All-In with Chamath, Jason, Sacks & Friedberg
01:03:38 · Jason Calacanis
Overall, the business trades at roughly 21 times operating income, and you get that sort of a multiple based on reliability of future cash flows and and effectively growth of those cash flows. I think the Google Cloud business is looking, you know, really tremendous. I mean, I don't know if you guys remember. It wasn't too long ago when this thing was not making money. Last year, the Google Cloud business for this quarter was generating 3,500,000,000 of operating income. This quarter, it's over 11,000,000,000 of operating income, and this is a lot like the SpaceX AI story where the value of the compute infrastructure that's been built is just tremendous. The question is, does Google actually have the models that sit on top of it? And in many cases, they do so they can make a higher margin on that piece of the stack. So when I say it's complicated, I think there's a story you can build in the cloud business that shows the next couple of years of really progressive growth in that business. The core Google services, I think, is when it becomes challenging where over the last year, it grew from 33 and a half to 39. And as some people have pointed out, this may largely be driven by a change in the pricing algorithm for ads and how Google is now in some cases over earning for those for those clicks. And over time, advertisers will see that. They'll experience that. They'll reduce spend. They'll attrit some dollars, and it won't look as good of a business. So the question then is do they have a consumer AI business that catches up and accelerates to support that? That's the thing I think everyone needs to be watching is what does the AI replacement look like on the consumer side for Google's core business? The core cost per click advertising network when you type a search into Google. That's the core business you're talking to. That's the core consumer business. So the question is, is there a consumer AI alternative that starts to generate meaningful revenue to replace that revenue, and what does the revenue ramp look like there relative to the flattening or decline that may arise in core search, and how quickly does that happen? That is a dynamic and challenging question to answer now. Internally, I think there's a bit of turmoil. There is a bit of like what are we, not just overall as a company but just even within the business segments. What is Google search?
01:06:00 · Jason Calacanis
Is it AI? Is it search? What is Google Cloud? Is it the models or is it just the compute, the rental of the compute? And I think we saw this battle play out recently where Jeff Dean and others left Google and I don't know this for sure, but the theory is that the computer scientists that have been building models at Google maybe aren't getting the resources that they had hoped to get because Google can make so much more money renting that compute out to others. And so it's a really hard question of what do we wanna be at Google right now? And I don't think that they have a great answer, and I don't think it came across well in the earnings report. It didn't come across well, obviously, and people reacted, Chamath. But they did know this was coming. They did plan for it. They renamed the company Alphabet, and they said, they've got this great CFO. Let's make all these other bets fend for themselves. The way most of the world have to make their way in the world, raise outside capital. So they they did prepare for this. In fairness to the team over there, YouTube surging, Android surging, you know, Google Cloud surging, and then you have the the franchise slowing. Search is up, but revenue growth slightly down. So do you think they can fix this, or should they just do a bending spoons and get as much money as possible out of the search and put it into other things like consumer AI, corporate AI, and their future models and hosting of other people's models.
01:07:28 · Chamath Palihapitiya, Jason Calacanis
[01:07:28] S2: What are your thoughts, Chamath? I don't think that's what bending spoons does. And not everything is an analogy to bending spoons. [01:07:35] S0: Well, no. No. I'm saying manage it for rep. I'm saying manage search. Let me be clear. I'm saying Okay. When I say bending spoons, I'm saying manage it for earnings, not for, like, growing it necessarily. Just just get as many dollars out of it as possible.
01:07:49 · Chamath Palihapitiya
[01:07:49] S2: I think that's what they've been doing in the last quarter. That's why people people didn't like that. I mean, there was a very interesting tweet. Nick, maybe you can put it up here. I think a lot of the consternation came from people reacting to what Max Anderson wrote, which got 5,000,000 views, by the way. And he wrote this through the lens of somebody... And this is... These are his claims, I don't know if they're they're true or not, but spending $500,000 or more a month on Google for years, and he itemized all the ways in which things have changed. And the most important thing that I pulled out of here was what Friedberg mentioned, is the change in the auction model. So typically in a Vickrey auction, what happens is Friedberg bids, I bid, if I'm the underbidder, what happens is Friedberg gets filled at my price because he was the high bidder. And so it's a really great way of doing price discovery. At Facebook, when we built the first ad system, that's essentially what we copied. We copied Google's feature for feature. But if now what they're doing is they've abandoned the Vickrey auction, Friedberg's right, you're over earning. And if the market starts to smell that out, they're gonna start to wonder what's actually happening underneath the hood. So these claims, are now well syndicated, have been out there since July. And I'm not sure that Google IR has necessarily nipped these in the bud because I think what happened was the... At least the information war that happened post earnings was recirculating Max's post here and saying this has been going on for a while. And when you look inside the comments, it's a bunch of other people seconding his analysis as accurate. So without knowing the details, Jason, because they don't spend money in the Google ecosystem, I think it's really important for Google IR to get in front of this because I think if this momentum builds, this idea that this franchise is essentially robbing Peter to pay Paul, like pulling money from the future into the present to kind of smooth out earnings, the market will react badly to it. You're seeing it today.
01:09:55 · Chamath Palihapitiya
But then this other problem starts, which is, to your point, the composition of ad revenue as a percentage of the overall will fall below a threshold and then they do look like more of a structured conglomerate, where now you'll have a YouTube revenue block, a GCP block, an Other Bets block, and a Search block. None are dominant, which in some ways I actually think is better because then you're more diversified and you're less levered to any one single business. But they'll have to go through this complicated process where a bunch of folks may not wanna own that kind of a business. And there's a different buyer pool. So you have to go through transitioning out the folks that wanted to own a single stock bet on search or ads or whatever it was and now have to move to this other kind of business model. And when you switch buckets like this, a bunch of folks kind of say, oh, it's too complicated. So problem number one is what I would say is if you are Google IR, please read this and refute it or try to figure out how to get in front of it because every analyst now will will try to figure out whether this is true. The second, though, is, very narrow. How do you keep Demis at Google? That's it. That's the only task. Okay. Sacks There's there's nothing else. Pay Thomas Kurian whatever he wants. How do you keep Demis at Google?
01:11:14 · Jason Calacanis
[01:11:14] S0: Sacks, looking at this business, it's been obviously a journey for the past ten years to make Alphabet have resiliency in revenue streams, diversify the revenue streams. You think there's some great risk here and would you be long, short, or neutral to stock?