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TBPN is a live tech talk show hosted by John Coogan and Jordi Hays, streaming weekdays from 11–2 PT on X and YouTube, with full episodes posted to Spotify immediately after airing.
Described by The New York Times as “Silicon Valley’s newest obsession,” TBPN has interviewed Mark Zuckerberg, Sam Altman, Mark Cuban, and Satya Nadella. Diet TBPN delivers the best moments from each episode in under 30 minutes.
Eric Souperd. How are you doing?
Speaker 2:To see How's going, guys? Thanks for having me. Yeah. Thanks for being here.
Speaker 1:Hopping back on. We've been following the ChatGPT ads rollout, the story. You've had a ton of great analysis. We've talked about it a little bit on the but we wanted to hear it from you and dive way deeper. So maybe you could set the table for us on what the launch is looking like right now, what the product is looking like, what your expectations were.
Speaker 1:Just maybe begin at the beginning of this saga for the ads in ChatGPT.
Speaker 2:Well, the saga begins where ChatGPT begins. We all knew we were gonna end up here. We all knew ads were coming. I mean, I wrote a piece May 2025. I said, obviously, ChatGPT will monetize with ads.
Speaker 2:Why did I feel so confident in that? Because they had just hired Fiji Simo. Yep. She's kind of known for having led the the mobile news feed ads product to Facebook. That's obviously been one of the the most successful ads businesses in in the history of mankind, and so it seemed natural that that they would they would bring given the domain expertise they had acquired, that they would bring ads to bear for ChatGPT, and they have.
Speaker 2:Now the launch looks like the launch of Netflix ads. Right? And if it remains that way, it's probably doesn't bode well for the for the business, but I think they're gonna evolve it over time. And what they've said now or what's come out, the information has had a lot of good reporting on this. They're charging on a CPM basis, which is, you know, not standard for kind of direct response ads.
Speaker 2:It's more like a brand advertising formulation. But so it's $60 CPM, which is exactly what Netflix came out of the gate charging. Yep. They're asking for commitments of less than a million dollars. So this is clearly like a testing phase.
Speaker 2:They're gonna offer very little in the way of of measurement or or targeting. So this feels like a very sort of primitive MVP. But, you know, the question is, like, how quickly can they evolve it into something that looks more like the the Facebook ads platform?
Speaker 1:So what do you think like, what do you think got us to this place where you get Fiji Simo? She's done this before. She has massive connections and skill set, but it still takes, you know, eight months to roll something out that feels not as mature as something else. Is it a talent issue? Are there other regulatory concerns?
Speaker 1:Or do they need to worry about certain edge cases that people might not be aware of? Or is it specifically strategic to actually is there some secret reason why they're they're taking this approach?
Speaker 2:So here's my hypothesis. Right? And so it's not just about, you know, Fiji Simos. She's the the the CEO of Apps. Yeah.
Speaker 2:But they they acquired Statsig, which is, you know, staffed by a lot of XMeta people. That was an experimentation platform. That's the exact kind of talent that you'd wanna ingest into a company if you're gonna roll out an ass platform, which needs to be aggressively experimented on. Here's here's what I think happened. I think, you know, ChatGP so so OpenAI kind of evolved over time.
Speaker 2:It was a research lab, then it you know, obviously, they've had the the drama around trying to pivot into a for profit corporation. My guess is the investors wanted them to bring in somebody that was a little bit more sensitive to, you know, the commercial sensitivities. Right? And so, you know, Fiji CMO would be a very good fit for that profile. They brought her in, and my sense was there probably was a little bit of animosity internally towards the idea of this being an ads an ads driven business.
Speaker 2:Right? Primarily an ads driven business, which which I think it ultimately will be.
Speaker 3:Yeah. Only only, like, two years ago, Sam said, I look at ads as like a failure state Yeah, for right.
Speaker 1:Yeah. And then he started pivoting the rhetoric and started saying, well, I like some of the Instagram ads. When they're targeted well, they're actually delightful. And in the right context, they can be good. And he was coming around to the three of ours worldview, which is that advertising is great.
Speaker 1:But but he did have to message that externally and then obviously had a whole bunch of work to do messaging it internally. And may maybe that's why there was a little bit less energy internally to to to really push towards that. That makes a lot of sense.
Speaker 2:Well, he may have been the one that was messaged to. He may not have been the one controlling the message there. He may have been the one that was messaged to. We need ads because ads are inevitable. It's not that ads are great.
Speaker 2:Ads are inevitable. If you wanna reach what I call humanity scale, ads are inevitable. If you wanna monetize that at the at the at the at the scale it can be at its total potential, you need ads. That's how you do it. Right?
Speaker 2:And so he may have been the one that was convinced. Mhmm. And and, you know, bringing someone external in who had been there, done that may have been part of an investor strategy. But but putting aside my hypothesis, look, I think this has the potential to be an incredibly successful initiative. The question is how quickly can they pivot into something that looks like the meta model.
Speaker 2:Right? So if you look at it right now, it's, you know and and and I think, look, we to every everything you just said mirrors what would happen at Netflix. For years, Netflix said we would never do ads. Ad ads are offensive. They're an affront.
Speaker 2:They're an affront to to to to my sensibilities as a consumer. That's that's what the leadership said. And then one day, they weren't. Right? And the exact same thing happened with OpenAI.
Speaker 2:The question six months? All in. Yeah. Don't forget all in. All in.
Speaker 3:All in was and and we we begged them.
Speaker 1:We begged them.
Speaker 3:We begged them.
Speaker 1:And now
Speaker 3:And I you know, I think they made the decision independently, of course, but they're they're running ads now. They
Speaker 2:always come Yeah. I I've been Yeah. I've been banging the drum for for since May 2025. Yeah. But I I think the question is, is it six months?
Speaker 2:Is it twelve months? Is it eighteen months to get something that looks like meta ads? Right? And that means targeting, right, based on behavioral profiles. That means measurement.
Speaker 2:That means allowing that that means explaining to advertisers the the the sort of impact of what that you've delivered on their behalf. Yeah. And that means, like, a whole lot of tech that needs to be built out. Right? And that means, you know, creative optimization, all these things.
Speaker 2:Just conversion optimized advertising is very different from what they're offering. And is it six months? Is it twelve months? Is it eighteen months to get there? That's a big question.
Speaker 2:Right? But that'll determine the success. And if if you say, look, this mirrors what Netflix did, well, that's not really a playbook that you wanna draw inspiration from. Right? I mean, they had to pivot.
Speaker 2:They had do a hard pivot. I mean, the the ads tier has been live for three years. They did 1,500,000,000.0 in 2025. Right? So, you know, it's it's not a significant chunk of the revenue yet.
Speaker 2:I think it could be a much larger chunk of the revenue, but Netflix has other concerns. Right? They've got quality concerns. They've got, you know, consumer sentiment concerns that where they can't just, like, fully embrace ads. I don't think ChatGPT is limited in that way.
Speaker 1:Yeah. Yeah. Take me back to the that initial launch of Netflix. You said similar CPM, dollars 60 per thousand views. But what was the response like?
Speaker 1:Like, were there any advertisers that were like, yes, this is great. I got my money's worth. It worked out. Was it just vague and unattributable?
Speaker 3:What's problem? My perception is like great performance marketers Yeah. Are always excited to try new channels, especially a channel that's driving high intent traffic. Right? If you tell a performance marketer, hey, I've got a billion users and I'm gonna let you advertise to them, They're gonna be excited no matter what the general setup is because they just wanna get in there with a test budget and like, you'll talk to marketers and at a certain scale, they'll they'll they're like, yeah, let's try a 100 k here.
Speaker 3:Let's try a 100 k there. It's just like you're just kind of throwing around money, and then you're gonna double down on on what really works.
Speaker 2:Right. For the initial rollout, this is how you launch an ads platform. Don't get me wrong. This is how you launch an ads platform. That's why I'm talking about six months versus twelve months.
Speaker 2:This is how you do it. This is how you bootstrap the data. This is how you get people onboarded. This is how you get feedback. You have to launch it like this.
Speaker 2:There's no other way. You can't launch a conversion optimized ads platform because by definition, you don't have any conversions data yet. Right? Now that's that's another reason why I think they they launched instant checkout. I think instant checkout is a stalking horse.
Speaker 2:I think that's a method of of of gathering conversion data that they can use to then target against with ads. I think that was the whole purpose of that. Right? I don't think that was seen as a long term revenue opportunity. I think that was seen as a way to bootstrap the data.
Speaker 2:But this is how you launch in an ads platform. I mean, it's gotta evolve the new conversion optimized ads platform, but you can't be that at the start. You can't intuit the settings. You can't intuit the tuning that you needed to implement to make this work. But but the question is how long does it take them to get there?
Speaker 2:Right? And and so that that, you know, that we'll just see. But my sense is they've got the DNA. They you know, the information report, they have 700 x Meta employees. Like, essentially, everyone at Meta is working on ads, whether they're working Yeah.
Speaker 2:You know, as an account rep or they're working as an ML engineer. They're all sort of rowing in that direction.
Speaker 3:Yeah. What was what's been your reaction to instant checkout? There's been a lot of debate on on the fee structure. Some people saying no retailer can afford this. We were pushing back on that in in a number of different cases.
Speaker 3:There's plenty of brands where you say, like, would you spend, like, 4% of AOV to to acquire a customer? I can also see the other side of it. A concern that I have is like, you know, you're running an ad on a meta platform to find a customer. The customer then goes to ChatGPT if that's where they're searching for products. And then the the brand is effectively paying twice to, like, actually find the customer, drive them, get them interested, and then and then at the bottom of the funnel, they're paying, like, another 4% fee.
Speaker 3:That feels, like, not great, but what's been your reaction?
Speaker 2:Yeah. So I was in the former camp. I said that that's not a that's not a workable fee. Let me let me come back to that, though, because you asked a question about what happened when Netflix offered ads. Yeah.
Speaker 2:They had too many advertisers sign up. They had too many. They were demand they were they were supply constrained, not demand constrained. They had to return money. I think that's exactly why OpenAI is saying, no.
Speaker 2:Look. We're setting an upper limit on this. A million is the max. Right? Because they won't have enough people to advertise to.
Speaker 2:This is just a way to test it out and to start scaling. And the problem Netflix made was they never act. So he the problem that Netflix had from day one was they had the partnership with with Microsoft with Xanders. They were using external tech to run the ads. Right?
Speaker 2:Xanders is an ad an ad platform. And so that was the problem. They couldn't implement, you know, custom placements. They couldn't do a lot of measurement stuff. They couldn't do a lot of targeting because they weren't operating the actual pipes, the actual plumbing that was delivering the ads.
Speaker 2:There's lot of, like, data data issues, just access to data issues. That that's not what OpenAI is doing here. OpenAI is starting out by building their own tech. And Netflix, by the way, pivoted to that. But they pivoted to that very late.
Speaker 2:That's why I think the ads initiative in Netflix was not successful and and and, you know, hasn't really delivered that much revenue. But going back to the 4% fee, first of all, here's what I think is gonna happen. I think they're gonna drop that to zero or very low. It'll be tiny because I think the whole point of this is to just drive conversions. And the whole thing is, like, when you see performance in ChatGPT as a retailer who's just basically paying for the conversions essentially with the fee, you're gonna wanna actually advertise against that.
Speaker 2:You're gonna wanna control it because you have no control if it's just surfaced based on what ChatGPT believes is relevant. And at some point, you're gonna have too many retailers to place into a single placement, so you're gonna have to mediate that by bids. Right? So, ultimately, I think this gives way. In in in in the main, this gives way to advertising.
Speaker 2:But whether the 4% is sustainable or not actually comes down to how you view what those purchases are because it's not user acquisition. You're not acquiring a user. If you were, then you'd compare that to LTV. But since it's not user acquisition, you're not acquiring that user as a sort of, like, with with a long term relationship in mind. You're you're essentially trading a percentage of the checkout for the checkout, but that user doesn't interface with you.
Speaker 2:Right? And in a lot of in a lot
Speaker 3:of terms not gonna be passed through to the underlying vendor, you're saying? Like, a
Speaker 2:Well, no. It I mean, look. You're the merchant of record. Right? And you get their information because you have to fulfill the order.
Speaker 2:But ChatGPT's or OpenAI specifically says in the terms that you can't use your email address for, like, remarketing. Right? And, you know, Amazon says this too. So so the I think is you're not capturing a customer. You're just getting you're giving 4% for that one off transaction, but you have no control over whether you reach that customer again, whether that customer is brought into your orbit.
Speaker 2:There's very that's a very different proposition from advertising to someone and acquiring a customer. You acquire that customer, you get a whole stream of opportunities to remarket to them. If you're just, you know, trading 4% for the transaction, that's all you get. So it's not actually customer acquisition. If you think about 4% per transaction now consider that if if you thought about the the people talk about you know, when that when that number came out, they talked about, well, some people spend, you know, 50%, 60% on Facebook ads.
Speaker 2:Why is that different? Because that's over the life cycle of that customer, not for the
Speaker 3:one that's happening. One Or time. They pay for the customer one time, and then they come back, you know, 15 more times or they end up subscribing, and they've actually actually owned the customer relationship. Mhmm. Yeah.
Speaker 2:Exactly. Exactly. And and and think, you know, think about it also this way. You know, that 4%, that might be all the margin you're getting as an e commerce effort, you know, as an e commerce, you know, operator. Right?
Speaker 2:And the thing is that's not preventing you from advertising. That's not saying, okay. You have to save your entire advertising, but you're gonna still have to advertise everywhere. This is gonna be a tiny sliver of your orders that you're not in control of. You can't control it.
Speaker 2:This could be lumpy. This could be up one month, down the next. Right? You can't control that. You're gonna have to continue to advertise.
Speaker 2:Now you have no idea, to your point, whether this is cannibalizing purchases that would have happened from the people that you advertise on other platforms. Right? So this ends up just being a cost on a drag probably on your advertising expenditure elsewhere.
Speaker 1:Can you explain attribution and the evolution of Netflix's ad product? Because if I'm sitting on my couch watching a movie and I see an ad and I go to my phone, it feels really disconnected. Even in a pre ATT world, it feels extremely hard. How do they do attribution? How how good can this get?
Speaker 1:And then and then with ChatGPT, what what's the upper bound on attribution for OpenAI given that we are in a post ATT world?
Speaker 2:Upper bound is basically what you see with Facebook because it's gonna be direct response. It's gonna be click based. Right? With Netflix, it's a little different. So with CTV, the way that companies do measurement and attribution in CTV is is traditionally they set up what's called a clean room.
Speaker 2:Right? So I set up this environment, it's a centralized environment. I push all the ad interaction data that I have. So basically, when I know I showed an ad to someone, I push all the data into this clean room. A lot of times it's, you know, it's IP address and device information.
Speaker 2:And then the advertiser pushes that information into the clean room and I match it up. That's his attribution for CTV traditionally. Now there's other ways to do it. There's other ways to do measurement that's just totally probabilistic. This is like media mix modeling and stuff like that.
Speaker 2:Mhmm. But with with attribution, when you when you wanna use that term, traditionally, it's done with a clean room like that. So I'm just, like, linking the datasets together based on some key. A lot of times, it's the IP address. But if you think about clicks, like, clicks out.
Speaker 2:Right? So that's like I'm viewing. I'm on second screen. I can look at time. Like, there there's time elements.
Speaker 2:You you look at temporal elements due to do attribution. But if I'm clicking out, I've got the click. Right? I've got the click. And so that carries a lot of information.
Speaker 2:I can still look at temporal aspects of that, but I can I can do a lot with the IP address too? And so that's you know, if you look at a CAPI, that's what CAPI is. A CAPI is just a way to get this data on the back end so it bypasses the apps you know, it bypasses the mobile device. It bypasses the browser. So there's no way for, you know, Apple to interfere with that with ITP or ATP or ATT.
Speaker 2:And so you're able to get you know, it's still probabilistic in that way if if you consider, you know, the the decay of the validity of the IP address over time to induce probabilistic measurement. But that's traditionally outside and then a pixel as well. But, I mean, that's what OpenAI has at its disposal. It's got the CAPP and the and the pixel because it's gonna be click based. So so there's there's a there's a a high degree of fidelity that'll come with the measurement there, the attribution.
Speaker 2:That's that's way higher than what you can do with CTV.
Speaker 3:Mhmm. Three. What are what do you think the prospects are for the number of companies that are trying to build LLM ad networks? I got pitched at least a few companies that were maybe a year or so ago saying like, hey, LMs are going to be free. They're going to insert ads.
Speaker 3:We're going to build this kind of network to serve ads across a bunch of different apps. I was super bearish on those, specifically just because I thought that OpenAI would want to own the full stack. Obviously, Google would own the full stack. And I think we're heading towards an oligopoly of sorts in consumer AI. And where's the scale really going to come from?
Speaker 3:But any kind of takes on that front?
Speaker 2:Well, there'll be a long tail of agents that are going to want to monetize with advertising. So I think there might be space for an ad network to exist that services them. I don't know why that wouldn't be an existing ad network. Mhmm. I don't know why that wouldn't be or, you know, just sort of DSP.
Speaker 2:Like, I don't want I don't I don't know why that wouldn't be the trade desk, say. But but yeah. I mean, I think there's probably an opportunity to to monetize some of those long tails of agents with with ads. But if you think about, like, a ChetiPG, of course, gonna build their own. I I would you know, Perplexity is apparently restarting its ads initiative.
Speaker 2:I I think these companies, it's it would be silly to not build their own. I mean, you wanna have that ad stack so you can make everything bespoke. Right? And and and and maximally perform it. Right?
Speaker 2:If we look at meta earnings, I mean, that's exactly what delivered that big beat. And and I think what people forget about the the prospects of of of this sort of, like, AI enablement with advertising in in digital advertising is that these effects compound over time, especially when you're talking about direct response based ad platforms. Right? So, like, with with Meta, I've been banging this drum since q one twenty twenty five. These effects compound.
Speaker 2:Like, people point to, like, oh, 3.5% or 5% or whatever in increasing click through rates or increasing conversion rates from from Andromeda or from Gem or from Lattice. Who cares? These are tiny. No. But they first of all, that's every quarter they're they're noting these performance improvements, but also they compound over time.
Speaker 2:If I'm targeting 90% a ninety day recoup on my ad investment and and, you know, a hundred and twenty day a 110% ROAS, what am I doing after a 120 I'm reinvesting the 110% in advertising on your channel. And so if you're giving me 3.5%, 5% bumps every quarter, that's just gonna end up getting reinvested. That's why we're seeing the growth reaccelerate. Growth is reaccelerating going into q one twenty twenty six. That's amazing.
Speaker 2:That's why Facebook was up 10% last night because growth is reaccelerating. They're gonna see growth rates they haven't seen since the post ATT doldrums. That's incredible. That's incredible growth. And anybody who doubted the CapEx going historically has to accept that reality now.
Speaker 2:And they did. They did yesterday.
Speaker 1:Yeah.
Speaker 3:Yeah. Yeah. What what people like, the the criticism is, like, Zac is being so ballsy with the CapEx.
Speaker 1:Specifically on Gen AI.
Speaker 3:On Gen AI. Specifically Gen AI product. And the criticism is like, hasn't launched a hit Gen AI product yet. Our take earlier on the show was like, look, this guy is serving more Gen AI content than almost anyone on earth. Mhmm.
Speaker 3:Even if he doesn't have like a breakout net new product, his product has massive tailwinds because of all this. Like, he's in a perfect position to decide, yeah, I'm gonna I'm gonna be, you know, one of the biggest spenders in this category and and plan, you know, however many years out in advance.
Speaker 2:They're making more money on AI than anybody except for Google. Look. The the the idea that they're not they're not utilizing generative AI have you seen the ads on Facebook? Those are all generative. There was a revolt.
Speaker 2:There was an advertiser revolt. There there was a scandal recently because Meta was being too aggressive with the ads generation. They're the the idea that they're not implementing generative AI is absurd. Mean, I first of all, generative AI is not just what you see on on in the output. I mean, they talked about pairing LLMs with ad ranking.
Speaker 2:That's really fascinating cutting edge research in in advertising. Using LLM to sort of give you feedback on the ad. Does this resonate? Is this something that someone would click on? Like, pretend you're this demographic.
Speaker 2:There's already research that shows that that has a a really beneficial impact on advertising. It's not just like what you see in your feed, but also the stuff that you see in your feed is generated. The idea that they're not utilizing generative AI in advertising, that's absurd. You can see it. Just go on Facebook right now.
Speaker 1:Yeah. Makes a lot of sense. Yeah. I I wanna move on to other companies, but I wanna have one more question about OpenAI. Do you think that there's any any sort of risk to push back of the creepy ads, being too well targeted?
Speaker 1:Facebook went through that with the t shirts that said your name on them basically and your whole career path.
Speaker 3:Assumption is that eventually, like, you're only getting ads that were specifically generated for you. Like this idea of like historically, you'd have, you know, one ad that a brand would make and they'd run it at the Super Bowl. They're like Yeah. We're gonna send this to all of America. And then eventually with, you know, on platforms like Meta, I would assume that every ad is like a one off generated and it knows it knows exactly how to position a product, what color, what environment to put it in.
Speaker 3:Mhmm. And it'll be insane that we used to have ads and we'd make one piece of creative and then run it to like 10,000,000 people Yep. Because it was like good. And it's like, no, this will all just niche, niche, niche, niche, niche down Mhmm. More and more.
Speaker 1:Yeah. What do you think?
Speaker 2:Look, I mean, it's like the idea that everyone would see the same feed when they opened up Facebook is absurd now. Right? I mean, like, look. If if people truly hated creepy ads, Facebook user numbers wouldn't, you know, monotonically increase every quarter. Right?
Speaker 2:And, you know, Europeans would be lining up to to buy subscription in Europe. And when it in fact, only 1% of users in Europe has taken that offer. Right? Yeah. And is that an offer
Speaker 3:to eliminate is that, like, an ad free, like, meta offer? Is that what you're talking about? Because I know they're talking about rolling
Speaker 2:out subscription. So they've got the the less personalized ads option in Europe as a result of the DMA compliance. Right? So they have three options. They have full on subscription, no ads.
Speaker 2:They get the less personalized ads and they get the normal experience. 1% of people opted into the subscription. Like, people hate ads. They just hate them less than every other monetization model. Right?
Speaker 2:People love ads. And if you look at, you know, demonstrated behavior, it people love ads. People love access to free tools. People love access to to to to sort of, like, endless endless capacity. Right?
Speaker 2:You start capacity constraining things or you start putting up paywalls. You know, obviously, by definition, those are gonna get used less. Yep. Right? Or, you know, most likely by definition.
Speaker 2:And so the the thing is, like, the idea that, like, ChatGPT is gonna run into this problem that's unique to chatbots, I just don't buy that. And first of all, maybe they will because maybe they'll design this the wrong way, but I give them the benefit of the doubt. I think they can do it in the right way. And one way to do it is to just not tether the ad at all to the chatbot context. You could just say, look.
Speaker 2:This is a display ad for what we know you're in market for based on Capi, based on the Pixel, and and we're gonna make sure it has nothing to do with what you're talking to the chatbot about Yep. So you never have to even question whether the chatbot has your best interest at heart. That's a very easy way to sidestep that problem, but I think they've got very skilled people there. They know exactly what that trap is, and they're gonna avoid
Speaker 1:it. Yeah.
Speaker 3:Let me just we're gonna get ads in Siri in the next twenty four months?
Speaker 2:Oh. No. Because of just because of Apple's because of the optics of Apple doing that. I think Apple would probably love to do that. I think there's probably people inside Apple that are pitching that, but they they won't because it's not in alignment with their optics around advertising.
Speaker 2:But but nonetheless, Apple is not increasing.
Speaker 3:We are talking like, I I think people will be normalized to ads in Apple products. They obviously are in the App Store today. Gurman was talking about ads in Apple Maps Mhmm. Coming in the near future. And then I think from that point, if people are starting to use Siri as a search engine, there will be ads eventually.
Speaker 3:It will just be too to to to be able to serve ads like basically natively in the UI to iPhone consumers they
Speaker 1:gotta do ads in the alarm clock app. I wanna wake up to a different ad every day. Get out of bed and start buying. Get online. It's time to check out.
Speaker 2:Yeah. Morning to night, you should be you should be consuming. No.
Speaker 1:I I
Speaker 2:don't know. May maybe. I think maps podcast for sure. But the thing is, like, I wrote this piece when when Apple introduced ATT. I said Apple robbed the mob's bank.
Speaker 2:I said, look. This is just an opportunity for them to to to shift some of the budget that's going to Meta into their own ads ecosystem. They did that because they expanded their Apple search ads. They just doubled the number of impressions per search. They've got two placements now in Apple search ads, and they're also blurring the lines between ads and organic results there.
Speaker 2:Right? So the idea that Apple hates ads, I think, is mistaken. I think what Apple needs to do is they need to sort of walk this tightrope of appearing to hate ads while also benefiting from ads because they are such a, you know, an accretive sort of margin expansive way to make money. Right? So maps, for sure, I think podcast is another, like, prime piece of real estate for ads to be inserted into.
Speaker 2:I don't know about Siri. Siri, that that feels like maybe a little bit too on the nose, but who knows?
Speaker 1:What about Gemini? Did you what was your reaction to Demis talking about ads in Gemini?
Speaker 2:That makes total sense because they're already monetizing Gemini with ads. They're doing it with AI overviews and AI mode. They're they're monetizing ads and AI overviews at parity with search. Why would they rush to put ads in gem in Gemini, the chatbot? Keep in mind, Gemini is two things.
Speaker 2:Gemini is the family of models and Gemini is the chatbot. Why monetize with with ads in in in Gemini, the chatbot? You never need to. You could just drive adoption of that. They're already monetizing Gemini, the family of models through AI overviews and AI mode.
Speaker 2:AI Overviews reaches 2,000,000,000 people a month. That's the biggest single LLM output ad surface that exists. They're already monetizing Gemini through there.
Speaker 1:Yeah. And is that product just what's the shape of that product? Is that just the exact same as just branded keyword search on Google? Like, what is there are there anything different or any learnings from the the ads in AI search overviews or AI powered search?
Speaker 2:So AI mode is essentially the chatbot. AI overviews is the is the results that's basically takes up now the the whole above the fold on Google search. But it's better. It's better than search. You know why?
Speaker 2:Because the whole point with search is I want this to be one shot. I wanna type in my keyword and I wanna get the best possible result Yeah. In that first list of results. And if I don't, then I think your product is bad. Yeah.
Speaker 2:Right? And so Google is incentivized to make sure that there was one click and that's it. So you get one chance to show ads. With AI overviews, the whole point is to then prompt further queries. Right?
Speaker 2:So you get a bunch of opportunities to show ads. Right? So if that's monetizing at at parity, it's probably also driving impressions up. I think that's a much better ad surface area than traditional search.
Speaker 1:Yeah.
Speaker 3:How should Lucky. Startups, business owners be thinking about TikTok under new ownership?
Speaker 2:TikTok is funny because they're going all in on commerce again, it seems. Like, they had a really big kind of Black Friday, you know, whatever event, you know, revenue pop revenue spike. But, you know, they seemingly had had were walking back the TikTok commerce opportunity. Now they seem to be leading into it. Not I'm quite sure what to expect there.
Speaker 2:I think, you know, TikTok, I think they were in a little bit of the stasis for a while just because of the uncertainty around what was gonna happen with the with the spinout. My sense is now that they have the certainty, they'll probably lean into where they feel like they're best positioned, and that might be commerce now that Meta has completely abandoned it. You know? And I but I think, like, I just don't think that that's the right approach. I don't think Western audiences really appreciate that as much as just the ads driven model and so, you know, the the pure play ads driven model.
Speaker 2:So we'll see if that ends up working for them. But, yeah, I mean, I think TikTok you know, it it if Meta can do what they did to Snap with TikTok, they're gonna be in a pretty difficult position, and they may have to just adapt in ways that that Meta won't, and that would be leaning into commerce more heavily.
Speaker 1:Yeah.
Speaker 3:The the I always assumed maybe naively that they would lean out from commerce because it seemed like it was just a money pit. They're just lighting money on fire and the new owners would say like, okay, we just bought this. We have to pass back 50% of our revenue to ByteDance. Like, the the whole, like, economic model of the business seems, like, super upside down. Let's just serve ads and try to run the business lean and maintain the user base.
Speaker 3:But leaning into commerce just feels like I don't know. I I there's so many brands that that I've heard about over the last twelve months that are scaling into the hundreds of millions of revenue and and it's almost all on TikTok shop. And it just feels like that was, you know, basically subsidized by ByteDance for a long time. And will the new owners wanna subsidize these brands that are driving real volume? But ultimately, I don't know if they they would be able to stand on their own two feet.
Speaker 2:Yeah. I mean, they did walk it back. I mean, they did two rounds of layoffs in the in the in the commerce division. Yeah. I mean, the thing about so one thing you have to remember about TikTok and the and the the ByteDance and the the whole, like, the parameters of this deal is that they're they're still licensing the algorithm.
Speaker 2:Right? So, like, I think that impacted the kind of the the the valuation, and that and that may impact some of these other economics. But, yeah, I mean, I I just I just feel like they maybe they they maybe sense that that's an area where Meta retreated, and so that's where they could potentially flourish. But it was odd because they did walk that back, and now they seem to be, you know, embracing it again.
Speaker 1:Yeah. What's your current thinking about the Netflix Warner Brothers deal? It's it it it feels like we're in a lull. It's moving forward, but would be interested to
Speaker 3:see Yeah. I'm also interested just how how do you think about, you know, Paramount's prospects as an app ad platform without all of that IP? Yeah.
Speaker 2:Yeah. Well, so it's it's interesting. So, like, the the thing is, like, the IP is so so important. Right? So, like, the one of the aspects that I I found really interesting about the the the Netflix deal was that they essentially valued WB Games at zero.
Speaker 2:Right? So WB Games makes remember, they're big hit games. It makes their Game of Thrones game on mobile and they've got World Combat games, lot of different console games, Batman Arkham. Yeah. And at one point, it was for sale in the multi billions price range.
Speaker 2:Right? And so Netflix essentially valued it at zero. Why? Because ultimately, there have to be, like, a IP licensing agreement that allowed them to continue to monetize those games. Right?
Speaker 2:So I think the same is probably true on the IP side just generally with with WB. My sense is, like, what this indicates to me is, like and and it this was just I mean, this was said explicitly in the earnings call. It's like, you know, we're gonna pay for content one way or the other, and, like, we need this high end IP. Right? And, like, you know, if you look at I mean, everyone saw the the Joe Rogan clip with Matt Damon and and and Ben Affleck talking about, like, Netflix makes us restate the plot of the movie, like, every couple minutes in dialogue because if people don't hear it explicitly, they just lose interest because you guys are on their phones.
Speaker 2:Yeah. Like, you you wonder, okay. Well, is that a result of, like, people's attention spans, you know, declining? Or is that just because the stuff you're pumping out isn't that interesting and people are not really paying attention because they're kind of bored. Right?
Speaker 2:And so I think maybe it's the latter. And so if you bring in a bunch of top notch IP, maybe that keep keeps people more engaged. And then, hey. Maybe that boosts the the ad CPMs or may you know, and ultimately boost subscription numbers. But my sense is, like, they're gonna pay for content one way the other and, like, you know, maybe just buying a lot of it in bulk at once is the best way to do that.
Speaker 2:Mhmm.
Speaker 1:What are you what else are you tracking this week across earnings? You know, Microsoft and and Tesla. I don't know if you follow those stories. But what what else is interesting you this this week?
Speaker 2:Well, we got Apple Yeah. Right now. Yeah. Yeah. I mean, think, like, you know, you you had you had Garmin on yesterday, and, you know, he's just always an amazing wealth of of leaks.
Speaker 2:It's pretty impressive that he's able to get those. Apple's pretty buttoned down. It's remarkable. But but yeah. I mean, I think just the AI story there is is kind of embarrassing.
Speaker 2:Yeah. And, you know, like, I wrote this piece a while back. Apple's besieged on all fronts. And I was talking about, like, look. If you look at AI, if you look at some of the threats to ATT and Europe, you know, there there there's a lot of issues that that they face.
Speaker 2:I think, you know, one of the big questions for me when they announced the deal with Google to use Gemini for for, you know, Apple intelligence, you know, which among other use cases include Siri, was how they would just manage the privacy aspects of that because they were so adamant. Right? They talked about the private cloud compute. They were so adamant that when we do this, we're doing it the Apple way. We're doing it the privacy centric way.
Speaker 2:And then they do the privacy washing thing, which is just then to partner with Google and allow them to do all the dirty work sourcing the data. Right? Sourcing the data to train the model, right, or of just monetizing with ads, like and they just get a cut on the back end. And in this case, Apple's paying, but at some but at some point, Google will be paying for penetration into iOS and the exposure. Yep.
Speaker 2:And I think, you know, that's just a question of, like, is that really the reason? Is that part of the reason why they never invested here? Because they couldn't really do it in the Apple privacy centric way. Yeah. And if you want someone you know, if if if you understand that the dirty work of sourcing this data in ways that maybe you're not completely above board or just monetizing with ads.
Speaker 2:I mean, Apple makes so much money from advertising. They just don't do it directly. Mhmm. Right? They do it through the partnership with Google.
Speaker 2:Now they're gonna be making money through AI interactions, but they're not actually the ones training the models and sourcing the data in ways that could be questioned. Right? So I think that maybe plays a part in it. And I think maybe when you get to a point where all of this can be done on device, right, when the device is actually powerful enough to service most of these use cases, maybe you have smaller models. You don't have, like, foundational models.
Speaker 2:We have smaller models that can all run on device, and maybe Apple will be more interested in that. But, mean, like, you you have to look at the AI thing as either as a massive whiff, which seems to be what German's take was Yeah. Or it was just a sense of, like, look. This is actually going to be really difficult for us to reconcile with our brand imagery and the sort of messaging that we've, you know, we we've relied on for years years, like, you know, privacy that's Apple, maybe we'll just outsource this in the same way that we outsource search, right, and advertising to Google until we're able to all process everything on device and and ensure that we can maintain that that messaging.
Speaker 1:Mean, my take is, like, I agree with the Wi F narrative, but, also, it does feel like there's the seeds of a rebuild between this new acquisition that they're doing. They're starting to open the pocketbook a little bit. The hardware really is best in class. We saw that with the Mac mini boom to some degree. People are excited about the silicon, Apple silicon.
Speaker 1:And then just the partnership with Gemini. Like, they're going to have access to something frontier so they can start to vend it into different places. But it's it's just on Apple's timelines, which have been slow lately. So yeah.
Speaker 2:Yeah. But the iPhone Air was the iPhone Air was a a flop. Right? I mean, you know, we'll see what happens with the foldable. But, like, I mean, I think they are facing you know, they're obviously, the the replacement cycle is really long.
Speaker 2:I think one thing that's, kind of under discussed is, like, I wrote this piece a while back, like, years ago, where I said, you know, what what are the implications of a billion iPhones? And this is well before there were a billion iPhones circulation. And and my point was the implications are that a lot of those are in the developing world. Right? They're they're secondhand, thirdhand iPhone devices.
Speaker 2:And that's kind of like there's this strange dilemma that Apple faces. Like, the more powerful the devices get, obviously, the the the longer you can go without replacing them. Yeah. Right? Because the demands of Spotify aren't changing.
Speaker 2:The demands of Facebook and Instagram aren't changing from, like, a hardware perspective. Right? And so the question is, like, how how how central can you make AI to the core use case, which is a lot more compute intensive Mhmm. If you do everything on device Yep. How central can you make that to instigate a need to replace the device more frequently?
Speaker 2:Right? Not just like the because the power of the device at some point doesn't even matter. Yeah. Like, okay, you tell me, like, the compute capacity of the next iPhone is 10 x what I have now. Okay.
Speaker 2:What are the demands of Spotify 10 x? Because that's the that's the the only app I use Yeah. For hours and hours every day. Yeah. Right?
Speaker 2:And and so that's kind of the question. And so it's like, if if all of that functionality can sort of, like, percolate down to, like, the iPhone seven. Right? And no one really sees a a difference in in sort of, like, the the in in sort of, like, lifestyle between, like, the the brand new iPhone and the iPhone seven with their only using Instagram and Spotify. How do you actually convince people to to upgrade on every cycle?
Speaker 2:Right? Because keep in mind, like, that that as that sort of installed base that, like, you know, iOS installed base grows, most of that's gonna be through, like, secondhand.
Speaker 1:Mhmm. Yeah. Yeah.
Speaker 3:Jordan, you're saying It was interesting yesterday. You shared that a lot of Apple's advantage on the hardware side in AI is because of the self driving push Our projects. Of the car that ultimately failed, allowed them to do the r and d that that is now being rolled
Speaker 2:out Yeah.
Speaker 3:That's by this had a had a huge quarter Mhmm. Beat beat estimates on the revenue side by 4,000,000,000 with China Up specifically.
Speaker 2:That's great.
Speaker 3:And up after hours. The other news that's kind of interesting, I'd be curious before you leave, Eric. ChatGPT is retiring four o as of today.
Speaker 1:Yeah. That's interesting.
Speaker 3:Putting putting it to bed. I'm sure that'll make a lot of people mad.
Speaker 1:But it's simpler process for them. Yeah.
Speaker 2:Well, yeah. But they also launched Go
Speaker 1:Yeah.
Speaker 2:Right, which is the sort of like lower price point subscription tier. So my sense is like, you know, if you're trying to push people to adopt that, which I think they are, you maybe have to get rid of some of like the older models that the free tier relied on.
Speaker 1:Mhmm. Well, thank you so much for taking the time to join. This is all fast.
Speaker 3:Yeah. Really enjoyed it, Eric. Come back on soon.
Speaker 2:Yeah. We'll talk to you soon.
Speaker 1:Have a good one. Next time. Goodbye.