Invest Like the Best with Patrick O'Shaughnessy
01:00:54 · Ben Thompson
[01:00:54] S2: They pay nothing. Instagram is this unbelievable product that generates all this money for which Facebook pays $0 for content. It's unbelievable. It's funny because you could see a world where for YouTube, AI generated content could theoretically be a positive because the inference cost of generating content could be less than what they're sharing with creators. For Meta, AI generated content to the extent they're the ones generating it is actually a worse margin profile than what they have today because what they have today is free. So they have attention. There's a bullish world where meta is actually very well placed because in a world where we interact with AI all the time, the desire for a human connection becomes greater. And it's sort of like a meta going back to their roots. Meta, one of their biggest mistakes actually, Meta was always a social network company. They killed Snapchat or stopped Snapchat's growth by realizing Snapchat is a great product. Let's layer it onto our network. They brought the network to bear to kill Snapchat. The reason why TikTok was just a blind spot for them is TikTok is classified as a social network, and it's not a social network at all. TikTok is an entertainment product. It doesn't matter who you follow on TikTok. What you see on TikTok is a function of what you watched and you're gonna get more of the same. It's a user generated content network. And the insight from TikTok was the way to get the best content to limit it to your social network is an artificial constraint. We're gonna give you the best content from across the whole network. And the vast majority of content is gonna be crap, but this is like the absolute question before. You don't think about margins. You think about absolute numbers. The absolute amount of great content, even if the margin for great content is infinitesimal, if we have a ton of content, the absolute amount of great content is gonna be very large. I mean, Meta is like, we're a social network. Meta is serving you content from your network of people you know, and TikTok serving you the best content from around the world. That's why they took a huge chunk out of them. Meta had to shift. That's what's happened with Instagram and with Reels is it's not really a social network. It is a entertainment product that pulls from the entire network.
01:02:53 · Ben Thompson
And social networking is like the group chat. It's possible in AI. Actually social network is important again because like we actually want humans. We want to have some sort of connection to them. That'll be interesting to see how that plays out. But the other thing with the models is they're so impactful in advertising. The biggest impact of the models, the biggest monetization right now is probably not in Thropic or OpenAI. It's the incremental gain that is happening for Google and Meta. Most of the stuff is pre LLM, but we're getting to LMs, whether it be generating advertising content. What we want, want verifiable domains. How do you verify if a generated image is good for an ad? Does the ad sell or not? They actually can validate their image creation and their text creation in a way no one else can. And their validation is the ad marketplace. Running a gazillion AB tests on all these different things, see what works, what doesn't. Most ads are a throwaway. It's fine. The vast majority of ads don't convert. They have this massive advantage, this huge liquid market that is a verification machine where the verifiers are humans deciding whether they click on that ad and make a purchase or not, but they're doing it at global scale that can actually have a feedback loop to make their products better. You're also gonna get a world where ad matching is actually still fairly crude. Here's the qualities of the person. Here's the qualities of the ad. And it's like you create an embedding, like a vector calculation and see what numbers match, and then you sort of match and add to the person. What do LMs do? LMs predict. We're going to move to this world where Meta is gonna look at people and say, this person probably wants to see this next. And they're gonna go find that thing and show it to them. The potential upside in terms of showing people better ads that are more relevant to them. They only need to increase a few percentage points for the returns to be billions and billions of dollars. This alone is worth them investing in being on the leading edge in having these amazing models. I think a big problem Meta has is they don't tell this story. It's weird, but Mark Zuckerberg has the same problems Sam Altman does. He doesn't love ads. They have the best ad business in the world. They have an ad business that I think is a societal positive.
01:04:54 · Ben Thompson
You and I have set up these little content businesses that make great money. Content is you get a ride on social media. I grew up on Twitter, people sharing my links. It was amazing. If you're selling some product, the beauty of the internet is there is a niche out there that wants that product. The question is, how do you find the niche? Facebook advertising. That's what it does. It helps products find the people who didn't even know they wanted that product, but when they get it, they're so happy they got it. That's a huge societal positive. You have new business from a new entrepreneur making a new product. You have customers who are happy they got something that they didn't know they would get otherwise. Those customers, by the way, got lots of free entertainment and they'd have to pay for it along the way. And Meta made a bunch of money for themselves and their shareholders, which is basically everywhere in the world. This is why advertising is great, and Meta's advertising in particular is awesome. And I get frustrated that Meta doesn't talk about that. Mark Zandberg has never really talked about the societal benefits of advertising except in passing in twenty years. He's handed it off to other people to take care of. And maybe there's a bit where him not paying attention is why there is a certain grit and grime that goes in building an advertising business. People get frustrated or have questions about as far as data and all those sorts of things. And maybe there was a bit where he didn't wanna be involved in it and wipe his hands of it. But you saw this when Apple passed ATT. App tracking transparency was one of the worst antitrust violations in the history of technology. Apple unilaterally obliterating all these business models while they're simultaneously building their own as far as advertising goes and doing all this tracking. Why? Trust us. And meanwhile, they're running these advertisements. Remember that advertisement of people on the bus, like, overhearing everyone around them, what they're saying? That was such a dishonest representation of how advertising works on the Internet. You had Tim Cook in congress talking about companies selling data. Facebook's not selling your data. That's value to them. Why would they sell the data? Meta was not prepared to respond. I think you got this to Sheryl Sandberg back in the day.
01:06:54 · Ben Thompson, Patrick O'Shaughnessy
She wouldn't every call would talk about advertising, great it is and have a bunch of case studies, people who are benefiting from advertising and these new entrepreneurs. And then she left and it's kinda like that hole never got filled. It feels like it's a company that's kind of like embarrassed. We make a lot of money from ads, but we got glasses and we're doing AI. It's like, you have ads and ads are awesome. I think if they had communicated that more consistently, they would be in a better place generally from a PR perspective. They would have been a better place relative to Apple. And I think they would have an easier time right now convincing Wall Street that let us invest. The other problem is they've spent cumulative 100 some billion dollars on Oculus, which I dated all along. And so there's a bit where why should we let you spend money again? [01:07:38] S0: The one major player and company that we haven't talked about much is Jensen and NVIDIA. And I'm curious how you would tie this back to the notion of not understanding commodity markets in Silicon Valley, whether or not you think compute ultimately is a commodity. I'm curious whether or you think intelligence will ultimately be a commodity. It's interesting that intelligence and compute, which seem to be by far the most interesting and important topics in tech, both might be commodities and less differentiated than What's tech also the
01:07:38 · Patrick O'Shaughnessy, Ben Thompson
[01:07:38] S0: The one major player and company that we haven't talked about much is Jensen and NVIDIA. And I'm curious how you would tie this back to the notion of not understanding commodity markets in Silicon Valley, whether or not you think compute ultimately is a commodity. I'm curious whether or you think intelligence will ultimately be a commodity. It's interesting that intelligence and compute, which seem to be by far the most interesting and important topics in tech, both might be commodities and less differentiated than What's tech also the [01:08:03] S2: case so? The most interesting thing about the Internet is free distribution. Bandwidth is a commodity. The fact that I can pull out my phone right now and connect to any information source in the world for free, free on a marginal cost basis, it's because it's commodity. It changed the world. Commodities changed the world. There is a aspect of differentiated products by definition have lower TAMs because there's a elasticity aspect to it. Not everyone can afford to pay for it. People's willingness to pay is going to differ. Your market is gonna be constrained. Apple's never gonna serve the whole world by selling a device, whereas a Google can because it's free. That matters. You're paying for a commodity, but to the extent it is available to everyone is the extent it is impactful. The Internet is a commodity. It changed the world. So I don't think it'd be weird that intelligence ends up a commodity and changes the world.
01:08:03 · Ben Thompson, Patrick O'Shaughnessy
[01:08:03] S2: case so? The most interesting thing about the Internet is free distribution. Bandwidth is a commodity. The fact that I can pull out my phone right now and connect to any information source in the world for free, free on a marginal cost basis, it's because it's commodity. It changed the world. Commodities changed the world. There is a aspect of differentiated products by definition have lower TAMs because there's a elasticity aspect to it. Not everyone can afford to pay for it. People's willingness to pay is going to differ. Your market is gonna be constrained. Apple's never gonna serve the whole world by selling a device, whereas a Google can because it's free. That matters. You're paying for a commodity, but to the extent it is available to everyone is the extent it is impactful. The Internet is a commodity. It changed the world. So I don't think it'd be weird that intelligence ends up a commodity and changes the world. [01:08:49] S0: Commodities often are not thought of as as good a businesses as these differentiated, harm mentioned products. I'm curious for your thoughts on Jensen and NVIDIA specifically.