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Cheeky Pint
Ben Thompson from Stratechery on AI ads, the end of SaaS, and the future of media
01:30:15
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- [00:02]
A
Ben Thompson is the founder and author of Stratechri, the newsletter that everyone in tech reads to make sense of what's happening. He's also airily to the premium newsletter model that's become very popular in media nowadays. For many years, he ran Stratec? Re as a solo founder in Taiwan. Cheers. Good to see you.
- [00:17]
B
Cheers.
- [00:21]
A
It feels like people in San Francisco have not properly discovered Taiwan as a tourist destination. Like, do you agree with that characterization?
- [00:28]
B
Unless your recommendation always asks me about Asia and the way I always characterize Taiwan is there's lots of great places to visit in Asia. And I would also put Japan on the list. But I, you know, I like to think I went to Japan before. It was cool.
- [00:40]
A
Yeah. Nothing against Japan. It's just.
- [00:42]
B
Well, the whole thing with Japan is going to Japan pre smartphone was a completely different experience than going there post smartphone. Like, you think, oh, the subway system's amazing. The trains tried navigating that with no smartphone and nothing's in English. Like. Like Japan used to be very low on English. It's still lower than places like Taiwan.
- [00:59]
A
It's surprisingly low.
- [01:00]
B
Yeah. And Japan, it just has the. The way to visit Japan is you just walk. Like, don't go to set destinations. The way I would talk about this is places to visit. But the best place to live is undoubtedly Taiwan. The one word everyone says for Taiwan sounds not that impressive, but the word is convenient. Like, it is the most convenient place to live. So part of that is actually 711.
- [01:26]
A
Has really good food.
- [01:27]
B
Well, it's actually downstream from the Japanese because Taiwan was a Japanese colony for the first 50 years of the 20th century. And it's laid out a lot like, why is it great to walk around Tokyo? Cause Tokyo's all mixed use. Right. That's how Taipei is as well. You have these big blocks where the exterior will be commercial. And the interior of these big blocks is all residential. And the first floor is all like small shops or restaurants, things like that. So wherever you live, you basically have access to everything all around you. But I think the downside as a tourist is it's kind of an ugly city. Like, Taiwan's kind of notorious for just these dumpy, dilapidated buildings. And you go inside and they're like palatial on the inside. Like, Taipei is very, very rich.
- [02:12]
A
Yes.
- [02:13]
B
It's like in the top 10, I think is like number of billionaires in the world or something like that. Yes. All downstream from building out China, things like that. It's a very beautiful country. From Taipei 30 minutes to the ocean, 30 minutes to the mountains. East coast is amazing.
- [02:25]
A
But if people listening to this are visiting, like I feel like one thing they should do is it's a mistake to try and use Yelp or anything like that too much because like you should maybe just try and go to a Nightma market and follow your belly and see what looks good and like a lot of excellent street food. And so that'll be one thing is to don't try to over plan.
- [02:43]
B
Well, here's a problem though where tech has made it worse I would argue as a tourist, which is Taiwan is arguably the greatest Uber Eats market ever because there's amazing options. It's all delivered by scooter. So it's always like 10 minutes to get dinner and things along those lines. I think you were going to ask me about difficulties moving to the States. Not having access to that is definitely one of them. But the problem is that it's such a huge market now that I think there are fewer and fewer restaurants in that a lot of these places actually just straight up close, their storefronts are just ghost kitchens basically and all they do is just make Uber Eats orders all day.
- [03:19]
A
I see. So I mean famously, yeah. The restaurant economy in places like Taipei would have been really good, but it's gotten worse because people are eating in more with Uber Eats and stuff like that.
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B
I think so. I think so. As far as the like walking around just like stuff on. No, there's still plenty of places. It's still great. But there are like there's a number of restaurants that I used to always take people to like holes in the wall that I knew were super good beef noodles or something. And I remember a couple times like oh, you can't actually go eat there anymore. But there's still an Uber Eats.
- [03:45]
A
That's a bummer. It's like a separate problem. The San Francisco problem at restaurants is that nobody drinks anymore and so the restaurants can't, you know, they've lost a major reference.
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B
It's so bad you had to get a. Behind your own office.
- [03:56]
A
Exactly. We're trying just firsthand to fix this.
- [04:00]
B
Be the change you want to see in the world.
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A
Should people visit places beyond Taipei or where should they visit?
- [04:03]
B
Oh, for sure. Yeah. Taipei is great. It's great to walk Taipei 101 which is obviously very much in the news these days with the scaling.
- [04:12]
A
But you can go up the elevator on these two.
- [04:14]
B
You go up there because there is a massive ball at the top.
- [04:17]
A
The mass temper. Yeah.
- [04:18]
B
Yes. Which is amazing. It's like if you're into engineering, that's actually a very underrated thing. National Palace Museum is amazing, but the east coast in particular is incredible. You drive, there is a train, but the driving, you can drive, you're driving on the coast.
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A
Yeah, it's like a lost coast of.
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B
Hawaii kind of exactly the problem. There's an incredible gorge called Taroko. Gorgeous. That was really. Yeah. Messed up by an earthquake a couple of years ago. So I don't know if it's even reopened yet. But I used to take people to that all the time because it's, it's world class.
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A
Yeah, yeah. It is impressive that they said we're going to build the tallest skyscraper in the world in like a very frequent earthquake region.
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B
So yeah, it's a big skyscraper. Yeah, it worked out well for the Netflix.
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A
Yes. So you've talked a lot over the years about aggregation theory and really popularized this idea where pre Internet often power would live with the supply. Whereas on the Internet because of the different marginal cost dynamics and things like.
- [05:14]
B
That.
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A
Power will rest with the demand aggregators. And so booking.com is a much bigger company than any hotel chain, something like that.
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B
And booking.com is the particularly interesting one because they aggregate all the hotels but they are also aggregated by Google. So they're like Google's biggest customer even as they're also on the other side.
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A
I feel like booking.com is a very underappreciated success story in tech. You know, they're a European company, kind of much quieter in a lot of ways. But like if you invested a dollar in booking.com and a dollar in Google 20 years ago, you made much more money as a booking.com shareholder. And I think people don't appreciate that fact. It's a very well run business. But where I was going with this is how does aggregation theory apply to AI? How does one need to update the.
- [06:03]
B
Framework TBD to a certain extent. I mean this is part of the huge, probably one of the most angsty debates that I have internally generally, which is OpenAI's sort of welfare going forward. I put forward a few years ago that actually OpenAI could stop making models and be one of the most valuable companies in the world just because of ChatGPT. That's their most valuable asset. And part of the problem issue that they have is that was definitely the case in 2023, 2024, but they never, you have to actually build the business model around that. And I've, you know, I think fairly famously at least based on all the tweets that I got when they announced that they were going to launch ads. I've been losing my mind about this fact for a long time. And I think this is interesting. I'd actually be curious your view of this, which is there's this mindset in the valley of this skepticism of advertising and people have sort of like internalized that it's bad and evil. Do you sense that? Do you feel that?
- [07:10]
A
I agree. There's kind of a knee jerk skepticism of ads. And like, look, you know, when I, I'm a YouTube Premium subscriber, when I see someone, you know, watch a video without premium, it's horrifying. Aghast. Yeah. It's like, what are you doing with your life? And so like I get the knee jerk reaction and that Stripe at some level is kind of the anti advertising company and like we're the opposite form of monetization. But I don't know, I have no particular issue. I think it's like a very efficient form of monetization. It makes a lot of sense for certain products. And so I think it's just different strokes for horses by horses.
- [07:46]
B
I think you're with Stripe, you're on the skepticism side. I think ads are amazing and I'm talking in my book a little bit. Trajectory has gotten tremendous traction just by not hating ads. Even though I'm not an ad model.
- [07:59]
A
Exactly. But you're a paid model.
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B
Well, it's funny, I actually think I got a lot of traction over the years by talking about ads when no one else was, despite the fact it's the most important business model. And I look back and all my early writing about ads was terrible. I had no idea what I. But just by virtue of talking about it, it was helpful. The reality of advertising is, number one, people, if you're making a product in the world, like Shachekery is very fortunate. It is definitely a new model or a new Internet native model in that I have subscribers in like 200 countries. Right. Like literally the whole world is my market. And Stripe obviously helps make that possible.
- [08:41]
A
A few in the Vatican, they're following along.
- [08:43]
B
I could go check. I would put the odds are very high that I do have at least one subscriber to the Vatican. But where I benefited from is I was a massive beneficiary of social media, particularly Twitter. And that back in the early days, good days of Twitter or if you want to say whatever it was, there was currency in sharing smart links. And so if I was a regular provider of links that people felt Made them smart so they would share them and talk about them and be sort of back and forth. And so that solved my customer acquisition issue. The reality though is most. Because the other thing about content actually is a point I'm interested to come back to is it's something to talk about, it's something that's commonality sort of between us that we can both read the same thing, we can both have opinions on it, sort of react to it. The sort of product that I buy on Instagram is not what I'm. I'm not gonna like post about it or talk about it, but it can be tremendously beneficial. And they in theory have these small businesses or whatever they might be, or Chinese suppliers or whatever, they have the same opportunity, which is sell to everyone in the world. They just need a way to tell people about it. As someone who buys way too many products off of Instagram and by the way, one of the great things about moving back to the US is the Instagram ads are unbelievable. Like, I thought they were pretty good in Taiwan. They're so much better in the U.S. so like, oh, this is the best part of living in the country.
- [10:10]
A
It's the indie or advertising.
- [10:12]
B
It's amazing. Like, I'm like, what's this native content? Give me more ads. Which by the way, Facebook is very happy to do over the last six months. Lots of ads these days. But I get stuff that I never would have thought of, I didn't even know about. And it's great, it's amazing. And it's a real benefit to me as a consumer who for sure subscribes to YouTube Premium and looks down on people who don't. But finding things that I didn't know about that make my life better. So as a user, I'm benefiting. As a rich user, I'm benefiting as the world is 6 billion people, most of whom do not have disposable income, that I have much less. You have much less anyone else in San Francisco has. They get the same experience I do. And something for AI, like when you think about, particularly when it's so costly to provide and, and the free product is so much worse than the paid product, of course it's a win for them to be able to get access. So to have a mission of belief that AI makes the world better.
- [11:12]
A
Yes.
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B
And to not embrace ads.
- [11:14]
A
No, no, I agree with ads being an efficient form of monetization. What do you think is the right way for consumer AI apps to do ads? Like, you know, ChatGPT just announced that they're doing ads. Right, and they're doing terrible. Well, no, they're doing them as the very separate experience to the answer no.
- [11:30]
B
Or you can have the no. This is why it's so bad. This is why I'm so frustrated with them. So what they're doing is the bare minimum, easiest solution, like banner ads. Basically, it's banner ads, but it's based on the context of the conversation. And the problem is that like, they release like their ad principles, right, which is our ads do not influence your answer. If you're using the easiest possible way to target ads, which is based on the context of the conversation, I'm going to show you a roughly relevant ad. Number one, your market's way smaller because you have to hope someone starts a conversation that matches the inventory you have. Number two, you're getting into a. My T shirt answers questions that my T shirt is raising sort of situation where if the ad is clearly connected to the answer, you're going to raise suspicion in the user's mind about what sort of the connection is. So I would prefer if the ads had nothing to do with the answer. The way you get there is you build a meta style understanding of the user and show them stuff that's relevant to them. Like in Instagram. The best Instagram ads don't have anything to do with the stuff I'm surfing. It's from meta's understanding of me broadly.
- [12:35]
A
So are you saying that like, the AI ads should be more like Facebook ads than Google Ads? And you know, right now the focus is on doing targeted ads that are related to the prompt, whereas instead it should all be profiling the user and who this person is and what their interests are.
- [12:49]
B
Yes, I think that would be better. It would, it would present less conflict of interest, less uncertainty amongst the user. And it's a model that I think. I'm not the world's biggest fan of search ads precisely for the reason why they work so well. I think there's a lot of search because the confusion between organic search. Oh, they're cannibalization. Like why is it that I have to buy my own name in search ads? Right. Because someone else will go in there and you're getting a. Harvesting a click on the ad that would have been there sort of organically, which is fine. It works. The search is providing a lot of value. But the challenge obviously is they only have one space for inventory, which is in ChatGPT.
- [13:26]
A
Well, sorry, isn't it offensive, Google Ads that everyone complains about the branded Search. And yeah, you're paying for cannibalization. But Google pays so much attention to search quality that the sponsored listings themselves have a ranking of them, like a relevance ranking of them. And so it's really just like the yellow Pages where you know, you need to pay to be listed in the elevator.
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B
Oh, fine, I'm the ad lover here. I just think that meta ads are more broadly valuable because they're showing me stuff I didn't know that I wanted.
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A
But if the AI apps are to generate a profile of you, does that profile include the content of all your conversations? And isn't that the same thing?
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B
So this is the thing. So Demis is out there saying, wow, I can't believe they're adding ads. We are not going to do that. Which is hilarious because the entire Gemini DeepMind apparatus, what is it funded by?
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A
Sure, yeah, it's the Google Ad machine.
- [14:23]
B
It's funded by ads. And that actually is probably the ideal model. So it's actually very funny. I was actually in New York City last year.
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A
Actually.
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B
I was meeting with someone in the office, in the shared office or across the hallway was a hedge fund or someone. And they came over and he's like, oh, longtime reader, you're responsible for our worst decision ever. And I'm like, what? He's like, putting money in Twitter. I'm like, I've never said to put money in Twitter. That's always been a terrible company. I stopped covering them because it was such a bad business. And I'm like, oh no. I remember what it was. It was when they bought Mopub. And my theory, my problem with Twitter advertising has always been that, especially if it's very textual, I think text doesn't work. This is a problem for the all this applies to the chat clients. Text isn't the best interface for ads, obviously. Visuals are generally better. And there's also a posture. If I'm on Twitter, I'm like, I'm ready to do battle. I'm locked in. Or I'm searching for information. If I'm on Instagram, the whole point of like seeing an ad is I don't really care what I'm seeing right now. I'm wasting time. You're actually in a much better posture, I think, to absorb just like tv. Like you're sort of absorbing, can absorb the ad. And Twitter is like bad for that. But Twitter, because it's an interest based network, at least in theory, it should be able to understand a lot about you above and beyond theoretically having pixels and SDKs sort of all over the web. And so my theory at the mopub acquisition I thought was a great acquisition because like, oh, they can harness signal from Twitter and manifest it in other apps through this sort of MoPub network. Now Twitter was incompetent, so they did nothing with MoPub, gave it to Applovin, who's now written MoPub to like the top of the world. But that was sort of my thesis and I think that could apply to AI as well. I think the ideal outcome for Google is they never put ads in Gemini, but they understand so much about you because of what you do in Gemini that they can then manifest that through ads on YouTube, through ads on Google, through ads on their other properties. And the challenge for OpenAI is they only have one place with inventory, which is in ChatGPT.
- [16:30]
A
Okay, so you're saying that Google could use Gemini to just improve the targeting of the ads across the Google properties. And then maybe if you want to have ads in Gemini, I don't think.
- [16:41]
B
You need to ever put ads in.
- [16:42]
A
Gemini, but just if you did, you would also have the profile that Google has of you from across the web.
- [16:47]
B
And you could do that. And you don't need to have ads that are like making the user feel weird because why are you showing me ads about what I'm asking about?
- [16:54]
A
Okay, but in the scenario you're just describing for Google, wouldn't that have the same just like the meta is listening to your microphone conspiracy theories where when the targeting is too good, people get concerned? Wouldn't you get similar issues?
- [17:05]
B
I think that's a made up concern.
- [17:07]
A
No, it is, but sure, but people have it. And wouldn't you have a similar issue where if you're using the Gemini data to make better ads, won't ultimately the targeting be too good and people will find it weird?
- [17:21]
B
I mean I think that that's a bridge that every tech company would be happy to cross if they came to it.
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A
I see. It's a thing that people say when you have very good targeting.
- [17:28]
B
I think there's a of like. Honestly I think a lot of the. There's a real stated versus revealed preference about a lot of this stuff. The reality is, is people like even the US and think, oh you could pay for Facebook or you could show people would rather see the ads. Yeah, I think most people don't care in this a lot of tech and this sort of ties into the skepticism of ads. It's sort of an elite town, there's elite regulators. Everyone's thinking about these very theoretical things, isn't it?
- [17:54]
A
Bit of the challenge, banner blindness where Instagram advertising works so well because it's a picture feed and it's showing you pictures and then some of the pictures are like commercials.
- [18:05]
B
So this is where Facebook.
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A
Whereas with an AI app you're like looking for an answer and you don't want to look at the banner.
- [18:09]
B
No, it's a huge concern. And this is one of the great ironies of Meta Facebook is the extent to which, I mean of course Mark and everyone hates Apple for lots of, I think very justifiable reasons. But Apple saved Facebook from itself. Like back in the day, remember Facebook platform? There's like Facebook payments and all this sort of thing. And Mark has always wanted to build a platform and if you're just an app on a phone, you can't build a platform. And the problem is that I think being an advertising based model is generally incompatible with being a platform. The whole point of a platform is you're letting something else shine, something else bring to the surface. You're just the support structure for something to take over. So an operating system is not about the ideally it's the application on top of it that you're using. When Facebook was forced to not be a platform but just be an app, suddenly they could be fully lean into being an advertising thing and think about a Facebook ad. Even back in the day when it was a feed ad or a story ad, literally your entire device is all an ad and somehow it's not a banner. That's a little thing on the edge. They literally have achieved permission from user to take over your entire device to show you a full screen ad every five seconds. It's amazing. And they were forced into it by Apple.
- [19:35]
A
Okay, this reminds me of, and I want to come back to the AI dynamics, but this reminds me of a view I've had that I'm curious for your thoughts on, which is often when tech companies become really big, they become really big just because the core idea works better than even the founders could have realized. And so meta is a really big company because they have a feed and the feed got really big and they were very smart along the way where they bought Instagram and they're incredibly targeted.
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B
No, it's the feed monetization.
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A
But it turns out people spent a lot of time and many people the P times Q of that with the feed and they monetized it very well and that's what got really big. And same with Nvidia. It just turns out that the GPU market got really big and they sell a lot of GPUs. And so maybe founders because they're often like high powered individuals who want to have lots of new ideas. They're often thinking about the next thing or like what the second act or the third act is. And everyone wants to invent an aws. But I'm curious what you would say to the idea that just generally it's making the core thing really big and there's more orders of magnitude at the top than you thought.
- [20:44]
B
Yes, I think that's always the case. And I think that sometimes people end up making something that they didn't want to make and they continually push back. I think Meta is the perfect example. My impression is Mark's not very interested in ads. He's had very good people along the way that have helped him build these ad products. I think Meta has suffered from that because he has not been front and center fighting for actually ads are good, they are societal good. They get. They are the driver of all the consumer surplus that tech throws off. Like the president uses the same search engine as the guy on the street or the same AI or whatever it might be. That's because of ads. And the probably not.
- [21:30]
A
The president probably uses like a Palantir search engine or something.
- [21:32]
B
Yeah, it's probably worse. Google Ads a lot. To be fair. There's always junk online. But the. I don't know. Does Donald Trump ever searched? I don't know. That's a good question. But he's not made that case. And I think Meta has suffered because of the failure to make that case. And then you get things like we're gonna do the Metaverse, we're gonna do xyz. It's always coming back. We be a platform, be a platform and Meta is an entertainment company. I wrote this like years ago about the like I think this is actually. It was simultaneously a good call and a bad call. Do you remember that Paul Krugman quote the Internet's not going to be very big or fax machine because people don't want much. Interesting to say. I actually defend that quote and because it's actually true, most people actually don't have that much interesting to say. And I brought up that quote around 2015 by saying this is a fundamental limiter on Meta's long term potential. As long as they think of themselves as a social media company, they're going to run into a problem with their feeds becoming insufficiently interesting over time.
- [22:40]
A
Now the move from kind of peer.
- [22:43]
B
Content to well, so that was If I might say so myself. A very brilliant insight. The bad insight was my prescription, which was they needed to do more with professional content makers, like more funding of the buzzfeeds of the world and share revenue.
- [22:57]
A
All that because user generated content.
- [22:59]
B
The actual answer is what TikTok did, which is. TikTok is not social network at all.
- [23:04]
A
Yeah.
- [23:05]
B
It is a harvesting and YouTube. You know, the same sort of idea.
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A
It's like personalized tv. Yeah.
- [23:10]
B
What actually matters, and this is a key thing, people get hung up on relative numbers and what matters is absolute numbers. So it is better to have 0.1% of your content be as good if your content is like in the billions or trillions as opposed to oh, 10% of our content is good. But you only have 100 pieces of content that's actually worse even if you have a better hit rate. And so spurring lots of creation, writing the algorithms to capture the good stuff, put it up there. That actually solves the Paul Gurman fax machine problem. And Facebook was blindsided by that. They were so stuck on their identity of being a social network that they let TikTok take this huge chunk. It was their blind spot.
- [23:53]
A
Speaking of TikTok, I feel like you don't write about ByteDance that much and I'm curious just what your thoughts are on ByteDance from here and the TikTok sale and everything.
- [24:01]
B
I mean, what a mess. I had to make a decision a long time ago. I wrote about Chinese companies more previously and I think there's. It's two. Number one, I have to decide what I'm going to be able to cover and what I'm not. I'm not in China. I was in Taiwan. It is a different Internet and there was too much sort of uncertainty and unknowns just in general about a lot of Chinese companies. I would write about them occasionally in the context of US tech companies. So I think I wrote about like WeChat and what it meant for the iPhone's relative competitive position in China, how it's different than sort of other countries. I think that sort of held up pretty well. Wrote about TikTok in the context. I mean more about TikTok. I think in the context particularly these kinds of meta. TikTok came up around the same time as the was was Quibi, which Quibi was the example of that Quibi was like it was actually right that there was room for a mobile entertainment product.
- [24:55]
A
Yeah.
- [24:56]
B
It was totally wrong about the content acquisition strategy. So even if the hit rate was higher, their total volume was Way too small. I follow them, but not super closely. It's just a hard market to understand and the like.
- [25:09]
A
TikTok's very relevant to the US market.
- [25:11]
B
So TikTok, TikTok I. So I wrote the TikTok war basically making the case that the problem with TikTok and back then everyone was talking about user data. Who cares? Like the whole user data thing. People have this view of the East German stasi and folders going through people's datas. These are vector databases with numbers that no human can parse. It's really quite anodyne. It's just really the target ads and I was very skeptical about that being a forcing function in terms of forcing divestiture or whatever it might be. The issue I had was the algorithm and I noticed, I think it was when the Hong Kong protests happened and Daryl Morey, the then GM of the Houston Rockets tweeted like free Hong Kong or something like that. And there's a huge meltdown of the NBA games have canceled. And I noticed that on TikTok. And this was from. I tested it from Taiwan and via VPN from the US if you search for every single NBA team, you got NBA clips, except for Rockets, you got nothing.
- [26:19]
A
Oh, that's funny. And I'm like, you got demonetized. The Houston Rockets.
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B
There is a thumb on the scale here. And I started talking about it then and I did support the ban of TikTok or the force sort of divestiture from China because it seems fairly insane to have a primarily information source controlled by your chief geopolitical adversary.
- [26:39]
A
Yeah, same like there's rules over TV station ownership and it's like not wildly different.
- [26:44]
B
And so I, you know, everything's a trade off. Of course, I'm pretty well known for being a pretty stark defender of free speech and against censorship. And my issue wasn't TikTok per se, it was the reality of China is The founder of TikTok, of ByteDance is long gone because he got called to the carpet for bytedance showing a little too much of what people liked, which is mostly like hot girls dancing and being insufficiently like showing the right things that the party wanted. It's in China's like the reality is China has the price of doing business is they get, you know, they're on somewhere on the control structure. They can tell you what to do. And this just seemed like a very foolish thing to tolerate, unfortunately, the US political process, or fortunately maybe the reality is the US process and system is such a mess. Can anyone really truly impact it over time. The way that it shows up messily is we somehow do pass the law banning TikTok and it didn't get banned and now it is sold, but China still controls the algorithm. So I think it's a big disaster. It's also like, what can I say about it? I said my piece.
- [27:58]
A
Yeah.
- [27:58]
B
We ended up in the worst possible case, which is we violated property rights and we did all this stuff. That's ridiculous. And we probably bartered XYZ for ABC and we didn't get the most important thing, which is control of the algorithm.
- [28:11]
A
Has that not happened as part of the sale?
- [28:13]
B
No. ByteDance still controls the algorithm.
- [28:15]
A
I didn't know that.
- [28:15]
B
Yeah. Good job by us.
- [28:18]
A
That does seem like it was the point of the spin out.
- [28:20]
B
Well, the data was always the. Was always the most salient political point. Yeah. And so when I wrote about it, that was my point. It's like I don't care about the data. The issue is the algorithm.
- [28:29]
A
Yes, yes.
- [28:30]
B
And unfortunately that did not care. Maybe I should have read about more, but anything like all the politics stuff. There was a period. I mean, thank God for AI. There was a period I wrote like when I wrote Aggregation Theory a couple weeks later. Wrote like something about regulation. I'm like, this is going to drive a bunch of regulatory issues and antitrust things and all these bits and pieces. When that actually happened, the late end of the last decade, of course I was writing about it. I was watching congressional hearings, all this sort of thing. And that is the closest I came to quitting and burning out. I think burnout's not a function of how much work you're doing. It's doing what you don't enjoy. And at one point, like, either I quit or I stopped covering congressional hearings. So I decided to stop covering congressional hearings. I only wrote about antitrust stuff. It was super prominent and I've been much happier ever since. And maybe that's part of the price of just not writing about that is maybe I should have pushed on the TikTok thing more.
- [29:24]
A
That's interesting. I said my piece is stratechry, very widely read in dc.
- [29:29]
B
It is. Yeah, it is. Sometimes it's gratifying. It's great when you get called and ask for your opinion or you get certain responses or you see impact. It's less gratifying when you get yelled at and people are mad at you. But fortunately, the key thing to succeeding on the Internet is something I have in spades, which is a very high level of disagreeableness so you can yell at me all you want, I'm not going to change my mind.
- [29:58]
A
Okay? But getting back to aggregation theory as it pertains to AI, a simplistic view you could have is that the AI apps are the new aggregators and so a huge amount of economic value will accrue to them. And that's it. You can also say that that's too simplistic in a bunch of ways because one of like we're saying the, you know, booking.com, you expected to return you hotels that you should book, but you expect a little less of a commercial incentive from the AI apps. And this is like a little more of an abstract technology where it's actually not trivial to insert all of the, you know, commercial incentives in the right way and you come up with various objections. And so I think that the ad.
- [30:40]
B
Model is probably the way to start, which is I just talked about before, sort of the lean in versus lean back. Ads are very tied into human psychology and like what you're sort of tapping into and people's response to that and how do you make something creative. And in the short term, you know, technology often makes old business models even more powerful before it kills them. Right. So you have something like suddenly you're a newspaper. I used to be limited to my geographic area. Now I can reach the whole world.
- [31:11]
A
Yes.
- [31:12]
B
Oh, wait, a few years later, everyone can reach the whole world. I mean, pure competition. I'm screwed. And that is certainly a concern about this model. If you get to a world of say, agentic commerce and the agents are just buying the right thing. I think this is also something that has driven a lot of tech skepticism of ads. People in tech tend to be fairly nerdy, fairly obsessed. They're doing a ton of research to find sort of the exact right thing.
- [31:40]
A
Yes. Why would anyone tell me what to buy when I've researched it for two hours?
- [31:44]
B
That's right. And so ads have no effect on me. Well, what if that sort of obsessive deep dive approach is now trivially available to everyone because AI is the one actually doing it. Now, where do ads sort of function? And I think this is definitely a bit of a be careful what you wish for scenario, because what this entails is of course, more transparency, more details, more understanding. Sounds good. What it actually entails is sort of perfect competition, which is a very sort of brutal game that can just wipe out entire categories. That's, you know, that's basically what happened in newspapers in many respects. So that's that, that's number one. Number two, in a world of this sort of world, you're sort of by definition anchoring on whatever specifications or whatever can be measured can be put down. And you had the old sort of Steve Jobs adage about feeds and speeds versus like the feel of something where the intersection of leverage what the what does that mean? And just like. Well, what it actually means is there's things that can't be measured and that don't go on an Excel spreadsheet. And everyone you talk to acknowledges this say yes, there's things that can't be measured and the way it actually plays out in practice is only the things that measured sort of matter. I think this has happened to a huge problem with sports analytics is a great example of this where I think basketball is my favorite sport. There's a lot that goes into basketball and winning that is somewhat hard to wrap your hand.
- [33:22]
A
It's not like baseball is just very measurable.
- [33:25]
B
Baseball's very measurable. I do think there's aspects about clutchness and stuff that I don't know that are properly measured. But around basketball for sure, the interaction and way teams play together and how your effort on or your involvement on offense can affect defense or sort of back and forth and you see again and again like to take my I like Daryl Morey. I think there's a reason his teams haven't won. They've over optimized at the expense of some of these other issues and if you can't measure them they tend to get devalued. And in a world of AI mediated everything, how many things that can't get measured fall by the wayside because we end up with it's very utilitarian sort of goods that have no soul to them. Sort of a silly sort of thing to worry about in some respects. Or it sounds silly but I'm a human and I anticipate liking and preferring the humanity of things of all sorts in the long run.
- [34:33]
A
But you could say this like e commerce aggregators like Amazon and lots of others have led to fairly anonymous manufacturers of lots of everyday goods. The kind of Amazon basics type stuff at a much lower price point than they were at previously at still perfectly good quality. Isn't that fine?
- [35:02]
B
This is where you throw my ad argument in my face which is like actually it brings up the base level for everyone, your basic consumer, the access of items they have to in the room.
- [35:12]
A
There's no soul in an Amazonbasics power adapter and that's fine.
- [35:15]
B
Everyone thinks back to like oh My wash machine was so much better in the 1960s and it's like, yes, that's true. And also far fewer people had wash machines. And so I'm now making the opposite argument sort of myself.
- [35:27]
A
I will leave and you can have a one person dinner.
- [35:28]
B
Just switch back and forth.
- [35:30]
A
You exactly can change the sides of the booth. You mentioned agenda commerce, where you know, we obviously are big into that and had our announcement with OpenAI back in October. Where do you think that goes? How do you see agent and commerce playing out?
- [35:44]
B
I mean, the contrast between your own OpenAI's announcement and sort of Google's announcement I think is pretty interesting and speaks to what the companies are driving for. OpenAI wants to be the place you do everything. They want to be like the aggregator, I think a critic would say people compare them to Netscape. I think the better analogy if you're an OpenAI skeptic, would be AOL, where they want to be sort of like the interface for everything that you might do and it goes through their channels. And Google, just as they were relative to aol, is like, actually we want to equip everyone, knowing that if everyone is capable, we are the greatest beneficiaries because we still marshal sort of the sort of front end demand sort of in that regard. Now how does that actually manifest in terms of commerce? The funny thing about tech is I don't think it will manifest in terms of airplane tickets, which is everyone's example. Like everyone can never think of a better example than that. But what is the AI going to buy? What is it going to get? I don't know. I would like to think people will want to have agency in their buying decisions, but then again we have assistance, whether it be for work or whatever it might be. And they make buying decisions that we're necessarily not involved in. And that I think is a good predictor precursor of what people will ideally like, do I really need to know? Actually, I have very strong paper towel ideas. That was going to be my. But once that's set, can that be sort of monitored and done? So I don't know. I think this is a very unsatisfying answer other than to say it has big implications on things like advertising and on things like. Like is that going to be a viable business model going forward? What margins are going to be available? Is there going to be perfect competition? Things along those lines.
- [37:34]
A
Okay, let me try this on you for agent of commerce and I'm curious to have you critique it, which is sort of how I see things Playing out. I think some skepticism is triggered by people pitching a very far end state with a lot of agentic autonomy. And so it's like, please book me a honeymoon in Japan and all the activities. No one actually does things that way. Whereas actually you should go from the bottoms up in some very basic building blocks where step one is just replacing filling out web forms. That's an activity that sucks. No one likes it. And so imagine you find the winter jacket you like and you copy the URL into ChatGPT and just say, please buy this for me. And that's a much better experience than going clicking around a site you've never been to before. And so there's just the agents doing kind of tool use on your behalf. And everyone can grade that. Maybe it clarifies there's multiple colors, which one do you like? But it's just replacing, filling out form fields.
- [38:34]
B
This is by the way, one thing that I am very. A lot of people are skeptical of this, but I am very optimistic about, which is, I call it Just in Time ui. Exactly.
- [38:45]
A
It's a better ui.
- [38:46]
B
That's right.
- [38:46]
A
Okay, so that's like level one is a better UI for kind of doing an action. You want to know. Okay, then level two is better discovery in search. It is crazy that we've gotten this far in e commerce with keyword based search. Like keyword based search works really well when you're buying a book that you know the name of. It's like I want to go by this particular title for winter jacket. It's like, I don't know, I want. It's like a puffer, like what's it called? And so instead you want to be able to say, I'm looking for a jacket. I'm going to this place, it's going to be this cold. I like these kinds of things, whatever. And so step two is just better search and the ability to search with parameters that like no existing search UI lets you specify the temperature of the place. You're going to actually get a jacket of appropriate warmth. But that's obviously with a jacket, one of the core things. And so better search UI is kind of level 2 from our point of view.
- [39:40]
B
Right. Which I think is already sort of manifesting.
- [39:43]
A
Exactly. You're already saying. And like in the early usage of the kind of chatgpt buying experience, I, I think that's one of those super cool features. And then level three, which we haven't really seen play out yet, is this idea again of a persistent profile of.
- [39:57]
B
The user that anticipates their needs.
- [39:59]
A
Exactly. It's like I want to be able to just pin things I like as I go along. Or maybe if I can share my browser history, or maybe if I can just share a Pinterest board of. Just like, these are some styles I like. Give me a good winter jacket for the cold based on that. Here are some photos of me based on this. And so starting.
- [40:16]
B
Oh, I have an even better idea. Imagine if you were using ChatGPT and it's circa October 1st, and there's an ad for a great winter jacket that is perfectly suited to me because they've been understanding my interests. They understand the context of where I am. I'm not searching for winter jackets because I don't plan well. It's gonna get cold, and then I'm searching for winter jackets. But what if it could anticipate that and show me an ad at the right time when I need to see it?
- [40:43]
A
Okay, maybe that's. Level four is like the.
- [40:45]
B
That's what I've been wanting them to build. This is my whole bit before. Like, this is like, this is why they're late. They should be shipping that this year. You're only shipping that this year. If you started your ad product two or three years ago, this is doable today. This is what meta ads are. You need to be on more. You need to watch more reels. I've bought more ski equipment this year that I don't need just because it just shows up. I'm like, I'm moving back to Wisconsin, so I'm buying stuff for the house and I get, oh, those ski hangers. I bet those would be great. That sounds very useful. They're still in a box. I would actually put them up.
- [41:17]
A
But yeah, so there's a limit to kind of with just kind of banner ad type experiences to what you can do. Whereas I think the search thing is very powerful. But, yeah, I'm curious what you think of kind of step one, just the very active checking out and then. Or level one, the very act of checking out. Level two, better search and then level three, defining your own embedding space of preferences.
- [41:41]
B
No, I completely agree with that approach. I just think you underrate the extent to which level three has already been built. Actually, one thing Mark Zuckerberg said on a couple earnings calls ago that I thought was very astute is we get hung up on technological definitions for, like, what is an agent? And he's like, actually, the largest and most successful agent in the world today is Facebook advertising, which is exactly Right. Facebook advertising people have it in their head that you go and you put in like demographics and your targeting and stuff.
- [42:11]
A
No, no, it's very autopilot.
- [42:12]
B
Yeah. What you do is you go in and you say this. Just acquiring a customer for this is worth $10 to me. I'll spend up to $10. And they will deliver you a customer for $10.
- [42:23]
A
Yes.
- [42:24]
B
Their margin will actually increase because they'll make sure they deliver it at exactly $10 and they can do it for more and they actually make more money. You get exactly what you asked for. I think the extent to how powerful this already works, they're stuck on the 50% of my ads work. So don't. I don't know which ones. No, on Facebook, they all work.
- [42:43]
A
I feel like a bunch of new very big successful companies will be created in AI powered E commerce. It just feels like a different enough product space.
- [42:53]
B
But you're talking about retailers, merchants or agents.
- [42:57]
A
I was talking about discovery and kind of the demand side though also probably retailers.
- [43:02]
B
Yeah. Well, I mean, I certainly think. I think that the part that I think would be new, which is a bit, which you're maybe talking about, is this real anticipatory aspect, which is right now. What is amazing about to go back to meta ads is it helps merchants who have a very specialized product find customers that they never would have found otherwise. But there's the inverse of I need a very specialized product. How do I find what it is? Which I think you were referring to before. But to what extent can that not just be an in the moment? I need this specific. I remember I needed a, a server, a piece for my rack to mount, like this router because I had like an extra. I didn't want to buy a whole new thing or whatever. I had this extra router and of course there's some guy in Australia that does 3D prints that perfectly matches this on Etsy or something. And it was great. I found this random guy. I'm sure he made a bunch of money selling me a $40 piece that cost him $2 to make good for him. But what if an AI should be capable of anticipating that need? So it's not, oh, I have a need, let me go find it. It's like, I know you're going to need this and let me acquire it. And that would be very powerful.
- [44:15]
A
In his excellent newsletter Stratecherie, Ben often argues that whoever controls the customer relationship shapes the entire ecosystem. And in mobile apps, there's always been this interesting tension here with. In app purchases. Where historically app developers had an intermediate relationship with their customer through App Store policies, over the past year that layer has started to open up. Mobile developers can choose what they use for in app payments. Developers now have more freedom. But with that freedom comes new challenges. App Store payments were previously handling a whole bunch of different tasks like payments, tax fraud, disputes, all bundled together. Stripe Managed Payments is built for this new world, handling all that operational complexity for you with Stripe as the merchant of record and with our new app to web flow, customers can check out in seconds in an experience that feels native. It converts like in app Payments, but it runs on Stripe. The public markets indicate as of January 2026 that SaaS is cancelled. Are they right?
- [45:19]
B
I think it's probably a mix. I think the one of the brilliance of American business is actually this is one of my theories about why the Europeans are so gung ho about data privacy and regulation is because they so often interact with European companies. So like I was in Paris a couple years ago or a couple years ago and of course on a tourist trip, going to the Louvre, going to the museum, wherever it is or not wherever it was, seeing a bunch of museums. They all have their own homegrown registration systems and they're collecting so much data.
- [45:58]
A
And they're widely secured.
- [45:59]
B
It's like, yeah, what's your age? What's your pet, what color? It's like, why do you need to know all this information? They're all non standard forms. This is where you need AI to fill all this sort of thing in. And it's like, what? Like there's like this theoretical idea in their head. If we capture this data, it could be useful. So they built these homegrown things in like the 2000s that are horribly insecure. And I use them. I'm like, where's the regulator? Can someone put this is ridiculous. So I get the mindset US companies don't do that. Like US companies are so good. I think one of the big strengths of US business culture is understanding. And I think about this personally because when I give life advice, what's the number one mistake people make when they're young? In particular, they focus on their weaknesses. Like I have to ameliorate my weakness? Like, no, what you do is you double down on your strength. You get richly rewarded for that and then you hire someone to take care of your weaknesses. Right? Like I'm a big believer in the getting things done system. Like great book, getting things done. Even if you don't use the system, the book is really good. Lots of great insights. And there's this whole thing like tickler files and like all these sorts of things. It's an amazing system. I'm completely incapable of managing the system on my own. So there's a Mac app called Omnifocus that is completely built around the system that I don't have a license for. My assistant has a license for and I text him stuff. And his job is to maintain my getting things done file because I can't do it. What do I do? Actually, my wife is very, very optimized around. I write three pieces a week, I do an interview and I do three podcasts. And all my focus and energy needs to be on that. And if I do that, that will make a lot of money and I can pay to fix all my problems sort of elsewhere. And I think American business does this very well. They don't waste time and energy on stuff they're not good at. They double down on what they're good at. And they're focused on the upside, not on their cost centers.
- [47:53]
A
Probably a result of the very large.
- [47:54]
B
Market in the U.S. i think so. And just the competition. It would be in a very large common market. So you don't have your. You go back to like newspapers. They have lots of homegrown stuff. Like if you're a publication online. If you're like me on the intern, I get paid to comment on the big tech companies. It's probably the most competitive market on earth, right? Like lots of people have takes on the big tech companies. And so you have to be super focused. Given that that speaks to the enduring value of just paying someone to manage these business functions from a software perspective. Now there's a lot of SA. There's a lot of SaaS applications. Not sure they're all sort of strictly necessary and worth the price. I like to think people talk tech. Having a big five, I would say there's a big six. The six was Silicon Valley Inc. Which is basically this cookie cutter VC goes to this founder addressing this specific business case with the SaaS business model, everyone likes to. They get to talk about changing the world. It's actually the most predictable thing yet. That's why VC returns compressed. But because they're also very predictable in terms of like this sort of engine going. A big problem there is. They're all seat based, like anyone's seat based. That is somewhat residual. There's gonna be probably fewer seats. And then if the replacement is more small scale, ideally there's lots of. The Internet in general has writing or Content is a good example. There used to be sort of you wanna be in the big pond. And everyone in the big pond sort of ate. If you had a job at Conde Nasta, one of their magazines like you lived life well even if you wrote like four magazines, if you want to be a writer. I give advice to people that want to be content producers all the time. I'm like look, you don't want to be, you don't want to be in a pond with me. Right. Bill Simmons is like the first Internet sports writer. And you don't want to be doing a Bill Simmons impression on the Internet because he got there first. And what you want to do is you want to make your own pond. The Internet enables the creation of a million different ponds. So you get to define your own pond, be the only biggest fish in that pond. That's how you succeed. To the extent AI makes that, I think this is the upside case is AI makes that possible for more than just content. For all sorts of businesses to be lots of smaller scale individual entrepreneurs or small teams, all of whom don't really fit in the salesforce driven seat based model for a lot of these companies. So there might be a big return to self serve, you know the. Or maybe they'll just roll their own because their, their needs aren't that large.
- [50:30]
A
Yes.
- [50:32]
B
So that's more a larger structural change. But the problem is it's fine to say businesses will be okay as they are if you're eliminating the growth. That's the big problem. I think that that's the biggest issue for all the compression via headcount growth. Just growth in general.
- [50:49]
A
Yeah.
- [50:50]
B
Like, like what's, what's. If these are just stable businesses with astronomical stock based compensation that is predicated on where going to be very large.
- [50:59]
A
Yes. I can see two critiques you might have of the software space and why everything's traded down. One is where everyone's just going to use cloud code to rebuild their own version in house and so the software mode is less. And the second is actually just that many of these products price on a per seat basis. And so if you're growing headcount lessons. On the first. Exactly. Yeah. On the first like anthropic just installed workday.
- [51:27]
B
Famously.
- [51:28]
A
Exactly. So I don't think, you know, we're.
- [51:31]
B
Cloud coding systems of record. That's the category. Yeah.
- [51:36]
A
People do not seem to be, you know, we see this with tribunaling as well. Like I don't think anyone's cloud coding one of those systems of records anytime soon. No use. Workday. I don't know what to make of the second criticism, but again, it just feels like for a very broad and deep system of record, it's kind of hard to make the argument that the business is somehow impaired versus a year or two ago.
- [51:55]
B
Right. But I think that that's my point though is people saying they're going to zero are wrong. But if the assumption is you're fine, but you're not going to be growing indefinitely like that shift from thought of as being a growth company to being a stable.
- [52:15]
A
I see that's a haircut.
- [52:16]
B
And again, it's combined with these whole compensation structures.
- [52:19]
A
Yeah. You're now valued on EPS rather than revenue or something. So. Yeah. Can we talk about your business and trajectory?
- [52:26]
B
Sure.
- [52:28]
A
So you were very early to the. I mean the sovereign writer concept. I think you were one of the first premium newsletters.
- [52:38]
B
I think so, yeah. Well, so there's two predecessors to talk about. One is just on Wall street in general. There's a long history of faxed out newsletters and things like grand stuff. Yeah. The difference there is those were very expensive and a very small addressable market. So the difference versus checkery is it's much cheaper and the market's much larger. The other person that deserves a call out, which I think was the first person to do it before me, otherwise I think I was the first was Andrew Sullivan who did.
- [53:13]
A
I hadn't realized he had a paid newsletter.
- [53:14]
B
He did for like a year. The problem is he did it all wrong. You're doing it wrong. He was like. He would churn out like 50 posts a day. Right. Just about a gazillion different things. He totally burned out and like all this sort of stuff. But that was. Happened to be a great fit for the advertising model back in the day because you would always go back there and just always be new stuff. And I'm sure he had a gazillion. I'm sure he drove a gazillion impressions for the Atlantic, especially when he was with them. He went independent. He was pretty successful. I think he did like around a million dollars or something like that. But it was this very leaky paywall. It was like after like 35 posts, then you'll hit like a paywall. And there's a bit where you're like, you're punishing your worst users. It's very easy to get around and so. But he was actually very inspirational in how I thought about the model in that he was hailed as a failure because he like burnt out and quit. But like, he made a million dollars. That's pretty good. But I wanted from the beginning just thinking about the psychology of this. When I started Shachery, I had a gazillion ideas of things to write about and I limited myself to writing a max of two times a week. And the reason is I had the subscription model in mind. And when I added the model, I didn't want it to be I'm taking stuff away and now you have to pay. I'm like, you like this so much. If you pay, you can get more. And so I always want it to be you're paying to get more sort of aspect. And I think that probably mattered more at the beginning, especially because the model was new. You know, I had my metric I looked at was people who visited Shachekery on days I didn't post because they were people that were going there hoping I had posted that day and they were leaving disappointed. And so in this case, usually previously, a paywall would disappoint people if they hit it. In this case, the paywall would leave their disappointment because they could now get what they wanted. And so I'm like, if I can capture X percentage of these visitors, it'll be very good. One day goal, one week goal, one month goal, failed to reach all of them. What happened was I actually thought it was not gonna work. I was gonna have to go back to teaching English or something like that. But it sort of grew and grew and grew and at six months actually hit my one year goal, which was a thousand subscribers, thousand true fans. You know, it was $100,000 run rate. And I posted a little.
- [55:32]
A
Took you how long to get to a thousand subscribers.
- [55:35]
B
And I posted a little note saying, hey, you know, model works. My goal is a thousand for a year. I've already reached it. And this is the only step change in subscribers I've ever had. In the next 24 hours, I got 250 new subscribers, 25% increase. What they were was I had identified those people who wanted to be subscribers. They just didn't trust that it was going to work. I was going to go out of business and take their money. And so once I realized I wasn't going anywhere, then they all signed up and those people signed. So I actually had my metrics were right, but I didn't properly calculate the uncertainty in people's fear of losing their money. So I'm very grateful that now people just sign up for stuff all the time. Right. Of course, I'll probably go to my grave Being most well known for shashekery. But I am equally proud of the model and that lots of people make a living doing this.
- [56:28]
A
How far do you think this model can go? Again, the defining characteristic to me seems like the unbundling. Like maybe 30 years ago you would have been writing for a publication, whereas now it's unbundling. It's the direct relationship with your subscribers, it's direct monetization and generally paid. I mean there might be some ad supported component as well paid. Obviously kind of substack has proven that there's a very broad applicability. But how far do you think this goes versus traditional media bundling?
- [57:00]
B
I think there's a couple interesting angles to this. Number one, I think people, including people in tech serially underrate how large the Internet is. Some of the biggest pushback I got when I announced like the checker paid product was from VCs. I won't say who, it's like love you Ben. Just doesn't not going to work on the Internet. And I've been about Ponds before. I don't know that we've scratched the limit of how many pawns can be sort of built in the world and you can sort of occupy. And the other part of this, the critical piece of this and AI is actually an important factor here is the key to the model is your costs. So you need just as technology enables you to reach everyone, you need to leverage technology to keep your costs very, very low. And so for the first several years for sure it was just me. So as long as I could feed my family I was fine. And this is the problem for the traditional media companies. Their cost structures were not Internet cost structures. They were predicated on much higher revenue. And there, you know, and this is, it's interesting to think about and talk about this because a lot of this is like not really applicable. It's like before I write about ads a lot and I'm not an ad business in this case I write about VC high scalable companies but my actual business is very sort of boutique and small and artisan in that. Yeah, that's right in that regard. And this is a super important point is managing your costs. If you manage your costs appropriately then the possibilities. But that also means there's some things that don't work with this model. Like your traditional classic investigative journalism six month sort of piece. It's not well supported by this. What did support that was the bundle having lots of different writers in one publication all together. And the thing I worry about, I wonder about is bundles are good for everyone involved and no one wants to be a part of it. So TV's the classic example. Why did we have a TV bundle? Because you had like so in. I think it started in Pennsylvania. So you have like a television station in Philadelphia. Then you have the Allegheny Mountains and you have a bunch of towns there that want to get the signal from Philadelphia but they can't get a good signal. So they band together, they put up a big tower to get the signal. They run actual cable from that tower to all their houses. And all of cable television started in small town rural America to get TV from the big cities. And Ted Turner comes along, he's like I could just broadcast directly to these towers. This would be amazing. And you get the model and suddenly every. But you had a geographic forcing function and you ended up with all these companies with the best business model in the world. Everyone paid them whether they watched you or not. And they made a ton of money. And what happened the moment they could do something different? I could also go directly, I could stream directly. And there's just something about business because it's almost like you have to be forced into the game, the optimal game from a game theory perspective. And the moment you can desert everyone always deserts even if it's the best thing. And so I wonder, so I do wonder can buttons.
- [60:15]
A
So how does this apply to your world?
- [60:17]
B
Because in theory there should be bundle substack should be a bundle like you should be able to one fee and get everything. But they, you know, they started I think a mistake substack made and I'm a huge substack fan. Just to be clear. I made this creep before and made it bad about it. But is they characterized themselves as being totally writer friendly and I think that was a mistake because it's impossible for them to be ultimately writer friendly. Because the most writer friendly setup is running an open source software like on your own server like that no one could do anything to you. And by definitely I thought you were.
- [60:48]
A
Gonna say like the most writer friendly thing is to have like a humming consumer business.
- [60:51]
B
It would be. But the problem is so all their initial terms made the bundles impossible and all the individual publishers owning their own subscribers, having their own stripe account and all these sorts of bits and pieces.
- [61:03]
A
But hang on, isn't there like a. I feel like there's a well trodden path in tech here where OpenTable started as like entirely. It started as on prem purely software for restaurants. And then they added the customer discovery layer on top of It Shopify started as a solution just for merchants, and then they added the shop pay kind of network effect layer for consumers on top of that.
- [61:22]
B
Yeah, but what actually, even with those businesses, though, like, the shop pay bid is nice. It's not the driver of the business.
- [61:29]
A
It's a pretty cool part of the business.
- [61:32]
B
I like it. But at the end of the day, the vast majority of shop interactions are I see an ad on Instagram and I go there and I get shop. The shop button, which is incredible. Sure.
- [61:40]
A
But it makes no. Yeah, but then it makes the Shopify offering to merchants so much more compelling because you get the shop pay in benchmark. And that's why I'm going to this question.
- [61:48]
B
I'm skeptical. That's the driver of the business. I think it's nice to have.
- [61:51]
A
But can't substack just add a substack prime bundle on top of it and merchants can, or writers can choose to optimize.
- [61:59]
B
Yeah. The problem is the merchants who will make that bundle valuable have no incentive to join the bundle because they could make more just monetizing users directly. So imagine I'm on substack. How much more revenue does substack have to give me for me to trade $15 a month from my subscribers for a smaller amount from whoever's part of this? And so the problem is they have to really pay me off to be a part of it. Meanwhile, everyone who doesn't have any subscribers, of course, they love to be in the bundle. So this is why the geographic forces.
- [62:33]
A
This feels solvable to me.
- [62:35]
B
I think it's solvable at the beginning.
- [62:38]
A
No, sorry. I feel solvable now.
- [62:39]
B
I think a counter example is something like Spotify. Spotify is arguably the best bundle on the Internet. But the reason why they were able to assemble the bundle is because they only need to negotiate with, like, four entities. And so it's interesting because on one hand, that limits Spotify's upside because those entities are able to negotiate such a large share of Spotify's revenue. On the other hand, that's also why Spotify was possible. Because they only need to negotiate with four.
- [63:09]
A
Yeah. Yeah.
- [63:09]
B
And if you're trying to get every artist on Earth, well, of course I gotta get Taylor Swift. Okay, good luck with that. Oh, all the small fry will sign up. But music's unique in particular, because music, the moment a song comes out, it's now part of the back catalog. And actually, people only ever listen to back catalogs.
- [63:27]
A
Yeah.
- [63:28]
B
So it's a pretty unique industry in that regard. But that is a bundle that formed, but I think it's because there's only four players.
- [63:37]
A
How do you use AI in writing strategically these days?
- [63:42]
B
I think it probably replaces what I used to do a lot of on. It's much more efficient Googling. The most gratifying articles I write is when I write about a topic that I usually don't. And then someone from that industry is like, wow, that was good. Because you're always working.
- [64:01]
A
You have this imposter syndrome.
- [64:03]
B
I mean fortunately I don't really have imposter syndrome, but like if you.
- [64:06]
A
That's why it all works.
- [64:08]
B
What's the mechanism where you're reading something about your area?
- [64:12]
A
Gel man amnesia.
- [64:13]
B
Yeah, that's right. It's like this is totally wrong and then you trust everything else. I don't want to trigger Gelman's amnesia amongst anyone. So people ask me, I hate the book question, like what books do you read? I read a lot of books, but they're very targeted. I'm a very, very fast reader so sometimes I'll write an article. I know there's a pertinent book and I will just read the whole book in the morning and really contents in there. But in general I really want to make sure I fully understand a space that's new that I'm writing about. This is partly though why I have a big competitive advantage. I've been thinking about tech since I was in junior high school and I've been writing about tech for 13 years. So I've already done so much preparatory work that anyone starting from scratch, it's like it's hard but something. So I want to dive into it. I'm one of the world's greatest Googlers. I'd like to think I know every sort of parameter and how to find. So I think I can say pretty authoritatively Google has gotten worse. And I don't think it's Google's fault, I just think it's harder. One thing is Google's fault is they got so biased towards recency and so you have to be super diligent. But AI is incredible for this. Just sort of getting background, making sure you understand an issue, the ins and outs of it, how things work. You can query stuff, dive deeper. So that is by far my number one use case. I do not always but I will sometimes ask it to. This is where I like ChatGPT. I type in bbedit as an integration. This is also I'm very annoyed by and am very sensitive to the coin nature. Oh, this is really great. No, that's not what I'm asking for. I want you to actually go in and find stuff. So I do not use it to actually generate any exact content.
- [65:59]
A
But okay, so targeted research and then critique.
- [66:03]
B
Yes, those would be the two biggest use cases.
- [66:06]
A
You've written a lot about the tsmc. Break this idea that the limiting factor on all AI expansion is basically the rate of TSMC capacity expansion. Because almost all AI chips are fabbed at tsmc. It seems like as you look at the AI space and everything interesting going on. So if we're mostly chip constrained right now, which would not have to be the case, you could be power constrained and stuff. But if you're chip constrained, there's a population of people who want to expand very quickly. AI labs, Nvidia, people like that. And then, yeah, famously, which, you know, tsmc, which is more conservative in how it expands. Why is that? Like why, why does the market signal not cause them to build out fab capacity faster?
- [67:02]
B
Because the risks for fabs are basically larger than for anyone else. You're spending billions and billions of dollars on a fab that if it's not fully utilized, if you end up with too much capacity, number one, all your costs are locked in. Like basically 99.9% of the cost for a fab is depreciation, which you're paying the depreciation, no matter. Like you already showed, you're paid in cash flow, obviously, but it's on your accounting statement no matter what. So the fabs can be extremely profitable. TSMC's margins are higher than ever, but they can very quickly tip over into having a huge problem. And then once it's already built, these fabs can run for a long time. So that excess capacity depresses prices for years to go. I mean, we see this in memory all the time. Memory famously goes through these cycles. Like, what's going to happen? We're going to, believe it or not, we aren't going to have too much memory capacity in a few years because we have such a shortage right now. Like Micron just announced a huge new fab in Singapore, right? And everyone's gonna do that. But why does this happen in memory? There's three competitors in memory. If Micron doesn't do it, SK Hynix will. If SK Hynix doesn't do it, Samsung will. And so you have a dynamic where a healthy dynamic, which is the fabs know better, but they can't help themselves. And so they take on the risk and they build these fabs. The problem we have with logic is that TSMC doesn't have that pressure. And so they're actually behaving rationally. TSMC is giving up potential long term revenue. But the downside for FAB in particular is so large that they don't want to realize that downside.
- [68:51]
A
Can they not pass the risk onto the customer where it's like you are going to pay for the entire fab.
- [68:56]
B
That's probably what they need to get to. And so Apple famously did a lot of this sort of prepaid and particularly when TSMT was sort of expanding hugely in the 2010s and they maybe need to get even more explicit about that. But I think the better solution and the cheaper solution for the hyperscalers in the long run would be to do what is necessary for TSMC to get a competitor. Then you get it for free, you don't need to prepay it. So there's this risk that's out there, this risk of overbuilding. Right now TSMC is shifting all that risk to the hyperscalers, to Nvidia, to Apple. And the way it. And the reason why they get away with it is because the risk is foregone revenue. It's money you don't make and worse than that, it's money you don't make four or five years down the road and everyone like what does every company say on their earnings call now? We could have made more, but we don't have enough supply. And if you think it's bad, why is it bad? Right now ChatGPT comes out, every hyperscaler starts investing like crazy. What does TSMC do? They actually decreased their capex year over year, two years in a row. There was no market response from TSMC to the ChatGPT moment. Now they increased to 41 last year. They're going up to like 60 this year. But even that increase to 60 is a less percentage increase than last year. I think we're looking at a massive shortness in chips in 20, 29 or so. And particularly as the other thing, the compute density of AI is so much larger. Right. If you have an agent out doing stuff, it's doing so many more computations in a limited amount of time than me and my googling is even humanly possible to do. And all these lookups. So we have a CPU shortage too. And intel shut down some of their CPU plants, right? Yes. So the whole semiconductor, I just think it's a big problem and we're shifting to for a long time. It's like how can we get an alternative to TSMC for geopolitical reasons. And the truth is it's kind of like the bundling thing. It's really hard to get companies to buy insurance, particularly when the insurance is number one. You have like everyone else wants someone else to do it, right. Who's going to be the one to go and make the sacrifice. But also it might not happen, China might not attack Taiwan and also as long as it doesn't happen, it's super suboptimal to go somewhere else because TSMC is better and their customers, it's not just their fab's better, their customer service is better and they have all the IP blocks you need and they've done this before and you have existing relationship and they'll punish you because they have limited, they have control because they're not going to fulfill all their orders right now because there's so much demand and so they can pick and choose sort of who and so people are scared, they don't want to go anywhere else. So how are we going to solve this problem? And I think I actually wrote on the front page of Checkery about this this week, which is basically the same thing I wrote in Update, but this was a like this.
- [72:05]
A
Yeah.
- [72:05]
B
Someone needs to. The hyperscalers in particular need to appreciate I think a massive crunch is coming and it's now on them to get intel up to speed, to get Samsung up to speed, to get a credible alternative. Yes, in theory you could pay for.
- [72:20]
A
Geopolitical reasons or for shortages.
- [72:22]
B
No, we'll get the geopolitical reasons for free.
- [72:23]
A
Okay.
- [72:24]
B
I think there's massive economic reasons to do so, which is all the revenue you're going to be foregoing in 2029 if you don't do it now. And then we'll happily get geopolitical insurance for free.
- [72:35]
A
But if TSMC are the best, rather than stand up intel, which seems hard, isn't the answer to just again prepay for an extra fab build out for.
- [72:44]
B
But this is like how do we feel in tech about ongoing operational costs as opposed to putting in some money up front and fixing the problem permanently. The market structure is a problem. You're dealing with a monopolist and like not like a mean monopolist.
- [72:57]
A
Yeah, exactly.
- [72:59]
B
They're very nice. Right. And they actually have not, arguably not raised prices nearly as much as they should have.
- [73:05]
A
Right.
- [73:05]
B
But the reality is there's a market structure problem that is going to impact the hyperscalers and it behooves them, I think to fix the structure. Otherwise the costs of Ensuring or overcoming that are just going to be larger and larger.
- [73:21]
A
This seems like the topic you have felt strongest about in the past year or two.
- [73:25]
B
I felt pretty strong with Apple Vision Pro.
- [73:27]
A
Okay, fair. What was your take with Apple Vision Pro?
- [73:29]
B
They finally showed an NBA game and they kept changing cameras. They're applying 2D television production techniques to an immersive technology. This is obviously courtside.
- [73:39]
A
The TSMC break seems like a bigger deal. Oh, probably I have some rapid fire questions. Or I'm not going to say rapid fire necessarily, but more a collection of disconnected questions for you.
- [73:52]
B
I'll connect them. That's what I.
- [73:53]
A
Great. How should schools do homework now that AI exists?
- [74:00]
B
I think they should incorporate it and they should probably do in person exams like. Or in person like the. Yeah, I mean it's silly to try to crush it out. I'm very opposed to these like AI detectors or something. Don't work is more. I mean probably I'm particularly sensitive to it because obviously a lot of my pros is in these models.
- [74:21]
A
Yes. Yes.
- [74:22]
B
No one like was. I wasn't an EM Dash user, but I'm a world's biggest semicolon user.
- [74:29]
A
I was a big M Dash user all along.
- [74:30]
B
Oh. Fortunately, the models don't seem to have really incorporated the semicolons. Maybe I haven't been that influential, but yeah, no, you want kids to use it because whoever can use AI most effectively in their jobs going forward is going to have a big advantage. So there's probably some return to more in class being more important. I think the this is my view on content generally. I think there's a world in which not all content but some content is more valuable than ever because AI is a perfectly individualized experience. What you read is not necessarily what I read. So stuff that we both read is actually compelling. And I'm very interested in figuring out how to leverage that to be sort of beneficial to people in the long run. And what can you get from school that you can't get elsewhere? Right. Like I can read the notes, I can read xyz, but there's being in class, having a discussion about it, like actually interacting, being pushed on these sorts of things. All this is a sort of a beautiful theoretical depiction of what school might be that is probably very far removed from the reality. But identifying things that are common experiences are going to be more and more valuable. Common content, common classroom time, live events like shared experiences. Because anything that's individualized is just going to be completely swallowed.
- [75:57]
A
Yes. Do sports teams become more valuable in.
- [76:01]
B
An AI abundance, everything wide becomes more valuable. Yeah, that's something I'm thinking a lot about as far as my business. Right. Like the. There's some aspects of tens of thousands of people reading the same thing every day.
- [76:11]
A
Yes.
- [76:11]
B
That is actually really powerful. There's something interesting there. The possibility of doing live events where people can come together. I think a lot about community. I think no one's ever really solved community around content like a message board or comments or not. You actually get very bad dynamics. There's a few people that dominate it.
- [76:27]
A
Totally.
- [76:28]
B
Yeah. But what is great is if we're in a group chat and you share an interesting article and you have a discussion about that. So there's a lot of stuff around that I think is really interesting that I'm thinking a lot about.
- [76:39]
A
What do you think of what's going on in crypto these days?
- [76:41]
B
What's crypto? No, I've always been a crypto defender. Just because digital scarcity is fundamentally interesting. It's probably even more interesting to this point. In a world of infinite content, which you thought we had infinite content before, now we have infinite content on steroids. Not just of 6 billion humans typing away, but agents generating stuff sort of constantly. And in that world I think crypto as an identifier of authenticity is going to be more and more important. Like at the end of the day I want the original, I don't want a reproduction. And I'm optimistic about humans ability to create value where it seemed impossible to ever exist. I'm literally a professional podcaster, content creator and get paid a lot of money to do it. Imagine explaining that to someone on the farm worried about the. The automation.
- [77:37]
A
Speaking of that, you mentioned that a majority of stratecheri consumption is now in the audio forum rather than the written forum.
- [77:47]
B
As far as I can tell, I don't do like but well, more than half my subscribers are subscribed to.
- [77:51]
A
I consume it in the audio forum.
- [77:52]
B
Yeah, it's quite interesting. I added the. This is actually where I started building my own software. I was begging everyone to support paid podcasts. There was dedicated paid podcasts and there was like writing ones and no one would do it. So of course I had to just hire engineers and build it myself. At which point it obviously was the right thing to do. Not everyone does it, whatever. That's my fate in life I guess. But the. Yeah, people love it. Like the interesting thing is I'm not sure it's been good for my business.
- [78:21]
A
Why? Oh, cause people don't share it.
- [78:23]
B
The Good news is I think it drives retention because people would build up emails because it feels like a lot of work. And then you'll say, I haven't read this in ages. I guess unsubscribe. Whereas they just consumed seven minutes or eight minutes. The problem is they don't share audio. Content is not shared.
- [78:37]
A
Totally. I listen to it in the car on the way home from work and that's great. And then I never think about it ever again. Exactly.
- [78:46]
B
But it's great for me because I could write the same. I could say the same thing. The next day. You're like, oh, that was a very insightful comment. You didn't even know I said it yesterday.
- [78:52]
A
Yeah. If we reason about what sectors are going to be important down the road for the AI buildout, energy is going to be a big deal. And the ability to actually power the data centers that are coming online, that may be a bigger constraint going forward than even chips. Robotics are clearly going to be a big thing. It seems like China is doing better on energy and better on robotics and is catching up on chips, doing okay on the AI models. But does that mean China's potentially very well positioned for the coming wave of tech trends?
- [79:30]
B
I mean, I think any country that is capable of actually building things is well positioned. But then again, the counter argument, if I could sort of put a silver lining on it, is the challenge, the trick going forward and to sort of defy the doomers, as it were, is actually creating new sorts of value, new sources of value in a way that humans are uniquely capable of. And that is by definition a sort of an innovation story. It's a freeing up resources from things that can be done by machines to more productive. It's having a consumer market that pulls out that sort of innovation that makes it possible to write a newsletter or a podcast and actually pay for it. And so there is a scenario where China is well positioned to win the total commodification of everything, which doesn't have much margin, and the actual value creation and what makes humans humans and generates the value that I think people in AI are skeptical can be created, despite the fact that 90% of us used to work in agriculture and 1% do for some reason. That's not going to repeat. If you want to be optimistic. That's the sort of thing that America has always done.
- [80:52]
A
Well, what's your stripe feedback for us?
- [80:56]
B
Oh, where to start? I mean, obviously it's hard for me to write about stripe because I'm not biased, because I was very early. I think you introduced the billing API in 2011, which is a direct spur for wanting to do stackery and thinking this is a business model that's possible. So very, very big thumbs up on that. The. You didn't warn me about this. I should have thought about this. Actually, you have one huge issue that I was just dealing with. Oh, yeah, ach. Your ACH implementation is someone can go in and if I try to add on to an ACH plan. So say I have a team, because that's where you use ACH for large companies and they want to add someone on. If that add on fails, the entire plan gets canceled. So we have to build a bunch of logic to handle that independently.
- [81:42]
A
Okay.
- [81:43]
B
So that's a very detailed, specific problem that we're facing.
- [81:46]
A
Buggy ACH subscription interactions. Okay, that's a good one.
- [81:51]
B
There's definitely more. I'd have to go back and think about it, but, I mean, I do think the. You know, we didn't talk about stable coins in this sort of area of. I've always been a big skeptic of, like, microtransactions, because the problem, it goes to the investigative reporting thing. You can't build something sustainable if you're only monetizing in the back end. And the only way to do that is to have a very large market, which this is what YouTube is. YouTube is a bunch of speculative video makers hoping that they'll get enough views that the ads will pay for it. And there's such a large scale and they monetize their ads so effectively that it works. There's no market like this for written content or, like podcast content. And you can't. People are like, oh, let me pay for one article. Like, no, what you're paying for when you pay for me is you're paying for my ongoing production. I'm making a promise to you. I'm going to write something every day, and you're paying for that promise. You're not paying for the actual content. The content is a byproduct of that. The question for AI and microtransaction is you have all these labs paying people all over the world to generate data. And if you're like a radiologist, you get paid $300 an hour. I saw some article about it and all these sliding scales and they're all duplicating work because they're all. Everyone feels a sense that I can get differentiation. What we clearly need is some sort of market mechanism for data generation that in the long run will replace what we're Getting from journalistic enterprises which are even more doomed than ever before. So how do you generate. We are paying directly for content and then AIs can get it. And you can build a large market like YouTube that people will speculatively do it, trusting that they'll get paid because the market is large enough. That's what needs to happen. Like a lot of things, there's this massive valley of how do we get from here to there? But we'll see. I know Cloudflare is trying to push on that, so we'll see what happens.
- [83:46]
A
Yeah. Last question. How would you rate the execution of.
- [83:49]
B
The major tech companies like the Big five?
- [83:51]
A
Yeah, sure.
- [83:54]
B
Apple, traditionally very strong. Their manufacturing obviously remains amazing. Like the iPhone. Air that just. The alarm went off and make sure I turned the snooze off. The greatest smartphone ever made.
- [84:05]
A
Really?
- [84:05]
B
Oh, yeah.
- [84:06]
A
I've never even seen one.
- [84:07]
B
Huh? Oh, it's.
- [84:09]
A
It's thin. Is the battery life good?
- [84:11]
B
Good enough.
- [84:12]
A
It's bad.
- [84:13]
B
What's that?
- [84:14]
A
It sounds like it's bad then.
- [84:15]
B
No, that's fine. I mean, I actually forgot my external battery and it's doing okay now. And I'm back in Wisconsin. I have to wear jeans because it's cold and it slides right in. Actually, I love it. I'm very devastated to hear they might not make it regularly. Obviously, Apple's software has gotten pretty rough. Their relationship with the. I mean, Apple is so interesting because the reality is when it comes to platforms, you have to build. The price of becoming a platform is making a great product. So Apple gets platforms because they make great products and they're terrible stewards of the platforms. Microsoft is a great platform steward, but they can't make good products. They never get the permission to sort of have big platforms, which is sort of a tragedy there. But Apple, it's, you know, it's an old company driven by managers, not founders. And maybe they, you know, the AI Siri got as bad as it was is obviously really bad. But at the end of the day, we still need devices. They're still better than anybody else, so they'll probably be okay. Google. I've had the hardest time understanding Google, in part because I think Google does a lot of stuff suboptimally, almost everything I feel like they do suboptimally. But I think that lack of Apple can be super optimized. But I think it's their lack of optimization that actually makes them maybe the most resilient of all the tech companies because they never get so exactly doing what they should do. And they have all this extra fluff and doing things and gazillion science projects, but because their core business model is so good, it throws off so much cash. They can just sort of like be sort of very flexible. And I've come to appreciate that about them. Everything that frustrates me in analyzing them actually has this hidden benefit of resiliency and strength and adaptability and they're like the amorphous. What's the slime that just will. And if they're coming in your direction, you're actually in big. It might take them a really long time to get there, but when they get there, you're doomed. So Microsoft is always. I've gotten a lot of mileage right about Microsoft, everyone, especially during the SaaS era. All these companies are like, oh, Microsoft sucks. We're going to make the Best of breed product. And guess what? Startups in Silicon Valley, they want to buy all the best of breed products and they have the ability to send them together. Joe in managing the tire shop doesn't care about. He just wants this crap to work and to work together and if it's all mediocre, but it kind of works together. That's better than Best of Breed and Micro. Just squashing these companies that grow and boom. Just hit that Microsoft wall again and again. Is that going to persist in an AI world? It's probably tied to the SaaS question sort of before in some respects their distribution and power there remains sort of substantial. Meta's probably in my experience been the best execution. You just see stuff like interacting with PR or executives. They just run such a. Yeah, that's always been very impressive to me. I think the again, I think their ad model is underrated. The trick with them is keeping engagement like that's what makes the whole thing go. They've done a decent job of that. Hours spent in ChatGPT, hours not spent on Instagram or not spent. And I think that's an underrated area and I think they're kind of betting that look, that's all fine and well today, but in the long run this is an infrastructure game. We have cash flow to fund it and OpenAI doesn't. I think OpenAI might be a bigger threat to Facebook than Google. Something worth considering but Facebook is obviously clearly spending to meet it. Oh, Amazon, Amazon. There's a lot of fab capacity and power being spent on Trainium that one wonders could be better spent on on other chips. But we'll see what happens.
- [88:20]
A
Aren't people happy with the Tritium chips.
- [88:23]
B
The degree to which Amazon optimized cloud computing, I think is underappreciated when you're operating in a commodity market. So there's two ways to succeed, right? You can have a differentiated product where you can charge a high margin, or you can have a lower cost structure in a commodity market where the price floor is the market price, but your cost structure is lower than your competitors. So that's where you make your margin. That was how Amazon dominated the cloud. Their cloud was way more optimized than anyone else's. The whole nitro architecture, like just the way they architect everything, doing a lot of their own chips, shifting to Graviton. I think the thing with Graviton, their ARM cpu, is who's the number one customer for Graviton? Amazon itself. And so they can move all their loads to that, optimize it, build all the software libraries, and then start offering it on a costly basis to others. That's the playbook that they're trying to run with Trainium, where the number one customer Trainium in the long run is Amazon. But then they develop all the capabilities around it for other people, for it to be attracted to other people at lower prices, and they have that structurally smaller cost structure. The problem is that works when you sort of leveled off in performance. Right. Amazon executed this model between 2005 and 2025. Of course, processors got faster in that time, but it wasn't like the 80s or 90s when every leap was massive. Does that work in a relatively new market when there's massive leaps being made, generation on generation? And they have Nvidia servers, Do they have as many as they could?
- [90:03]
A
Yeah.
- [90:04]
B
Because they're on this strategy, probably not.
- [90:08]
A
Ben, thank you.
- [90:09]
B
Thank you.