Big Technology Podcast - OpenAI and Microsoft's Tension, Apple Screens Everywhere, Meta’s Toothpaste Massacre

Episode Date: October 18, 2024

Ranjan Roy from Margins is back for our weekly discussion of the latest tech news. Cory Weinberg from The Information joins us for the first half! We cover 1) Open AI and Microsoft’s relationship starting to fray 2) Microsoft rebuffing OpenAI's fundraising efforts 3) Mustafa Suleyman's impact on the Microsoft - OpenAI dynamic 4) Why OpenAI sought Apple and NVIDIA's investment 5) Softbank from the top rope 6) When might OpenAI declare it's reached AGI? 7) Microsoft and OpenAI sort out ownership stakes in a new for-profit entity 8) Apple's new smart home strategy 9) Netflix's earnings and engagement questions 10) Meta fires employees for using meal money on toothpaste 11) Silicon Valley and FIRE --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Want a discount for Big Technology on Substack? Here’s 40% off for the first year: https://tinyurl.com/bigtechnology Questions? Feedback? Write to: [e-mail]

Open AI and Microsoft's relationship is starting to fray. Apple wants its screens all over your home. Netflix kicks off tech earnings and Meta fires a bunch of employees for using meal credits for toothpaste. All that and more is coming up right after this. Welcome to Big Technology Podcast Friday edition when we break down the news in our traditional cool-headed and nuanced format. We have a great show for you today because we're going to talk about how Microsoft and OpenAI have all this really weird tension between the two, especially after Microsoft invested almost $14 billion in the company. But now things are starting to get weird,

and we love talking about that on this show. So we're going to talk about that. We're also going to talk about Apple's strategy to get screens in your house. A little bit on Netflix earnings this week, which just came in and beat expectations. And then finally, we're going to talk about the toothpaste massacre, which we're calling it at Meta, where a number of the company's employees were fired for using meal credits

on household items like toothpaste, and this is something that I pointed out on Twitter. The tweet went viral. I'm sure we have some listeners who've come in after seeing that. Of course, Ranjan replied to me, I think taking a different side. So Ron John, I'm excited to get to that toward the end of the show, but I should introduce you. Joining us as always is Ron John Roy of margins. Ron John, welcome. While Satya and Sam's bromance may be fraying a bit, I can tell listeners, Alex and I,

our bromance remains strong. Our romance is strong. I think it's always a little bit simpler when you don't invest 13.75 billion in the other. But I think we'll just take it as a testament to our podcast chemistry beyond anything else. I think that's fair. Now, let's get right to that story because it's fascinating. So I was sitting back on Thursday being like, wow, this is like one of the few weeks we've had in a long time where no AI news has really come out. And then what I think is one of the most consequential stories of the year. an AI came out from the New York Times. And this story is all about how opening eye in Microsoft's

relationship is getting complicated. The headline says it's starting in the fray, but as you read in, some of these details are exceptionally juicy. And it also illuminates a lot of what we've been talking about over the past month or so when it comes to who might be funding Open AI and why. And why did Microsoft only put in less than a billion dollars after putting in 13 billion previously. So let's just start with the fact that Microsoft was going to put more money in, according to this New York Times report. Let me just read it to you. Last fall, Sam Altman, OpenAI's chief executive, asked his counterpart at Microsoft Saty Nadella if the tech giant would invest billions of dollars in the startup. Mr. Nadella was initially willing to keep the

cash spigot flowing. But after Open AIs, Board of Directors briefly ousted Mr. Altman last November, Mr. Nadella and Microsoft reconsidered. Then, over the next few months, Microsoft would not budge as Open AI, which expects to lose $5 billion this year, continue to ask for more money and more computing power to run its AI systems. Then, OpenAI tried to renegotiate the deal to help it secure more computing power and reduce its crushing expenses while Microsoft executives have. have grown concerned that their AI work is too dependent on Open AI.

And Nadella said privately that Altman's firing in November shocked and concerned him. So three big headlines. A, Microsoft was going to fund Open AI and then didn't. B, Nadella is shocked and concerned about Sam Altman's firing by the board, which we knew. But C, the company, and this is another important thing, the company, and that means Microsoft has started to realize that it's too dependent. dependent on Open AI and is working to hedge that bet. Ron John, let's just talk about the top of the story before we go deeper into some of the details.

What do you think about that? It's pretty explosive, right? I think it's explosive, and I think it's the most logical, rational thing I can imagine, especially when the grownups are in the room right now, Satya and Adela, being shocked and concerned about Sam's firing and then rehiring, again, for a company of this size and an investment of this magnitude, this stuff is just not supposed to happen. You're running a company as giant as Microsoft.

You're used to understanding that things are supposed to run a certain way. And everything we've seen, and we've been talking about this a lot, that Open AI for the size and scale of the company is one of the most oddly run companies I can see or Matt think of in terms of its corporate structure, which we will definitely get into. But also overall, just its org chart.

which is a, I've seen plenty of memes around the org chart and who's been X'd out in just the last few weeks. So I think it's pretty reasonable that Mr. Nadella would be both shocked and concerned. And now the question comes, what does Microsoft do about it? And one of the big moves it's made is bringing in Mustafa Suleiman from inflection. And Suleiman, according to this New York Times article, has basically been tasked with two things. One is, the way that Microsoft builds open AI technology into Microsoft products, but B, the way that Microsoft builds technology that could eventually replace what the company is getting from OpenAI. So in two moments, he's working on integrating Open AI technology, but also

potentially replacing Open AI technology. And this is some just pretty wild details from this story about basically the most important guy for the relationship within Microsoft and how he and Open AI are getting along. Some Open AI executives and employees, including Mr. Altman, are angered that Mr. Soleiman is at Microsoft. And dozens of Microsoft engineers work on site at OpenAI's office in San Francisco and use laptops provided by OpenAI that are set up to maintain the startup security protocols. Let's see how that relationship is going. And this might just be an isolated instance. Let's not make too much of it.

But the fact that it made it into the New York Times is fascinating. Some open AI staff recently complained that Mr. Suleiman yelled at an open AI employee during a recent video call because he thought the startup was not delivering new technology to Microsoft as quickly as it should. Others took umbrage that Microsoft's engineers downloaded important open AI software without following the protocols, the two companies had agreed on.

Of course, just two examples in a story and relationships are what they are. But that sounds messy to me, man. No, I think that was my favorite part, again, Open AI staff complaining that Mr. Mustafa Suleiman's yelling at an employee during a recent video call. But here is why I think this is insane. There's plenty of things that are insane

about Open AI in general, is these are the kind of, issues, and these are the kind of stories, you hear about a lot when a startup is acquired by a big tech company or a bigger company. Again, cultural differences, turf wars, these things are completely par for the course when it comes to an acquisition. Open AI is not acquired by Microsoft. Open AI just raised the largest venture round ever and is worth $157 billion. Yet the relationship between these two companies is so weird and odd that somehow they're still having the same kind of issues that a completely acquired company would have. So I think this stuff is going to just

continue. The fact that this is coming out now finally in original reporting, I think we're just going to hear more and more odd tales about the integration levels between these two companies, separate from the financial on the cultural side as well. I mean, the idea that Microsoft engineers could just download opening i software i mean without like any protocol what do you think about that well i think it's a little unconventional to be used to be generous about it that is a generous term no unconventional we'll call it but but again with the already the financial side we've talked about plenty is unconventional in terms of who gets what profits when who gets what the cloud credit investment is versus the cash investment. All of this stuff has been essentially

unprecedented as another generous term. But now the idea that Microsoft engineers can download open AI software, they can yell at their employees on a video call about not delivering technology fast enough. It appears that these things are okay in the current setup and it can't last. It simply cannot last. And I think this, even though last week I suddenly became bullish around Open AI after that one investment slide, these are, these things bring me back to Earth and remind me that this is a messy situation and this is not normal for a company of this scale. Right. And that was kind of Silly Mon's reputation. A deep mind was a guy who was kind of abrasive. So it looks like it may potentially be showing up here, although again, this is the Times reporting. And I don't think

they commented on it. But now as all this weirdness happens, remember, opening I is working with Microsoft, Satya is like, well, I don't know if I want to rate, I don't know if I want to commit the same way I did because of your weird politics. And by the way, my team's going to come in and do stuff, maybe they shouldn't. And then opening I still has a round to race. Because like we talked about last week, the company's making $4 billion in revenue and spending $9 billion. So that's a loss of $5 billion. And without cash, this baby don't run. So it needs the money and needs the compute. And it has to look elsewhere outside of Microsoft. So let's go to the next part. And by the way, I should, I should note that I'm in the process of inviting people from Microsoft's AI team,

and I'm sending an invite out to Suleiman to come on to the show. So if he wants to or anybody from the Microsoft team wants to come on to talk about this and Microsoft's general interest in AI, you're more than welcome to. putting that out there. But let's talk a little bit about what happened with this fundraise. So after Microsoft, this is from the Times article, after Microsoft backed away from the discussions about additional funding, Open AI was in a bind. It needed more cash to keep its operations going. And its executives chafed at the exclusivity of the contract. Over the past year, the exclusivity is basically that they committed to using Microsoft's cloud compute.

Over the past year, the AI company repeatedly tried to negotiate a lower cost and a allow it to buy computing power from other companies. In June, Microsoft agreed to an exception in the contract. That allowed OpenAI to sign a roughly $10 billion computing deal with Oracle for additional computing resources. Oracle is providing computers pack with chips suited to building AI while Microsoft provides the software that drives the hardware. And in recent weeks, Open AI and Microsoft negotiated a change to a future contract that reduces how much Microsoft will charge the small. smaller company for computing power. So again, this kind of goes to the idea that like open AI is still pretty dependent on

Microsoft for compute and for the good deal that it was getting on compute. And if Microsoft's going to sort of take a step back, I don't know if you could really call it a step back if it's still investing nearly a billion dollars, but a less enthusiastic, you know, embrace of open AI, then it gets weird in terms of the computing costs. What do you think? Well, yeah, there's also the part around that Open AI. employees are blaming and complaining about Microsoft to not that they're not providing enough cost-effective compute.

And I think we know the key to any good bromance is cost-effective compute, and it's no doubt that it's the key to any good bromance. And the fact that they have been getting preferential terms through this entire run up till now, and now if they have to compete at a level playing field, they're already losing $5 billion a year, how, I mean, the economics of the company have been, there's been plenty of questions raised around it. And to me, that actually is one of the more interesting things that people need to look at more. And I'm sure more will be coming out around it is what does their cost structure look like going forward? Because it's not going to be

what it is today. And it's not great today. It just pushes home some of the topics we've been talking about previously on the show, which is basically like, you're turning in a $5 billion loss with sweetheart terms. So what happens when that goes away? It's a real question. And Open AI is trying to solve this. And remember we talked about how Apple and Nvidia were, you know, potentially going to fund the company? And I think that's basically, I mean, this is again from the story. It seems like that was basically Open AI's interest in trying to find others that could help it with compute. Part of the plan, this is according to the Times, was to secure strategic investments from organizations that could bolster Open AI's prospects

in ways beyond throwing around money. Those organizations included Apple, the chipmaker, NVIDIA, and MGX, a tech investment firm controlled by the United Arab Emirates. I think they need to. Again, it's not cash, it's compute, which is interesting in terms of what this means for just any kind of generative AI driven business. But I think it says a lot that they were more focused on preferential compute rather than cash, knowing that that is the majority of the cost. But to me, and we talked a lot about this last week, the projections they've given around how they turn profitable, everything assumes a significant decrease in relative compute cost. the idea that they are pitching is that things will get more efficient, things will become more

cost effective in terms of how they train the future models, but it's still weird that they're saying that in the financial projections, yet specifically trying to chase investors who can provide them compute. And I think it just shows the conflict at the heart of all of this. But I think there's some logic to take their side for a moment in that, which is basically like, For the time being, there's going to be a lot of compute required. But over time, as more efficient or different techniques for training and inference come about, that will not factor as much as it does now. This is going to be about the crudest possible way you can train and run an AI model today

because we don't have necessarily the hardware custom built for it and because the techniques are still in their infancy. And over time, that will come down. But in the time being, if you want to survive, you need that compute. I think that's fair, but it's still the numbers, it doesn't make the numbers add up any time in the near future. And this is a company that as you, I think in the piece you had written this morning, you said that they just raised a $6.6 billion round, but the question is, when do they need to raise again? And as long as that's the case, the stuff is not going to happen over months. It will happen over years.

So the actual sustainability of the company has to be called into question then. Without a doubt. Let's just season that for a moment. One of the things that this story really illuminated for me was that you have Microsoft backing away. You have Apple and Nvidia taking a sniff deciding not to invest. You have traditional VC deciding not to invest for the most part. Okay, you have Thrive Capital that's going to, you know, this time put in billions of dollars, it seems like, or at least a billion into the round. And you were raising $6.6 billion. You're losing $5 billion.

So we're thinking late next year They're going to have to be putting together The next round of presentations to take to investors Which by the way the year afterwards They might lose 14 billion And that is the question Is after going through all these sources of funding No matter how promising the technology is

And the technology is funding Who's going to foot the bill for that 14 billion in loss In 2026 After you've already gone through this set of characters It seems like the only one That could possibly do it is a nation state Well, I think in terms of the funding, and maybe this is a controversial view on it, but I've written before around the whole model of late stage momentum driven investing, where entire global altimeter, these companies really push this model 2021, 2022, you come in midway, you come in late, you increase your investment and make it bigger and bigger and bigger at a higher and higher valuation, even though theoretically that's not. Instead of fighting for better terms in the latest round, you are happy with that sky-high

valuation because it means your earlier investment now shows a much bigger return, and then you can go out and raise a new fund off of that. And that whole flywheel worked very well, and it looks like that's what Thrive is doing. Remember, Thrive is big, but it's not gigantic. So this scale of investment of a billion dollars, I think, is, it's kind of telling that they're, instead of backing away, letting others actually who have that kind of capital base take care of these bigger rounds and just sitting on your massive gains off of your initial early investments and they're very early and open AI. But I think

they're quadrupling or quintupling down right now. So I think it's the composition of investors really says something from this past round. Right. I mean, the other option is maybe they just get SoftBank, which was involved in this last round. Yeah, they got soft bank. Masayoshi Sun says, I'm going to take one last bet, and it's all of his money into Open AI. And Open AI achieves AGI-I, Masioshi-San gets paid back in multiples. And the SoftBink story and the Open AI story turned out beautifully.

I, for anyone who followed the WeWork story closely, there's all these amazing anecdotes around like, and I think they was even in the TV show of like Masioshi son sitting in the backseat of a car with Adam Newman with just an iPad and raising the $4 billion right there. I would pay anything to just get to see a meeting of Sam Altman and Masayoshi's son. Right. And he said to Newman, he's like, you're crazy, but you're not crazy enough. And Adam was definitely crazy enough. And he's like, your big flaws is you're not, you need to be crazier. And if that's what Masa reacted to when he was sitting next to a co-working entrepreneur. What's he going to do with Sam Altman? I'm going to build him

AGI. Oh my God. The lifelong vision, this is your capstone in life. And Sam Altman's a guy that's going to deliver it. I think we have not seen the last of SoftBanks involvement in this. Now that we're laying out this out, I mean, this is his dream. Sam Altman is the profit to Masayoshi Sun's vision. But, okay, but I mentioned AGI.I. And we're talking, talking about weirdness. And today, and we love talking about the weird stuff on the show. And today we've mostly focused on the structure, the nonprofit structure, but the Times article brings what might be the weirdest part of the entire Open AI corporate structure into focus, which is that open AI needs more compute to try to build AGI. But once it builds AGI,

it's no longer beholden to Microsoft. This is from the story. If open AI builds artificial general intelligence, a machine that matches the power of the human brain, Microsoft loses access to Open AI's technology. The clause was meant to ensure that a company like Microsoft did not misuse the machine of the future, but today Open AI executives just see it as a path for a better contract. And the Open AI board is the one that decides whether AGI has arrived or not. I mean, this could really lead in very, very interesting directions. This one sent me through the roof. I mean, in a legal proceeding, in a context, contractual situation. I'm just picturing a bunch of investment bankers standing around negotiating terms

and just the term AGI being so callously thrown around in terms of like, I mean, I want to know, are there footnotes and definitions around what is AGI? As you said, it sounds like the Open AI board gets to determine whether it has arrived. So can they just say, all right, AGI, we're done. Now let's say, you know more profits for you, Microsoft. I think this is, I saw one tweet, it was like, welcome to the stupid cyberpunk future. And that's what this one felt like. I think we're joking about it,

but I think that might very well be what happens. Remember, the board is now packed with Altman Loyalists. And it's not that Microsoft doesn't get the profit. It's just it loses access to the technology. And the simplest, easiest way out of this situation is for the Altman Loyalists on the Open AI board. to say, well, GPT technology can reason. It is proficient in many different tests, many different disciplines.

It's general, it's intelligent, and it's artificial. We declare AGI, get out of our backyard. Take your laptops and go. Wait, this is interesting. Now that I'm thinking about it, you're right. This could be the ultimate chess move by Sam Altman right here. And again, the idea, still in these negotiations,

I always assume Microsoft and, Satya Nadella have the very strong upper hand, but getting a clause like this into your contract and you being able to define, as you said, it's artificial, check, general, check, intelligent check. All right. It's, we negotiate the time. It's AGI baby. It's AGI baby. We're there. If OpenAI declares that, let's say the next version, let's say GPT5 is AGI when, and let's say it's like, you know, better than GPT4. but not by much. I think a lot of people would go along with it and just be like, of course it's AGI.

And that would be it. I think because no one has ever actually explained exactly what it is other than very nebulous paintings of a future and like completely, you know, self-reasoning models and stuff like that. But what exactly does that mean you can run through a customer service workflow and the agentic, the agent will make some decisions, and that's it? Yeah, just as capable as a human in a bunch of different disciplines. And if you look at all the different tests that it's built, like passed, the same model, passing science tests, passing math tests, why not?

And just like a human, it doesn't need to be 100% accurate or correct. In fact, that's even more human. More human. That's more AGI. Here on Big Technology podcast on October 18th, 2020. we declare that Open AI has reached AGI. I second this motion, put it in the contract. Past.

By the way, there's another issue here, which is that, by the way, we're just kidding, for those who might take that one literally. There's another really interesting issue here, which is that Microsoft's invested $13.75 billion into Open AI. Open AI is now going to transition into a for-profit corporation. And the question is, what does Microsoft's investment entitle it to in this new for-profit company? And both Microsoft and OpenAI have hired investment banks to see this through. And I'm curious what your perspective is around having spent time in the financial world.

How do you settle something like this? I mean, they put a lot of money in. They should be entitled to a traditional, maybe like Series A lead. investor stake, which would give them, what, like 15% of the company? Okay. So I think this detail is why I was just laughing so much with the idea of Goldman Sachs bankers and Morgan Stanley bankers sitting around with a straight face trying to negotiate through these things.

But one thing I wanted to touch, in that Wall Street Journal article, there is a really good infographic data visualization on how profit distribution works in the current structure. And remember, the latest round still requires that I think it's in the next three years. They do convert to a for-profit structure. Two years. Okay. But this one was crazy to me in terms of when we're talking about unconventional or unprecedented. So the first $194 million of the company's profits pay back its initial investors.

The next $17.3 billion of profits will make Microsoft whole on its initial $13 billion. So they'll get 75% of that. Then after that, all profits up until a certain cap, half go to Microsoft, 40% Open AI, sum to the actual nonprofit arm. And then after that, everything goes to the nonprofit arm. That's the initial nonprofit structure. Weird as it is, my favorite part of reading that is this is a company that's losing $5 billion. Yeah, right. It's the same for our profits.

Assuming there are ever any, not just profits, but that scale of profits. And again, like, yes, Google and meta just churn out profits and cash. But LLM-based companies are a completely different model. I'm getting more and more convinced. They're more akin to an industrial company versus a pure tech company from everything that we've seen so far and everything that I think will happen. So the idea that they have such detail around how they're going to share profits in the future when this is a company that cannot make money on preferential terms is a bit comical to me. But Ron, John, I have to say, I think you're deeply misguided on this one because in your calculation, you are including training costs in the profit calculation.

We know you don't do that. And you don't include your training costs in the profit. LLM adjusted EBITDA for those who weren't with us last. week we ranted a good amount but but I think the most important part of this article was was that again that that image of bankers sitting around trying to and I think they'll probably take themselves seriously because they're going to be getting paid a lot in fees over when you're dealing with this kind of money but still with a straight face based on all of the training they have ever had a

around any other kind of deal trying to come up with things like, what should this be worth? How are they going to convert into a for-profit company, AGI elements of the contract, all these kind of things. Someone must be just kind of messaging in the background what the F is going on. Oh, yeah. No, definitely. It's obviously untraditional. This doesn't happen. Usually, actually, it's unprecedented, to use your word, for a company that starts as a nonprofit to end up becoming you know, one of the highest valued private companies in the entire world. Just to go back to the including your training costs and profitability thing, I did look into this this week. And I found out some interesting things, which is, and this is potentially

one way you might look at it, which is that the nature of models might change. And that training cost could actually be quite variable. So if you think about it with the 01 model, Open AI's reasoning model, you ask the question, and then it reasons, through after the prompt. So a lot of that compute actually happens in the inference part as opposed to the training, even though the model is super smart. So this idea that like training costs will necessarily go up and are a fixed cost as opposed to a variable cost. Maybe that's not the case because of different techniques and approaches over time. And maybe that's why you include, you say if we're looking at profitability, we can ramp up training costs and we can.

can ramp them down and let's just put that out of the picture for now so you can get a better picture of where we might be. I think that's probably the argument that is being made and will be made. And while I don't think it's completely unreasonable, again, the idea that is it a fixed cost that's amortized over a long period of time or is it something that is applied to essentially a cost of goods sold and applied to every query or a transaction, I think this is, a new world in that sense but to me when i did what was it in terms of their expense structure the percentage of you the vast majority of your expenses are on this one thing that powers your entire business to say that that should not be included into how you determine profitability

is uh is generous this is the generous episode all right i'm with you on that one also there was an idea that was brought up actually in our YouTube comments that this is going to be that training will no longer be included as a cost because OpenAI is going to stop with GPT6 because just the training and the computer and the data costs will be so high that you can't really go beyond that. I looked into that and that's not true. So I don't think that's going to be the end of it, although they're certainly going to come into, at least I think as far as Open AI is concerned, although they will certainly

come into some resource constraints pretty soon. So they just might have to train differently. But the idea that training costs will go to zero once they hit GPT6 because they're done then, that's not right. I think that that was a, that's the right way to look at it for now, for now. So let's talk about this Apple story. By the way, like the second most fascinating company in tech right now outside of OpenAI, I think is Apple. Apple of course is pushing hard into artificial intelligence with Apple intelligence and it's seen slowdowns in China.

It had what five of six quarters going back to last year at one point with revenue growth declines and it's seemingly getting beat by meta and AR and VR and VR and it has this powerhouse iPhone. And you really wonder like what's Apple's next chapter going to be. Well, we got a hint from Mark German where he says, look, they're going to get into a smart home strategy. And they've tried this before. It hasn't really worked with the HomePod. But folks, it's coming again. And this is from German.

For years, Apple has sold the go-to devices for our pockets, wrists, backpacks, and desks. But it has struggled to achieve that kind of success in another key area, the car, in other key areas, the car, the face, and the home. Now the company is setting out to conquer the smart home with an aggressive new strategy, putting Apple screens and software throughout the house in a way that creates an end-to-end experience. Over the next two years, Apple will deploy a new home OS operating system and smart display, as well as a higher-end robotic tabletop device. So AI is going to govern how these products work. The tabletop device, for instance, will use AI to understand its surrounding environment

so it can sense who is looking at the screen, what people are doing, and who is speaking. And that capability, German says, can make the device compelling. It might actually be the first product built from the ground up for Apple intelligence, which he says they claim the Apple iPhone 16 is, but really it isn't. And the table device, tabletop device is going to be very interesting. It's going to be about $1,000. He says, it's going to focus on home security monitoring, advanced video conferencing, media playback, high-quality audio, and the screen would be positioned atop a swiveling robotic

limb, helping it stand out from competitor products. Ranja and I know that you are a proud and potentially frustrated HomePod user. Do you think that it's going to work for Apple this time? When I started reading this article, I actually would have completely disagreed with you that they're the second most fascinating company in tech. I would actually have started to call them the most boring company in tech right now because nothing they're doing is that interesting to me. Apple intelligence is a dud. The Vision Pro has certainly not captured our imaginations in the way they would have hoped for. But damn it, this tabletop device got me all excited again.

Because, okay, I thought I was out and they brought me back in. They, that's Tim Cook, the greatest dealer of all time. I, uh, no, but seriously, I, so I have home pods throughout my house. They are not great. I, I switched from Alexa's to, but all my lights, I have routines. And they work pretty well, but they're definitely, to get them to work, takes a lot of work. It's not the kind of thing. I think the average consumer would ever invest the time.

to do you have to be a bit of a smart home nerd but to me what do they do great make devices with screens and i've been thinking more and more because i used to have an amazon whatever the one is that has a small screen and the difference the show so the difference between having that and having just basic video or image or video content show up as a part of the answer to the question again the simplest one what's the forecast probably something i ask every day day, to have that displayed as well as spoken to you is a pretty powerful thing. So thinking about how that can actually become the, if it can become the central hub of your home, and it's a product that's kind of a big, cool iPad that you're, I'm FaceTiming on.

I'm using for watching some videos. I'm just doing, using for like basic iPad stuff as well as being the smart home hub. God damn it, that excites me. Ron Town's back. Well, you know what's interesting because we watched Apple unveil Apple intelligence in that big vision setting event at WWDC. And we should have known the moment they sent that notification that was basically like your flight is leaving this time. It's going to take this. You should probably get going or should I adjust it for you. And all, you know, all this like personal intelligence coming right to you through the phone. It should have been obvious that this is where they were going to go. Because that strategy, if it works and that's still a big if, right? We haven't seen the returns yet. If. But that strategy, if it works, is built for the in-home device and the in-home display. So it's one of those things where, like, the Apple intelligence, if they do get it going,

and maybe they will, right? We're still in the early innings here. It could be like a double grand slam because it will help sell more phones and then also build this new line of smart devices, screens on robotic arms in your houses that know you and will help you and be assistive to you. And that is a compelling vision. yeah i again apple products are already kind of the the fabric of my home like and i know that might sound a bit grandiose but like between the apple tv the home pods my i can set lights routines

everything from my phone speak it to the home pod and again that took a lot of work and essentially programming on my part so the idea that anyone can eventually do that that and just plug in play and it just works. And they can literally map their entire house and have it. And the only company I feel that people will, a big tech company that people will feel secure doing this with is Apple. That's one of the big reasons I did switch from Amazon products. So I think it puts them an interesting place. And I mean, I'd pay well over $1,000 for this, whatever this tabletop device is. Again, I'm hooked. I'm already. in but but they got to deliver basic Siri functionality just to build this dream just still

it's predicated on intelligence like german says by the way quick stat before we go to break apple in the first three weeks after the iPhone 16 came out saw a 20% increase in sales in china which has been a weak point for the company that being said it still dropped the iPhone's total iPhone sales still drop 2% on the year in the first three week period because it's according to Reuters because of decreased sales of older models and increased competition from Huawei's made and pure a series. Okay, so very interesting mixed picture from Apple. Very interesting, especially as we head into earnings because, of course, we know that early perspective, those early days are going to be included in earnings. So let me just quickly tease. Dan Ives and Stephanie Link are going to be

joining me on the show to break down the story on Apple as well as the other big tech companies that are reporting earnings. We're going to do that next Wednesday. So make sure to stay tuned. And if you're not subscribed to the show, subscribe so you can get that on Wednesday. All right. We're going to talk about Netflix earnings briefly. We're also going to talk about meta's toothpaste massacre in the time that we have left. We're also going to take a quick break. But before we go to break, I just want to make one more plea for ratings on Apple Podcasts and Spotify. Again, these are the only public facing metrics that we have for the podcast that people can take a look at to see whether people listen to it, to see whether people enjoy it and to see

whether they or the executives that they represent should appear on the podcast. So if you're willing, it takes a second, a five-star review on Spotify or Apple podcast talking about how you like the podcast or even just hitting those five stars. It will take 30 seconds. We'll go a long way and us showing that we have folks listening and that people should give us some top tier execs to come back on the show or to come on the show for the first time. So I'd love it if you could help us there. Again, when we come back from the other side of this break, we're going to talk about Netflix's earnings. We're going to talk about the, as we're calling it, the meta-toothpaste massacre. And we'll be back right after this. Hey, everyone. Let me tell you about the Hustle Daily

show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than 2 million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now they have a daily podcast called The Hustle Daily Show where their team of writers break down the biggest business headlines in 15 minutes or less and explain why you should care about them. So search for the Hustle Daily show and your favorite podcast app like the one you're using right now. And we're back here on Big Technology Podcast Friday edition with Ron John Roy. We're talking about Netflix earnings. and let's do it briefly, but it's very interesting. Netflix came in to the quarter on a massive heater, as they say in market talk. The share price had almost doubled in the past year. It was up 46% year to date. It was on an unbelievable run, and it beat all of its expectations. And today on Friday, let's just take a look. The stock is up 10%. Only 10%. It's had a new all-time. It's worth 300.

$124 billion, but the company's engagement in the first half of this year was effectively flat, up only 1% from the previous reporting period, the last half of the first half of last year. That was despite adding 39 million new subscribers after its password crackdown. So it shows that the company, I think, has maybe saturated the market. It's gotten its existing users to pay more, but it hasn't really added much. net new users or net new watch time, despite the really nice looking numbers. They asked me on CNBC yesterday, is it peak Netflix? I say it's a valid hypothesis. Ranjan, what do you say?

Wait, sorry, hold on. I thought they added 5 million subscribers last quarter, correct? Yeah, so I said 39 million that they added was between Q2, 2023 and Q2 2024. Okay, so over which is pretty significant. And as you said, I think the password crackdown, what's really interesting about that to me is that's the kind of UX thing and also business that has massive business implications that could have gone terrible for them. It could have received some major backlash. People got very used to it. It was almost like a cultural meme.

And instead, people are just subscribing. So it shows this is something people want. this is it's almost reaching that maybe it's saturation but it's almost household utility you just don't not subscribe to Netflix so to me these numbers were just a heater as you as you as you called it even one thing that I thought was really interesting was they just broke through their May 20 or October 2021 high so the stock being up 10% today and this is something if we all remember the May 2021 and where the world was and where every stock was. It's absolutely on a heater through the roof. So this is a company that's back and established and was in trouble because no one else

has made the economics of streaming work. None of their competitors. They're all funneling money into it and it's essentially a money losing operation. The Disney Pluses of the world, the Mac HBO or Maxes of the world. And this, they have shown, this business model can not only work, it can keep growing. So I'm going to put them as the second most interesting company in tech right now. Well, explain the minimal growth on engagement. I mean, average watch time per user is going down. And they only grew engagement, like total minute, hours watch on the service by 1% over a year.

Exactly. But I think, I mean, there's obviously my own personal anecdotal behavior. But I think overall, this is good. people kind of, I feel, have a portfolio approach to their streaming media. Like, in the past, Netflix would have been the one you have and you just binge whatever is on there. Now people will choose maybe two or three or four. What are you going to pay for each month? And within that, you're going to cycle back and forth, but you still have the must haves.

And as long as Netflix is able to grow their overall customer base and remain essentially a utility in the streaming portfolio, I think that's, that decreasing engagement's fine as long as people get enough to keep subscribing. Maybe. Well, they're about to, they're going to raise prices. So we'll see what happens. I don't even know what it caught, what I'm paying right now. I feel, remember, it used to be $9.99 a month, very clear, very, I think it's probably like

17 a month now, maybe. I know exactly what I'm paying. It's $6.99 a month because I'm on the ad tier baby. and I'm a sicko, and I love seeing what's going on on these experimental tiers and also saving the money. And so here I am. You're an ad tier guy for Netflix and ads. Wait, this is interesting. In my portfolio, I have, I'm a Hulu ad tier guy. They've never made the jump to no ads. But Netflix, I just can't do it. I'm still, uh, maybe it is, it is interesting. I think that's an interesting and I'm curious from listeners.

what their own streaming portfolios look like, but which ones are you full price? Which ones are you ad tier? Which ones are you downloading the torrent? Not that anyone would do that. You know what I just thought? If I was single, I could never do Netflix ad tier. Thank God I'm married because imagine Netflix and chill

with like ads that you can't skip for Chevrolet. It's like, do you want to come over? Hey, let me put some Netflix on. You have a glass of wine. Start watching a romantic con. and next thing you know you have 180 seconds of ads to sit through and watching the timer just tapping tapping hello yeah the least smooth mood you know it's going in the lady group chat you wouldn't believe the experience I just had I went over to have to watch Netflix he was ad tier Netflix an advertisement came on poverty mindset speaking of speaking of speaking of speaking of The poverty mindset. It's actually the perfect segue.

All right. So meta, this is from the financial times. Meta fire staff for abusing $25 meal credits. Meta has fired about two dozen staff in Los Angeles for using their $25 meal credits to buy household items, including acne pads, wine glasses, and laundry detergent. The terminations took place last week. Just days before the $1.5 trillion social media company separately began restructuring certain teams across WhatsApp, Instagram.

And reality labs, like most big companies, META offers free food to employees based out of its sprawling Silicon Valley headquarters as a perk, but staffers in smaller offices without a canteen are offered Uber Eats or Grubhub credits for food to be delivered to the office. Staff are given daily allowances of $20 for breakfast, $25 for lunch, and $25 for dinner, with meal credits issued in $25 increments. those who were fired were deemed to have abused the food credit system over a long period of time. Some of them had been pooling their money together while others were getting meals sent home, even though the credits were intended for the office.

Those who violated the company rules only on occasion were reprimanded, but not terminated. So clearly, this is the chronic violators. In one post on the anonymous messaging platform blind, one former meta staffer wrote they had used to. to the $25 credit on items such as toothpaste and tea from the pharmacy ride aid. The person who indicated they had a salary of about $400,000 at Mehta and worked nights and weekends, wrote that they admitted to the oversight when human resources investigated the practice before later being unexpectedly fired.

It was almost surreal that this was happening, the person wrote. Ranjan, I think you're on the whose side are you on on this one? I'm on the side of efficiency and Mark Zuckerberg on this one in a big way. I will admit, I have never worked at a big tech company. I have worked at startups, medium-sized companies, and I have always been a little jealous of the perks that they would receive, even just seeing getting 70 bucks a day in meal credits when most people who go to work at any other company actually pay for their own lunch or maybe get some kind of lunch provided. And then with a total comp of $400K and to still feel the need to try

to like get household items with this, to me, I actually think this is a big, an important story because I think it's like in terms of the whole remote work debate and the entitled, what are employees feel that they're entitled to, I am guessing anyone who was doing this in no way thought it was wrong. Like the fact that if they're doing, it, pulling money together, doing it on a long-term basis. And it really is representative of like that complete breakdown in culture that's happened over the last few years at a lot of these companies where people could actually be so comfortable thinking that this is fine. Like, yeah, it's an Uber eats thing, but I can get other stuff on Uber. So I might as well, even though this is

for food. I think it, they're sending a signal that's, that's an important one. Okay, I have a couple points to bring up here. First of all, how much is it the person's fault and how much is it the system's fault? Effectively, like, I don't know. I mean, it could be both the system in terms of meta just giving these open credits and also maybe people were just brought up with scarcity and they see these credits and even though they're making 400 grand, they, it's sort of tough to get out of that, you know, mindset. And you sort of decide to go. God, frugal, I don't know. I mean, I'm just going to bring this up for the sake of argument.

Go ahead. I like that. That's a noble way to take the other side. I think you're bringing up the existential question. Should I hate the player or the game? Yes. And in this case, it's still the player. I'm sorry.

Scarcity mindset be damned when you're making 400K. Right. You should understand that if you want to keep that, there are certain things that are okay and not okay. And, okay, I will blame the game enough that I'm sure things were so freewheeling over the last few years that people probably got used to lots of different small little, little tweaks of the system like this. But at some point, it has to stop and it's starting to. You know, Maddoos free toothpaste out in the office? Just saying. I'm just saying, if you're singing in the office and you want to order it at home, maybe you can.

And actually, I've been to the meta offices here in New York and the dining options and the coffee options and overall, everything was pretty nice. So I guess, yeah, though I guess, hold on, in fairness, the vouchers were given to more satellite offices that don't get these things. So I guess the idea is that they're equating those offices with headquarters or like larger campuses. I mean, maybe this is also just a reminder that kind of like Amazon's return to office five days a week, a lot of this is these satellite offices are not the future of the company. And there's the things that made them kind of nice to work at. You're just off to the side, no one's really watching you. You're buying your toothpaste are going away.

And it's also a signal, which is. is that we're going to be nice to you, but don't abuse a privilege. If you do, we're not going to sustain these bad habits, I guess. It's the year of efficiency, part two. Part two. The year of efficiency becomes the decade of efficiency. I don't know. The year of efficiency rolls on.

Is he still using it? No. I think they're still using it. No? Because you can only use year of efficiency for one year. That's the statute of limitations on the year of efficiency. Yeah. Actually, I'm going to go back and look now.

I'm curious if Mark Zuckerberg is still. using the term year of efficiency because I'm curious now, but you only get one year. Only one year. So one of the, so my, I tweeted this, the anecdote from the Financial Times and it kind of blew up. And I got some really fascinating and fun replies. And there was this one guy who said, he said that in his company, they gave free Diet Coke until somebody started calculating how much they were spending per person on Diet Coke. And because they were not, drinking the Diet Cokes demanded an extra $1,000 in comp for a year. I mean, I can't, I can only imagine the like the conversations at the highest levels over these things and how fired up.

You almost have to imagine this is where you put like 10 executives in a room and put this in front of them. They, the anger will feed on itself and the rage at these kind of. behaviors and just, I mean, I'm guessing that's why these kind of things, because it's just you're working here, you're getting a lot of money, just do the work, get the money. The fact that that one commenter included nights and weekends, I actually think was the most telling thing, because at that point, they made clear that they felt they were, they deserved the $70 to go to toothpaste because they're working nights and weekends, even though the two should have nothing to do with each other i could see a loose relationship there but okay but the other

side of this and we'll close with this is that um do you know about the uh financial independence retire early community fire i do not oh oh man we should do an episode on fire so fire is this basically it's this pretty religious type of approach to money where people save like crazy try to maximize their earnings through their last 20s and 30s, and then they retire. Basically, they become financial independent. They put all that money that they saved in the market. They realize they can live on 4% of it, and they just kind of do what they want. And this is sort of behavior that's kind of, I wouldn't say it's representative of fire,

but there's like a religiosity to it, and I had a couple people bring it up. So first of all, do you know Ramin Bichetti? He had a Netflix show called I Will Make You Rich. So he quote tweeted, my tweet, and he says, were these employees in the fire community, I need to know. And then there was another person, an Annon account, who was like, there is a hyper-competitive financial subculture intact, fueled in part by Fire and Reddit.

It includes credit card churning, brokerage, bank bonus farming. It's a dopamine hit, but penny-wise, pound foolish, begins to erode ethics, no room for reflection. in the bubble. And I don't know if this is necessarily a outcropping from that ethical persuasion. But I think that, you know, maybe that is sort of where it comes from. I think you've just ruined my weekend because I'm going to spend a lot of time on the fire Reddit. Oh, you better. It's really fascinating. I should really talk about it next week. There's a blog that you should look for. And it's written by, and I'm not kidding, the name is,

it's just so fitting the author of the blog is mr money mustache mr money mustache i will be finding you in just a bit read it up i can't wait to read the margins post on fire i think you're going to have a field day on it i wonder what's the venn diagram between effective altruism and the fire i would say almost no overlap because i think effective altruism they want to live off their money so they essentially would drain down to oh my god God, we should bring on a fire and an EA to debate each other. Yeah, I'll be sick. I like this.

I like this. But I think maybe the overlap of aura rings and whoop bands is probably 100%. Again, I would say the fire folks, they spend no money. So. Ah, that's true. This idea, like Mr. Money Mustache, for instance, did this experiment where he, like, did extra Uber driving and wanted to see if it was worth it from like, a financial standpoint, you know, to do it on on the nights and weekends and, like, goes through like all the calculations, card depreciation gas and all this stuff before finally coming to

conclusion that it wasn't. I mean, this is how deep they scrutinize every dollar spent and earned. It's very, it's fascinating. Honestly, I think it's fascinating. And it's mostly, it's ultimately a rejection of the system because they're basically like, the system wants us to make us wage slaves and we're going to opt out. But there's definitely been some, I think, regret from folks that have picked up on this because it has sort of led them to a unfulfilling conclusion once they do retire and then they get back into the workforce because they get ad tiered Netflix while trying to date exactly and just the lack of fulfillment watching truck ads with their dates when they're in the middle of a rom-com and it never ends well when you when you

live that life all right Ron John great to see you and thanks for coming on all right see next week you next week and thanks everybody for listening we'll be back again on wednesday with dan ives and stephan link we'll see you next time on big technology podcast