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- [00:00]
A
Eric Seward, how are you doing? Good to see you.
- [00:03]
B
How's it going, guys? Thanks for having me.
- [00:04]
A
Thanks for hopping back on. We've been following the ChatGPT ads rollout, the story. You've had a ton of great analysis. We've talked about it a little bit on the show, but we wanted to hear it from you and dive way deeper. So maybe you could set the table for us on what the launch is looking like right now, what the product is looking like, what your expectations were just maybe begin at the beginning of this saga for the ads in ChatGPT.
- [00:32]
B
Well, the saga begins where ChatGPT begins. We all knew we were going to end up here. We all knew ads were coming. I mean, I wrote a piece May 2025, I said, Obviously ChatGPT will monetize with ads. Why did I feel so confident in that? Because they had just hired Fiji Simo. She is kind of known for having led the mobile newsfeed ads product to Facebook. That's obviously been one of the most successful ads businesses in the history of mankind. And so it seemed natural that they would. They would bring, given the domain expertise they had acquired, that they would bring ads to bear for ChatGPT. And they have. Now the launch looks like the launch of Netflix ads. Right? And if it remains that way, it's probably doesn't bode well for the. For the business. But I think they're going to evolve it over time. What they've said now or what's come out, the information has had a lot of good reporting on this. They're charging on a CPM basis, which is not standard for kind of direct response ads. It's more of like a brand advertising formulation. But so it's $60 CPM, which is exactly what Netflix came out of the gate charging. They're asking for commitments of less than $1 million. This is clearly like a testing phase and they're going to offer very little in the way of measurement or targeting. This feels like a very sort of primitive mvp. But the question is, how quickly can they evolve it into something that looks more like the Facebook ads platform?
- [01:53]
A
What do you think? What do you think got us to this place where you get Fiji Simo? She's done this before. She has massive connections and skill set, but it still takes eight months to roll something out that feels not as mature as something else. Is it a talent issue? Are there other regulatory concerns or do they need to worry about certain edge cases that people might not be aware of? Or is it specifically strategic to actually Is there some secret reason why they're taking this approach?
- [02:27]
B
Here's my hypothesis. Right. And so it's not just about Fiji Simo, she's the CEO of Apps, but they acquired statsig, which is staffed by a lot of ex meta people. That was an experimentation platform. That's the exact kind of talent that you'd want to ingest into a company if you're going to roll out an ass platform which needs to be aggressively experimented on. Here's what I think happened. I think, you know, ChatGPT, so OpenAI kind of evolved over time. It was a research lab. Then, you know, obviously they've had the drama around trying to pivot into a for profit corporation. My guess is the investors wanted them to bring in somebody that was a little bit more sensitive to, you know, the commercial sensitivities. Right. And so, you know, Fiji CMO would be a very good fit for that profile. They brought her in and my sense was there probably was a little bit of animosity internally towards the idea of this being an ad. An ads driven business. Right. Primarily an ads driven business, which I.
- [03:22]
C
Think it ultimately will be. Only. Only like two years ago, Sam said I look at ads as like a failure state for.
- [03:30]
A
Yeah. And then he started pivoting the rhetoric and started saying, well, I like some of the Instagram ads when they're targeted, well, they're actually delightful and in the right context they can be good. And he was coming around to the three of ours worldview, which is that advertising is great, but he did have to message that externally and then obviously had a whole bunch of work to do, messaging it internally, and maybe that's there was a little bit less energy internally to really push towards that. That makes a lot of sense.
- [03:56]
B
Well, he may have been the one that was message two. He may not have been the one controlling the message there. He may have been the one that was message two. We need ads because ads are inevitable. It's not that ads are great, ads are inevitable. If you want to reach what I call humanity scale ads are inevitable. If you want to monetize that at the scale it can be at its total potential, you need ads, that's how you do it. And so he may have been the one that was convinced and bringing someone external in who had been there, done that may have been part of an investor strategy. But putting aside my hypothesis, look, I think this has the potential to be an incredibly successful initiative. The question is how quickly can they pivot into something that looks like the meta model? If you look at it right now. I think, look, everything you just said mirrors what would happen at Netflix. For years, Netflix said we would never do ads. Ads are offensive. They're an affront. They're an affront to my sensibilities as a consumer. That's what the leadership said. And then one day, they weren't. The exact same thing happened with OpenAI. The question, six months, all in. Don't forget, all in.
- [04:54]
C
All in was anti ad. And we begged them, we begged them, we begged them. And they made the decision independently, of course. But they're running ads now. They always.
- [05:06]
B
I've been banging the drum for. Since May 2025.
- [05:09]
A
Yeah.
- [05:10]
B
But I think the question is, is it six months, is it 12 months, is it 18 months to get something that looks like meta ads? Right? And that means targeting, right, Based on behavioral profiles. That means measurement, that means allowing. That means explaining to advertisers the sort of impact of what that you've delivered on their behalf. And that means, like a whole lot of tech that needs to be built out. Right? And that means, you know, creative optimization, all these things just conversion, optimized advertising is very different from what they're offering. And is it six months, is it 12 months, is it 18 months to get there? That's a big question. Right. But that'll determine the success. And if you say, look, this mirrors what Netflix did, well, that's not really a playbook that you want to draw inspiration from. Right? I mean, they had to pivot. They had to do a hard pivot. I mean, the ads tier has been live for three years. They did 1.5 billion in 2025. Right. So, you know, it's not a significant chunk of the revenue yet. I think it could be a much larger chunk of the revenue. But Netflix has other concerns, right? They've got quality concerns, they've got, you know, consumer sentiment concerns that where they can't just, like, fully embrace ads. I don't think ChatGPT is limited in that way.
- [06:08]
A
Yeah, yeah, Take me back to that initial launch of Netflix. You said similar CPM, $60 per thousand views. But what was the response? Like, were there any advertisers that were like, yes, this is great. I got my money's worth. It worked out. Was it just vague and unattributable?
- [06:26]
C
My perception is like, great performance marketers are always excited to try new channels, especially a channel that's driving high intent traffic. Right? So if you tell a performance marketer, hey, I've got a billion users and I'm gonna let you advertise to them, they're gonna be excited no matter what the general setup is. Cause they just wanna get in there with a test budget and you'll talk to marketers and at a certain scale they're like, yeah, let's try 100k here, let's try 100k there. It's just like you're just kind of throwing around money and then you're gonna double down on what really works.
- [06:58]
B
Right. For the initial rollout. This is how you launch an ADS platform. Don't get me wrong, this is how you launch an ADS platform. That's why I'm talking about 6 months versus 12 months. This is how you do it. This is how you bo out the data. This is how you get people onboarded. This is how you get feedback. You have to launch it like this. There's no other way. You can't launch a conversion optimized ads platform because by definition you don't have the conversions data yet. That's another reason why I think they launched instant checkout. I think instant checkout is a stalking horse. I think that's a method of gathering conversion data that they can use to then target against with ads. I think that was the whole purpose of that. I don't think that was seen as a long term revenue opportunity. I think that was seen as a way to bootstrap the data. But this is how you launch in an ADS platform. I mean, it's got to evolve into a conversion optimized ads platform. But you can't be that at the start. You can't intuit the settings, you can't intuit the tuning that you need to implement to make this work. But, but the question is how long does it take them to get there? Right. And so that, you know, that will just see. But my sense is they've got the DNA, they, you know, the information reporter, they have 700x meta employees. Like essentially everyone at Meta is working on ads. Whether they're working, you know, as an account rep or they're working as an ML engineer, they're all sort of rowing in that direction.
- [08:05]
C
Yeah. What was, what's been your reaction to instant checkout? There's been a lot of debate on, on the fee structure. Some people saying no retailer can afford this. We were pushing back on that in a number of different cases. There's plenty of brands where you say like, would you spend like 4% of AOV to acquire a customer? I can also see the other side of it. A concern that I have is like, you know, you're running an ad on a meta platform to find a customer. The customer then goes to ChatGPT, if that's where they're searching for products, and then the brand is effectively paying twice to actually find the customer, drive them, get them interested, and then at the bottom of the funnel, they're paying another 4% fee. That feels not great. But what's been your reaction?
- [08:51]
B
Yeah, so I was in the former camp. I said that that's not a workable fee. Let me come back to that, though, because you asked a question about what happened when Netflix offered ads. They had too many advertisers sign up. They had too many. They were demand. They were supply constrained, not demand constrained. They had to return money. I think that's exactly why OpenAI is saying, no, look, we're setting an upper limit on this. A million is the max. Right. Because they won't have enough people to advertise to. This is just a way to test it out and to start scaling. And the problem Netflix made was they never act. So the problem that Netflix had from day one was they had the partnership with Microsoft, with Xander. They were using external tech to run the ads. Right. Xander is an ad platform. And so that's the problem. They couldn't implement custom placements, they couldn't do a lot of measurement stuff, they couldn't do a lot of targeting stuff because they weren't operating the actual pipes, the actual plumbing that was delivering the ads. There's a lot of data issues, just access to data issues. That's not what OpenAI is doing. OpenAI is starting out by building their own tech and Netflix, by the way, pivoted to that. But they pivoted to that very late. That's why I think the ads initiative at Netflix was not successful and hasn't really delivered that much revenue going back to the 4% fee. First of all, here's what I think is going to happen. I think going to drop that to zero or very low. It'll be tiny. Because I think the whole point of this is to just drive conversions. And the whole thing is like when you see performance in ChatGPT as a retailer who's just basically paying for the conversions, essentially with the fee, you're going to want to actually advertise against that. You're going to want to control it because you have no control. If it's just surfaced based on what he believes is relevant. And at some point you're going to have too many retailers to place into a single placement, you're going to have to mediate that by bids. Right. So ultimately I think this gives way in the main, this gives way to advertising. But whether the 4% is sustainable or not actually comes down to how you view what those purchases are. Because it's not user acquisition, you're not acquiring a user. If you were, then you compare that to ltv. But since it's not user acquisition, you're not acquiring that user as a sort of like with a long term relationship in mind. You're essentially trading a percentage of the checkout for the checkout, but that user doesn't interface with you. Right. And in a lot of, in a lot of.
- [10:54]
C
So there's going to be. No, there's not going to be pass through to the underlying vendor. You're saying like, well no, I mean.
- [11:01]
B
Look, you're the merchant of record, right? And you get their information because you have to fulfill the order. But ChatGPT or OpenAI specifically says in the terms that you can't use your email address for like remarketing. Right. And you know, Amazon says this too. So, so the thing is, you're not capturing the customer, you're just getting. You're giving 4% for that one off transaction. But you have no control over whether you reach that customer. Again, whether that customer is brought into your orbit. That's a very different proposition from advertising to someone and acquiring a customer. You acquire that customer, you get a whole stream of opportunities to remarket to them. If you're just trading 4% for the transaction, that's all you get. So it's not actually customer acquisition. If you think about 4% per transaction. Now consider that if you thought about people talking about when that number came out, they talked about, well, some people spend 50%, 60% on Facebook ads. Why is that different? Because that's over the life cycle of that customer.
- [11:50]
C
Not for the ones that, or even one time, they pay for the customer one time and then they come back 15 more times or they end up subscribing and they've actually owned the customer relationship.
- [12:00]
B
Exactly. Think about it also this way, that 4%, that might be all the margin you're getting as an E commerce operator. The thing is that's not preventing you from advertising. That's not saying, okay, you just save your entire advertising, but you're going to still have to advertise everywhere. This is going to be a tiny sliver of your orders that you're not in control of. You can't control it. This could be lumpy. This could be up one month, down the next right, you can't control that. You have to continue to advertise. Now you have no idea to your point whether this is cannibalizing purchases that would have happened from the people that you advertise on other platforms, right? So this ends up just being a cost, a drag probably on your advertising expenditure elsewhere.
- [12:40]
A
Can you explain attribution and the evolution of Netflix's ad product? Because if I'm sitting on my couch watching a movie and I see an ad and I go to my phone, it feels really disconnected. Even in a pre ATT world, it feels extremely hard. How do they do attribution? How good can this get? And then with ChatGPT, what's the upper bound on attribution for OpenAI, given that we are in a post ATT world.
- [13:10]
B
Upper bound is basically what you see with Facebook because it's going to be direct response, it's going to be click based, right? With Netflix it's a little different. So with ctv, the way that companies do measurement and attribution in CTV is traditionally to set up what's called a clean room. So I set up this environment to centralized environment. I push all the ad interaction data that I have. So basically when I know I showed an ad to someone, I push all the data into this clean room. A lot of times it's, you know, it's IP address and device information and then the advertiser pushes that information into the clean room and I match it up. That's attribution for CTV traditionally. Now there's other ways to do it. There's other ways to do measurement that's just totally probabilistic. This is like media mix modeling and stuff like that. But with attribution, when you want to use that term, traditionally it's done with a clean room like that. So I'm just like linking the data sets together based on some key. A lot of times it's the IP address. But if you think about clicks, like clicks out, right? So that's like I'm viewing, I'm on second screen, I can look at time, like there's time elements, you look at temporal elements to do attribution. But if I'm clicking out, I've got the click, I've got the click. And so that carries a lot of information. I can still look at temporal aspects of that, but I can do a lot with the IP address too. And so that's, you know, if you look at a capi, that's what capi is. A capi is just a way to get this data on the back end. So it bypasses the apps, you know, it bypasses the mobile device, it bypasses the browser. So there's no way for, you know, Apple to interfere with that with ITP or ATP or att. And so you're able to get, you know, it's still probabilistic in that way if you consider, you know, the decay of the validity of the IP address over time to induce probabilistic measurement. But that's. Traditionally I've done it in a pixel as well. But I mean that's what OpenAI has at its disposal. It's got the cap and the pixel because it's going to be clickbait. So there's, there's, there's a high degree of fidelity that will come with the measurement there, the attribution. That's, that's way higher than what you can do with ctv.
- [14:57]
C
What do you think the prospects are for the number of companies that are trying to build LLM ad networks? I got pitched at least a few companies that were maybe a year or so ago saying like, hey, LLMs are going to be free, they're going to insert ads. We're going to build this kind of network to serve ads across a bunch of different apps. I was super bearish on those specifically just because I thought that OpenAI would want to own the full stack. Obviously Google would own the full stack and I think we're heading towards an oligopoly of sorts and consumer AI and where's the scale really going to come from? But any kind of takes on that front?
- [15:36]
B
Well, there'll be a long tail of agents that are going to want to monetize with advertising. So I think there might be space for an ad network to exist that services them. I don't know why that wouldn't be an existing ad network. I don't know why that wouldn't be. Or just sort of dsp. I don't know why that wouldn't be the trade desk say. But yeah, I mean, I think there's probably an opportunity to monetize some of those long tails of agents with ads. But if you think about a ChatGPT, of course they're going to build their own. Perplexity is apparently restarting its ads initiative. I think these companies, it would be silly to not build their own. You want to have that ad stack so you can make everything bespoke and maximally perform it. If we look at meta earnings, that's exactly what delivered that big beat. I think what people forget about the prospects of this AI enablement with advertising in digital advertising is that these effects compound over time, especially when you're talking about direct response based ad platforms. Right? So like with, with Meta, I've been banging this drum since Q1 2025. These effects compound like people point to like oh, 3.5% or 5% or whatever, increasing click through rates or increasing conversion rates from, from Andromeda, from Jam, from Lattice. Who cares? These are tiny. No, but first of all, that's every quarter they're, they're noting these performance improvements but also they compound over time. If I'm targeting 90%, a 90 day recoup on my ad investment and 120, 110% ROAS, what am I doing after 120 days? I'm reinvesting the 110% in advertising on your channel. And so if you're giving me 3.5%, 5% bumps every quarter, that's just going to end up getting reinvested. That's why we're seeing the growth re accelerate. Growth is re accelerating going into Q1 2026. That's amazing. That's why Facebook was up 10% last night. Because growth is re accelerating. They're going to see growth rates they haven't seen since the post ATT doldrums. That's incredible. That's incredible growth. And anybody who doubted the capex going historically has to accept that reality now. And they did. They did yesterday.
- [17:31]
C
Yeah, yeah, yeah. What people like. The criticism is like Zuck is being so ballsy with capex specifically on gen AI. On gen AI specifically. And the criticism is like, hasn't launched a hit gen AI product yet. Our take earlier on the show was like, look, this guy is serving more Gen AI content than almost anyone on earth. Even if he doesn't have like a breakout net new product. His product has massive tailwinds because of all this. Like he's in a perfect position to decide, yeah, I'm going to, I'm going to be, you know, one of the biggest spenders in this category and plan, you know, however many years out in advance.
- [18:11]
B
They're making more money on AI than anybody except for Google. Look, the idea that they're not, they're not utilizing generative AI. Have you seen the ads on Facebook? Those are all generative. There was a revolt, there was an advertiser revolt. There was a scandal recently because Meta was being too aggressive with the ads generation. The idea that they're not implementing generative AI is absurd. I Mean, first of all, generative AI is not just what you see in the output. I mean, they talked about pairing LLMs with AD ranking. That's really fascinating. Cutting edge research in advertising using LLM to give you feedback on the ad. Does this resonate? Is this something that someone would click on, like pretend you're this demographic? There's already research that shows that that has a really beneficial impact on advertising. It's not just like what you see in your feed, but also the stuff that you see in your feed is generated. The idea that they're not utilizing generative AI in advertising, that's absurd. You can see it just go on Facebook right now.
- [19:08]
A
I want to move on to other companies, but I want to have one more question about OpenAI. Do you think that there's any, any sort of risk to like pushback of like the creepy ads, like being too well targeted? Facebook went through that with like the T shirts that said your name on them basically and like your whole career path.
- [19:24]
C
My, my assumption is that eventually like you're only getting ads that were specifically generated for you. Like this idea of like, historically you'd have, you know, one ad that a brand would make and they'd run it at the Super Bowl. They're like, we're going to send this to all of America. And then eventually with, you know, on platforms like Meta, I would assume that every ad is like a one off generated and it knows, it knows exactly how to position a product, what color, what environment to put it in. And it'll be insane that we used to have ads and we'd make one piece of creative and then run it to like 10 million people because it was like, good. And it's like, no, this will all just niche, niche, niche, niche, niche down more and more.
- [20:04]
A
What do you think?
- [20:04]
B
Look, I mean, it's like the idea that everyone would see the same feed when they opened up Facebook is absurd now, right? I mean, like, look, if, if people truly hated creepy ads, Facebook user numbers wouldn't, you know, monotonically increase every quarter, right? And you know, Europeans would be lining up to buy the subscription in Europe and when in fact only 1% of users in Europe has taken that offer, right?
- [20:31]
C
Is that an offer to eliminate? Is that like an ad free, like meta offer? Is that what you're talking about? Because I know they're talking about rolling out.
- [20:38]
B
So they've got the less personalized ads option in Europe as a result of the DMA compliance. They have three options. They have a full on subscription, no ads. If you have the less personalized ads and they get the normal experience. 1% of people opted into the subscription. People hate ads. They just hate them less than every other monetization model. People love ads. If you look at demonstrated behavior, people love ads. People love access to free tools. People love access to, to sort of like endless, endless capacity. Right. You start capacity constraining things or you start putting up paywalls, obviously by definition those are going to get used less or most likely by definition. The thing is, the idea that ChatGPT is going to run into this problem that's unique to chatbots, I just don't buy that. And first of all, maybe they will because maybe they'll design this the wrong way, but I give them the benefit of the doubt. I think they can do it in the right way. And one way to do it, it's to just not tether the ad at all to the chatbot context. You could just say, look, this is a display ad for what we know you're in market for, based on capi, based on the pixel, and we're going to make sure it has nothing to do with what you're talking to the chatbot about. So you never have to even question whether the chatbot has your best interest at heart. That's a very easy way to sidestep that problem. But I think they've got very skilled people there. They know exactly what that trap is and they're going to avoid it.
- [21:54]
A
Yeah.
- [21:54]
C
You think we're going to get ads in Siri in the next 24 months?
- [22:00]
B
No, because of, just because of Apple's, because of the optics of Apple doing that. I think Apple would probably love to do that. I think there's probably people inside Apple that are pitching that, but they won't because it's not in alignment with their optics around advertising.
- [22:12]
C
But, but nonetheless, we were talking like, I think people will be normalized to ads in Apple products. They obviously are. In the App Store today, Gurman was talking about ads in Apple Maps coming in the near future. And then I think from that point, if people are starting to use Siri as a search engine, there will be ads. Eventually it will just be too. To be able to serve ads like basically natively in the UI to iPhone consumers would just be too tempting.
- [22:43]
A
They gotta do ads in the alarm clock app. I wanna wake up to a different ad every day. Get out of bed, start buying, get online. It's time to check out.
- [22:55]
C
Yeah.
- [22:56]
B
Morning. Tonight you should be consuming. I don't know, maybe. I think Maps podcast For sure. But the thing is, like, I wrote this piece when, when Apple introduced att, I said, apple robbed the mob's bank. I said, look, this is just an opportunity for them to shift some of the budget that's going to meta into their own ads ecosystem. They did that because they expanded their Apple search ads. They just doubled the number of impressions per search. They've got two placements now in Apple search ads, and they're also blurring the lines between ads and organic results there. Right. So the idea that Apple hates ads, I think is mistaken. I think what Apple needs to do is they need to sort of walk this tightrope of appearing to hate ads while also benefiting from ads because they are such a, you know, an accretive sort of margin, expansive way to make money. Right. So maps, for sure. I think podcast is another prime piece of real estate for ads to be inserted into. I don't know about Siri Siri. That feels like maybe a little bit too on the nose, but who knows?
- [23:52]
A
What about Gemini? Did you. What was your reaction to Demis talking about ads in Gemini?
- [23:57]
B
That makes total sense because they're already monetizing Gemini with ads. They're doing it with AI overviews and AI Mode. They're monetizing ads and AI overviews at parity with search. Why would they rush to put ads in Gemini the chatbot? Keep in mind, Gemini is two things. Gemini is the family of models and Gemini is the chatbot. Why monetize with ads in Gemini the chatbot? You never need to. You could just drive adoption of that. They're already monetizing Gemini, the family of models through overviews in AI mode. Overviews reaches 2 billion people a month. That's the biggest single LLM output ad surface that exists. They're already monetizing Gemini through there.
- [24:36]
A
Yeah. And is that product just. What's the shape of that product? Is that just the exact same as just branded keyword search on Google? Like what is there. Are there anything different or any learnings from the. The ads in AI search overviews or AI powered search?
- [24:53]
B
So AI Mode is essentially the chatbot. AI Overviews is the results that basically takes up now the whole above the fold on Google Search. But it's better. It's better than search. You know why? Because the whole point with search is I want this to be one shot. I want to type in my keyword and I want to get the best possible result in that first list of results. And if I don't, then I think your product is bad. Right. And so Google is incentivized to make sure that there was one click and that's it. So you get one chance to show ads with AI overviews. The whole point is to then prompt further queries. Right. So you get a bunch of opportunities to show ads. Right. So if that's monetizing at parody is probably also driving impressions up. I think that's a much better ad surface area than traditional search.
- [25:33]
A
Yeah.
- [25:34]
C
How should startups, business owners be thinking about TikTok under new ownership?
- [25:42]
B
TikTok is funny because they're going all in on commerce again. It seems like they had a really big kind of Black Friday, you know, whatever event, you know, revenue pop, revenue spike. But, you know, they seemingly were walking back the TikTok commerce opportunity. Now they seem to be leaning into it. I'm not quite sure what to expect there. I think, you know, TikTok, I think they were in a little bit of the stasis for a while just because of the uncertainty around what was going to happen with the, with the spin out. My sense is now that they have the certainty they'll probably lean into where they feel like their best position and that might be commerce now that Metta has completely abandoned it. But I just don't think that that's the right approach. I don't think western audiences really appreciate that as much as just the ads driven model and so the pure play ads driven model. So we'll see if that ends up working for them. But yeah, I mean, I think TikTok, if Meta can do what they did to snap with TikTok, they're going to be in a pretty difficult position and they may have to just adapt in ways that Meta won't and that would be leaning into commerce more heavily.
- [26:46]
C
Yeah, I always assumed, maybe naively, that they would lean out from commerce because it seemed like it was just a money pit. They were just lighting money on fire. And the new owners would say, okay, we just bought this, we have to pass back 50% of our revenue to ByteDance. The whole economic model of the business seems super upside down. Let's just serve ads and try to run the business lean and maintain the user base. But leaning into commerce just feels like, I don't know, there's so many brands that I've heard about over the last 12 months that are scaling into the hundreds of millions of revenue and it's almost all on TikTok shop. And it just feels like that was basically subsidized by ByteDance for a long time. And will the New owners want to subsidize these brands that are driving real volume. But ultimately I don't know if they would be able to stand on their own two feet.
- [27:38]
B
Yeah, I mean they did walk it back. I mean they did two rounds of layoffs in the, in the, in the Commerce division. Yeah, I mean the thing about, one thing you have to remember about TikTok and the ByteDance and the whole like the parameters of this deal is that they're like, they're still licensing the algorithm. Right. So like I think that impacted the kind of the valuation and that that may impact some of these other economics. But yeah, I mean I just, I just feel like they maybe, they maybe sense that that's an area where Meta retreated and so that's where they could potentially flourish. But it was odd because they did walk that back and now they seem to be, you know, embracing it again.
- [28:10]
A
Yeah. What's your current thinking about the Netflix Warner Brothers deal? It feels like we're in a lull. It's moving forward, but would be interested to see.
- [28:21]
C
Yeah, I'm also interested just how do you think about Paramount's prospects as an ad platform without all of that ip?
- [28:29]
B
Yeah, yeah, well, so it's interesting. So the thing is the IP is so important. Right. So one of the aspects that I found really interesting about the Netflix deal was that they essentially valued WB games at zero. So WB games makes whenever they're big hit games and makes their Game of Thrones game on mobile and they've got Mortal Kombat games and a lot of different console games, Batman, Arkham and at one point it was for sale in the multi billion price range. Right. And so Netflix essentially valued at zero. Why? Because ultimately there'd have to be like an IP licensing agreement that allowed them to continue to monetize those games. Right. So I think the same is probably true on the IP side. Just generally with wb. My sense is, what this indicates to me is this was just, I mean this was said explicitly in the earnings call. It's like we're going to pay for content one way or the other and we need this high end ip. Right. And if you look at, I mean everyone saw the Joe Rogan clip with Matt Damon and Ben Affleck talking about Netflix makes us restate the plot of the movie every couple minutes in dialogue. Because if people don't hear it explicitly, they just lose interest because they're on their phones. Like you wonder. Okay, well is that a result of like people's attention spans, you know, declining or is that just because the stuff you're pumping out isn't that interesting and people are not really paying attention because they're kind of bored. Right. And so I think maybe it's the latter. And so if you bring in a bunch of top notch ip, maybe that keeps people more engaged and then hey, maybe that boosts the AD CPMs or maybe you know, and ultimately boost subscription numbers. But my sense is like they're going to pay for content one way or the other and like maybe just buying a lot of it in bulk at once is the best way to do that.
- [30:10]
A
What else are you tracking this week across earnings, Microsoft and Tesla? I don't know if you follow those stories, but what else is interesting you this week?
- [30:21]
B
Well, we got Apple right now. Yeah, I mean I think like you had Gurman on yesterday and he's just always an amazing wealth of, of leaks. It's pretty impressive that he's able to get those. Apple's pretty buttoned down. But yeah, I mean I think just the AI story there is kind of embarrassing. And I wrote this piece a while back. Apple is besieged on all fronts. And I was talking about like, look, if you look at AI, if you look at some of the threats to ATT in Europe, there's a lot of issues that they face. I think one of the big questions for me when they announced a deal with Google to use Gemini for, for Apple intelligence, which among other use cases include Siri, was how they would just manage the privacy aspects of that. Because they were so adamant, right? They talked about the private cloud compute. They were so adamant that when we do this, we're doing it the Apple way, we're doing it the privacy centric way. And then they do the privacy washing thing which is just then to partner with Google and allow them to do all the dirty work of sourcing the data, sourcing the data to train the model. Right. Or of just monetizing with ads like, and they just get a cut on the back end. And in this case Apple's paying, but at some point, but at some point Google will be paying for penetration into iOS and the exposure. And I think, you know, that's just a question of like, is that really the reason, is that part of the reason why they never invested here because they couldn't really do it in the Apple privacy centric way. And if you want someone, you know, if you understand that the dirty work of sourcing this data in ways that maybe are not completely above board or just monetizing with ads, I mean Apple makes So much money from advertising. They just don't do it directly. Right. They do it through the partnership with Google. Now they're going to be making money through AI interactions, but they're not actually the ones training the models and sourcing the data in ways that could be questioned. Right. So I think that maybe plays a part in it and I think maybe when you get to a point where all of this can be done on device. Right. When the device is actually powerful enough to service. Most of these use cases maybe have smaller models. You don't have like foundational models. We have smaller models that can all run on device and maybe Apple be more interested in that. But I mean like you have to look at the thing as either it was a massive whiff, which seems to be what Gurman's take was, or it was just a sense of like, look, this is actually going to be really difficult for us to reconcile with our brand imagery and the sort of messaging that we've, you know, we've relied on for years and years, like, you know, privacy, that's Apple. Maybe we'll just outsource this in the same way that we outsource search. Right. And advertising to Google until we're able to all process everything on device and ensure that we can maintain that messaging.
- [32:55]
A
Yeah, my take is I agree with the WIF narrative, but also it does feel like there's the seeds of a rebuild between this new acquisition that they're doing. They're starting to open the pocketbook a little bit. The hardware really is best in class. We saw that with the Mac mini boom to some degree people are excited about the silicon Apple, silicon and then just the partnership with Gemini. They're going to have access to something frontier so they can start to vend it into different places. But it's, it's just on Apple's timelines which have been slow lately. So.
- [33:28]
B
Yeah, yeah, but the iPhone air was. The iPhone air was a flop. Right. I mean, you know, we'll see what happens with the foldable. But like, I mean I think they are facing, you know, obviously the replacement cycle is really long now. I think one thing that's like kind of under discussed is like I wrote this piece a while back, like years ago where I said, you know, what are the implications of a billion iPhones? And this is well before there were a billion iPhones in circulation. And my point was the implications are that a lot of those are in the developing world. Right. They're secondhand third hand iPhone devices and that's kind of like there's this strange dilemma that Apple faces. Like the more powerful the devices get, obviously the longer you can go without replacing them. Right? Because the demands of Spotify aren't changing, the demands of Facebook and Instagram aren't changing from like a hardware perspective. Right. And so the question is like how, how, how central can you make AI to the core use case which is a lot more compute intensive? If you do everything on device, how central can you make that to instigate a need to replace the device more frequently? Not just because the power of the device at some point doesn't even matter. Like okay, you tell me the compute capacity of the next iPhone is 10x what I have now. Okay, what are the demands of Spotify 10x? Because that's the only app I use for hours and hours every day. That's kind of the question. And so it's like if all of that functionality can sort of percolate down to the iPhone 7, right? And no one really sees a difference in sort of like in sort of like lifestyle between like the brand new iPhone and the iPhone 7 with their only using Instagram and Spotify, how do you actually convince people to upgrade on every cycle? Right, because keep in mind like that as that sort of install base, iOS install base grows, most of that's going to be through like secondhand.
- [35:13]
C
Jordan German it was interesting yesterday he shared that a lot of Apple's advantage on the hardware side and is because of the self driving push of the car that ultimately failed allowed them to do the R and D that that is now being rolled out devices. Apple had had a huge quarter beat beat estimates on the revenue side by 4 billion with China specifically and up after hours. The other news that's kind of interesting. I'd be curious before you leave Eric. ChatGPT is retiring 4.0 as of today.
- [35:53]
A
Yeah, that's interesting.
- [35:55]
C
Putting it to bed. I'm sure that'll make a lot of.
- [35:57]
A
People mad but simpler process for them.
- [36:01]
B
Well yeah, but they also launched go, which is the sort of like lower price point subscription tier. So my sense is like, you know, if you're trying to push people to adopt that, which I think they are, you maybe have to get rid of some of like the, the older models that the free tier relied on.
- [36:16]
A
Well thank you so much for taking the time to join. This is so much fun.
- [36:20]
C
Yeah, really enjoyed it. Eric, come back on soon.
- [36:22]
B
Yeah, we'll talk to you soon.
- [36:23]
A
Have a good time. Goodbye.