Invest Like the Best with Patrick O'Shaughnessy
00:24:28 · Ben Thompson
That introduces two problems. Number one, most companies aren't set up to do this. They make budgets like once a year, this idea we're going to be thinking about through our budgetary allotment on like a monthly basis doesn't compute. There's an aspect where they're used to thinking about CapEx decisions or one time costs. And there's a bit where, when I'm talking about this employee, like the loaded cost of employee, it's CapEx, but it's kind of like CapEx. It's like you make the decision upfront and you don't think about it anymore. The decision is sort of already made. But if you're thinking about usage, you have to it again. The final thing is if you're every month looking at your Microsoft bill and how much did I use, you start thinking about what am I paying for? How good is each of these products? Should I actually just start thinking about and spreading this out? And I think they had to do it because that extreme of user who uses a ton of tokens and who's actually leveraging AI costs way more to Microsoft than a $100 a month. They can't support them, but they want to hold on to the set cost for the vast majority of employees who can fit in that because they need to ask their customers to think a little bit for those extreme employees, but they don't want them to think too much because that breaks the model in very surprising ways.
00:25:46 · Patrick O'Shaughnessy
[00:25:46] S0: Are you surprised at all that the recipe builder user that is very low cost to serve, that there hasn't been a great business model that's emerged around them just yet? Google and Facebook are sort of business perfected in this prior era. They haven't seemed to figure this out at all.
00:26:00 · Ben Thompson
[00:26:00] S2: I am frustrated, but not surprised. This is obviously a market that should be supported by advertising. That is why advertising is always the consumer business model. Consumers don't wanna pay. There's two things to understand about consumers that Silicon Valley has to relearn about every ten years. Number one, consumers do not wanna pay for software. And number two, consumers do not care about being productive. We went through this in early SaaS. The canonical company for this in my mind is Dropbox. So Dropbox, unbelievable product. Like, especially when it first came out. In business school, I was one the first people to use Dropbox. And that went off like crazy. I have so much storage still like my free Dropbox because I gave out my code to like so many people. So Drew Houston makes this amazing product. So easy to use, just absolutely seamless. He was very clear about this. He wanted to build a consumer company. And there's that famous story of him meeting with Steve Jobs. Apple was interested in acquiring Dropbox. And they're like, oh, we wanna build a company in Steve's, you know, you're a feature, not a company, which that plain Jane just file sync. Apple did make a feature as far as like sort of iCloud drive and with Dropbox, they grew very fast. And then they had like a two year lull. And in that two year lull, what they had to do was basically completely rebuild the app from the bottoms up because not enough consumers are gonna pay for it. Enterprises could see the value they would pay. But if want enterprise, you need permissions. You need control. You need someone else to be able to set all these sorts of things. And their app wasn't even created to do that at all. So they had to rebuild the whole thing and realize the only way we're gonna make money is by selling to companies. Why do companies pay? Because companies are paying employees to the extent they can make their employees more productive. They're getting a greater return on their investment. It's the complete inverse of a consumer. A consumer's like, I spent all day working. Why do I wanna come home and be more productive? I wanna sit on the couch and watch reels. But you see that with AI. And you also have this overarching just skepticism of advertising. I've gotten so much traction on trajectory by being an advertising appreciator.
00:28:09 · Ben Thompson, Patrick O'Shaughnessy
And I go back and read my early articles about advertising that were kind of directionally correct, but also, like, were not very good at all. But I got so much traction doing it because I was the only person writing about advertising. In a world of everyone wanna have a blog and Twitter, no one wanna talk about advertising. But even now, there's in Silicon Valley, this sort of embarrassment about the fact that the Valley is in many respects monetized by advertising. And particularly during the last sort of eight years, there was a Facebook's icky. [00:28:39] S0: The best engineers don't want to go work on this problem.
00:28:39 · Patrick O'Shaughnessy, Ben Thompson
[00:28:39] S0: The best engineers don't want to go work on this problem. [00:28:42] S2: And so you literally had OpenAI replaying the Dropbox story, but at like a 100 exercise. Being like, no, we're going to sell subscriptions to consumers. They did. They sold a lot, but they didn't sell enough. If you're going to be in the consumer market, you have to be doing advertising. They're doing advertising now. It's a little weird. They finally pivoted to doing advertising at the same time. They're like, oh crap, we need to go off the enterprise because Anthropic is kicking our in. So I'm not quite sure what they're doing there. They have been rolling out ad features very rapidly. Things like copying the connections with retailers. So, you know, if a purchase went through, you can do all the tracking and things like that. I'm very interested to see how that goes. There's a bit where had they leaned into advertising immediately as soon as ChatGPT was a hit, I think they would have a killer ad product right now. I think that Google would be in much bigger trouble. I think Meta would be in much bigger trouble because if you have this flywheel, the thing about advertising with consumers is your ability to monetize the consumer [00:29:46] S0: Goes up as Yeah. The volume goes
00:29:46 · Patrick O'Shaughnessy, Ben Thompson
[00:29:46] S0: Goes up as Yeah. The volume goes [00:29:48] S2: the advertiser is bearing the price increase. So there's zero elasticity issues. If you're charging consumers a price, if you want to raise the price like Netflix, this is their problem with the subscription plan. How much can they raise prices before consumers rebel and drop a tier or give up the service entirely? Charging people money is hard. Giving people things for free [00:30:08] S0: is easy. [00:30:09] S2: And it's very frustrating that OpenAI did not pursue this sooner. [00:30:14] S0: I know you've been spending time with some of the big money firms and sources of capital. What is your sense of their appetite right now and how they're thinking about the future? Because I think this year, it's gonna be 800,000,000,000 or something that we're gonna spend in CapEx. Next year is supposed to be 1,300,000,000,000, I think, the current estimate. It's gonna keep going up from there. We're burning through all the compute that gets installed basically immediately. It's it's such a strange circumstance that we can use the capacity right away as soon as it's online.