Musk and Yaccarino Share Power at X, but There Are Tensions

[00:00:00] Welcome to Tech News Briefing. It's Monday, July 15th. I'm Zoe Thomas for The Wall Street Journal. The US government has spent $22 billion in recent years on technology from the top 100 national security startups. That's actually a relatively small portion of the overall contract spending by the government,

[00:00:42] and it's less than half of what venture capitalists have invested in those same companies. We'll explain what's behind that. And then, ex-CEO Linda Yaccarino keeps running into a problem. She doesn't always have the final say. We'll tell you about a deal where that problem was on display.

[00:01:05] But first, a report released last week from the nonprofit Silicon Valley Defense Group has new numbers on the amount of money the federal government is spending on technology from top national security startups. The group started a decade ago with the aim of bringing more startup innovation to the

[00:01:22] Defense Department. According to the report, the top 100 venture capital-backed national security startups have raised a combined $53 billion in private funding since their inception. Those same startups have collectively earned $22 billion in revenue from federal awards. Traditional defense contractors like Lockheed Martin and Boeing receive hundreds of billions

[00:01:44] of dollars in awards each year. Here to tell us more is our reporter Heather Somerville. Heather, what has the Defense Department said about this report? The Defense Department has a couple of points on this report.

[00:01:57] One is they argue that the numbers aren't exactly right because the contracts that this report shows do not include classified contracts. The Defense Department also said that they're spending a lot more money and they're moving a lot much more quickly, much more swiftly, purposefully to use commercial technologies

[00:02:20] from new companies to use emerging technologies from startups. They say that they're doing the work, but they also acknowledge they have a lot more work to do to start to integrate some of these technologies into the DoD.

[00:02:33] They also acknowledge that they've got a big slow-moving bureaucracy that they are still contending with that can at times get in their way of working with some of these startups. Elon Musk's SpaceX receives the bulk of the funding. What does that company's growth demonstrate for other startups?

[00:02:52] Yeah, SpaceX received 81% of all of the government contract awards that went to this entire cohort of national security startups. That means the remaining 99 companies on this list of 100 companies shared like $4 billion, which is really meaningless effectively when we're talking about the revenue for this large number of companies.

[00:03:18] The question a lot of people have is, is the SpaceX playbook repeatable? Can another company be a SpaceX and have this kind of success? That's an open question. SpaceX had a few things going for it, one of which was its founder, Elon Musk, a billionaire,

[00:03:34] was able to finance the company for a lot of years until it was able to break into federal contracting in a meaningful way. SpaceX has also had a lot of other unique attributes that it's hard to imagine many more startups can replicate.

[00:03:49] Nevertheless, it's a beacon of hope for other companies that if they can stay the course for 10, 15 years, they can figure out how to stay alive, that they could get to a SpaceX level of success. Does this report offer any reasons for these startups to be optimistic? Sure.

[00:04:07] There's a lot of pressure on the DoD from Congress, public pressure. They're often grilled about why they haven't figured out, for instance, hypersonic systems and why they aren't using the startups that are already building them. There's more money, there's bigger budgets put into some of these innovation programs

[00:04:27] that are housed in the DoD that could make their way to startups. So we also think it's important to say that there's a counter argument to the idea that the DoD is failing at this, and that is startups, a lot of them haven't proven themselves yet.

[00:04:43] A lot of them are not building practical technology for the warfighter. A lot of them have not proven that they can manufacture at scale at all. And you can also make arguments about taxpayer money being put to work with young, unproven startups.

[00:05:02] Is that the wisest thing to do when startups fail so much of the time? Those are all considerations that the DoD has, that government agencies have, that are very wise ones. That was our reporter Heather Somerville.

[00:05:17] Coming up, ex-CEO Linda Iaccarino is learning the pitfalls of sharing power with Elon Musk. We'll explain after the break. Meet Claude, the AI assistant by Anthropic. Claude can help with any project from brainstorming your campaign to building software.

[00:05:40] Just share the context and Claude brings expert level results to every task. Join teams around the world already working with Claude. Learn more at anthropic.com slash team. When Elon Musk brought in Linda Iaccarino to be the CEO of his social media company

[00:06:00] X, formerly Twitter, he said she would work primarily on business operations while he handled product design and technology. Iaccarino was NBCUniversal's ad chief before joining X last year. But tensions over the division of labor between Iaccarino and Musk are stymieing some core initiatives at the company.

[00:06:22] Here to tell us more is our reporter Alexa Kors. Alexa, when Iaccarino came in, she had this difficult task of fixing X's advertising business, which had taken a major hit after Musk bought the company. So how is X's advertising business faring now?

[00:06:38] Simply speaking, it's still struggling quite a lot. We all know that many advertisers pulled back from Twitter after Musk took over. They had a lot of concerns about content moderation and just all the changes that were happening very quickly at the company.

[00:06:55] Now we see some of these big brands still advertising on X, but at lower levels than before. Another thing we've been hearing is that when some of these advertisers have shifted their ad spend to other sites like TikTok or Instagram, they're finding good results there.

[00:07:13] And so that really raises the question for them about what's the case for coming back to X. So what has worked for Iaccarino when it comes to getting some of these advertising partnerships established?

[00:07:25] One interesting deal we heard about that was a win for X was with BetMGM, the online sports book. Iaccarino was able to strike a deal that was like a partnership for their live ad sports betting. And that included BetMGM ramping up its ad spending and a fee.

[00:07:46] You reported that Iaccarino was working to strike a deal with Visa, but things didn't work out as she had hoped. What were her goals for that deal? And why didn't it work out as she had planned?

[00:07:56] So we had heard about this idea Iaccarino had for a partnership with a financial brand, a partnership with Visa. And the idea that she had was to solve two problems at once, get an advertiser to commit

[00:08:12] to more spending on X and partner with this well-known financial brand to build a future payments product. We've all probably heard that a really big part of Elon Musk's vision is to make X an everything app that includes digital banking.

[00:08:29] And so Iaccarino was pursuing this idea and she took it to people inside X who work for Elon Musk, kind of the product and engineering side of the company. And that's where the problem started. She faced pushback internally from that team.

[00:08:47] We were told they felt like they weren't ready yet to sign over some control of a future payments product. They wanted to keep things more in-house, at least for now. And so Iaccarino had been hoping to announce a deal in the spring and that didn't materialize

[00:09:05] as she was getting this pushback. What other steps has the company taken towards a payment partnership? X has been working on this. One important thing they've been doing is they've been applying for these money transmitter licenses around the country.

[00:09:20] So that's a really key step to them being able to release these payments features. We also have some reporting that they've been in discussions with other financial technology companies as well. What about for X employees? What are these internal disagreements meant for them?

[00:09:38] It's hard enough to keep one boss happy. And the way some people have described it to me is now they have two bosses. They have to keep happy. Sometimes they have to wonder, do I take this first to Musk or do I take this first to Iaccarino?

[00:09:53] Who am I really reporting to on this specific project? That's a tough position to be in. You know, one other thing to keep in mind is obviously I've heard from people who are frustrated with how things are going at the company.

[00:10:09] There are also people who are absolutely all in on the vision for X and are excited about getting the chance to work for Elon Musk. What has X said about your reporting? So we reached out to the company and they declined to comment for this story.

[00:10:24] Iaccarino has been asked, you know, in other public appearances what it's like to work with Elon Musk. And she's generally said she sees this as such a great opportunity and she's really excited about getting to be part of this company, even if it's not like other companies.

[00:10:44] That was our reporter, Alexa Kors. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer, Katherine Millsop. I'm Zoe Thomas for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.

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