The Information's TITV
00:24:38 · Stephanie Palazzolo
[00:24:38] S3: Yeah. So, I mean, I think there's two things that jumped out, one of which we have already written about, but that is that the revenue growth from Q2 to Q3, although impressive, it has begun to slow a little bit. And so I think that's an interesting signal for this company that has obviously had insane revenue growth over the last year that maybe things are starting to taper out. Maybe it's facing more competition from OpenAI models or for people looking for cheaper models. But I think the other big update was that Anthropic disclosed its future, compute commitments, which were almost, you know, almost $900,000,000,000 obviously a huge number. And half of that is going to come after, you know, either in 2031 or after. So not only have they committed to a huge dollar amount of compute, but a lot of that is going to be coming, you know, five plus years in the future. And so that really does, I think show just, I don't know, I think it might lead some investors to be a little worried just in terms of like, we don't know necessarily where AI is going to be in five, you know, five, six, seven, eight, nine, ten years. And the fact that they've committed to so much compute so far out is a little worrying, especially because of this dynamic, right, where Anthropic's revenue, it's not these five year commitments that customers are signing. It's usage based. And, you know, we were just talking about how Anthropic and OpenAI are having trouble getting customers to commit to, you know, bigger year long commitments. So you have this dynamic where revenue and compute, which is their largest expense are not really, operating on the same kind of like patterns, if that makes sense.
00:26:20 · Akash Pasricha, Stephanie Palazzolo
[00:26:20] S0: Right. [00:26:21] S3: Other interesting thing on, on, on compute is that, there's been this narrative of the past year or two that Anthropic has been super compute constrained because they were not as aggressive as OpenAI was in, you know, making these really big compute deals early on. And so we could really see this in the S1 because they had to do a lot of, you know, short term commitments this year, especially in this third quarter. So they spent $6,500,000,000 on compute this year under short term commitments, but actually $5,000,000,000 of that came in Q3 alone. So that just really goes to show like, you know, when you don't plan ahead and you just need compute to either train model or just meet customer demand, That compute, if you need it in a short time period, is going be really expensive. And that's a big reason why Anthropic actually swung from making a pretty big operating profit, almost a billion dollars, to over a $500,000,000 operating loss, in Q3. So that obviously had a quite a big effect on its profitability for the third quarter.
00:27:27 · Akash Pasricha, Saanya Ojha
[00:27:27] S0: Right. Well, I love it when, we get you on breaking news because I always think it gives us a preview of maybe what we can expect in tomorrow's newsletter, but we'll have to wait and see what tomorrow's AI Agenda is all about. Stephanie, I want to thank you for coming on. That is Stephanie Palazzolo, author of our AI Agenda newsletter, here at The Information. Reddit stock tanked last week after the company said that search traffic was down more than 1,000,000 referrals per week on average. Bain Capital Ventures, Saanya Ojha, wrote a good column on that last week. I want to bring her on to share more of her thoughts. Saanya, welcome to the show. It's great to have you back. [00:28:07] S4: Yeah, gosh. Always a pleasure. [00:28:09] S0: Okay. Look, Reddit revenue, still over 50 percent. And yes, it's forecasting that it will decelerate in the current quarter, and it's a couple straight quarters here of deceleration. But the big news here was the search traffic. Walk us through exactly what the company said and what your reaction was to it.
00:28:31 · Saanya Ojha
[00:28:31] S4: Yeah. I mean, the quarter itself was pretty remarkable. I mean, they're hugely profitable, growing really well, 45% EBITDA margins, throwing off cash. Things are looking good. I think the market always reacts to their vision of the future and not really the quarter that was. And so that's what the 30 drop was. Very obviously, the CEO came out and said, Google has changed its relationship with the rest of the internet and we're not getting as much search traffic as we used to. Now, that's a death knell for a lot of companies. Let's hope Reddit survives it. I'm personally biased in favor. Because so much of how people find these websites is they will put in a search on Google. A Reddit link will show up and then they'll go click on it and Reddit gets a user. The user gets their answers. Google facilitated the interaction. Everyone's happy, but obviously now that we have AI overviews and AI mode, that's not how people work anymore. The interaction model for the web is fundamentally changing. And what that means is Google can still get all the information, surface it to the customers, but it's not a link anymore. It's a synthesized answer. And customers are satisfying what they need from that generated summary and never going to the underlying website. And what that means is you lose your biggest source of traffic. And Reddit CEO very quickly and very, I think easily flagged it, that not only them, but everyone else in the internet ecosystem is facing the same quandary. And I would actually argue Reddit has One of the better chances of survival because people know it as a standalone entity. But if you think about a whole world of websites that are travel blogs and recipe websites, etc, that don't have that individual identity, I think the traffic is just going to get sucked right out of their arena.
00:30:33 · Akash Pasricha
[00:30:33] S0: So if we backtrack for just a minute here, how is it that Reddit got so good at SEO in the first place? Because it felt like for many years there, when you Googled anything, its forums were the first thing to pop up. Was it the volume of content that was being generated on these forums? Was it something that the platform really mastered to really get good at Google's SEO? Why was it so great in the first place?
00:31:03 · Saanya Ojha
[00:31:03] S4: I mean, I'm sure it's a combination of the two. The platform does have immense depth. They shared that they have 27,000,000,000 posts and comments, and a billion were added actually just last quarter. So there's clearly a lot of depth and range of topics. So whenever people search something, there's high likelihood that something on Reddit is going to satisfy the question that they have. So they have the content. And then SEO has had pretty static rules for a very long time and everyone has optimized around that. I think the issue is that SEO just doesn't work now and there are a lot of people that are trying to hack together. You know how do you get the agent or the chatbot to surface your company's name? Now we have GEO that people talk about. But honestly, it seems more art than science at this point. I think everyone's trying. Some people say they have a better grasp of it than others. We kind of can see the outcome in some cases, but no one has the sure shot recipe of getting it to fall one way or the other. So, we're rediscovering the rules of what this new internet looks like. I would say even Google is rediscovering the rules. They're also hurt.