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Adapting Episode 3: Intel

Season 6, Episode 6

ACQ2 Episode

May 11, 2020
May 11, 2020

When you think of Intel today, you probably think of the microprocessor company. Maybe you also think about about 'Intel Inside' and their famous jingle. You might even think "big, stable, boring public company". But for the first two decades of Intel's life, absolutely none of those things were true. Today we tell the incredible story of how the company that started it all in Silicon Valley clawed back from a crisis that brought them to the brink of death, and of one man who rose as the ultimate survivor to become their leader and a legend even in his own time: the late, great Andy Grove.

Note: This episode originally aired as part of Podapalooza, a podcast festival organized by our friends at Glow to benefit COVID relief. Find out more and support the cause at https://www.plza.org




We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.

Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!

10. Marvel

Purchase Price: $4.2 billion, 2009

Estimated Current Contribution to Market Cap: $20.5 billion

Absolute Dollar Return: $16.3 billion

Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…

Season 1, Episode 26
LP Show
May 11, 2020

9. Google Maps (Where2, Keyhole, ZipDash)

Total Purchase Price: $70 million (estimated), 2004

Estimated Current Contribution to Market Cap: $16.9 billion

Absolute Dollar Return: $16.8 billion

Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!

Google Maps
Season 5, Episode 3
LP Show
May 11, 2020


Total Purchase Price: $188 million (by ABC), 1984

Estimated Current Contribution to Market Cap: $31.2 billion

Absolute Dollar Return: $31.0 billion

ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”

Season 4, Episode 1
LP Show
May 11, 2020

7. PayPal

Total Purchase Price: $1.5 billion, 2002

Value Realized at Spinoff: $47.1 billion

Absolute Dollar Return: $45.6 billion

Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.

Season 1, Episode 11
LP Show
May 11, 2020

6. Booking.com

Total Purchase Price: $135 million, 2005

Estimated Current Contribution to Market Cap: $49.9 billion

Absolute Dollar Return: $49.8 billion

Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.

Booking.com (with Jetsetter & Room 77 CEO Drew Patterson)
Season 1, Episode 41
LP Show
May 11, 2020

5. NeXT

Total Purchase Price: $429 million, 1997

Estimated Current Contribution to Market Cap: $63.0 billion

Absolute Dollar Return: $62.6 billion

How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.

Season 1, Episode 23
LP Show
May 11, 2020

4. Android

Total Purchase Price: $50 million, 2005

Estimated Current Contribution to Market Cap: $72 billion

Absolute Dollar Return: $72 billion

Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.

Season 1, Episode 20
LP Show
May 11, 2020

3. YouTube

Total Purchase Price: $1.65 billion, 2006

Estimated Current Contribution to Market Cap: $86.2 billion

Absolute Dollar Return: $84.5 billion

We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”.  With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.

That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.

Season 1, Episode 7
LP Show
May 11, 2020

2. DoubleClick

Total Purchase Price: $3.1 billion, 2007

Estimated Current Contribution to Market Cap: $126.4 billion

Absolute Dollar Return: $123.3 billion

A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...

1. Instagram

Purchase Price: $1 billion, 2012

Estimated Current Contribution to Market Cap: $153 billion

Absolute Dollar Return: $152 billion

Source: SportsNation

When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.

Season 1, Episode 2
LP Show
May 11, 2020

The Acquired Top Ten data, in full.

Methodology and Notes:

  • In order to count for our list, acquisitions must be at least a majority stake in the target company (otherwise it’s just an investment). Naspers’ investment in Tencent and Softbank/Yahoo’s investment in Alibaba are disqualified for this reason.
  • We considered all historical acquisitions — not just technology companies — but may have overlooked some in areas that we know less well. If you have any examples you think we missed ping us on Slack or email at: acquiredfm@gmail.com
  • We used revenue multiples to estimate the current value of the acquired company, multiplying its current estimated revenue by the market cap-to-revenue multiple of the parent company’s stock. We recognize this analysis is flawed (cashflow/profit multiples are better, at least for mature companies), but given the opacity of most companies’ business unit reporting, this was the only way to apply a consistent and straightforward approach to each deal.
  • All underlying assumptions are based on public financial disclosures unless stated otherwise. If we made an assumption not disclosed by the parent company, we linked to the source of the reported assumption.
  • This ranking represents a point in time in history, March 2, 2020. It is obviously subject to change going forward from both future and past acquisition performance, as well as fluctuating stock prices.
  • We have five honorable mentions that didn’t make our Top Ten list. Tune into the full episode to hear them!


  • Thanks to Silicon Valley Bank for being our banner sponsor for Acquired Season 6. You can learn more about SVB here: https://www.svb.com/next
  • Thank you as well to Wilson Sonsini - You can learn more about WSGR at: https://www.wsgr.com/

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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: Welcome to this Potapalooza special. We are in episode three of our Adapting miniseries where we tell the stories of great companies and leaders who are adapting to a world that's changing in real-time. For those keeping track at home, welcome to season six, episode six of Acquired. I'm Ben Gilbert.

David: I'm David Rosenthal.

Ben: And we are your hosts. Today we tell a historical story of a company in crisis. A different and more industry-specific crisis than the one we're all going through right now, but a crisis nonetheless. This is the story of a business who's amazing and differentiated core product line became a pure commodity overnight.

David: Did it ever?

Ben: And the realization, action, and bravery that followed thereafter. Today we cover Intel and their incredible bet the company moved on their newly emerging microprocessor business in 1985. This was an astounding part of the research for me; it was a full 17 years after their founding.

David: Yup. They weren't the microprocessor company when they started, but we'll get into all that. To all of you listening out there for the very first time as part of Potapalooza, welcome to Acquired and Adapting. On this podcast, we tell the stories of great companies. Mostly, we focus on technology companies and we center our story mostly in normal times. Around a culminating event that we grade for the company, typically an acquisition or an IPO hence, the name Acquired.

Ben and I are not journalists. We are industry practitioners, so our perspective here is telling these stories from the perspective of people inside the industry. We're entrepreneurs and venture capitalists and we've been trying over the past hundred or so episodes here on Acquired to better understand how to build great companies, and learn in public how to do that ourselves and with all of you.

Ben: A few announcements before we get to it. If you love Acquired and you want to go deeper on company-building topics into the nitty-gritty, you can become an Acquired Limited Partner. You'll get access to the LP Show, which has recent guests like venture capitalist Charles Hudson, and Mystery co-founders Shane Kovalsky and Vince Coppola.

With Charles, we discuss the inside baseball of pre-seed investing and portfolio construction. With Shane and Vince, their insane pivot in real time where they took their seed-stage experience hospitality company, which is a tough spot right now, into the world of in-home, morphing their offering during the Coronavirus pandemic, and figuring it out in real-time.

David: And growing their business.

Ben: I know. It's crazy, just crazy. You'll get access to that. You'll get the LP calls where we hop on Zoom and spend a couple of hours with all of you once a month or so, and you can get access by clicking the link in the show notes or going to glow.fm/acquired and all subscriptions come with a seven-day free trial, so feel free to check it out.

Now before we dive in, I'd like to welcome our sponsor for all of season six, Silicon Valley Bank. Innovation happens when the status quo solutions just will not do. As the world fights COVID-19, SVB pays tribute to the innovators, healthcare providers, scientists, social workers, take-out chefs, policymakers, and philanthropists; generous, driven individuals working around the clock to keep people alive, find a cure, and help the world cope with the unimaginable.

SVB supports innovative companies and their investors and has for more than 35 years. It knows that innovation requires adaptability, flexibility, and an unrelenting passion for finding solutions. Today, more than ever, SVB salutes innovators everywhere, and you can learn more at svb.com/next. Thanks, SVB and David, I think we are ready to dive into the story of Intel.

David: Let's do it. The story of Intel, we're going to start here in the first act with the founding of Intel. Some of this is going to sound familiar to listeners who have listened to part one of our series on Sequoia Capital, because Sequoia Capital and Intel share much of the same heritage and roots, although Sequoia was not an investor, and Intel because it wasn't founded yet. Bear with us, but we're going to go in more detail and talk about really the beginning of Silicon Valley itself.

We start the story in 1956 with a man named William Shockley, who has just moved from New Jersey—wonderful New Jersey; I spent lots of time there growing up—and in college in Mountain View, California, where he starts a company called Shockley Semiconductor. Today, from our modern perspective did not sound shocking, but it was shocking at the time and it wascurious for a couple of reasons. One, because there were no semiconductor companies either in California or anywhere else at the time, nor were there startups in general. The whole concept just didn't exist. Mountain View was views of mountains and a bunch of apple and peach orchards. The other reason it was surprising and interesting is that Shockley wasn't just some dude off the street. He was living in New Jersey because he worked at Bell Labs, where he had just co-invented the transistor.

In fact, in that same year, in 1956, he won the Nobel Prize for doing so. He also had a pretty interesting background. He had very deep military connections because during World War II, while he was working at Bell Labs, he had been tapped as a senior military adviser on the radar and anti-submarine war techniques, and had become so important to the US' war effort that he had authored the report (he was asked to author the report) that estimated the difference in potential casualties between dropping the atomic bombs on Japan at the end of the war and invading the island. That was him.

That's crazy, especially as we will find out more about Shockley (in a minute) what he ultimately turns into, but why did he move back to Mountain View, California? I say back because he was originally from Palo Alto and his mother was getting older at this point in time—I think his father passed away—wasn't doing well, and he had just won the Nobel Prize; co-invented the transistor. I think he's probably thinking about starting this company and he decided to move home to do that. With that, Silicon Valley was born in California and not in New Jersey.

Ben: And co-invented the transistor, but we don't have a semiconductor industry yet. Do you have any sense of why he would win a Nobel Prize for inventing the transistor? What did we think the transistor was going to be used for?

David: That's a good question. I think he had these deep military connections—we're going to talk about less here—but in part one of the Sequoia Capital series, the first and primary customer for the silicon industry was the government and the defense industry.

I don't recall exactly but I think the defense industry was sponsoring a lot of this research. I think within Bell Labs, although I'm not entirely sure how that worked. There was a race and computers had been used during the war, any act and all that. It was super clear that the transistor and semiconductors are going to enable a whole step-change function in the power and utility of computers. I guess it was known.

Ben: This is the part where I probably should have done more research in this area, but the ways that we were storing information before were just much bigger. Transistors made it much more efficient, much smaller, but as you say the notion of a computer had existed before.

David: It was vacuum tubes.

Ben: Yes, exactly. Not etched into silicon.

David: It's interesting. You say information was stored for a long time. Even after this, information was still stored, not in transistors, but we'll get to that one sec. Back to Shockley, he's literally one of the fathers of computing, undoubtedly, Nobel laureate, but he had a pretty significant dark side. He was a total egomaniac and when you have that in your personality, becoming at the same time both a CEO and a Nobel laureate, tend to magnify those personality traits.

When he started the company he demanded absolute adherence to all of his whims. He started instituting lie detector tests at the office because he didn't trust any of his employees and generally he was kind of like the world's worst boss.

Later in life, much later, after Shockley Semiconductor, he would go on to become a professor at Stanford. He literally went off the deep end. He became a white supremacist, he became obsessed with eugenics. Pretty ironic, given his role on the side of the allies during World War II. He ended up dying alone and completely estranged from his family. It's crazy. He went totally off the deep end.

Back to the 50s in 1956 when he started this firm, everybody in the technology industry knew this was where it was at. He had just started this company in Mountain View, California but everybody who was working in the industry all around the country wanted to come out and work with him. The best and brightest from all corners of the country started coming out and joining Shockley Semiconductor. I think that also had a big part to do with why, obviously, there was the influence of Stanford and Cal and all the great universities in the Bay Area.

Ben: Yeah, Stanford beating Harvard to get the grant from the federal government to do more. I think it was DARPA research.

David: Yeah, DARPA research. This was also a big part of it, this company that popped up and started recruiting people from all over the country. A year into this when Shockley is acting crazy, a group of eight employees who are really talented were fed up with his antics. They decide to do something pretty radical. They all resign en masse on the same day, they leave Shockley, they walk out the door, and they start a competing company becoming known in the process as the "traitorous eight," which folks might have heard of.

Two of these traitorous eight gentlemen are people by the names of Bob Noyce and Gordon Moore. These traitors, these pirates (if you will) also aren't just people off the street. Remember, Shockley had invented the transistor. Noyce invented the modern integrated circuit, which became a bit of how transistors were implemented in silicon.

Gordon Moore, of course, observed and coined Moore's law that we still talk about and still holds even to this day, which was the observation that roughly the density of integrated circuits on the chip, computing power would double every one to two years and that has happened for the past 50 plus years.

Ben: Sort of. I remember—I think we go back 8–10 years—there was a period of time where it basically petered off, where we stopped seeing doubling in terms of pure Moore's law, which was the density of ICs on a single core, but then we saw the advent of multi-core computing and of course now you have 8 core, 16 core, 32, shipping in laptops.

David: Processing power keeps increasing.

Ben: Yes, corrected itself in terms of the amount of processing power you can get on a single CPU. What is the unified body called of the several cores that shipped together now?

David: I don't even know anymore. Once again, it's a commodity, but we'll get back to that. All these talented people left, Shockley had proven you can create a company, but it ended up being super difficult to get this venture financed. They needed money because they had to set up literally manufacturing plants to make the semiconductors.

Ben: What year was this?

David: This is 1957.

Ben: There is no money that exists for non-governmental tech businesses.

David: Yeah. Venture capital was like you were going on an adventure in some capital somewhere. Nobody knew what that meant. The eight of them get in touch with a man named Arthur Rock, who was an investment banker from the East Coast. He agrees to help them out.

He scours the technology universe at the time, looking for somebody willing to fund these guys, and ends up connecting them with a guy named Sherman Fairchild back in Long Island, New York, who is the owner of Fairchild Camera and Instrument Corporation. Sherman also happens to be the largest shareholder in IBM, which is why he's interested in this.

He agrees to loan these eight plucky pirates $1½ million in exchange for the right to buy the whole company for $3 million which he does. Venture capital firms have come a long way since then. It's a heck of a deal. In this environment, the power is back on the investor side, I would say. I still don't think anybody would take that deal.

Ben: It's actually interesting. Think about that deal for a second. You loaned $1½ million and they have the right to buy it for $3 million. Let's say it happens over six months. I don't know how long it actually took. They wouldn't have taken any equity, right? It was truly a loan?

David: It was a loan, yeah. I mean, at the end of the day it was a subsidiary of Fairchild. That news becomes the problem. Fairchild Semiconductor, the newly established division of Fairchild Camera and Instrument, does take over the torch from Shockley and becomes the premier semiconductor company, not just in Silicon Valley, but in the world.

They have a great 10-year run. Don Valentine famously becomes the head of sales there and just crushes it selling to the military and other customers, but 10 years go by and nobody's getting that rich there. They've created all these hundreds of millions of dollars in sales, but there's no equity.

Ben: It's all going back to Camera and Instrument, back in Fairchild.

David: Back in Long Island, New York. Exactly. The two of these folks, Noyce and Moore, have already been traitors once, so what's another time? We're now in 1968. They start to see that silicon has revolutionized computing, which has revolutionized so many industries at this point, but the memory aspect of computers still isn't done with chips.

It's done with magnetic cores, literally magnetic disks. It's way slower and it's way smaller. What if we use the same semiconductor in silicon technology that we're using to make these other chips to turn the memory into chips? I think we can do that. That sounds like a good idea. Let's start a company around that.

Ben: Let me tease this apart to make sure I understand here. When you say make these other chips, what types of chips were being made with silicon and semiconductors before memory, before RAM?

David: We talked about this a little bit on the Sequoia episode. I think they were like specialized computing chips for the productions and the applications that they were selling them to. They were selling to the military for radar or missile guidance systems. I think they were customized. The compute that was needed for the application was baked into the chips and then the storage of the data was done in these magnetic cores.

Ben: There's no notion for folks that know how the inside of the computer works. These days, the CPU is the brain, RAM is basically short-term memory, and then your hard disk or your SSD is long-term memory. That long-term memory was living on tapes or magnetic disks. There was no notion of short-term memory, this RAM that would exist to hold your programs while they were running, but not actually run them. that whole piece didn't exist at all. That was the Moore and Noyce innovation.

David: The NM innovation. The other point, too, is that the CPU didn't exist yet. Intel would invent it. You said that is the brain. There were no brains. The chips you said that were being produced were hard-coded. The computing software was baked into the hardware.

Ben: I remember sitting in my electrical engineering lab in undergrad and I remember specifically the 555 chip. It was this timer chip and it existed to do one thing and it was basically to keep track of time and tick up as time went on, so that you could keep track of it. I imagine that was just the case for all these chips. It had a special purpose. Everybody can imagine what they played with them as a kid or if they've ever ripped apart a computer, you’ve got 8, 10, 12, 15 pins. You use a breadboard to hook them together and they do a thing.

David: Noyce and More leave. They have this vision of, “We can create this short-term memory product in silicon.” They go find Arthur Rock again like, “Oh, well. You helped us start Fairchild. Let's talk to him again.” This time Arthur has gotten smarter. He says, “You know? I saw Sherman get pretty rich at Fairchild, rather than hooking you up with somebody who can set this up as a division, what if you start the company and I'll invest in the company?” and that they do. He organizes a $2½ million funding round of venture capital from a syndicate that he leads. They raise that in July, they hire a few folks over from Fairchild, and they're off to the races.

Ben: Let's talk about that. $2½ million sounds like a great seed round for anybody that knows funding these days. Inflation-adjusted, that's $15–$18 million. You're probably not going to a guy like Arthur Rock for him just to be able to write that check individually. Now, know again at this time, we covered Don Valentine's prolific pseudo-invention of the asset class of venture capital on the Sequoia episodes, but there wasn't this notion of, “Well, I'll manage other people's money in a way that we can deploy it into startups and understand who gets a cut of what.”

David: Indeed. It wasn't until four years later that Don would start Sequoia.

Ben: Right. What Arthur did, I think he put in something like $100,000 of his own money, and then basically got convertible debt for the rest of the $2.whatever million. It was basically a convertible debt instrument.

David: It wasn't a straight equity investment?

Ben: Correct.

David: Interesting. Nonetheless, they do well. Quick diversion on the name. Until this point, all the names of these companies had been added to the founder’s name or the name of the owner (in the case of Fairchild), so naturally, the name for this company should have been Moore-Noyce.

Ben: It's my favorite trivia in the research. Can I have more noise (Moore-Noyce) in my semiconductors?

David: Yeah. More noise in my semiconductors. It only took saying that out loud to realize that was not a good idea.

Ben: Yes. You do not want more noise in any electronic system.

David: No. They're like, “Oh, yeah. No worries. We'll just use our initials NM.” They actually incorporated the company as NM Electronics. Were you able to find who said that that doesn't sound very good? That does not roll off the tongue?

Ben: No. I didn't find that.

David: I couldn't find it either. Within a month of incorporating it, they changed the name from NM Electronics to maybe NM sounded a little bit like Intel? They changed it to Intel because they wanted it to be Integrated Electronics, but that was taken so they invented the word Intel or I guess they borrowed Intel from military intelligence.

Ben: They actually did have to go and buy the name. I think there was somebody else who owned it.

David: There was a hotel chain called Intelco that was using the name.

Ben: Yeah, and they go to buy the trademark.

David: Apparently for $15,000, which was a lot of money in those days, but they had $2½ million so they were swimming in it. Three years later, that $2½ million proves to be quite a good investment on behalf of Arthur Rock and his associates. Intel goes public with a market cap of $58 million. Everybody makes a lot of money.

Ben: The fast IPO was way before we stayed private longer.

David: Yeah, exactly. Don Valentine is over at National Semiconductor by this point. He sees this and he's like, “Let's go venture capital. It's a thing.” He then leaves and starts Sequoia Capital and we all know the history there. If you don't, you can go listen to our two-part episode.

That's a nice little story. Intel founded making memories, making people rich, three years to IPO, $58 million market cap. It's a wonderful record-setting at the time. That's a nice little story, but there's surely nothing adapting about that. Honestly, if it weren't for what happens after that, Intel would end up being a part of ancient history just like Shockley and Fairchild.

Ben: To really drive home for everyone because everyone thinks of Intel as Intel Inside, maybe it triggers in your mind, dun-dun-dun-dun, or maybe you think about a cool rendering of a CPU on a motherboard. To quote directly from the Andy Grove book, Only the Paranoid Survive, he says, “Intel equaled memory in all of our minds.” Their core identity is “we are memories.”

David: It was the business plan it was founded on. What was the problem that would have killed the company? Ben, I think you mentioned this. It turns out that memory and all of the silicon that was being made at this time was a commodity. They just didn't realize it because they were first to market. Memory chips didn't exist before. Intel gets started. They start churning out these chips. People start using them, but then other people start making the chips. There's nothing special about the chips. They're just like, “Memory is memory.”

Ben: In some ways, Intel is the most innovative company. They were able to stay 6– 12 months ahead and always better than their competitors.

David: They were making denser memories, more storage.

Ben: Yup. They believed that R&D and technology is really at the core of who we are. They invested really heavily in it. I think the first 10 years, they handily beat all competitors. Maybe the next five years, they would trade back and forth with Texas Instruments and other early memory companies for who would have the best model this time around, and then we'll wait for next year to see who has the best model for next time around. Commodity in a sense of everybody has to really push the envelope to run forward but not enormous barriers to entry, and new competitors keep popping up.

David: In the words of Hamilton Helmer from our great LP episode and his book, 7 Powers, there's no power in the business. It's just hard to do. There's nothing fundamentally about once you are doing it or you're a leader that you're gonna stay the leader. By the mid-1980s, as you said 12–15 years after founding (which was a great run for the company ahead and going public), they are under siege. Japanese electronics companies had decided to enter the market with all of the power that they had at that point. All of these companies were big Karatsu companies, just like Fairchild's divisions of much larger companies. They had access to a ton of capital, a ton of resources.

Ben: And here we are in 1981 before collet where this is really the boom of Japanese companies having operational excellence. That is the thing that they were just out-operating US companies.

David: Toyota production system.

Ben: Exactly. On top of that, there are companies like Sony. There are these electronics companies are just way better than the electronics being manufactured in the United States. The country was really rallying behind this as an identity. Japanese companies were able to build enormous factories to build out these memories. Their economies of scale on building them could get so cheap and their access to capital with whatever was going on in Japan at the time was just enormous. They kept being able to get their private or public funding and pour them into these companies where they could produce way more memories, they could do it way cheaper, and the talent that they had there from all these emerging fantastic Japanese electronics companies were just as innovative, if not more innovative than Intel.

David: Yeah, even at Intel's launch. Intel's market share of memories goes from above 80% at the beginning of the decade (I think 1984) dropped to 1.3% of the global market. It's brutal.

Ben: Which we should say is still a huge business at this point for anyone who gets this era that Macintosh was released in 1984. Personal computing is on the verge of becoming a thing but you think about mainframes. You think about all of the computing that was going on just before that. The demand for memories and all applications is huge. It's still a really big business with factories all over the country, with eight different projects going on for eight different models. Intel is a big freaking company just with that market share.

David: Big by revenue but their profits are getting eroded down to zero or really below zero because of the pricing power of these Japanese companies. At this point, Intel needs a miracle. They are just lucky enough. In fact, Intel's (by this point) president and their very first employee happens to be a miracle worker. We're going to tell the story here of András Gróf, better known in the US as Andy Grove, the legend of Silicon Valley. This story is just incredible, personally adapting in terms of the world in-depth in terms of the company. Let's rewind for a little bit.

András István Gróf was born in 1936 in Budapest, Hungary to Jewish parents in a Jewish family. When he was born in 1936, Hungary was already a fascist dictatorship that had aligned with Nazi Germany. Despite that, András’ parents and family were doing okay. His dad ran a dairy coop. His mom was actually educated and had finished high school, which was super rare for any woman in Hungary at the time and especially super rare for a Jewish woman.

Of course in 1941, when András is five, Hitler invades the Soviet Union, Hungary enters the war and becomes, for all intents and purposes, a Nazi state. His dad is shipped off to a labor camp and disappears for four years. Amazingly survives, but at the beginning of the war, there were 650,000 Jews living in Hungary. By the end of the war, there are 150,000. Half a million people exterminated in the Holocaust for four years. It's just crazy. Totally awful. Words can't even express.

András and his family, though, are the lucky ones. András and his mother go into hiding, they assume new identities. Remember, he's a kid at this time. This is between the ages of 5 and 10. He spends years in hiding pretending to be not Jewish. They're eventually liberated by the Soviets when the Soviets drive the Nazis out of Hungary in 1945. His dad survives and returns. It's like not out of the frying pan into the fire, more like out of the fire and into the frying pan because now Hungary is a Soviet state. His dad had been an entrepreneur before the war. He had started this dairy coop. Anybody who had employed people was considered a class alien by the Soviet state and was persecuted.

Ben: Because they were communists and if you're running a business, that makes you a capitalist?

David: That makes you a capitalist and that's evil, so you're a counter-revolutionary. His father and his family had to renounce everything, pretend that what they had done before was evil. It's also not like antisemitism died with Hitler either at this time. It was pretty rough.

Ben: The Intel story that I knew before this was there was a guy called Andy Grove. He wasn't the original founder of Intel but he was the one that saved it. Imagine during your formative years of 5–15 having both of those experiences. It just makes you realize how freaking comfortable and incomparable most of our own lives are. They're just incredible and awful persecution that people like Andy went through.

David: I think it's a good perspective for this time, too. This is a crazy time that we're living through. Unprecedented and nuts with Coronavirus and there's terrible human suffering. This really puts it in a perspective. Andy wrote several great books. One of them wrote a memoir at the end of his life called, Swimming Across, about these years. It just really puts things in perspective. András said things like, “Man, this feels like a war. We haven't experienced anything like this since World War II as a nation in the world.” This is nowhere near what World War II was like. It's a really good perspective.

Like we said, his family was the lucky ones, and then a pretty momentous event happened. This is also just like such an amazing American story. In 1956, the same year that Bill Shockley move to California, wins the Nobel Prize, and starts Shockley Semiconductor, Andy's in university in Budapest at this time studying chemistry. Student protests erupt in Budapest and they turn into a full-blown revolution. This becomes the Hungarian Revolution of 1956 against the Soviets. The Soviets roll tanks into the city and brutally suppress the revolution.

In the chaos, a whole lot of people are able to escape across the border to Austria and make it to the west. Andy is one of those people. He gets a train out of Budapest and then he walks across the border to Austria. From there, he's able to get to the US as a refugee. He comes to New York City, 20 years old, with $20 in his pocket and nothing else. He just shows up. When he gets there, he's taken by some extended family in New York City. He changes his name to Andy Grove so that people can pronounce it. András Gróf is not easy to pronounce by his professors. He gets a scholarship and works his way through City College of New York as a chemical engineer. He ends up graduating top of his class and the New York Times writes an article. Did you find this, Ben?

Ben: No.

David: That was just so cool. The New York Times actually writes an article when he graduates in 1959 or 1960. He graduates at the top of his class at City College of New York. The headline is, Refugee Heading Engineer's Class, in the New York Times. Super cool. On the back of that, he goes out to Berkeley, California. He gets his PhD in chemical engineering at UC Berkeley, graduates in 1963, and joins (of course) the best technology company in the world at that time here in California, Fairchild Semiconductor. That's where he meets Noyce and Moore. Legend has it. I think this is probably apocryphal.

Ben: I feel like half the stories we tell are apocryphal or reinvented in some way.

David: That's true. If it's not true, the spirit would have been true. When Noyce and Moore go to Arthur Rock, when they're starting Intel in 1968 to get funding, the legend is that Arthur Rock told them that he was going to refuse to finance the company unless they recruited Andy out of Fairchild to come to join them as the first employee.

Ben: Arthur organized the initial investment in Fairchild but then had nothing to do with it other than that.

David: He must have stayed close with the people.

Ben: Had to, but that speaks to how special Andy was if someone like Arthur Rock is getting visibility into what he's doing inside the company, so much so to lobby for him.

David: This is a kid. He's now five years out of his PhD program. He has developed a great reputation within Fairchild. Pretty cool, though. Bob Noyce and Gordon Moore make you their first employee when they're starting Intel and Arthur knows all about you. He joined. He was employee number one when the company started in 1968. By 1979, he had been promoted. Many times he became president. Gordon Moore was the CEO of the company. I think Arthur Rock or Noyce was the chairman on the board or maybe Noyce and Rock swapped off. Noyce might have been the first CEO and then they swapped and Gordon became the CEO.

Ben: It feels like a Google- or a Twitter-type of situation.

David: I don't think it was Twitter. I think they were all friends. Andy got promoted to be president in 1979. We're now back in the mid-1980s. Intel is under siege from these Japanese memory manufacturers that are flooding in the market with highly superior products.

Ben: Superior, cheaper, and in much greater quantities. There is no answer if you're Intel [...] on what to do.

David: Yeah. It's 1984. Andy, thankfully, isn't living under a communist oppressive regime, but he's still having brutal nightmares here. He actually then writes the book—Ben, that you mentioned which is so great, and this is a classic of Silicon Valley—Only the Paranoid Survive, all about this. The quote that actually starts Only the Paranoid Survive, that Andy starts the book with is, “Sooner or later, something fundamental in your business world will change.” So apt for right now and apt for Intel at this moment.

Ben: What's crazy to think about is this is a dramatic story about Intel mostly because of what a successful company they became, but that dramatic thing that happened for their industry was just one industry and just one change. What we're seeing now is a massive dislocation in every industry. Suddenly, the story becomes very relevant for anyone doing business in anything, which is a crazy moment.

David: Hopefully, sales of the book, Only the Paranoid Survive, will benefit from this moment. What changed for Intel? Obviously, it was that these superior-in-every-dimension Japanese producers entered the market. Intel itself was caught so off-guard because their relationship to the competition up until this point, like we said, didn't understand that they were in a commodity business.

It was so crazy that (as we talked about) Intel usually had the best technology and the best chips. They were 6–12 months ahead of the competition. But because these are physical chips that have to be created and Intel didn't have enough production resources to meet demand, they did this thing that sounds crazy right now but was just totally normal in the industry back then. They did second sourcing.

Some people might know what this means. This has completely gone by the wayside. It's a byproduct of military contracts, where the military needed to ensure that they would be able to get enough of what they wanted to buy. They would award the contract to a primary manufacturer that was going to make what they were buying, but then they would encourage that manufacturer to go to their competition, give them their designs for making the product, and let the competition's factories make the product to ensure that the customers had enough demand. Intel did this. Whenever they would win contracts, they would bring in their competitors, chief among them AMD, which people are going to know. Interestingly, AMD itself came out of Fairchild a couple of months after Intel.

Ben: It was so crazy that both Intel and AMD did.

David: I know. They would compete against each other for bringing primary source on the contracts that they were bidding for but no matter who won, they would bring the other one in, just give them the reference design, and fill it out. Intel was doing this with their competition. Part of how the Japanese got up the learning curve so fast was they came in as a second source for Intel during the late 70s on a bunch of these contracts.

Ben: Here's the quote from Only the Paranoid Survive, which I highlighted while I was reading on Kindle because I was like, “He got to be kidding me.” He said, “The Japanese memory producers appeared on the scene. Actually, they had first shown up in the late 70s to fill the production shortages we had created when a recession pulled back our investments in production capacity. The Japanese were helpful then. They took the pressure off of us, but in the early 80s, they appeared in overwhelming force.”

David: What is this overwhelming force that they're now appearing with? At one point, Andy and his sales team get a hold of a sales memo from one of these Japanese companies. He doesn't say which one. Here's the quote of how the battle card against Intel. It says, “Win with the 10% rule, find AMD and Intel sockets.” I assume sockets being like where they were selling into. “Quote 10% below their price. If they requote, go 10% again. Don't quit until you win.” They were literally willing to go to the bottom to win every contract.

Ben: Ruthless, and they have two advantages there. (1) Their actual cost of production is dramatically cheaper because of the dramatically larger scale they were producing at. (2) Their access to capital was much better. They had a cheaper cost of capital. Without turning their business upside-down or having negative gross margins. they really could just keep going lower and lower.

David: Yeah, and this is what we were talking about earlier. Intel, like you're saying, their market share totally nosedives, but because the market is growing their revenue doesn't actually drop that much. But they’re losing money on every chip that they’re selling at this point because the profits have just been completely eroded. It's like Uber and Lyft bashing each other over the head.

Ben: Compete away all the margin.

David: Yeah, there's no profit anymore. This creates what Grove calls in the book, a strategic inflection point. He defines it as the time in the life of a business when its fundamentals are about to change. He says these changes come about whenever there's a sudden, huge, kind of 10X change in one of the five fundamentals of Porter's Five Forces to business. In this case, competition. Competition comes in, it's 10X stronger, you're up a creek here.

Ben: Yeah, and relaying that to the current times, competition is unlikely up, but demand is likely way, way down. It's likely that the buyer power has evaporated in many, many industries where consumers spend is down, travel, hospitality, or people freeze to whatever corporate spend they have. It's just like—again, trying to bring it home, the relevance here—a different crisis but a very—

David: There's a 10X change in your customer behavior. Inside of Intel, it's chaos and Grove writes about this. There's tons of infighting. Everybody has a conflicting opinion.

Ben: "We are the memory company. That's the only thing we can possibly do."

David: And some people are yelling at each other. The engineers are like, "The sales team needs to work harder." The sales team's like, "The engineers need to make better technology for us to sell." Some people are like, "We should just vastly increase our fab production to have more capacity and compete directly with the Japanese." Other people were just like, "This is totally unfair."

Ben: And there are some people that are sort of on the right path but still, everything looks like a nail because they've got a hammer. They're saying, "We need to do value-added memory. We need to add additional features to the memory that make it not appear commodity. Then, we can make a margin from selling these extra features in the memory to the customers." They're getting this notion that, "We can't compete head-on. We have to flank them in some way," but they're not flanking far enough. They just start running at them with different guns.

David: When you're making the decision to buy the next iPhone upgrade cycle or not, are you making your decision whether the memory has more features in it than the previous year?

Ben: I'm not.

David: No. This leads to this moment of clarity. This is one of my favorite, favorite moments in all of business history. One famous day in early 1985 where Moore and Grove are talking about this situation. I think Andy says it was in his office at Intel. They're standing there, they're talking to each other. Grove says to Andy and says to Gordon, "You know? Things are bad. If the board kicked us out and brought in a new CEO, what would you think the new CEO would do in response to this situation?" Moore looks at them and he says point-blank, "They'll just get us out in the memory business." People were kind of dancing around there, but nobody was willing to bring that up. This is like Uber saying, "We're going to get out of the ride-sharing business." Listeners can't see Ben's shrug there.

Grove writes in the book, as soon as Moore said that, he says, "I stared at him, numb." Grove responds, "Well, what if you and I fire ourselves? Walk out of the door to this office, rehire ourselves, turn around, come back in, and do just that." That's what they do. They actually, physically, walk out in the office. They ceremonially fire themselves, rehire themselves, and walk back in. That psychologically gives them the clarity of like, "No, this is what we need to do. We need to get out of this business."

Ben: It's a cinematic moment imagining that. The hutzpah that it takes them to go and actually pull this off, people in the company correctly have a laundry list of reasons why you can't possibly do this. They're different from the emotional ones that I was talking about. "We are the memory company. We can't possibly change." Even if you just take that stuff away and you look at the other businesses that they're in, the obvious one that they should go and focus on is CPU. They have some other stuff but CPUs are kind of the thing. It's super immature. There's not necessarily an A-Team on it. They have no production capacity. They've only been doing it for a very short period of time. There's not necessarily a customer poll yet.

David: Yeah. We're talking about 1985, the Mac has just come out. Remember, the Mac didn't use Intel chips. They use Motorola chips. The PC was not a thing yet. It was a thing but the PC was like VR today.

Ben: Right. The thing the sales guys are complaining about is that it was a complete breakthrough. I think they invented the CPU or at least at part had good credit for that. Maybe, it was the 4004 was the big first one. They created this amazing thing. They're working on the 386 in the corner of the building and for anyone who knows, the x86 processor.

David: No, not the x86. It’s just about the 386 we’re going to get into in just a sec. It's magical.

Ben: All right. So, that's happening. The sales team would correctly object. This is not a complete product line. We can't possibly go and sell with one or two-point solutions. We need a whole product line. In memories, we've had a whole product line so we can be effective with customers.

David: Not to mention their quotas and their livelihood.

Ben: Right. The whole company's freaking set-up to hawk memory. Everybody correctly has lots of reasons why they cannot shut down the memories business and wholeheartedly to CPUs.

David: Yeah, so Moore and Grove walk out of the office for the second time. Andy starts going around giving speeches about how they're going to get out of the memory business. All hell breaks loose. Andy tells the head of the memory division to come up with a plan to get out of the business. He revolts. He doesn’t do it. Andy removes him and puts somebody else in-charge in the memory business. That guy doesn’t do it, either. It's like the Saturday night massacre.

Ben: He's like, "Yeah. I know you brought me in to get us out of the memory business. Cool, I'm going to do that." Then, he takes six months, comes back, and says, "Okay, cool. I'm going to make it so that after the current R&D that we're doing, we produce all of those, we're not going to do any additional R&D on new ones after that." Andy's like, "Are you kidding me? You have one job."

David: Finally, it takes basically all of 1985. This is so much about organization. Here you've got the co-founder and the CEO of the company, and the president of the company who was the first employee, is literally telling the company to stop doing something and the company cannot stop doing it.

Ben: It gets to the point where Andy is personally going to factories and just laying everyone off on the spot and saying, "Hey, we really need to get serious about this. We just need to shut this factory down. It's an old factory anyway. It's too small. We really shouldn't be operating in it anyway. I'm doing this in part because we have to shut this thing down." It's also a statement to the company of like, "I'm closing the memory factories. We're going to turn some of the CPU factories. This one was in it. Everybody needs to see that I'm freaking serious about this."

Andy, at least from the book, seems like an empathetic and warm person. He understood how to do that as much grace as you possibly can and be with those people on a hard time. It was crazy, the number of dramatic measures that he had to take, even as the president, to influence what’s happening.

David: Yeah. It was a two-front war. They're fighting the competition outside the building, but they're also fighting the culture internally. They finally do it by the end of 1985. They're out of the memory business. Of course, the obvious thing that they go into of their remaining business lines, that they put their focus behind, is the microprocessor business. That turns out to be super smart because the PC wave is coming and it’s going to grow hugely.

You could say that sort of what happened and there's the story. What's really interesting and what was brilliant about what really Andy did and how the company was, if they had just done that, then the same cycle would've played out over the next 10–15 years. Intel was in the lead. They basically invented the microprocessor. The x86 architecture was how the standard IBM PC and the IBM PC clones were based on. They would've been the leading chip producer. Anybody else could've come along and produce chips, too.

In fact, there was the 4004 which is for a Japanese calculator [...] that they created. The first x86 architecture, they made the 8086, but the 8088 there was in the first IBM PC.

Ben: Then they have the 8080 which was the Altair.

David: Yeah, that's right. Then, there was the 80186, then 80286. That's where we were at this point in time. They were second sourcing just like they did with all of their product lines.

Ben: No way.

David: Yeah, they were second sourcing it. AMD was the second source on the 186 and the 286. I think, maybe before that, too. They have a major contract in place with AMD to be the second source for the 286. As you said, they're working with the 386. They knew and Andy knew that the 386 was going to be something special. While the only other iterations on the x86 processor have been increased speed and more transistor density, the 386 processor was going to be the first 32-bit processor. Everything before that was 16-bit. This was going to be a major, major, step-change in the power and functionality of the brains of the personal computer.

They're getting out of the memory business. They have this huge strategic decision to make about what to focus on. Andy knows he's got this special product. They come up with what ends up being the brilliant strategic decision. Obvious and in hindsight, to say, "No, we're not going to second source this. We're going to be the primary and sole source. You want a 386 processor? You've got to buy. You want a 32-bit x86 compatible architecture processor? There's only one place to get that and that is directly from Intel." It's amazing what happens.

Ben: You even looked to how this translates all the way to today. I want to pause for a moment, David, and come back. It's crazy what happens because I did enough research on this part and I'm curious. You think about today, there are basically two types of chip companies. There's fabless and there are companies that have their own fabs like Intel. When I say like Intel, I pretty much mean Intel. You've got the TSMCs of the world, Samsung who's designing. This time, all these ARM-based chips that are designed by these fabless companies and then built in a separate chip fab in a commodity way that is decoupled—separate designers from the manufacturer—Intel to this day, still manufactures 100% of their designs themselves.

David: Yup. This is what happens. Remember, they have this agreement with AMD to be the second source. I believe that agreement, technically, was supposed to continue into the 386 processor. Intel breaks it and says, "Nope. Nobody else is going to do this. You want the 32-bit x86 processor? You've got to come to us." AMD sues them. Intel countersues.

Ben: I did not know this.

David: It ends up, it drags out in court. I forget who actually wins but at the end of the day, the judgment is that AMD is going to be able to market x86 architecture chips but Intel's not going to be forced to give them the designs. AMD has to, in a clean room, reverse-engineer.

Ben: No way!

David: Yes. It takes them another couple of years to do that.

Ben: That's like the Atari story.

David: It is.

Ben: Or like the EA Sports story.

David: Yeah, the EA Sports Sega Genesis story. It ends up taking six years for AMD from the end of 1985 when Intel ships the 386 out the door. I believe Compaq Computer is the first customer for the 386. That's the beginning of Compaq’s rise and Intel rises with them, and then everybody. Then, all the PC manufacturers use Intel 386 processors. It takes until 1991 before AMD can get a competitive product out there. During the whole first six years of the PC wave, Intel is the only player providing CPUs—the most important component of the computer.

What happens in 1991 when AMD finally gets their computing product out there, that's when Intel launches the Intel Inside campaign, which is so brilliant on two levels. One, it's one of the best pieces of marketing of all time.

Ben: They really invented the ingredient brand.

David: Exactly. It was them like NutraSweet, where the only successful ingredient brand of all time. They do something super smart that prevents AMD from countering with any kind of similar tactic—I didn't realize this until doing the research—which is the way that the Intel Inside marketing campaign worked was Intel spent a bunch of money advertising and marketing it directly.

Ben: Right. Of course, the customers will then demand from the manufacturer. Like, "I'm only buying this Dell or Compaq if it has an Intel inside."

David: That's what I thought, but here's the more powerful piece. Of course, that's true. Intel went to all the PC manufacturers—Compaq, Dell, Gateway, IBM—and they said, "You know all the marketing costs that you guys are spending to market your own PCs competing against one another? We will pay 50% of your marketing cost if you include in your marketing collateral that you have Intel inside."

Ben: No way. That is so smart.

David: Isn't that a killer? The amount of marketing expenditure associated with that is enormous. There's no way that AMD, who's been out of the game now for five or six years, can do anything you've enclosed to match that level of spend. Intel is like a tsunami that washes over the whole market.

Ben: Wow. That's like the Bobby Axelrod billions quote, "When you know you have an advantage, press it."

David: Yeah. Andy doesn't talk at all in the book about that. I think that was another decision on the level of maybe not quite as big as sole-sourcing the 386, but having lived through the crazy or near-death experience of competition and becoming a commodity of memories, they were so paranoid about losing their power advantage in CPUs, that they're going to do anything to maintain it.

Ben: Wow.

David: Andy becomes CEO of the whole company. Gordon retires in 1987, once this whole wave is underway. Andy serves as the CEO of the company from 1987–1998.

Ben: 1987–1998, 11 years?

David: Yeah. Then he retires and becomes chairman. The company's revenues rise from $1.9 billion in 1987 when he becomes CEO after they already started selling the 386. There is over $26 billion when he retires in 1998. In 1997, right before he retired, famously Time Magazine names Andy their Man of the Year. This story is so incredible. You've got this Jewish kid born in 1936 in Hungary who, by all statistical probability, should never have even survived. Here he is, leading and turning around the pre-eminent Silicon Valley company in this new industry, becoming Time Magazine's Man of the Year. Incredible.

Ben: It's totally crazy. I don't know what the original deal looked like for Intel to land the contract with the IBM PC and the IBM PC clones or copycats. What do people call them?

David: I think it was 1981 when Intel landed the contract to be the CPU provider for the IBM PC. I think all the clones, because of that, have to use the same architectures as the IBM PC and to use the x86 architecture, thus, you needed an x86 compatible chip for all PCs.

Ben: I don't know if they really realized the value that they had when the IBM PC chose Intel to be the supplier for that one. I assume they knew it was some amount of a big deal. It speaks to how much—even though we can rip on Intel for dragging their feet for so long and taking forever to get out of the memory business—they did have the beginnings of a backup plan. They had started working on this new emerging market because they had R&D in their core, believed they needed to be at the cutting edge, believed they needed to be investing in technology. Shipped, got it out there, and got it to be the critical path part of a major, major new product in the market.

David: Yeah. I was going to save this for the playbook but Andy talks about this in the Only the Paranoid Survives, "The time to innovate is not when you find yourself in a strategic inflection point. It was well before then." You constantly should be looking for new product lines, looking for diversification. Honestly, Uber has done a great job of this. Where would Uber be if not for Uber Eats and Uber Freight?

Ben: Uber Eats in the US, last week or two weeks ago, eclipsed ride-sharing in revenue for the very first time. When you look at these graphs, it's ridiculous because it's Uber Eats going up slowly, then Uber's ride-sharing obviously falling off the cliff. It's insane to see right now in time, because of the investments done over the last three or four years, Uber has revenue.

David: Yeah. Compare that to Lyft who doesn't have. I think they're now launching a delivery type product. A strategic inflection point is not the time to be launching new products.

Ben: Yeah. I'll catch us up to Intel today. I think David quoted something like this earlier, "When Andy came in, annual revenues at Intel were $1.9 billion. Nothing too bad. When he left in 1997 it was $26 billion." Not only did he save the company, but really created the behemoth that we know today, 13X on the revenue from when he came in.

David: We couldn't find the profit margin stats on those, but they were bleeding money on whatever hundreds of millions of revenue they had. In 1984 they were losing boatloads of money, and then they were immensely profitable when Andy left.

Ben: I'll give you a picture of the economic profile of his company today. It increased from $26 billion, Andy left us $72 billion in 2019. They're a hardware company and their net income is $21 billion on that $71 billion. That's 25%.

David: Net income. That's pretty damn good.

Ben: Right. This is a company that there are lots to talk about in the modern era of the way they've dropped the ball, they haven't effectively created low-power processors, they miss the mobile wave, lots to criticize, but pretty behemoth. It's a $260 billion market cap business, even in this crazy stock market environment that we're in right now.

David: It's funny, too. Listeners should go listen (if you haven't already) to our ARM episode. In much the same way that Intel was able to change the way that the market operated and business was done to generate a lot of power in their CPU business, they were then partially disrupted by ARM who came along and said we're going to do a completely different approach to entering the business in a way that Intel is not going to be able to respond to.

Ben: The disrupter becomes the disruptee at some point, and you can stay vigilant, you can stay paranoid, but…

David: Maybe it wasn't there anymore.

Ben: You have to have leader after leader after leader that truly believes that. I want to tell you one crazy thing, David. I don't know if you caught this. An announcement made in July of 2015 from Intel.

David: I don't think I did.

Ben: They announced that they were going to be shipping a new product called Optane memory. In addition to their CPU business, which we all know very well, they were shipping a new type of memory.

David: Getting back into business.

Ben: The main value prop was to make computers that had hard drives spinning disks as speedy as SSDs, so it was indeed a value-added memory. They're not just shipping DDR2, DRAM. Here we are with Intel, making a bet on memory. To underscore this, I just read the annual report from Intel last year. They have three operating segments. They have a data-centric one and PC-centric one, and those are both responsible for about half of their revenue. The PC-centric one is everything that you know of. The Core i5, i7, i9, that's the core of it. The data-centric business is a lot of the server stuff, so those Xeons and then they lumped in all these, mobilize up there, and a lot of the acquisitions they've made. They have these big bets.

David: Do they literally call it big bets? Did they steal that from Alphabet?

Ben: They do. Practically, everyone does at this point.

David: Oh, come on. That's ridiculous.

Ben: Currently and there's three of them, but I'm just going to end after the first. Currently, our big bets are memory.

David: Andy Grove will be turning over in his grave.

Ben: I know, just amazing. I don't think it's a bad idea. I think it makes sense given the current environment but it is amazing how history doesn't repeat itself, but it does rhyme.

David: Indeed. Part of why we do this show.

Ben: Before we get into what would have happened otherwise, the next segment here on the show, we want to thank Wilson Sonsini, the official legal sponsor of season six of Acquired. Wilson Sonsini is the premier legal adviser to technology, life sciences, and growth enterprises worldwide, as well as the venture firms, private equity firms, and investment banks that financed them. Thank you to Wilson Sonsini.

All right. So David, what would have happened if Andy Grove had not realized this, been successful, and executed this pivot?

David: I think it's pretty clear. Intel would be, like we said upfront, just like Shockley, Fairchild, and I think National still around in one form or another, but names lost to history.

Ben: Absolutely. I've literally nothing more to add to that.

David: That was quick second, we move on to playbook?

Ben: Yeah. There's one thing that we didn't discuss from the history, I think it really belongs here in the playbook. For new listeners that are listening as part of Potapalooza or otherwise, this is the time when we talk about themes that we pull out from the story. That is the playbook that Intel ran that we can try and run in our businesses, that we might look out for in history rhyming.

The one in this story that really jumped out to me is the power of middle management. I think we didn't totally touch on when Andy is going around and he's talking to his middle-level executives and he's saying we're going to get out of the memories business. The head of sales is adamant and pissed. He's thrown a tantrum.

His number next to his name and everybody under him is about selling memory, and then he goes to the factory and that their whole livelihood is based on this. The head of the factory said, there's no way to think about it. There's no way we can retool this whole thing. Meanwhile, the people who are actually really close to the customer, the people that are really close to the product, not the executives, but the mid-level management who is actually working with the day-to-day individual contributors and working with customers, they see the writing on the wall.

By the time the changes trickled down to them, the middle management's like, “Oh, yeah. No, no, no. We definitely need to be doing way more in CPUs, and we have a plan for that, because while there's all this politicking and infighting at the top, we had a plan.

No, it wasn't coordinated, it wasn't cohesive, but everybody had assembled the resources that they needed to, to make this happen and operationalize whatever came down when it came down.

David: Andy writes a bunch about this in the book that he was shocked by it. This group of people, as you said, that are not high enough within the company, that they're removed from customers and caught up in all this political infighting but they're actually close to the actual operations and customers. they were already doing this. They had already just organically started reallocating resources away from memories and into CPUs.

Ben: That's wild.

David: Yeah. I've got a couple on here. We've touched on a lot already. One of the biggest ones that I wanted to talk about we already have which is the time to start experimenting and figuring out your response to the next strategic inflection point as well before that happens, but a couple of others. I want to underscore this. What does it mean to be a commodity or not be a commodity in the market?

You are not going to build a long-term sustainable enduring business if you are selling a commodity. It's just not going to happen, you can start by selling a commodity and participating in a commodity marketplace, but you need to have a plan and a path to either shift the commoditization to another layer off the stack, which Intel and Microsoft did incredibly well in the PC wave, it was the manufacturers themselves that got commoditized or to introduce something about what you're doing and a product that allows you to have power over your competitors.

Amazon has done this in eCommerce. There are lots of eCommerce retailers out there that compete with Amazon, but Amazon has so many features—Prime delivery, selection, or just what. They have a power advantage. That's one.

The last two, these are smaller ones, but I think appropriate also for Adapting that I wanted to cover what Andy talks about. One, he says this quote, and Sequoia said this in the black swan memo, I think [...] said it in our interview with him. Andy says, "Looking back over my own career, I have never made a tough change, whether it involved resource shifts or personnel moves that I haven't wished I had made a year or so earlier." I think the Sequoia version of what they say in the black swan memo is nobody ever regrets acting swiftly or something like that. This is a good thing to keep in mind.

Related to that, when Andy and Gordon ceremonially fired themselves and rehired themselves, doing something like that is so important because without some performative action like that, it can be so hard to make the decisions you need to make.

Ben: It was giving themselves permission.

David: Yeah.

Ben: Andy mentions that in Only the Paranoid Survive, that a lot of times when companies bring in external new CEOs, they may be just as smart as the current CEOs, but they have one distinct advantage and that is they don't have the baggage of the way that everything has been thought about internally, so they actually can act and do the things that need to be done without being weighed down.

David: That brings me to the last point, the last one I wanted to highlight, which is learning, being a learning machine, and that's something Andy did so well throughout his whole life. Even going all the way back to being a kid and hungry. He writes, "Don't bemoan the way things were, they will never be that way again. Pour your energy—every bit of it—into adapting to your new world, into learning the skills you need to prosper in it, and into shaping it around you. Whereas the old land presented limited opportunity or none at all, the new land enables you to have a future whose rewards are worth all the rest."

Ben: Boy, in a good way right now.

David: We are living in a new land right now. Don't bemoan the past and learn how to shape the future.

Ben: The thing that's been occurring to me the most over the last few weeks is that we will never go back to normal. Lots of things will go back to very close to normal, but there are also lots of things that will never be the same way that they were, again. Don't bemoan the past. There's a lot that I think we can all take to heart there.

David: Especially again, coming from someone like Andy who says that this is someone who lived through most of his extended family dying. That's just a level that fortunately I think hopefully very few of us listening to this has ever been through. Anything else you got in the playbook?

Ben: Nope. That's it. Carve-outs?

David: Carve-outs. You want to go first?

Ben: Yeah. I've been on a Michael Lewis tear recently during the staying at home time that we're in. I most recently read The Fifth Risk. That was one that launched with a lot less fanfare than Michael writing Moneyball, Liar's Poker, or Flash Boys. I felt this one was definitely a little bit less glorified. It's an amazing collection of stories that are basically the handbook of how to run the federal government.

I wouldn't call it the complete handbook on how to run the federal government, but it was basically when the Trump transition team basically didn't happen and all the former, I call them the Obama administration, but really, it's the public servants that had been in government for a long time were getting everything ready to hand over to the next group of people coming in and saying, “Whatever your politics are, I don't care but you got to know how to operate the levers here. What all these different departments do, what budgets are for,” and nobody showed up to take that from them and say, “Cool. We would love to take what you did, learn from it, and build on it. We're going to go very different, of course.” Nobody showed up to learn how to operate this crazy machine.

There's this unbelievable fodder for a book. Michael Lewis realizes this and he starts going around to all the people who helped assemble transition materials and he said, “Well, tell me about it and I'll write a book. It's all these crazy, cool stories that really do make you understand how the government got this brand for stodginess, and how the US government became a thing that you didn't want to go do, whereas in the 50s–60s there was reverence for it. You're a government employee, you're a public servant, you're doing something innovative, you're on the cutting edge, and now it's they often don't attract the best talent.

David: As problematic as he was and became later in his life, Shockley was one of the most brilliant people in America in the 40s, and the highest and best calling that he did was he stopped all of his commercial activity and he went to work for the War Department.

Ben: Yeah. I found this book to be three things. One, kind of crazy to read at this moment that we're in right now; two, a really good explanation of how working for the government got the brand that it has right now, despite I don't think that really is true. I think like public servants, and especially people that aren't elected, but go into public service, just to work on hard problems that exist in the government to serve everyone. The brilliant, thoughtful, driven people are totally mismarketed or misbranded.

The third piece of it is really understanding what a lot of the pieces of the federal government are for—of course, this is a very US-centric view—that I just never really understood before. By no means comprehensive, but it's an interesting several slices of instructions on how to run the government. I never had a more surface-level understanding, but reverence for why infrastructure and an organization like that need to exist.

David: Totally. I remember when it came out, and just like you said, I was like, “Oh, Michael Lewis book. I loved Michael Lewis’ books.” I just missed that one. I have to go back and read it. Lots of people should, too.

Mine is Notion. The hot, buzzy, productivity company that just raised $50 million at a $2 billion valuation, and mostly they raised an angel round $10 million and an $800 million valuation before that.

Ben: They go to one VC firm, and so you can call it a venture.

David: Okay. It was led by other CEOs and angels. That was pre the world we're in now. I tried it at around that time when I first started hearing about it. I was like if I don't get this thing, it is way too complicated. I don't understand what's going on.

I got inspired to try it again, and I totally get it now. I have become a huge convert, I've moved most of my productivity over to it. What I think is cool about it, I don't know if they think about it this way or I haven't heard anybody else talk about it, but to me, it really reflects the whole no-code movement. We've explored no-code a bunch on the LP Show here. We're just going to keep doing more and more on the card. I think we both think it is a huge powerful movement in technology right now, but what I thought was so cool about notion is this like, this is the first time I'd seen that same principle of you don't have to be a developer to create things and to shape the software that you're using in an actual consumer application.

What I mean by that is what's hard and confusing about Notion at first is, it's not like Wunderlist back in the day which I used to love. The UI designers, developers, and the team at Wunderlist decided how it worked. They were the product designers. You use their vision and it was great.

What's cool about Notion is that you have the power to shape the software as you want it to your purposes. I've built in Notion, the task management system that I've completely designed all the UI for, all the logic of how it works, all the database, and it's tailored to me. That's harder to do than just downloading and using Wunderlist, for example, but that's so powerful, so big fan.

Ben: That's cool. It's like moving the accessible abstraction layer up one notch.

David: Totally, and it makes you feel super powerful.

Ben: Listeners, thank you for joining us on this journey. If you are not currently subscribed to get more Acquired episodes and you want to, you should. You can do that on our website at acquired.fm or literally anywhere where you can listen to podcasts. We appreciate you both listening to this one and giving other episodes a shot, too.

If you want to become a Limited Partner (that thing that I mentioned at the top of the show), subscribing gives you access to our bonus show where we dive into nitty-gritty topics of building companies in real-time and hear from other practitioners in the ecosystem.

David: We've had Vlad (the CEO of Webflow) on and Wade, the CEO Zapier on talking about no-code stuff.

Ben: Speaking of no code.

David: Yeah. Lots of other great founders on the show.

Ben: Yup. To listen, you can click the link in the show notes or go to glow.fm/acquired. All new listeners get a seven-day free trial. If you want to discuss this episode, and you thought this was interesting, you should join our Slack. Frankly, there's a lot going on that is completely unrelated to our episodes, people finding jobs, people posting jobs.

David: People meeting each other and starting companies.

Ben: Yeah. We've had founders meet in the Slack. It's really cool. People find investors. If you're looking for a community to talk about everything in the world right now that are like-minded, anyone who listened to the show, there are about 4000 or something people hanging out at acquired.fm/slack. You can join there or anywhere on our website.

With that, thank you again to Silicon Valley Bank and Wilson Sonsini, and we will talk to you next time.

David: See you next time.

Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

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