveraging the enormity of data that's available to us about things that are in finance or around finance or even just data about individuals and businesses transacting, we can remake finance just like with the D.N.A information that is becoming cheaply available we can remake healthcare.  So you know, not to serve toot my own horn any more than I absolutely must, the reason I roll out of bed every morning go to work to run Affirm is not because I think it's going to be another PayPal or another great amount of money to be had, it is because I fundamentally see it as an opportunity to remake finance.  When I say we're going to reinvent consumer finance from the ground up I don't mean that lightly, I mean that as a -- there's this opportunity where data about how to run an enormous industry is available and no one's using it if you look at what your mobile app for your bank does today it's remarkable how blind it is.  It is no --
KIRKPATRICK: Was I ironic considering the financial industries one is supposed to be so data-driven they've always been better at tech industries et cetera.
MR. LEVCHIN: So I'll give you a great detail about financial history that always sort of gets me going.  So, the financial industry, if you go far enough back it was -- it's far enough back from, any time in history it's supposed to be the lubricant of society.  The reason it exists is because we got sick of trading eggs for chickens and we needed to have a common carrier currency to conduct our lives with.  And so, it is by definition secondary, it's something that enables trade, enables better life and enables re-distribution of resources and yet it is the largest industry in the world.  So, it is inherently the second order industry that is so inefficient it's matter to take over everything else.
KIRKPATRICK: Collecting excess rents as they say kind of thing?
MR. LEVCHIN: Well, it have plenty of inefficiency to have wrong out of it, and that's what I'm very busy doing but --
KIRKPATRICK: Any of us would benefit if you did that?
MR. LEVCHIN: I intend to deliver on that.
KIRKPATRICK: I want to get back to a related theme.  Did you have any thoughts on this or shall I change the subject to something else?
MR. STOPPELMAN: You know, we were talking about analytics and I was thinking about how that relates to my world of offline businesses.  And I think that is an area that's going to be more and more interesting in the coming years because we are finally having technologies that allow us to track people from online all the way in the door.  And that's not just -- we're not talking about something particularly creepy we're just talking about aggregate statistics, but one of the biggest challenges in my world is -- you know, if somebody sees something, they're looking on their phone they find a local business or they find national chain or what have you, and then they decide to transact, how do you capture that information?  Some of that you can capture right there maybe you know it's order ahead or book a reservation, there's lots of ways we can try to encourage that user to actually transact online, but a lot of times they just want to walk in the door and you know experience the local business and so there are technologies becoming available that are going to give us and are already -- you know, kind of nascent and there they are going to give us very precise analytics that will help us understand consumer behavior advertising all our way, all these things that we've kind of taken for granted on the web, you know, obviously that's been around for years where if I sell flat screen televisions I just go into AdWords and I start bidding on keywords related to flat screen televisions and then I track the user all the way through the funnel I know exactly how much I paid for that ultimate customer.  Right now, that's pretty tricky, you can't really get a perfect number, you don't have perfect intelligence when it comes from online searching to offline purchases.  And I think that's an area where there's going to be -- there is a lot of data and the tools and methods are going to get more sophisticated.
KIRKPATRICK: And the focus for you?
MR. STOPPELMAN: Absolutely.
MR. HOFFMAN: And I thought one other thing that for this audience might be particularly concrete of these abstracts which is part of, we think about, for example, networks is a platform.  There's a thing called LinkedIn sales navigator that's on the sales force platform.  So the question is how do you bring your own network and your identity into making you more effective in the sales process.  And part of how these platforms become interchangeable as a sales force here, I mean, obviously a platform you connect them together.  Those are the kinds of things that are the kinds of products that result from having network as a platform.
KIRKPATRICK: Good example.  I wanted to ask you, you know going back to Max's point about the financial services industry being one maybe it's not the most efficient or effective.  Bitcoin is something I know.  You're very excited about, wouldn't surprise me if all three of you have opinions on it.  And I'd be curious to hear what you -- how big a deal you think it is?
MR. HOFFMAN: So I think that it's one thing back to the theory of money --
KIRKPATRICK: And can you explain it to me?
MR. HOFFMAN: Well, maybe.  So theory of money.  Theory of money is actually much better as a debt ledger than it is a replacement for barter.  And there's a bunch of interesting books on this debt.  The first I've been 5000 thousand years money an authorized biography and part of what's happening is what Bitcoin is actually in fact is a distributed trust ledger that doesn't have one centralized source for how it operates, it works across many, many it's essentially taking the ledger and we've broken up across and in a potentially infinite not obviously infinite but a very large number of nodes.  And so one node can't essentially get corrupted and corrupt your ledger like empty your bank account, freeze your assets, you know, these sorts of things.  And so --
KIRKPATRICK: It's duplicated many, many place?
MR. HOFFMAN: Yes and fragmented in the way that it has to, it requires to make an alteration, requires 51% of the processing nodes to all essentially make that operation.  And the way that essentially works is when someone says, well, look, I'm sending a Bitcoin to Max.  A number of the different network nodes have to say okay, we process that transaction and now that crypto key that used to belong to me, the entry in the ledger now belongs to Max.  Now, the most interesting question is, is Bitcoin a first or last crypto currency?  I think it's obvious that there will be a crypto currency, they're maybe obvious if there's more than one possibly, but the question is this if it's the and then the other one, new ones will be invented and have better features then it's unclear where Bitcoin will go.  The argument for being the last is the fact that in contrast to the other crypto currencies so for example there's this thing called doe's coin which started out doggie coin, right and then got a little bit of serious analysis doe's coin as supposed to doggie coin.
KIRKPATRICK: Went back to Venice and such.
MR. HOFFMAN: But if you compare the number of wallets that Bitcoin is adding versus the number of wallets, number of people who have, you know, wallet with the currency in it.  And any of the other currencies Bitcoin is adding more wallets, I think it's every week -- it might be every day than the other currencies have in toto, right.  Which then suggests that actually it's getting a network affected, it's getting the critical mass and that Bitcoin will actually be an interesting phenomena and that kinds of things you can do with Bitcoin.  So, most people say well, is it kind of like this weird form of digital gold which is maybe the closest approximate today.  When you begin to have this -- the kind of distributed ledger it can transact Bitcoin but you can also sign a Bitcoin for example to you know your car.  And then you can have electronic contracts that are processed in the cloud including the -- you know like for example if you can have a what is known as an oracle reading a post and says if David Kirkpatrick dies because you see the obituaries in the you know kind of in the newsfeeds then award his car to the following charity right and that's all doable.
KIRKPATRICK: I think we're going to say pay a total or something.
MR. HOFFMAN: No, all of that sort of thing now --
KIRKPATRICK: Even my death here.
MR. STOPPELMAN: This is getting a little morbid now.
MR. HOFFMAN: Well, I figure you know.  And so all of that now becomes in terms of financial industry now becomes essentially all electronically process able, all becomes available to competitional process.
KIRKPATRICK: So, it is also a platform of the type you were speaking about before potentially in many ways, right?
MR. HOFFMAN: Yes.  Exactly.
KIRKPATRICK: And any thoughts on Bitcoin from anybody here?
MR. LEVCHIN: I was going to hold myself back since I don't think this was the crypto nerd --
KIRKPATRICK: But don't get it out too far.
MR. STOPPELMAN: But a little bit, break down the algorithm for us.  Happy to --
MR. LEVCHIN: I'm always in the one nerd in every room when I say, wait let me tell you about the Merkel trees but I will not.  So now, what I meant is that part of what we think about at Affirm every day is what is the shortest path to fix the financial industry.  Bitcoin and I completely agree with Reid the Bitcoin with a low case B is profound.  Bitcoin with a capital B, may or may not survive its own weight in part because it's unregulated any currency that has to co-exist in the world of other currencies which are all fiat has to be regulated otherwise it's impossible to figure out what happens next when somebody comes in and says I'm going to sue you, the car to David Kirkpatrick was supposed to donate to the charity was donated to the wrong one along --
KIRKPATRICK: With his car, right?
MR. LEVCHIN: You know, something happened, we're going to kill off the moderator obviously the end of this is so.  At least --
KIRKPATRICK: He doesn't deserve and I can tell you that.
MR. LEVCHIN: Point being until a U.S. judge and perhaps a Supreme Court Judge says here's how you think about enforcing contracts denominated in crypto currency blank, it doesn't really exist for the purposes of everyday life.  In a place like Venezuela, where enforcement of contract denominated a local currency is as good as the biggest shotgun you can buy, it's already relevant because there it just doesn't really matter.  Someone's going to come over and take the car if the transaction goes out.  So --
KIRKPATRICK: And there's quite a few economies like that where Bitcoin is doing well?
MR. LEVCHIN: Yeah, hence the abundance of entrepreneurs including some of our share investments from Latin America where the strongman governance is still in fashion.  So, the --
KIRKPATRICK: These are shared Bitcoin related investments?
MR. LEVCHIN: Yeah, we share a Bitcoin investment, so Bitcoin with the low case B, the crypto currency, the nodes of distributed ledger, the idea of a fully self-reinforcing contract that is unforgeable perfectly verifiable et cetera, et cetera.  I vote with both hands for that.  And within that, something like Affirm is great beneficiary give you a very simple example that everybody can sort of get their head around.  Immediately is today or tomorrow when you need a notary public they have to come to your house and witnesses must be present if it's that kind of a transaction and thumbprints exchange and privacy invasion and all sorts of.  With a general distributed ledger it's as simple as signing a digital message and it is at least a secure and no mobile notary service needs to exist.  It's only mobile notaries like the first proto uber of course just random factors.  As an asset class it's ridiculous, last time somebody asked me what I thought of Bitcoin as an investment to today Bitcoin lost full $300 of USD value so far I'm sitting pretty with no investments in Bitcoin.
KIRKPATRICK: You don't have any Bitcoin, do you --
MR. LEVCHIN: No, no, so I used to node until somebody sent me a bunch I would stop saying that.
KIRKPATRICK: If you don't have a lot, did either of you guys have Bitcoin?
MR. STOPPELMAN: Small amount.
MR. HOFFMAN: I have an investment.
KIRKPATRICK: You have some Bitcoin, it's -- and any thoughts on Bitcoin?
MR.STOPPELMAN: I mean, my one question was going to be, yeah, let's put our money whereabouts as and who owns Bitcoin but I feel like we just got that answer so I guess, you know, Reid and I are more bullish on the currency than Max who had be gifted shares.
KIRKPATRICK: Why are you bullied?
MR. STOPPELMAN: I mean, I think we heard the reasons.  I think especially in places where you know currency inflation can run amok where there's been devaluation again and again I think having some store of value that is outside your current country.  I mean, I remember years ago traveling to Moscow and I was out in kind of the suburbs and we went to the grocery store and at the grocery store literally there was a little kiosk behind of course bulletproof glass where people would you know keep their currency in USD, and then before they go in the grocery store exchange it presumably had a high fee and then go in and purchase their items and so in an environment like that, how incredible --
MR. LEVCHIN: How long ago was that?
KIRKPATRICK: Even if it is --
MR. STOPPELMAN: That was 2004.
MR. LEVCHIN: Wow, that's intense.  So I was going to give you an oddly similar example so when my family was getting ready to immigrate from Soviet Union I grew up in Ukraine.  Literally called it a month before we boarded the one of the last few Pan Am flight from Moscow to New York City, Soviet government by fiat highly appropriate we're here decided to devalue its currency against the dollar to the factor of ten.  And so our $7,000 worth of savings became $700 that was the grand total of money we landed here with.  And that was definitely my one brief lesson in the devaluation of currency, you're not safe no matter what you think or how much you save.  So I am very partial to the Bitcoin as a value store idea just given the current volatility it's hard to imagine --
MR. STOPPELMAN: Eventually, I think it will be quite easy for that.
MR. LEVCHIN: If anything.  Its current decline is a good thing because it's probably zeroing in on a fair market value or whatever that is.
KIRKPATRICK: Okay.  Thank you for spending some time on that.  You know, backstage Mark B was saying the themes of this conference are innovation and social good which I thought was interesting that he said that way and I love the guy.  So, let's talk about innovation for a second and if we get to social good that would be interesting too but you know this audience I would presume comes a lot of you from companies outside of the traditional tech industry and certainly it's one of the most interesting nexuses right now in business and most urgent ones really is how do established enterprises intersect with dovetail with compete with the startup ecosystem that you guys are part of.  I just love to hear you talk about you know how you look at the continued existence of all these big corporate colossi.  What they should be doing because you exist that they're not doing and you know should they worry is -- is there a -- you know, massive you know calling -- you know in prospect or is this just going to continue to be Silicon Valley's over here and we're still going to have our giant fortune five hundred group over there which frankly I doubt but --
MR. HOFFMAN: Well, John Seely Brown and John Hagel wrote that what they coin and term topper rate which is the number of companies in the S&P 500 or there are 100 years ago is increasing at its rate in terms of its going down.  So I think that innovation and adaptation is becoming more and more important for all companies.  So, early in the summer I've published a book called the Alliance, which is roughly speaking how do you essentially try to manage -- have more better talent -- manage better talent a networked age because I think we've roughly move from an information age to a network age.  And one of the key things is actually there are mathematically no matter how great your company is, how innovative it is there are more smart people outside your company then just because the math and there's also correspondingly a bunch more innovations so you have to use network intelligence in particular good ways in order to stay innovative.  So for example to get concrete one of the things that we write about in the book is to say how people in the company able to take other people out for lunch, find that information or report that back to the company as a kind of a general policy because then part of what you're -- what you're doing is you're saying everyone needs to be alert to the network about what's happening in the market, what's happening in technology, what changes in software, what changes in globalization, so that we can adapt as a company and that's part of what we did in the books called the Alliance.
KIRKPATRICK: That doesn't really answer my question but it was interesting.  Max?
MR. LEVCHIN: I keep on figuring out ways to not run a big company although with Affirm I suspect, I hope I will be.  But it's really really hard.  And the difficulty and those of you working for a big publicly traded company know this one all too well.  The fundamental conflict is kind of a derivative of the innovator's dilemma, where you have a thing that thing is a business, it generates a lot of money if you're a fortune five hundred company, you're probably profitable so it's generating real cash and the management team is rewarded with some of that cash and in the forward-looking stock value that that profit margin time some growth assumptions is representing.  All of that has to be for real innovation to occur to be put in a corner and told that's a great no but that's today tomorrow the world going to go mobile or is going to go by a computing or it's going to change in a way that we can imagine but cannot fit into the existing thing that's generating all that money.  So all of you take a long breath because we're going to suffer through a down market cap because we're going to go invest in our future.  And investing in a future self can be expensive can also be treacherous and it can wind up being a failure for a publicly-traded company to tell its management team that its employee base we're going to stop paying you as much as we do especially in a way the stock price take this crazy giant bet and if it doesn't pay off so be it is just really, really hard and we have not yet invented a new compensation model where the management team can be told not just sort of in the -- you know told but not really meant but truly pushed into the uncomfortable territory of let's go take crazy risks and it's okay, if you can't make your next mortgage payment.
KIRKPATRICK: But are you saying essentially you believe all companies really have to do some version of that?
MR. LEVCHIN: I think they must.
KIRKPATRICK: Is the pace of change?
MR. LEVCHIN: The number of wave is if you imagine the technology broadly speaking in society as well changing number of waves that are coming up on our shores is accelerating and they're overlapping and they're just more and more new stuff.  Ten years ago, it was very easy to say maybe mobile is going to be a big thing and no mobiles a big thing and internationalization is a big thing and you have giant Chinese companies going public in the U.S., which means that they're eyeing the local markets.  You have global slowdown in global competitiveness, you have incredible opportunities and incredible risks so we're generally in an age of higher beta so having as many things changing as much as they do at the very least you have to be responsive to that, to those changes.  At best, you anticipate some of them and you take bets, you decide say hey, I think this decreasing cost of DNA sequencing is going to be important to my business so we're going to invest in it like crazy and you might be wrong.
KIRKPATRICK: So Jeremy, you run a public company that's coming out of the startup San Francisco Silicon Valley, you know, high energy ecosystem but reality is also appealing and I'm curious whether you think about stuff like what Max was just saying for yourself and how much and how much do you think companies generally need to.
MR. STOPPELMAN: Absolutely, I do.  The way that I would describe what Max is talking about I have a term for it, it's called tyranny of the revenue.  And so every time you add a new business line or some way of making money you're also adding an element of risk because especially as a public company but even as a private company as soon as you have something that is bringing in material revenue, your investors will never let you get rid of it or if they will let you get rid of it, it will be a very painful process and so we're always, you know paying attention to that and looking as far out as we can and say, how stable is this revenue stream and nothing is forever there will be a time where you know you have to replace a particular product or service you have to come up with something new and I think that what the way to combat that is constantly be looking for the next innovator's dilemma, the next disruptive product that you can launch looking at other folks in the marketplace that maybe have a high priced product that you could attack from a different direction or from a different price point.  So that's something that we're just now starting to think about a layer into our business is we think about the next 10 years, we're trying to plant the seeds so that 10 years from now we have a handful of other now then mature businesses that have disrupted other companies in other verticals.
KIRKPATRICK: In a way what you were saying before which I didn't really mean to badmouth but it's really that there's a cultural shift.
MR. LEVCHIN: Yes.
KIRKPATRICK: That has to happen, right.  That maybe hasn't happened in a lot of companies and when you invest presumably you're looking to invest in companies that either will drive the cultural shift or are emblematic of it in some way.
MR. HOFFMAN: Well, actually not that because there's two different -- there's how you invest which is essentially the new companies which will either disrupt the existing ones or create new green fields because they have to grow into something big and generally speaking as investors will only look for things that are industry transforming.  For large companies, the question is how do you have continued relevance where you have to adapt so part of what you have to do is adapt with a culture and you have to in part begin to actually realize that it's not just like companies Jet Blue say we have a lab, we have skunk corks.  None of these are the right way to do it, you actually have to have the entire company become much more in network-oriented and be more connected.
KIRKPATRICK: It's a cultural shifts?
MR. HOFFMAN: Yes, exactly.
KIRKPATRICK: So companies have to -- not just try to do an incubator, they need to change the way they function, that's sounds real easy.
MR. HOFFMAN: Yes, and connect to the rest of the world, yes.  It's not easy but if it was easy it already happened.
KIRKPATRICK: Does LinkedIn face that challenge?
MR. HOFFMAN: I think, every company has a scale faces that challenge, so we work on it too.
KIRKPATRICK: How do you work on it?
MR. HOFFMAN: Well, so one thing, like for example as I was mentioning we actually have a variety of mechanisms by which we have people in the company report back what they're hearing and knowing about how software is evolving, how professional marketplace is evolving you know what kinds of ways that people want to use their networks for the professional life and then what's going on in terms of general software development.  We also do things like for example, you know, one of the things is classic pattern for technology companies, we acquire the companies to make sure that those things get added into the things that we're doing, some of its talent, some of its extension of the network as a platform in a particular way.
KIRKPATRICK: But do you systematize the processing of that lunch -- you know, intelligence kind of thing input, how do you do that?
MR. HOFFMAN: Well, so for example, everyone in the company is allowed to take somebody they know out to lunch not as recruiting, not as sales, if what they do is they bring back and they sort of write up what they learn from lunch.
KIRKPATRICK: So you could do it every day as long as you wrote something up with them?
MR. HOFFMAN: There is once a month or something, I mean if there's some policy on it but it's --
KIRKPATRICK: And people really do it and then they -- there's like an internal platform for that?
MR. HOFFMAN: Yeah, and sometimes the emails are get written up, get forwarded to Jeff and me and so forth because we're like oh, this is super interesting, this is something we should pay attention to.  Because the whole thing is knowing what people are thinking their perspectives, the insights of what's going on out and about in the world is super -- is super important.
KIRKPATRICK: Okay.  You know one of the things that came up before and I thought it was a really distinctive session and really interesting session that Mark had with Tony Prophet.  You know, I love that he didn't even get into Microsoft for the first half hour.  It was -- you know and I thought the subjects that he was talking about were fascinating because it was really about culture of, you know, industry but also just being human while being in business right.  And one of the things they talked about was this whole issue of diversity in tech.  Now, we got three guys, with four guys of here, I mean I'm a guy too.  And this -- there's a lot being discussed right now even about Microsoft regarding women in tech and women in business and I'm just curious not just about women but what the three of you think about and are doing in order to, you know, continue enhancing the diversity quotient because it seems to be a crisis, so it's certainly, first of all, is it a crisis?
MR. HOFFMAN: I think that you just have to look at the numbers and know that you would actually like to, maybe much more like the, you know, closer to the national percentages in terms of the overall demographics because, you know, we have a massively growing industry, there's a lot of opportunity wealth being created and it would be nice if it was better distributed in terms of the opportunities across.  And people talk about gender here all the time but like for example the number of Hispanic and black entrepreneurs is very few and we should you know it would be great to see a lot more of them.
MR. STOPPELMAN: I mean I think there is a problem.  I think that problem probably begins fairly early.  You can go back and, you know, look at the university numbers and they're not generally very exciting, there's a couple of schools, that are doing some good work particularly on the male, female ratio but in general, it's a real problem.  And I think companies like ourselves, any innovative company is missing out, if it doesn't has diversity both male female as well as, lots of different nationalities because everyone's bringing in different perspectives, different demographics.
KIRKPATRICK: Well, it goes like a risk point before about going out there and getting intelligence and we're communities --
MR. STOPPLEMAN: Yeah, there's going to be things that you get --
KIRKPATRICK: -- they're drawing from --
MR. STOPPELMAN: There's going to be things that you miss if you don't have the world represented within, you know, within your company.  And so there are things that we can do today, you know, there's different schools we can double down on recruiting efforts from which could make a difference.  You know, there's programs that we support.  One that I know Mark's been involved with from very early on as year up, which does training and helps folks from tough backgrounds, get jobs in IT.  And it's a group that we've worked with and hired a number of incredible individuals from.  So, there's things we can do today but I think fundamentally to address the problem we're going to have to take a hard look at how do we get more of these folks engaged at the University level and even farther back how do we get them going in high school.
KIRKPATRICK: Does LinkedIn try to work on this intrinsically in your opinion?  Is the structure of LinkedIn at all a way to address this or could you make it more so.
MR. HOFFMAN: We've been thinking about that, I mean most of our customers want --
KIRKPATRICK: Not just in the tech industry --
MR. HOFFMAN: Yeah, most of our customers prefer that the way they recruit with LinkedIn is essentially blind because once you begin to know like age characteristics, gender characteristics, racial characteristics.  And your company over a certain size regulation begins to apply.  And so to some degree they prefer to have the hiring pipeline actually be as completely blind than all those characteristics as they can.  Nevertheless because of the importance for social changes one of the things we're looking at.
KIRKPATRICK: I mean, after all LinkedIn isn't really so much about hiring, in my view, is it about self-marketing.  I mean, it's about you know it's about projection and it's both directions of curve.
MR. HOFFMAN: All of the above.
KIRKPATRICK: People can put anything they want in their profile obviously.  It's interesting too because you know we've had all this controversy about San Francisco, the intersection between your industry and the community.  And I guess it's reasonable to speculate that if your industry was more representative of not just the local but the national community perhaps the pushback might be a little less, is that reasonable, Max, you're frowning?
MR. LEVCHIN: I was just thinking San Francisco is entirely not representative of, it's a bubble in and of itself and always has been and with every up and down of the economy, the bubble becomes more self like.  Before we get into the social justice of San Francisco, I would amplify what Jeremy said.  So I have a very young daughter and I want her to decide, I neither one her to become a software executive nor do I want her to stay out of software because it's an unfriendly industry, what I want is her to have complete control of every decision, career and education for her entire life and to never feel like her gender defined any role or any turn she has to take in her life.  For that to happen, I think she needs to hear that every day.
KIRKPATRICK: Yeah.
MR. LEVCHIN: You know, she's three years old now and I try to make sure she knows that if she wants to be an astronaut or a stay at home mom either one is a perfectly acceptable reality and the same goes for my son.  He can be a stay at home dad, but it starts very early to fix today, we have to go back in time.  When I was in school, there weren't that many women in computer science.  When I was in middle school, they weren't that many women in the math club, this -- the problem has existed for a long time, it's not a crisis in a sense that it's a chronic condition.  It's a crisis that's been with us for a very, very long time.  So the only way to fix it is to teach both boys and girls today that things have changed and they need to behave differently.  And that's probably the only way I think any form of legislative control over it is just a band-aid.  So, on a socialist justice side of things San Francisco is one white male dominated talent and we have extremely high rent and regulations that prevent us from creating more rentable space, go figure.  I think it's a bad situation to start with.
KIRKPATRICK: Well, that's a meedy way to end and we do have to end.  You know, that I'm glad you said that and --
MR. LEVCHIN: I'm just trying to inject some controversy.
KIRKPATRICK: No, you know, we had a lot of agreement but I think we had tons of interesting ideas so thank all three of you for joining sales force and me on stage to talk about innovation, PayPal and the future.  A lot more on all three subjects.
MR. HOFFMAN: Thank you so much.
MR. LEVCHIN: Thank you.