Elron: All right. Good afternoon, we’ll get started. Thank you for leaving the nice lunch tent and joining us here. We have an exciting panel this afternoon for you, with some great industry luminaries and leaders, who are going to talk to us about the question of whether every industry will have its own Tesla.
My name is Dan Elron, I’m with Accenture. I’m responsible for strategy and innovation. I’m going to try and moderate, and would like to ask you to participate. I’m going to break the rules a little bit, and will invite you to also ask questions in the middle, if you’d like, and we’ll have a microphone that will help, hopefully, make this interactive and make it exciting despite the after-lunch hour.
Let’s get started. What does it mean to ask the question, will every industry have its own Tesla? Everybody has a slightly different interpretation of what Tesla is doing. Clearly, I think we all know, that Tesla is not just an automotive industry company. They do make cars and you see a lot of them in California, but they’re also into energy storage, batteries, maybe home energy storage, other kinds of transportation. So they’re a slightly different company than what you typically will find in the industry. Also, just a little factoid, the market cap of Tesla is about two-thirds of that of GM or Ford. Something to think about.
Let me introduce our panel, who we have with me here. First of all, to my left here is Ali Diab, he’s the co-founder and CEO of Collective Health. Next to him is Scott Sanborn, who is the chief operating officer of Lending Club. Right after him is Jake Seid, who is the president of Auction.com. Last but not least is Dane Howard, who is the director of global brand experience at eBay. So as you can see, we have representatives of complicated industries, some of them regulated industries, larger company and some smaller companies.
And we’ll start the discussion with a simple question, it is: what does your company do, and how do you see the industry affected by your company? So, Ali, I’m going to start with you.
Diab: Thanks for the intro. Collective Health is a software technology company that enables employers to self-insure their health plans and thereby forgo buying traditional health insurance. I would say that the way that our company impacts our industry, which is health insurance—or health payments, maybe, more generally—is by taking a novel software or tech-centric approach to the problem of how do you pay for healthcare. And in this country being specific, employers cover the vast majority of expenses in healthcare, in health insurance more specifically, and so we focused on that segment, because we feel that’s where we’re going to get the most leverage.
And I think, maybe not to jump ahead a little bit, but to answer the question, will every industry have its Tesla, I think the question to me is even more generic, which is: will every industry have a disruptor, and I think that’s what Tesla sort of represents. It represents a fresh set of eyes on an old problem, and a fresh approach to solving that problem, and I think we are doing just that, and I think that’s what the Valley is sort of famous for.
Elron: Okay, great. Scott? And before Scott speaks, just so you know, he is in the fortunate position of being in the pre-IPO position, so he won’t be able to answer every question that we might have.
Sanborn: Right, thanks Dan. So I am with Lending Club. What we do is, we are the largest lending marketplace. And what that means is, we have on one side borrowers, people who are seeking capital that can either be individuals or businesses; and on the other side we have investors who can fund those loans in exchange for interest income. And Lending Club sits in the middle, underwrites, prices the loans, services the loans, and enables, kind of the regulatory framework that makes that all possible.
In terms of the question vis-à-vis Tesla, I think there’s a couple interesting things worth thinking about. One is, I think, were you starting a car company from scratch today, you would ask yourself is the current model the way you would build it? And I think Tesla answered that with a, “no.” Lending Club is saying the same thing about the current banking system, you know? Would you create thousands of bank branches all across the country? Would you attract deposits, have those deposits guaranteed by the federal government and then lend those out? Probably not.
And then the other thing that’s interesting, part of what makes Tesla so hard to pin down as to what they’re doing, is that they’ve really vertically integrated all of those pieces, and you know, from the distribution model through to the ongoing maintenance model, and Lending Club is doing sort of the same thing. If you look at—we’re attracting the borrowers, we’re underwriting them, we’re pricing them, we’re servicing them, we’re grading them, essentially, and we’re issuing the security that associated with their sale. So we’ve kind of compressed and reduced the intermediation costs that are present in the current banking system by putting it all together under one roof.
Elron: Okay. And just as a little unsolicited commercial, I’ve been an investor in Lending Club, and last time I looked my rate of return was 10.7 percent for the money I gave them to distribute, which is slightly higher than my regular bank would typically pay.
Sanborn: Good to hear.
Elron: Okay. Jake.
Seid: I’m Jake Seid, with Auction.com. So we’re the largest online marketplace for real estate transactions. You can think of us as the commerce analog of what Zillow and Trulia do. Those companies focused on content and really lead-gen, and we’re like an eBay for real estate, where the deal gets—people go to our site to consummate the transaction. And this is everything from a home to a $75 million building. One of the things that we see in this phase of the Internet is—and you look at the panelists here—really tackling regulated parts of the economy, and that’s really kind of what we’re in the heart of, is an industry that is highly regulated, has deep entrenched interest. For us, our approach was almost to change it as an insider, as opposed to maybe what you’ve seen with Uber and Airbnb saying, “Hey, we’re going to do things very differently than the regulations.”
Same with Tesla. Tesla has taken an approach of saying, “We’re going to do things very differently than what the regulations state.” You know, given the lobbies that exist in our industry, we said, “Look, if we’re not whiter than white, it’s going to be very challenging to even get going,” and so we’ve taken kind of an insider approach, and evolving the industry through that method.
Elron: Okay, great. Dane?
Howard: So, most of the—when I say, what does eBay do, usually people have a perception of what they do, and we end up—we actually built something called our Commerce Innovation Center, where we take companies through and actually we’re in the process of educating them about what we really do. And you suppose that you know marketplaces, but today we’re fast-becoming a mobile company. Just south of 50 percent, 48 percent of all of our transactions go through mobile. I had the privilege to be one of the first designers on mobile, so I’ve watched this transformation of how we have listened to our customers on what they want in commerce today. But there’s also the payment side, and there’s also how we serve our customers. We quietly serve a lot of B2B customers in their infrastructure.
So as we think about enabling commerce for people, our big challenge or opportunity is to say, “Well, how do we disrupt by doing it through commerce enabled by people?” And so when I had a chance to invite Franz, who’s the head designer of Tesla, into eBay, he would tell me it was really hard to start from nothing. He sat quietly in the back room of SpaceX, you know? And that felt, to me, I really identified, because when there is momentum out there in the business, you become the quiet group, and so how do you create momentum inside of a large organization, for something? And so he would say that one of his hardest things to do was to start from nothing, and if you think about the disruption that they created, it was interesting what the leadership put forth. He said, “Create a car in four years—oh, I mean two and a half—and by the way, it has to go from 0 to 60 in four seconds, and it has to have a 300-mile range, and it also needs to have a $50,000 price point.” Never been done.
Well the perception, the consumer perception for EVs—or electronic vehicles—is nothing short than a golf course. That’s the only experience that humans ever had. So they had the challenge of not just reinventing automotive, but how do you change the perception of how your commute might be? And so what I identify with is their tenacious going after the customer, and how they reimagined what the customer—how they would perceive what they had done, through design.
Elron: Dane, one quick thing from our conversations earlier—design seems to be almost a CEO-level concern at eBay. Can you tell us a little bit about that?
Howard: So, I have the great privilege of working with John Maeda, and our CEO, John Donahoe, this year. John’s a great leader, and also he has this curiosity, he knows what he doesn’t know. And so he reached out to several advisors and said, “How do we actually activate design inside of our company?” And so we have a chair of our Design Advisory Board, John Maeda, and I have the privilege of working across all of eBay’s companies right now, to get all those different arrows and points of view pointed in the same direction. So whether you joined the company nine days ago or nine years ago, what we’re doing is activating design across all of our companies.
Elron: I want to get back to Ali. Maybe you can tell us why you started the company; I think there’s an interesting story there that will explain what you’re doing.
Diab: Sure. I mean. I have no background in health, other than being the son and sibling of physicians. I was working on another startup, a failed startup in the photo-sharing space, last year, and I was sitting at my desk in the middle of the afternoon, and I had this intense pain in the middle of my stomach. And it just kept getting worse and worse and worse, and it wouldn’t go away. So I picked up the phone and I called my brother, he’s a surgeon, and I was like, “Hey, I have this really, really intense pain in my stomach, and what do you think I should do?” I’ve never been hospitalized, never had a health issue before.
So he’s like, “Well it’s probably nothing, given your health history, but just in case, drive yourself to the emergency room and get checked out.” So I did, and I went to the Stanford Emergency Room and I had a CAT scan, and within an hour I was having emergency surgery, and I had most of my small intestine removed. I had a random, freak thing happen, where my small intestine twisted upon itself, and as a result I had basically like a heart attack in my small intestine. And then I spent several weeks in the hospital, including about a week and a half in the ICU in recovery.
And then to add insult to injury—literally—when I got home, I came home to a stack of explanations of benefits—you know, those lovely things that look like bills, but say, “This is not a bill,” and also a whole bunch of denial of coverage forms. And I was like, “Denial of coverage?”—and I had the best of the best PPO health plan at the time. And so basically I spent the next four months trying to figure out why my insurance company wouldn’t pay for things. And it was bad enough that they wouldn’t pay for things, but it was almost worse trying to understand why they wouldn’t pay for things and just interacting with them. And really, that was the genesis of the idea. I called a friend of mine who’s my co-founder, who’s a Stanford physician and Ph.D. in health economics, and I was like, “Hey, do you see this often? Is this something that happens in the hospital routinely,” and his response was, “Sadly, yes.”
And so through the course of the next four or five months, reading everything that we could about why health insurance companies behave the way they do, why hospitals behave the way they do, we discovered that there is a fundamental misalignment of incentives in the value chain—and we felt like as sort of fresh eyes on the problem, we could approach it without all the baggage that the existing incumbents in the industry have, and so really that’s kind of the simple genesis of the story.
Elron: And so what is your vision, as we heard this morning—it’s a huge industry with very entrenched interests and a huge amount of complexity. How are you approaching your entry into this industry, and how do you see the endgame?
Diab: We approach it from the vantage point of the user, and the question that is we ask ourselves is not, how good can we make it or how much better can we make it, but how should it feel to somebody? And so when I picked up the phone and called my insurer, who I’ll leave nameless for now, the experience of just trying to speak with someone who could answer my question was like pulling my eyeballs out.
So we start just with the simple premise of, how should it feel when you call your health insurance company? How should they pick up the phone? How should they answer? What should their tone be like? How helpful should they be? What should the posture be like? And so I think it’s kind of related to what Jake is talking about, in terms of the way Tesla sort of set some minimum thresholds of how a car should behave, before embarking on building one. We have some just minimum criteria, in terms of how people should feel when they call their health insurance company.
And we think, given the wallet share that healthcare is in this country, and health insurance specifically represents, that having a shoddy or mediocre experience when you call your health insurance company is just simply not good enough. Like, it has to be exceptionally good, because it takes a lot of money out of our wallets every month, every year, and it’s something that when you’re sort of in that pinch or in that moment, you want help. You want somebody who’s got your back, not somebody who’s going to screw you over the minute that they have the opportunity to do so, which is, I think, what everyone—I mean, I can ask for a show of hands of who loves calling their health insurance company, but when I poll people randomly, they don’t tend to really love their health insurer, and we think you should love your health insurer. They take so much money from you, you’d better love them.
Elron: Will we still have these huge health insurance companies in the U.S. in 10 years, do you think?
Diab: Yes, I think we’ll still have large incumbents, much like the Big Four automakers still exist in spite of Tesla, but I think that unless they change and unless they address just the fundamental issue of serving people better—or the way they should be served, as I was saying earlier—I don’t think they’ll exist in the same kind of scale or the same kind of potency that they do currently. They are the largest lobbyists in this country, after the chambers of commerce, so they have a lot of influence, and like I say, they make a lot of money which allows them to wield that influence, but I think—and Tesla’s a great example—I think that that power can only last so long, even if you use regulation and all sorts of other political chicanery to empower yourself, in the long term.
Elron: Okay, thanks. Scott, when I said—go ahead.
Sanborn: I was just going to make a comment on what he said. I think there’s two things that came up that were interesting to think about. One is, you asked the question, who’s the enemy, and I think—it’s an interesting question that I think especially startups are prone to asking, because it’s easy to mobilize the troops against something that’s out there.
I know in our case, not only do we not view banks as the enemies, they’re actually our customers. And they’re our customers, to the benefit of our customers, meaning that we have banks that are funding loans and the loans that they’re funding are enabling a lower interest rate to the borrowers that meet their credit criteria. So it’s an interesting question of—we very much set out to say, we don’t think that banks are the problem in our case, it’s more the system, and rather than setting ourselves up against them, it was more a question of what can we do for our customers? How do we actually make that experience better?
And I think the other thing that came up was this question of the regulation, you know? The term disrupt sort of feels like a wrecking ball, and I think that can work in some industries, and I think in other ones, you know, navigating that framework, and making sure that you actually have an ability to be successful and get traction within the bounds of the framework can be important.
Diab: I agree.
Sanborn: Certainly, your industry and my industry both, there’s tens of thousands of pages of legislation and lobbyists that, you know, you want to at least be aware of what the agenda is and framework is.
Diab: And I would add to that—I think Scott’s right. You don’t just start a company to pick fights, right? We’re not picking fights with anyone. We start with a premise of, how should it be, and then start from there.
Elron: And that’s very much what Peter Thiel, who I guess is an investor?
Diab: He is. He’s our main investor.
Elron: Yep—says in his book, for those of you who had a chance to read it last night: don’t pick an enemy. Pick a small market and go from there. Jake, how do you see that in your also-complex industry, with a lot of entrenched interests, and quite a bit of regulation, federal and state, etcetera?
Seid: Yeah, you know, the first question that we always get is, are you going to disrupt the real estate agent? Are real estate agents going to be here ten years from now? And you know, for us, we think about ourselves really as an enabling platform. The idea that today, in a real estate transaction, it’s all paper, pencil, and a fax machine, you know, there’s very little free flow of information—and the opportunity to make the platform, to use Internet actually to make it more efficient for buyer, sellers, and agents, is something that we believe is an opportunity.
And we think, like other marketplaces that went from offline to online, you’ll have a mix, as opposed to 100 percent intermediated, 100 percent full-fee—you’ll go to a mix of self-service, discount service and full service. You’ll have discount agents and full-service agents, and the full service agents will focus on something different then they focus on today, because they’ll have a platform that allows them to spend actually more time on their local market knowledge and handholding the customers. And certainly for buying a home, most people buy once every nine years—it’s not unrealistic to think, “Hey, I want someone who’s going to really handhold me through that process.”
And so, you know, that’s kind of our premise, is the Internet actually can be very effective at supporting the existing players, not just saying, “Oh, we’ve got to go with the wrecking ball and plow our way through.”
Elron: Okay, so do you see yourself working with the real estate agents, getting to the point where there is a transaction, and then it becomes an auction? What’s your view of kind of five, seven years ahead?
Seid: Yeah, you know, it’s very similar to, you know, I think what you see in, whether it’s the stock market or StubHub. You know, you can trade stocks today without a broker; there’s a lot of people who do use a broker and get advice from a broker, get advice from somebody who’s helping them manage their money and their allocations. And so I really see it evolving in that direction, where, you know, again, the brokers who will be there are people who really have great subject matter expertise, who are really great advisors on a particular local market.
You know, I think also one of the things that the Internet enables in real estate is a democratization of people to participate in real estate as an investment asset class. And you know, we were talking last night—there was a panel last night, where they said, a photo of—I think of Elon Musk, or Peter Thiel, with an iPhone. And you know, somebody who could have any phone in the world has an iPhone, and that’s the same phone that somebody taking the subway or riding a bus, you know, in this area, could have. There’s a democratization of what’s available, from the very wealthy to people who are on a bus. And so, that doesn’t exist in real estate. If you’re wealthy and you’re an insider, you will get inside deals, you will get inside privilege, you will get inside access, and we think that one of the real things that the Internet could bring, six, seven years from now, is a true democratization of people being able to build wealth for themselves, for their kids, for future generations in a way that’s very complimentary to stocks. It’s a hard asset, it’s an inflation hedge, there’s tax benefits—and a lot of people are locked out of that asset class because of the structure of the system.
So that’s really what we view as kind of the enemy, or what we’re fighting, is you know, the cost of entry and really the lack of democratization that exists in real estate.
Elron: Okay. One of the things all three of you here have in common is you have to convince consumers to trust you. Trust you with their money, with their health, with their employee’s health—and that’s something that I think eBay has had to deal with from Day One, and still does to a significant extent. So how—what have you learned at eBay, in terms of creating consumer trust in new models, in new ways to transact? Maybe lower risk, initially, with retail, but getting more significant—people buy cars, obviously very significant purchases.
Howard: I like what Ali said about feeling, because we—if you get into the empathetic side of owning a car, making a large purchase like a house—if you are more empathetic with your customers, you basically have a better understanding of how they might feel. So a couple years ago, we instituted this thing called Buyer’s Trust program, which is, if there was any conflict that happened in the transaction, eBay would immediately step in and take care of the buyer. It was just immediately something that we did. That makes people feel better about the transaction.
But this idea of reimagining the car, or reimagining a mobile experience—the customers will tell you, like, “Listen, I’m just shopping.” Or, “Listen, I’m just”—and if you don’t have that sense of who they are, you can’t take it to this emotional level. But trust is—I didn’t understand it at first, because there would be like—you’d meet people inside the organization and you’d say, “What do you do?” “Well, I work on trust.” And I had to—I needed a way to demystify it a little bit. But what they really were saying is, “No, we help them feel better about if something goes wrong.”
And so, I think this is a really important topic, of how organizations protect feelings, and allow it to happen. You know, Tesla allowed this tiny little group to operate in a tiny way, to protect everything that allowed us to go, “Wow, that car is beautiful.” There wasn’t the traditional things that his larger organizations in design would kill, or protect. So I’m seeing things that we try to recreate inside of eBay, which are smaller teams that are protected, that can have the authority and the momentum to make things. And by making something, one of the greatest compliments you can get from a leader, or an influencer is, “Well, why aren’t we doing that?” And that means that you’ve created something that solicits an emotion inside the organization. So a lot of what we end up doing are becoming momentum-makers for things, and if you look at what they’ve done, they just created quite a bit of momentum around making a beautiful car that also has all these other qualities. From that position, they create tremendous amount of brand loyalty, and people end up loving their vehicles, which has given them the affordance to then play in other spaces.
But when you asked about the ecosystem, I thought it was interesting that—Brian Chesky would say that only 5 percent of the customer’s experience is on the website. The rest is the entire experience that you have with Airbnb. So as a leader, as you think holistically about your business, you start to look at the ecosystem of ownership. So for them to get into superchargers, or for them to get into these other businesses—all they’re doing is extending their customer’s footprint into own—what does it mean to own a Tesla over several years?
So as great leaders think about their customers that way; they think about what does it mean to have a longer relationship with my customer than get them right through the buy funnel, or get them back to transact again. And that’s where you’re going to start to feel companies making different decisions now, so now you’re seeing a lot more emphasis, and will see more emphasis, from us in design, as well.
Elron: One thing about Tesla, I think many of you know, is they have very good customer service. If something goes wrong, you talk to an engineer, they can tell you if you drove too fast, or if you ignored the warning about the electricity or the power, or the battery, etcetera. One thing that struck me with Lending Club, when I first sent my money, is somebody actually called me—a live person, very impressive. It wasn’t somebody who just got hired; it was clearly a very educated expert on the product, to walk me through it, and it was probably a 30-minute call, which I thought was a long time. And I kind of was scratching my head, well why would they do that? That’s extremely expensive for a startup. So, Scott, can you explain that?
Sanborn: Yeah. So, you kind of hit the nail on the head: trust, especially when the company was starting up, was huge on both sides. You know, on the investor side, you want me to lend money to people I’ve never met over the Internet, that you haven’t met either, over the Internet, and who are you guys again, that I’m giving my money too?
Elron: And you don’t take any liability for anything—
Sanborn: Yeah, exactly, and on the borrower’s reputation—on the borrower’s side, it was, you want me to give you all of my information, and what are you going to do with it. So we did a few things on both sides to try and lower those barriers.
I guess, starting on the borrower’s side, since that’s a little simpler, was one—or actually, that covers both, we’re very transparent. So we publish on our website, all the data on all the loans we’ve ever issued, both origination, but also the subsequent performance, so both sides of our platform can see, well, either this is a very substantial amount of loans coming through the system—borrowers can see that it’s real, and this company is issuing loans, and investors can see the detailed performance. And then, the other thing we do on the borrower’s side is try and be aware of that give and take of, we don’t ask—we only ask for what we need when we need it. So if you were to look at our application versus, say, a bank’s—it isn’t that it is wildly different. What it is is that we don’t ask you two pages of question until we think we need them. So we’ll say, “How’s your credit and how much are you looking for?” If you say your credit is terrible, we’ll say, “We probably can’t help you. Don’t bother filling out the rest of this application.” Same thing, we won’t ask you where you work, your social security number, until we know some basic things, so we’ll see if we can give you an offer. If we can, then we ask you harder information, so kind of easing the barrier and letting it be easier for people to trust us.
On the investor side, what we do is one: we publish the results, not only of all the loans in abstract, but actually the investor returns—anonymously, but you can see the returns of every single investor who have ever invested on the platform, regardless of their strategy or timing, and all the rest, so you can kind of see what the range of returns is. We make it easy to invest, in the sense of, there’s no meaningful minimum—so the way it works is, you don’t lend me $10,000, you would lend 400 borrowers $25 each, so theoretically, you could get started with, you know, $25. And then the final piece is, we know that this is a major decision, this is an investment decision, and it can be very useful for people to have somebody to talk to, make sure that their experience is good, that they’re getting off on the right foot, so we started that program and we said, “Let’s try it. Are people going to be annoyed that we’re calling them?” And what we found was the exact opposite. People were thrilled we called, and now that’s just kind of a fundamental part of the program.
Diab: I think it’s funny that you asked the question the way that you did, like, isn’t that expensive? I’m always mystified by people who think customer service is expensive. Like, if you don’t understand your customer, and you lose them, that’s the most expensive thing that can happen to you as a company. And so, I mean, at least from our vantage point, at Collective Health, our customer operation center is actually in the same office—it’s actually in a segregated office for privacy reasons, but in the same place in San Mateo. I mean, we don’t offshore or onshore our customer support because, again, if you don’t understand your customer, you’re not going to be able to serve them properly, and that is the most expensive thing that you can do, is lose that customer.
Seid: Just also in thinking about trust is, you know, I think, what we heard from Scott and Dane is this notion of here in this marketplace, you know, we have people on two sides of the coin, but if one of the folks who participates in our marketplace does something bad, it’s us that’s responsible, and you know, that’s very much how we feel as well. And so, you know, I think companies that do a good job building trust, you know, basically take it personally. Say, look, the actors on our platform, if they do something bad, we can’t just tell the other side, “Well, it was that bad actor, and we’ll punish them and we’ll take them off our system.” It’s basically us as the company, as the platform providers, that are really responsible and ultimately where the buck stops to create trust for all the people that participate.
Diab: Yeah, it’s also not a slogan, right? I mean, trust is earned. Like, your actions speak louder than words. And, I mean, health insurance is a great example; if people don’t trust their health insurance company because their action speaks louder than words—they don’t know why they’re paying for what they’re paying, they have issues like I had to deal with come up randomly, and they’re like, “Wait, I thought I was covered.” And so I think—going back to your initial question—I think being really in touch—and Dane mentioned this—being really in touch with who your customer is, and making them feel like your customer, like somebody who is—you have to earn their custom, in the traditional sense, is critical.
Howard: This is taking place for us, where in Silicon Valley, we’re very much technology-focused, and let’s build stuff, but in order to get this mindset with everyone making the product, we’ll actually visit the hospitality business, and we’ll learn what five- and six-star experiences do. When along the journey do they know someone’s name? How do you get a mindset to serve others? At what point in the experience does a personal person make sense? And it’s not leading with the question, wow, that’s more expensive—it’s just the right thing to do. So we’re learning, just by sending colleagues to other industries and have them learn about how other industries have done it, and then from that standpoint of empathy, go, oh my gosh. Because everyone in themselves has been a customer in some way, and you put them on the call lines, you put them on the—and oh my gosh, they come back changed. You know, from our call centers in Utah, because they go, wow, I had no idea. And when they have a chance to talk to customers, just that empathy piece clicks, and then start to approach their jobs differently.
Elron: It’s interesting. So we’re learning that the startups are actually teaching the incumbents what good customer service is. That’s and interesting angle. I was to shift kind of into a more strategic question. I asked some bankers about Lending Club—and it probably applies to you, too—and many of them said, “We’ll see how they do. If it really works, we’ll do it, and they will just disappear. For now, it’s an interesting educational experiment for us.” How would you respond to that?
Sanborn: You know, I think I would generally say that someone who—a banker who would say that hasn’t probably looked at the model in-depth, because fundamentally the two wouldn’t coexist. Meaning, could a—with the idea that part of the advantages of the business model are frankly embedded in the fact that we are not a bank. So explaining what that means is, you know, banks are required to hold capital on reserve against loans they’re making, you know, and so that has a true cost to the banks. We obviously don’t have to do that, because American taxpayers aren’t on the hook for the loans; it’s investor capital. So there’s—that is an example, but there are a number of examples that are frankly just embedded in the model that, you know, you would have to choose to be a bank or to create a credit marketplace. You can’t really do both. And then, you know, I could keep going, just in terms of the actual, the risk tolerance that banks exhibit, which is very different from—part of the power of our model is we’re attracting a very broad range of investors, from individuals—both high net worth and everyday retail investors—to insurance companies, pension funds, banks, and credit funds. And by having that diverse array of investors with diverse credit appetites, we’re also able to offer better rates to a broader range of customers, which banks can’t do.
Elron: So you don’t see that your—the argument that you’re siphoning kind of the high-value profits from the banking system—you don’t see that as a valid…?
Sanborn: So, what I would say is that if you look at why we’re able to offer better rates to borrowers, it is due to the operating cost. So our operating costs are significantly lower than a bank’s, so that right away compresses it, and a few of these other model advantages. And we have banks participating in the loans, and they are earning yields that absolutely meet their requirements, without having the cost and complexity to support it—so there are banks that are funding loans on our platform, precisely because they can see that we can do this more efficiently than they’re able to do it on their own.
Elron: I want to ask a question about technology. Clearly one thing that Tesla did is do well, in terms of understanding the underlying technology and procurement of batteries, etcetera. How important is technology, technology platforms, in your success, in your ability to get into an established industry and then capture some of the value? Who wants to….?
Howard: The interesting thing that I found, just in researching Tesla, is that there’s only six parts that you regularly have to replace in a Tesla—four tires and two wiper blades. So, when you think about technology, it’s to what end, and how does it benefit the customer? The customer doesn’t really care about technology—or at least they don’t so much anymore. The megapixel race is done, Moore’s Law has pretty much flattened out, and you know, it was actually John Maeda who said, “Are we in a design bubble?” No. Design has always been there, it’s just that it matters more now.
So technology never exists without great design, but design matters more. So what you’re seeing with Tesla is that they brought efficiencies into a mindset that allows more acceptance. Yeah, it’s still remarkable that you get a 300 mile range, but the moment that that becomes a 400 mile range, it’s taboo, right? So we seem to think of technology as cutting edge for the moment, but if you don’t put in the customer experience side of it, it’s kind of, to what end? So in a way, you’re seeing this commoditization of technology, and that’s why you’re seeing this elevated discussion of it, because every one of you open up your apps right now—the moment that we existed on the mobile apps, we don’t compete with other commerce people; we compete with people’s time, right? And so, in a way, how do you reduce that friction?
So to me it’s, the conversation around technology is less as important as it was just a couple of years ago.
Diab: I would agree. I mean, if you break down what the word technology, where it comes from, its root is Greek. You know, technos and logos—the knowledge of how to do something. It’s been obviously used in the software/hardware sense in the Valley, given where we are, but the knowledge of how to do something really well is the critical piece here, whether it’s a process—like how you answer the phones, how you interact with your customers, how you market, how you advertise—or whether it’s how you write the code to do the things that we do. And I think from our vantage point, software is fantastic at making processes that are prone to human error much less prone to human error. I mean if you think about what a CPU is, it’s a Central Processing Unit—it’s about making that process of instruction—doing, if you will, or execution—much more efficient and much less human error-prone, than it otherwise would be. And I think health insurance is just a fantastic example of where throwing thousands or tens of thousands of human bodies at a problem does not make it better, and I think that’s where we’re sort of applying—to kind of borrow from the thread that Dane’s coming down—we’re borrowing from technology where we need to, in order to make that ultimate end-user experience of how should it feel when you interact with your health insurance company to be as good as it possibly can. And we’re using the technos and the logos, both in the software—and even sometimes in the hardware and storage sets, for how we store data—but also in the human sense, for how do we sell people, how do we advertise to people, how do we treat them once we have them as customer, how do we keep them? So the technos and the logos applies to everything that we do, not just the code.
Sanborn: I think there’s—to me, one of the—the power of technology, I would say, in our case, it is one of the massive advantages, because we have enabled so many processes that would be traditionally done through a more manual means. But it’s bigger than—it adds up to more than a cost savings of a technology process or the reduction in the errors; it’s that the entire mentality of the company is built around this, right? This idea that we release software every two weeks, and that the entire company is focused on how do we use this to make the experience better, to make things work faster, more efficient? I mean, therein lies the really kind of sea change of difference, I think, between an incumbent, and kind of a Valley-based—or wherever, any kind of technology startup, wherever they’re based in the country.
Seid: I think it also, it’s interesting, you know, I mentioned this wave of innovation that we’re seeing now is in these regulated industries, but it’s also, you know, connected to this notion of an end-to-end experience, and so you know, whether it’s healthcare, or how you borrow or interact with your lender, or you know, Uber, or the Airbnb—5 percent of the experience is on the website; a big part of your experience is when you show up to that person’s home and what that’s like, you know?
Or our experience, you know? People aren’t buying houses sight unseen—they have to get inside the house. They’re interacting with people, there’s a closing process that goes through a part offline, part online. You know, the notion of end-to-end, is, I think, very important and thinking through how technology and offline kind of weave themselves together to create an experience. I think it’s something that’s more important now than in the past, given the industries that Internet is starting to tackle.
Elron: So you see yourselves as complementers, really, more than disruptors? Back to the question that we had earlier.
Seid: Or rethinking a process whereby its very nature, you have to think about how offline and online weave together, to make the whole experience, because in the industries that we’re in, the whole experience cannot be done all online.
Elron: We have time for questions now, and I’m sure you have some. I see a hand way back there. If you could please introduce yourself, and we’ll get going.
Bell: Sure. Hi, I’m Brooks Bell with Brooks Bell. I have a question for Dane. So, trust is really hard to measure, and I applaud you guys for trying to encourage that by increasing some empathy at eBay—but you guys are really well-known for a really sophisticated experimentation program, and having a pretty heavy incentive to optimize revenue throughout the company. And usually, and—but also being very data-driven, making very sophisticated data-driven decisions. And since trust is so hard to measure, and since you have a such a strong culture towards being reliant on data, I can see it as—my question is, how are you going to operationalize that successfully, and shift the culture to rely less on data and the outcomes of your experiments, to focus more on this more long-term relationship that you’re building with your customer, that you can’t really measure?
Howard: Very thoughtful question. There’s two metrics that really drive a company like ours. There’s GMV, which is really the revenue, that we measure a lot. And then there’s NPS, several companies use, which is net promoter score. And you’re going to see—that’s how your customers refer you to others. And so, it’s being rigorous, but also the leadership has to, in a way, diversify their portfolio of the future to take longer views on the customer. So data will tell us that buyers that are also sellers are better long-term, and so when you forecast that out, it’s better to have someone in your ecosystem that’s participating in the marketplace on the buy and the sell side. And the more that they have transactions in that, they become trusted users and customers. So very thoughtful question. I don’t think we’ve nailed it yet, but other things I’m seeing is that leaders will lift up stories in and around internal events, to say look what this group did, look what this group did. And by lifting up, what you’re really doing is lifting up a value of what you want to see more of. And so it takes some discipline by leaders to actually lift up those examples, and create a culture of rewarding customers—and by the sheer fact of lifting up those stories, you create other followers inside the organization to say, “I want to do that too.”
Elron: Thank you. Anyone else on the panel, about trust and measuring it?
Sanborn: I mean, I guess the only comment I would make is that I don’t know that those two things are necessarily at contra purposes. Meaning, it could very well be that when you’re optimizing for that data, you’re actually, that is another signal that you are actually connecting with your customer in the right way, and you can be creating more trust.
Seid: In terms of the quantifying part of it, I think there is a way to quantify it, which is through policies, rewards, and penalties, and to say, okay, here are the thing that we love, that create a lot of trust, and we’re going to create rewards around that, that are very tangible, to either the buyer or the seller, and penalties or disincentives for things that you don’t like, that remove trust—and again, use that very measurable aspect to create the right behavior and improve the overall level of trust.
Diab: The only thing I would add is, I think trust is a consequence of listening—I’m kind of probably stating the obvious—so whether it’s in a personal relationship or a commercial one, if your customer feels like you’re listening to them, they will probably trust you. And so I think what’s great about the era that we live is the tools that we have available to us to listen to customers are quite sophisticated, whether it’s the qualitative, like, listening to recorded customer service calls, or whether it’s instrumenting your site or your app to measure falloff or attrition, or whatever it is—you know, I think you can have a much more holistic picture of what that conversation looks like. But if your customer feels like you’re not listening to them—meaning you’re not taking that data in, and then doing something with it that they want you to do—it doesn’t matter. You can instrument your site or your app, or whatever experience you have, any way you want to, and if it’s not improving, people are going to leave.
Elron: How big a deal is social listening? If I like, type, “Lending Club reviews,” you know what’s going to come up?
Sanborn: Yep. Yeah, no, it’s a big deal for us on all fronts, both the on-site, off-site—we also measure NPS. We have a robust monitoring program of all of our contact center touchpoints, both by the managers in those groups, as well as kind of a second line, independent from the managers, to be—so we take it very, very, very, very seriously, and it’s part of, you know, we track NPS back to individuals, so we take very seriously.
Elron: Okay. Henrick had a question, right here, in the first row.
Klagges: Yeah, so my name is Henrick Klagges, I’m from Germany and I work for TNG, which I founded, which is The Nerd Group. We are a group of programmers, so we are software all the time, and actually some of the German car companies are our clients, so maybe it’s a partial comment, but are you actually sure that Tesla such a role model? Isn’t this the emperor’s new car company? Because if you give me half a billion dollars, I can certainly buy and build you something which may be impressive, but it’s a very hard problem to have a car company that’s actually profitable, that manages a brand, that is going to be there over the long term. It’s not a problem, building a car. You don’t even have to do it yourself—you can simply buy a Lotus and put an electric engine in. Or you go to one of the big suppliers, like Porsche or Continental, who will give you everything, essentially, to buy it. They will even build the X3 for BMW, with […]. So are you not chasing a dream here? Tesla right now is cool, yeah. It’s like the new rock band, U2, which nobody has heard before, but three years down the road, people will say, “Oh, they got commercial, they sold out.” It’s not so cool, there’s no social distinction anymore to own one, but there will be a Toyota, $50,000 cheaper, with a worldwide warranty. Isn’t this just a temporary blip? Where they engendered ideas, were very, very ambitious, bought nice German robots—I really much appreciated, because they are made next to my hometown—but are they here to stay? And if they are not, then you should not be inspired by them, at least when it comes to your total business model—but being complimentary, like you are, is actually much smarter, because it will survive.
Elron: Okay. So you’re challenging the premise of the panel. That’s great.
Diab: I’m the wrong guy to answer that question. I drive a Tesla, so I’ll recuse myself.
Sanborn: And I guess I would say, from my personal perspective—I’m not speaking on behalf of the company here—I would say, I have no comment on the business model. To me it’s about the scope of their ambition, and what they’re inspiring. That’s what resonates with me. Not—I don’t think the book’s been written yet, right? I’m impressed by the scale of the ambition, and the fact that they’ve put out, by most accounts, the best vehicle on the road, at a price point that is on par with its peers.
Seid: And I think, you know, a lot of their aspiration and what they’ve done, you know, you think about rethinking an end-to-end experience. The weaving together, like we’ve talked about, of technology and less technology-oriented components, to really redefine what it means, you know, in that category. Tackling a very regulated industry with lots of entrenched kind of interests—you know, I think that’s what applies to all of us and how we think through that with our respective industries.
Howard: Peter said it really well yesterday. He said, “Why do startups exist? It’s because big companies can’t really get out of their own political way.” And it feels like Tesla is relevant right now, just like several other things were relevant several years ago. When I spoke to Franz, he had worked for a lot of those automotive companies, and he took a big risk. So great risk-takers risk a lot to go do great things. And we can’t just look at Tesla as just this entity unto itself; it’s filled with people, and those people make amazing things. And so you, another question to ask is, would Tesla be who it is without those people?
I often get questions, because I’ve worked for some big companies. And you say, “Oh, I work at so-and-so,” or “I work at eBay,” and the next question is, “Well, what years were you there?” And this might be one of those years that maybe it’s way cool to work at Tesla. Further down, it may not be as cool, but they have a chance to evolve who they are in the cycles of who they are. So will this be a relevant panel three years from now? Who knows? You asked a fair question. But I think what they did well is protect small teams. They took extraordinary risk, and they were able to leapfrog several things that big companies weren’t doing, because they weren’t getting out of their own way. And you have a dynamic leader that enabled that to happen. So that’s what I take away. And they did it all with empathetic design, and put something out there that you fall in love with.
Diab: Yeah, I’d also echo something that Jake said, which is that they focused on the experience in its totality. And so, having been the owner of a German car in the past, I can tell you the engineering is fabulous on a German car, but the customer experience is not always fabulous. And so just simple things like the fact that the software updates overnight—you know, in my car, when I’m sleeping, over Wi-Fi—is a great thing. I don’t have to actually take the car in to have them issue a patch, like, in the actual service station. So I think your question about, are they deploying capital efficiently—it’s probably a little bit neither here nor there, in terms of answering whether or not an industry will have its Tesla. I think actually they will succeed, and I think Tesla will probably be one of those great examples where you can actually deploy a lot of capital and achieve rapid results, if you have a very precise and clear mission. But again, I think the jury’s still out.
Elron: And Henrick, just a quick reminder, that in this country, except for our sponsors, Ford, the car companies were bankrupt five or six years ago. So it’s a little bit different.
We have a question there. Elena? Go ahead.
Kvochko: Thank you, Dan. So, my question is actually related on the—
Elron: You want to say who you are?
Kvochko: Elena Kvochko, World Economic Forum. I had a related question on the ambition. So the question, “Will every industry have its Tesla?” puts a lot of pressure on companies to be innovative and cutting edge. But do you think every company needs to be innovative and cutting edge? And also, can you think of industries that may not need a Tesla at the moment?
Elron: Okay, great question. Who wants to—
Diab: I mean, I’m the founder of a startup, and so you don’t start a company unless you’re trying to innovate. I think that’s—that feels pointless to me. I don’t know that if you are an incumbent, necessarily, that’s a successful incumbent, that you need to innovate, per se, but I do think—kind of going back to the technology question that Dan asked earlier—I think that it is human nature to try to optimize, or do things better than they’ve been done in the past. So whether you’re innovating within an incumbent organization, or innovating in an industry where the rate of innovation may not be quite as rapid as others, I think it’s just human nature to want to do things better.
I mean, take this hotel as an example. I mean, if we came here five years ago, it probably didn’t look the same, probably didn’t have the same kind of customer service, and they’ve managed to sort of maintain their position in this hotel market because they continuously improve the service, the décor, the food, etcetera. So I think it’s just human nature to want to do things better.
Seid: You know, I think one way to answer to the question is to say well, what happens if you don’t innovate, right? And you know, an example could be, the U.S. government, over the last couple of years, where we’ve had kind of a stalled out, you know, process in Congress, so they haven’t been able to innovate, pass many laws, and it’s created a lot of frustration and you know, they don’t have to innovate. We’re not going to all uprise tomorrow if they don’t do something now, or two years from now, or five years from now. But you look at the problems that happen when there isn’t innovation in an organization that doesn’t have to innovate—you know, there are stakeholders, and the stakeholders will feel the pain of that lack of innovation. So I would argue, you know, every organization does have to innovate, because the world changes. Does every organization have to? No, they don’t, but the stakeholders would feel the consequences.
Howard: Tesla put out 2,500 cars, the first Roadster. They have just shy, I think, of 30,000 now. So the hardest thing to do is to innovate at scale, I think most entrepreneurs will tell you this. So, I liked your question—what industry is needing the next Tesla—but I liked the tone of this morning’s panel, which was, how do customer-led—how does that diffuse industries. So is there a customer or group of customers somewhere in the world that are demanding something that they don’t have now? And to me, that is an interesting way to look at how things might evolve. So that’s—but thank you for the question.
Elron: It’s a good question. We have time for a very short answer to one last question—I apologize to all those who raised their hands. Go ahead—can you make it a short one, please?
Feller: Yes, yes. Jessie Feller, with Meeting of the Minds. This is for Ali. I guess this is kind of specific, but how are you guys, for instance, like, contracting with CPMC? Do you go through health insurance companies, or do you provide your own plans, and then how are you interacting with ACA and Covered California, for instance? I know you can get your own plan as a business, you know, all those bureaucratic nightmare questions.
Elron: Yeah, maybe you can answer shortly now, and then give all the answers in detail later?
Elron: We don’t even know what the acronyms mean, but—
Diab: Yeah, the short answer is, we partner with networks for access, so you can actually show a card that’s recognized by the provider when you go to see the doctor. We think that’s important in terms of reducing the friction to visitation. And then to answer your second point—the ACA actually doesn’t impact us all that much, because self-insured and self-funded plans are actually governed by a body of law called ERISA, which is employer benefit law, which it outside of—not completely—but largely outside of the rubric of the ACA. So you can think of sort of exchanges for individuals and very, very small groups, and self-insured plans, kind of mid- and larger-sized employers.
Elron: So we’ll wrap up. We heard about whether it’s better to disrupt or to complement. We heard about the role of trust and empathy. We heard about the role of technology and platforms, and we heard about business models, and how they evolve in the context of incumbents. So with that, lots of material to think about. I’m sure we’ll continue the conversations over coffee later. I would like to ask you to join me in thanking the panel. Thank you.