Big Technology Podcast - Wall Street Chaos, OpenAI Leadership Shakeup, Google The Monopolist

Episode Date: August 9, 2024

Ranjan Roy from Margins is back for our weekly discussion of the latest tech news. We cover 1) Wall Street's roller coaster week 2) Does market turmoil change AI investment? 3) The Yen trade 4) NVIDIA's stock market drop 5) Warren Buffet sells Apple 6) OpenAI loses more key leaders 7) Is OpenAI struggling to fundraise? 8) Are LLMs hitting a wall? 9) Google loses antitrust case 10) Does this hurt Google? Or Apple? 11) U.S. government deterrence restored? 12) Do we actually need new antirust laws for Big Tech? 13) Twitter sues advertisers --- 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]

Wall Street is convulsing as an economy led by tech starts to wobble a bit. Open AI's leadership shakes up again, and this time people are asking some tough questions about its future. Google is ruled a monopolist, what comes next, and Twitter sues advertisers. All that is coming up on a Big Technology Podcast Friday edition right after this. Welcome to Big Technology Podcast Friday edition where we break down the news in our traditional cool-headed and nuanced format. No lack of news to talk about this week, as we've seen massive ups and downs in Wall Street and with big implications for the AI trade. You also have a very sort of understated shakeup at Open AI that's been underappreciated largely, but might have very big implications. Google's also been ruled a monopolist by the courts, and there are going to be big downstream impacts of that.

And of course, Twitter decided to sell advertisers because you always want to sue your customers, I suppose. Anyway, we're going to break it all down in a special edition of Big Technology Podcast. because it's always special when Ronan Roy is here with us. Ron John, welcome. It's Friday afternoon, and after this week, the S&P looks like it's going to close down a whopping 0.35% after all the chaos. So that's a great place to start because I was watching, I was on a flight to Ireland Sunday night into Monday morning. And of course, you don't sleep on these flights. And as we start flying over the Atlantic, I start to see the Japanese stock market collapsing. futures go down, basically stayed up all night watching this play out, and was like, all right,

that's the end of our economy. You know, there's some weird, it's always a weird thing that you don't expect that's going to destroy the stability or seeming sense of stability that you have where things underneath the surface are actually sick. And then as we come to the end of the week, everything seems like it's okay. But the trauma and the high volatility is not a non-story. There's actually something going on there. And we're going to get into all that. So first, I want your high-level read, Ron John, about what we saw this week. And then we can get into your experience as a Forex trader because you do have an interesting viewpoint on what happened with this yen capital tradeoff that sort of sparked the whole thing. But is this, let me ask you my big question

here. Is this a positive sign for the economy and the market that after all this, we are basically even on the week? Is this a positive sign? I'm not going to quite say that yet. I think last Friday, we had already started talking and we'd seen tremors in the market and we were even discussing is the AI, is this the beginning of the AI sell-off? Is this the beginning of some kind of larger downturn? And then Sunday night into Monday, I can't describe how chaotic it was.

The VIX, which is the indicator of a main market indicator of volatility. It jumped. I think it got to 68. That's a level. I cannot describe how insane that is. The VIX, it had its lowest levels for a couple of years where it just sat below 15 and made it seem that everything in the market is great. We haven't seen that level of expected market volatility since COVID first closed everything down. And before that, the financial crisis. So Sunday night technically is on par with the shutdown of Lehman, the bankruptcy of Lehman, but then everything suddenly seems okay again. So I think it's a pretty complicated week. I think we can get into what the carry trade means, but overall, when you have a move like that and when the moves are so strong back in the other direction, as we saw

over the last two days, I mean, you have like every major stock up four to seven percent. I think it almost worries me more when it does, it's not a steady reversal. back into growth, but actually just really jerky reversals because it means that people have no idea what's going on and that that same uncertainty is still in the market. So I don't think this is the end yet. I think we're definitely going to see some more volatility in the market in the weeks to come. And we're going to get into the catalyst, but I want to ask you about that knee-jerk reaction there and that unsettledness that people have because last week it was like a perfectly timed episode asking if the AI bubble was popping because we obviously came away saying this is not

a pop it just might be a pullback and there's real technology here but I do think that like we're going to there are root causes to what happened over the past week but I wonder if some of the anxiety and the fidgetiness of investors the trigger happiness does come from the fact that there is this big trade that's happening that is entirely premised on these stocks paying off their AI investment and we haven't seen it yet. Do you think that is part of the finiquiness that we're seeing here? I think it's both. So you have the market fundamental story. Is AI going to be transformative and lead to unparalleled growth in the market, especially for already gigantic companies? But I think leverage is the more important story here. It's when people,

People are crowded into the same trades and they're leveraging themselves to do it. And again, we'll get into how the uncary trade allows for that. Those are the, that's the dynamic, the leverage side of it, which causes these kind of moves both up and down. And again, that's what's more worrying to me because it becomes, when moves are so pronounced, that means that there's massive leverage in these positions. And we all kind of know there's the famous hedge fund hotel phrase that when all hedge funds, you know, crowd into the same trade and we know that's been going on everyone and their grandmother owns invidia now so it's when it's that concentrated and leveraged i think that becomes the bigger worry and

again the moves back up how dramatic they were it just reminds us that you know it's leverage both ways right now and that is not a healthy market to me absolutely it sort of goes to what we were saying last week it basically was just an escalation of the same principles which is that there's much broader issues within the market, but there is also a general uneasiness about what's been leading the market, and that sort of exploded on Monday morning when you saw this up and down, or this real down, and then eventually later in the week when you saw it climb back up. But, you know, you spent time trading foreign exchange markets, and when I saw what was going on with the N. Carey trade, I was like, I got to ask Ranjan about this on Friday. So talk a little bit about

what you saw from your vantage point in terms of what led to the initial decline on Monday and how extraordinary was it? It was extraordinary. And to explain the yen carry trade and let me have a go at this. It can be a little bit complicated. But basically, what it means is leverage. And what that means is traders will borrow in the Japanese yen because you can effectively borrow currency at zero percent because Japanese interest rates are zero.

And then what you can do is take that money in yen, convert it to dollars, and instantly, it is essentially my favorite term arbitrage, because you can then invest that in government safe securities at 5%. So theoretically, and actually in practice, you can do that all day long and receive a 5% yield over a one year period. So it seems like free money and it effectively is. The one risk is, if the yen strengthened significantly, then you're in trouble because then you will lose, you have borrowed in yen and then invested it into another currency. So you're short yen. So if that, if that currency appreciates significantly, you are losing money. So again, in this example, the yen since July 2nd has depreciated 8%. In one day on Sunday night, it depreciated 5%. So you have all these people who over a one-year period are thinking, I'm going to make 5% here, and then basically this is leverage money anyways. Maybe I buy U.S. Treasuries. Maybe I buy InVIDIA with this borrowed money. But it's basically a funding mechanism for trades rather than going to the bank and taking out a loan at a high

interest rate, where you're actually making money on that leverage. And when the yen appreciates 5% in one day, which is what you expected to make in one year, that's a problem. and that's when you have to unwind rapidly. And that's why not only do you see these insane markets, and again, these moves, like for major currencies like the euro, the yen, the dollar, you see fractions of a percent move, a 1% move is big in a day. So to see 5.5% in a night is so incredibly rare. And then what happens is when you see that moving against you,

whatever assets you've bought in your new currency, let's say the U.S. dollar, you have to sell because you want to get out of the original carry trade. So that's why you see that much of a spillover in external markets, not just currencies, but in any other high beta asset market. And that's also why it's the crowded trades that get hit the hardest. Yeah, it just reminded me a little bit of like the subprime thing where it's like this thing that some segment of the economy knew about, but the rest of us didn't just blew up. and there went the economy and I'm like sitting there on the plane watching this stuff blow up

and I'm just like man trough man got his trough I got my trough for it last week and he's going manifest the cratering the economy well what's interesting is again none of this is new so I was I worked on an emerging market FX desk through the 2000s this was all the rage back then too because Japanese interest rates were still around zero percent, and U.S. interest rates were at five percent. So we saw the same thing. And it's interesting because there's so many bets like this where you make bips or basis points every day, and it seems low risk. But when it turns, it turns in a big, big way because everyone crowds into it because it seems so easy. It seems obvious. It's like free money. Yeah. Yeah. Until it's not. Well, I felt

like an idiot because I had mentioned on the Friday show, and again, not investment advice, but I had to put some cash in the market, and I'm just like, damn, just watching it evaporate. So how are you ending, how are you ending this week then? I mean, I bought more on Monday. Double down. So I'm about even if you think about it because it dropped. We're flat to where we were Monday. Exactly.

Right. Well, no, I bought before. Yeah. Well, actually, I should be in the green then because I did buy a. the bottom on Monday. But this is stuff I don't buy and then sell the next day. This is long-term holding. So it's just fun to be up in the short term also. But again, the thing that worries me is these are the kind of moves. And because I sat on a trading desk in September 2008, like these are the kind of moves that happen here and there in August and then it seems to

stabilize. And I think I'm forever traumatized by that experience. But like, it's in these thin trading sessions, things are more volatile, but still, it signifies that there is a, whether we call it uneasiness or something is wrong in the market. Like these moves should not happen at this scale. I mean, the scale is enormous when we think about it. I think it was like on Monday at one point they're like the big seven have lost, I think it was like a trillion and a half total in market cap. Yeah. I mean, it's insane. But when that's happening, even if it briefly comes back, it means that there's some blowups waiting to happen. And again, whether the market itself can contain it, that's another question.

But I think there's some hedge funds out that we'll find out have blown up in the coming weeks or months. Let me throw out one more alternative idea before we move on, and that is that there's so much uncertainty around the 2024 election in the United States that that is adding to the anxiety and the trick. happiness that we're seeing within investors. And I did hear some data recently that when you go through a presidential election cycle, the month or whatever, as soon as that election is settled, the market goes up because it doesn't like ambiguity. It does like certainty. And so it tends to go down ahead of an election and it goes up as soon as it's decided. It doesn't matter who's the candidate. And so maybe we're seeing some of that now where you have Trump, who is or volatile person and then you have the Democrats like engage in extreme volatility where like you

have like one candidate one day and another candidate the next and people are trying to figure out who she is now it's obviously not the same thing but I do wonder if that's also leading to people with money on the table being like all right well I'm not sticking around to you know sort of find out what what's going to happen let me go to safety for a bit and then I'll go back in the market afterwards I think it could be a bit of that but honestly right now the entire geopolitical situation even beyond the U.S. election, I think it's probably equally as scary for markets right now. Right. Exactly. No, on Monday there was also like talk of like an imminent Iran strike, like the U.S. getting involved and it was just like it looked like you

had potentially, I mean, seriously, it looked at a moment and maybe this was because it was 3 a.m. to me and I was sitting in the back of this jet blue plane with, you know, one or two beers in watching this all collapsed on Twitter and not being able to talk to anyone. I was just like, are we going to have like World War III? Am I even going to land this plane right now? So anyway, I end the week much more relieved on Friday.

Don't jinx it for Sunday night again, Alex. Please. Yeah, well, I used to believe in this jinx stuff and then I'm like, whatever I'm going to say isn't going to make a difference. So anyway, you might get your trophy. This podcast drives the entire market's reaction. Let's be real.

You never know. We know, we have some. Some influential people listening. Exactly. So, okay, a couple of questions as we end this segment. The first is that NVIDIA is down to $2.57 trillion only, but it's been down 20% over the past month. So do you think this market volatility impacts the AI trade at all? And we should also note that NVIDIA is going to be delayed by at least three months with its blackwell chips.

So that's another underappreciated storyline that happened this week. But I'm curious, yeah, do you think? that let's say the market continues to, you know, have these up and downs. Does that impact these companies' ability to invest in AI or is it status quo? I think it will because, again, it's the crowded trades that are going to be the most impact in any kind of de-leveraging. And NVIDIA is obviously the most crowded of trades. So I think they will be the biggest hit in any kind of down move. But I also, I mean, what that really means for, and we talked about the capital expenditures of all the big tech companies and the tens of billions of dollars, I don't think it's

going to significantly change any of those projections. I don't think they will not, Microsoft will not invest $56 billion into AI infrastructure because of whatever happens to their stock price because they're still, when you're a $3 trillion company and you believe this is existential, you'll spend that smaller portion of your overall revenue or valuation. Right. Okay. And now speaking of our influence on the global economy, I don't know if you saw it, but Warren Buffett on Friday also sold, or I think Friday it was announced, sold 50% of his Apple holding. And I think he was one of Apple's biggest holders. Do you think that he had been listening and heard our segment on the disappointing nature of Apple intelligence and said, that's it, I'm out? I think that's exactly what happened. I think Warren Buffett, much like myself, is dreaming of a better Siri and when Siri could not find your flight information, which is the literal demo that Apple promised us, I think Warren Buffett's realized, all right, in this whole AI battle, they got a long way to go. Warren Buffett's sitting in Omaha.

He's got iOS 18.1 beta modes installed on his phone. He's talking to Siri. He's not getting anything. And he's just like, dang, nabit. Screw this. No, 50% of this. All right. I'm glad we got to the bottom of that.

That's been something I've been meaning to bring up the whole week. Not investment advice, though. No, definitely not. The only person we're giving investment advice to is Warren Buffett. So that's a joke. That's okay. Yeah. Okay.

So you said that you're expecting capital expenditures, expenditures, to continue as planned in artificial intelligence. But what if one of the world's leading AI research labs named OpenAI just clears out its entire executive ranks before some of the money spent can actually get there? And of course, it's a little of a facetious opening. But it is unbelievable to me. And we said in the past that the leadership shakeups are not over at Open AI,

and they really are not. And Open AI this week had three very, like some of the most, important executives either leave or go on sabbatical. I think the most important is Greg Brockman, the president and the co-founder. He's taking an extended sabbatical until the end of this year. That's according to Ars Technica, but everybody's reported it. John Schulman, the co-founder of the company, who was running its alignment practice, is going to anthropic, which stunned me. I mean, when I spoke about Open AI safety, I got a note from OpenAI saying Schulman's running safety. don't worry. And now he is out and going to Anthropic. And Peter Dang, the head of consumer

product, is also leaving. I mean, holy crap. What do you think about the fact? I mean, can open AI sustain its success with this level of executive turbulence? Remember, Ilius Sitskever is also out, and he's on his way towards creating a competitor working on superintelligence. I mean, is Miramir Maradi the only like A level executive left outside of Sam Altman or at least recognizable to the public? Yeah, no, and this is major. I think this is to me actually, so you have Brockman's departure or not even departure. To me, the sabbatical idea is such an odd one at this moment and especially to make it public.

And I think there's more there because nine months. of sabbatical. In some ways, you could almost figure, I mean, you could just not announce it. You can just take it. No one will necessarily know the difference. He's not a highly public figure anyways, and Sam Malteman takes care of that. But also, if you are at the, like right now is the, the next year is the single most critical year where either Open AI will like gloriously succeed or collapse. I mean, based on how much they've raised, based on the competition level, the next 12 months you have to figure are going to be absolutely critical for them. So I get nine years probably wears on you at a very high-intensity company.

But also, these would not be the nine months to go on sabbatical. To me, it sounds like leaving. Yeah. I mean, remember, Elia also kind of went on sabbatical or break or whatever and never came back or maybe he did in a limited role and then bounced. So are we going to get a where is Greg meme? Yeah, it's possible. I was going to say Peter Deng as well.

To me, that's almost the more interesting one because we've talked about this at length. Their consumer product hits, they're in the hits business, and they need to keep producing hits. And Peter Deng's been there for a year and a half now, was in charge of Chachy BT Enterprise, which is supposed to be one of their biggest growth areas. So for that leader to leave after only a year and a half at the company, that's even more interesting to me. Obviously, President, as in Greg Brockman or a co-founder, is obviously significant. But the person who is in charge of the consumer product in a company that has to drive hits, who's only been there for a year and a half, I don't quite understand what signal that sends.

And remember, this is also in the context of them trying to, I think, show Microsoft that there's stability because Microsoft is competing with them and funding them at the same time. In fact, we didn't talk about it on the show, but Microsoft recently added OpenAI to its list of competitors and its releases to the financial markets, right, which it's required to list competitors and now Open AI is on there, which is like, hmm, right? you know it's like microsoft is listing them that's interesting and not only that and again this is kind of something that that i've been thinking about and i don't have any reporting to support this yet but i would imagine opening i is like in the middle of a fundraise right like we heard about this ongoing fundraise when sam altman left they're gonna need to raise money they're losing a ton of money and i wonder what this says about the state of that potential fundraise if all these executives are leaving. Now, I'm pretty sure it's going to be fine. Like Sam Altman at this point

could probably raise the money that he needs. I don't know about seven trillion, but billions of dollars, absolutely. But it also leads me to wonder, like, what is the direction of this business if the president and that a consumer is leaving? Yeah, we had talked about, and I liked the point you had made a couple weeks ago, search GPT. And this whole announcement around releasing a search product smelled of fundraising like it would make a wonderful slide in a fundraising deck in terms of market opportunity and going after Google and they are naturally positioned to take on search like perplexity has but again when you're head of consumer products leaves I would assume they were the one working on it maybe they'll come out and say it's always interesting to me from like

a communication standpoint should Sam Altman be explaining this stuff? a bit more because I can't imagine anyone is buying it's been intense nine years and I just need to take nine months off from the sabbatical side there's no explanation on the other two so yeah I think if they are fundraising I might argue that I don't think Sam Altman is going to be automatic anymore maybe that's crazy to say but at this exact moment I don't think I think they need to show some bigger win to get that next massive round. I mean, should we say the unsayable? And of course, this is like truly speculative,

but could Open AI be having some difficulty fundraising? I'll just lay out the case that it's possible. I mean, I don't think this is what's happening, but this is the way that it would end up being feasible, which is that the company clearly knows it needs to scale the amount of data, power, compute, and energy that it's putting in to create the next big models

if it believes that these large language models will scale exponentially as it increases these ingredients. So you're talking about much more money that's going to go in. And then you start adding in some of the questions we've had about ROI. At a time when everybody's asking the ROI question, and there's no clear answer, is the delta between the ask and the payback so great that even the companies and the people and the individuals who would be like, yeah, I would back that looking at the price and saying, nah.

I think that's, I think that's the key here. I think exactly people are going to be evaluating this more. That is, okay, I think in terms of open AI, are they fundraising? And if so, how successful is that going? I think maybe we will look back at these conversations and haven't learned a lot more in a few months' time. Yes. now the other side of this is if it's not the money

is it the technology because and this is something that our technica pointed out if you're open AI and you're at the cusp of AGI and I think this is in some ways the way the press is framing this a product of open AIs own marketing because open AI never really said that it was about to hit AGI right it's never said that

but because it's talked about yeah right the reason thing and the fear that's been generated around the board saying, okay, Sam can't control this powerful technology and then, you know, the lobbying and some of the statements that's come out, you can certainly understand why people have a picture of like open AI is close to AI. Now, they haven't said that. None of the research labs have said this, right? This is all kind of like, you know, hyperbole and speculation. But basically, if they were at the cusp of, but let's say a giant leap or the next big exponential increase with whatever new model

they're they're creating why are people leaving and that is i think a good question i think reframing it around you know away from the some of this like hysterical they're not close to aGI like they said they were and actually asking it like are how much better is this technology gonna get that's like the fair question and this ars technica article has like a couple of uh potential i mean they're aggregating but they have a couple of critics they point out uh one is it Gary Marcus, who's been on the show before, who's talked about how maybe LLMs have just reached this plateau, which is certainly possible. Although, you know, having spoken with the folks at the research house, I don't think that's

the case. But maybe it will feel like a plateau if it's not a massive improvement because a lot of people's introduction to this technology went from GPT nothing, right, to GPT 3.5, which had GPT. And so they're expecting that level of a jump, whereas, like, this was like a multi-year journey to get from, you know, GPT1 or whatever original GPT to GPT4-40, which is what we have now. The other thing, the other thing is that, and this kind of goes to our conversation, and this is what Ars Technica points out, as itron is saying, is basically these companies

made such a big deal of how important this is because they needed the funding, and if they're not delivering, that's going to be some of the issues. But going back to this sort of, like, increase in the technology's capabilities, do you think that could be another reason like this Gary Marcus school of thought could that be a reason LLM sitting a plateau could that be a reason that these people are leaving I like I like this Gary Marcus I'll say I have tremendous respect for him and all the work he's done especially for the entire AI technology over the years I disagree with him in general because he's incredibly bearish over the ability to have LLMs to basically do anything constructive or productive

And again, even in my own personal use, I've found many, many, many use cases for generative AI and large language models. But I think maybe it's even, yeah, it's less, are they going to or not going to achieve AGI in this earth-shattering scary thing? It's more, Claude is better now. And Runway ML already launched text to video

and it's pretty good while they've been talking about SORA forever. And it's maybe they're just customers are moving to Google's cloud's Gemini offering instead of ChatGPT's API or OpenAI's APIs. I think maybe it really could be a simple, all other companies have reached parity or maybe are even better in a lot of use cases than OpenAI. Again, personally, I use ChatGPT very rarely now. I use Claude a lot. I use perplexity for more kind of like informational search queries.

I use mid-journey for images. I barely open chatchipT, whereas six to eight months ago, that was the first place I went whenever I wanted to do anything like that. Yeah, it is a sign of trouble. So we'll see. I mean, the one thing I would say about opening I, and I feel like I'm probably getting increasingly alone in the media on this one, but I'll just say it.

I wouldn't bet against Sam. Like, there's been so much of this, like, God, Sam Altman, is he the right guy and all this stuff that's coming out in the press. And I think that, like, that discounts, the fact that he was able to get Open AI to this point. And as long as he's still there, I think that it can still be, you know,

a force, the leader, even though it's not going to be an easy journey. But I wouldn't bet against him. All right. Well, I will bet against him. to him just to take the other side. Okay. I actually think they're in trouble.

I think that the next six to 12 months is going to be really interesting. I think this whole fundraising element of it, and now the more we're talking about it, when your technology is not leaps and bounds ahead of everyone else, suddenly it changes everything for them. And if you think about it, let's say when we're talking about capital expenditures, an AI investment. I think Open AI is not going to be the recipient of the kind of steady money. So Open AI will be the most susceptible to any kind of downturn, whatever enterprise chat GPT subscriptions they had, get cut first. So I think they're actually even more susceptible to a downturn

than most of the other competitors. Maybe the way that Open AI does it is that the United States government just nukes the competition, starting with Google. because this week we did have the Department of Justice actually won a case against Google, which to me was surprising. I am not used to the government having any impact on these big tech companies, largely kind of ruled out that it was a possibility, even though I should have kept that open. And the DOJ won. And this is from the Guardian. Google broke the law to maintain online search monopoly, the U.S. judge rule. rules judge amit meta he found that google broke antitrust laws by striking exclusive agreements

with device makers like apple and samsung in which google would pay billions of dollars to ensure that its product was the default search engine on their phones and tablets during the trial it was revealed that google paid companies including apple more than 26 billion in 2021 alone to remain the default option for search in safari and that these deals allowed google to maintain a monopoly oversearch and unfairly suppressed competition. So what happens next? There's going to be a separate trial at a date yet unspecified to determine what remedies the government should enforce against Google, which could range from tweaks to how it

handles contracts to breaking up the company entirely. Look, put me on the camp of there's no way the government is going to break up Google over this, but it is a very significant win and it could have a large impact on. on Google and indeed on Apple. And I'm just going to give my prediction of what's going to happen here. I believe that the remedy that the government is going to rule is they're just going to make it unlawful for Google to strike these default agreements. I think Google actually ends up like in a much better place after this.

Now it could lose some share, but it is spending 26 billion a year with Apple to be that default. And I think most people just will accept, well, we'll select Google to be their default. I think you could really hurt Apple, right? $26 billion in a year. These fees make up a large portion of Apple's services data, and to not have that money is going to be a massive hit. So I actually think this could,

and like counterintuitively be worse for Apple than it is for Google. So I'm curious to be your perspective, yeah, on the significance. Yeah, I still think it's going to be a big deal for Google. I think for a couple of reasons that yes, the term like we all use is to Google and for any normal non-tech obsessed person like Google.com you'll select Google rather than duck, duck go or Bing or any of these other even if you have the choice. I think why this is such a timely and interesting decision is because of all our conversation around how search is going to change. And at the moment that just that

little bar at the top of the browser in Safari on your iPhone and being able to, when you type it in and it defaults to a Google search, I think people will be searching less. I think we had, what was it, it's going to be down 25% in three years, according to Gartner, whether that's overly aggressive claim or not. But at this exact moment where they're trying to figure out what's the future of search, they are going to lose out on the thing that made them the default of search. And search is, as it's been over the last 15 years, is a mutually reinforcing thing. It's like a flywheel that the more searches that happen, the more data you get, the better search results you provide, the more you can use that data to now train AI. And all these

things, there's so much benefit to all searches taking place on Google than better Maps product you have. So I think it's a big deal. I think it's going to be a result. It's going to cause longer term strategic decisions by them. I think it certainly hurts Apple, but I think it's bad for Google. As you're talking, I'm starting to get excited about the possible product tweaks that Apple might make. If you think about it, if Apple isn't beholden to Google by getting all that money for its services business to make Google the default, does Apple then sort of blow up search? Does it include chat GPT more often? Does it, again, like, is this what saves Open AI? Is this good for startups? As perplexity, get a spot there? Does it go dynamically based off

of what Apple thinks you want when you search as opposed to just driving you to Google, maybe driving you to one of these AI startups? What do you think? Yes, no, that's exactly what I'm hoping. And I think it's good. I mean, that's the idea. That's the driver of how lack of competition inhibits innovation. And that's why this is a perfect example that if Apple's not getting that $26 billion check. Maybe they'll fix Siri, obviously. We'll wait and see on that one, but, but it allows them to, it allows them to rethink and drive what search looks like. And yeah, maybe it's perplexity, maybe it's chat based, maybe it's, it's anything, but it gives them more flexibility. And I saw there was a Jonathan Cantor, the, in charge of antitrust of the DOJ. He was speaking at

Y Combinator. And it's so interesting to me because you see all these headlines and you see all these reactions from more kind of like the tech lobbying crowd around how evil this is and anti-business. But Jonathan Cantor was making a pretty good case in front of the entire YC crowd that this is good. This is actually good for small tech and innovation or medium-sized companies to not to try to innovate, to try new things, maybe become part of that new Apple search ecosystem, whatever it looks like. So I think overall, this is, it's a big deal. And yeah, I think for consumers, it's good. For other smaller businesses, it's good as well. Yeah, YC does love this, which is an interesting position to take, but I do think there's a chance that it will end up

benefiting some of their companies more than hurting. Let me ask you this. For a long time, it seemed like the U.S. government was less powerful than the big tech companies, right? That was sort of a meme that people talked about. Now, of course, Big Tech doesn't have an army or anything like that, but we always, not we, but society would like to talk about the power of these companies. Maybe we're included in that, I don't know. As if

they're like untouchable by government. Now the government has shown that it can touch them and really harm some of the fundamental agreements that they sort of predicate their business on. So let me ask this question. Has the federal government restored its deterrence capability to be like, all right, don't do bad stuff anymore because

if you do, we're going to come get you. So I disagree with you the idea that the government has been ineffective. I think that's more of kind of a narrative that's pushed. But again, just remember a few weeks ago, Adobe abandoned the Figma takeover. Even a feud in 2020, massive effort by the government stopped invidia from taking over arm and because of that arm now i think is like worth four x what that original takeover valuation could be and invidio's already has a strong has strong very strong market power but at least there's some competition in the market so so i think the federal government has been and especially under the biden administration has been strong and only getting stronger in this space and i think this is such a perfect example of how

good it can be for innovation and consumers and smaller businesses. I think what made this one so easy to understand is it's one thing when Adobe doesn't take over Figma, you don't really know what would have happened or how that would have changed it. This is something that already happened and that they're going to stop. So it just feels a lot more real. And again, it's something that we can all visualize because we all, at least any iPhone user, experiences it daily. experiences it daily. So to know that that could change, I think it just makes this all feel a bit more real. Right. But what you're saying is sort of along the lines of what I'm proposing with my question, which is that up until this point, we've largely felt the government's influence on mergers and not anti-competitive behavior. And here is an example of anti-competitive behavior that the government's taken on and won. And then you think about like an Amazon, you know, this sort of the thing. Like without an effective government,

Amazon's like, well, screw it, we'll take the data from our vendors and we're going to make our own third party, or our own first party white labeled items and we're going to sell and we're going to make more money. And that's fine because government can't get us. And that's the question I have. It's like, is the government now going to be like, is the government now going to be restoring that deterrent where like now these companies that are doing bad stuff are going to be like, maybe we shouldn't do bad stuff anymore. I think that exact question you pointed out. And so the case, again, of Amazon. basically, even though they say they won't take third-party data from vendors on their marketplace to inform their own product development, and then they do, and there's been plenty of great reporting of them directly seeing what's working from other marketplace vendors and then copying those items exactly in calling them Amazon Basics, the fact that they got away with that is still nuts to me because it's such an obvious, clearly anti-competitive thing, but you have to be on Amazon so vendors just deal with it. I think that like that's such a good

simple case of in the current trend of where things are going, it feels like something will crack down at some point on that, maybe through the FTC's major lawsuit against Amazon. But also I think to me, that's one of the most interesting things right now within the election and we've talked a bit about it to me like the Harris campaign it's very unclear if that is on this specific issue she'll continue the work of the Biden administration again we've talked about her brother-in-law is the general counsel of Uber uh overall she's made plenty of comments reed Hoffman telling her to fire lena con like there's just this is the specific issue that i do see she might depart the most from the existing Biden administration but we haven't gotten any kind of clear signal

on that one last thought about this for a long time we've had this perspective of like we need new antitrust laws because the antitrust laws were written for the railroad companies and these are big tech companies and you couldn't possibly apply the railroad laws to the big tech laws I mean look at it it's google it's not a railroad well fast forward we haven't had any laws passed but we did just have the department of justice win against google using the sherman antitrust law act, which is a railroad law. Maybe these laws actually work for big tech. What do you think? Yeah, I think that was honestly one of the most promising parts of this, that taking, I think, it's a 102-year-old law, but actually making clear that in this very

specific case, it violates the same principles that we worried about railroads. Because I think those core principles of using market power to establish dominance to push out competitors in a way, that's not about the best product winning or even the best price winning, but just simply by account of how powerful you are in the market, you're able to win. It's the same principle from the railroads. And I think it's a good reminder that some things are still with us and hopefully it can lead to a better economy. I mean, I like it. I think it's like a pretty straightforward law and that might really only be what we need, which is that like, It's fine to have a monopoly.

It's illegal to maintain a monopoly through anti-competitive means, period. Like, sometimes the simpler laws are better. And by the way, I think that, like, for most people, most people appreciate, like, what big tech companies. Like, there's not like a, I think most people hold, like, multiple opinions of these companies in their hearts, right? There's not like a pro-big tech and an anti-big tech, you know, contingent or constituency. And I think that even goes for the government, whether it's regulators or whether it's members of Congress or Kansas. which is that I think most people like the fact that Amazon can ship a package to you in a day or two if you're a prime member or we'll ship it to you for free if it's over $35 or whatever it is.

You know, if you wait a little bit longer, people like that, they like the selection on these companies. I don't think anybody wants to do away with that stuff, but they don't like it when they put small companies out of business because that, you know, ultimately harms economic activity and it harms choice. And so, I don't know, I just think that like this is, this is all consistent where it's like the government is looking for a better version of these companies, which is what people want. Like, I don't think anybody wants them to be able to stomp all over the competition and then have worse stuff. Well, I think Apple, this is going to be like the Siri episode, but I think it's such a perfect

example of when you have lock-in, you can ship a really half-ass product for a decade versus imagine if the opportunity to access voice on Apple was a highly competitive. competitive market and voice as a platform was had a bunch of startups all vying to come to create the best product 10 years ago we would be in a completely different place than we are now so I think that's like a perfect example but yet I am wearing AirPods currently and have an iPhone and a MacBook and all these things and do love Apple products so I think that's the thing with the messaging here is a lot of the times like the lobbyist from Google and especially in this case you know make this that either you are pro big tech or anti big tech. I think that's that's the key that yes,

you can both enjoy the products of these companies and really believe in them and think a lot of what they do is good, but also just Amazon don't destroy all of your third party vendors and put them out of business so you can sell the same products. And maybe if my package takes an extra day, I should be okay with it. Yeah. Now here's a libertarian argument for allowing big tech to have very little regulation, which is that eventually they will do something dumb, impale themselves, and the competition will rise and force change, and you don't need the government involved. And in specific, you could look at Twitter as an example, where the CEO has told advertisers to go F themselves, Disney in particular, and the advertisers did just that, and there's

been a dramatic pullback in advertising on Twitter. Now, I do think part of that has to do with some coordination among companies whose leadership don't like Elon, but part of it is because Elon's, this is what you get with Elon. You get the innovation. You get the volatility. You get the inappropriateness. He has been, you know, I mean, we don't even need to go back and list all the terrible things that are. Yeah, terrible things he said. On Twitter, it's part of the package. Anyway, I mean, whatever. You can make the agreement, the argument that his buying of Twitter was good for the discourse overall because now people could say whatever they want.

We're not going to relitigate that right now. What we will say is that advertisers, by and large, have pulled back largely due to Twitter's own choices, and now Twitter is suing them. And Linda Yakorino, the CEO who was brought in to court advertising, announced the lawsuit, which is quite interesting. She put it on Twitter, and she said that there was a report that evidence shows that the Global Alliance for Responsible Media and its members directly organized boycotts and used other indirect tactics to target disfavored platforms, content creators, and news organizations in an effort to demonetize and in effect

limit choices for consumers. The consequence, perhaps the intent of this boycott was to deprive X's users, sports fans, gamers, journalist, activist, parents, or political corporate leaders of the global town square. To put it simply, people are hurt when the marketplace of ideas is undermined and some viewpoints are not funded over others as part of the illegal boycott. And she says the behavior is a great stain on the industry and cannot be allowed to continue. And so X is filing an antitrust lawsuit against the Global Alliance for Responsible Media and the World Federation of advertisers and who have members, including CVS Health, Mars, and Unilever, this is not a decision we took likely, but it's a direct consequence of their actions.

Well, I don't really think suing customers makes a lot of sense, but what do you think? Global economic meltdown on a Sunday night aside, this could be the most insane thing I saw this week. So first of all, let's recognize antitrust is at the center of this lawsuit that they're claiming collusion among advertisers because advertisers have a trade group, Global Alliance for Responsible Media, and this group is supposed to make recommendations around where it is responsible and safe to advertise or not. What I found so interesting about this is, like, Twitter, the engagement must be up. the numbers. It is back to driving culture. And remember blue sky and post news or whatever else? I think those were distractions. Like I think Twitter was always driven culture. Like blue sky like might

have like, you know, a post might have attracted like a handful of people. But it was. But there was still a moment that it could have moved away. And I'm certainly in this election, Joe Biden tweeted, I mean, he posts on other platforms, but it was the first place I. saw it like so much of the discourse is taking place again on Twitter there's a there's a moment where I feel TikTok was driving all pop culture but Twitter which had previously driven all kind of news culture and markets culture and information culture there's a risk it would move away now it's not only just back it's dominant again and what I find amazing is I bet you they are seeing numbers spike back up and then they're pissed that they're not seeing any like a

consequent advertising revenue and then I just always wonder what these conversations behind the scenes look like like if you see that video of linda yakarino I saw some people being like I think evaluate her body language is she a hostage and she's trying to call for help but what how do you come to this decision she built an entire career very successfully, you know, being the trusted advisor and salesperson to the CMOs of Unilever and Mars, these companies with multi-billion dollar ad budgets, to do this, I just don't understand, like, how you don't quit. I would think at that point you just quit.

So, yeah, obviously it was Elon's idea. So it wasn't Linda's idea. And you're right. Like, does she want to carry this out? not, I don't know, I guess she does. But I'll tell you a couple of things. So first of all, these boycotts are, I think, a loadable from advertisers. It doesn't matter what's going on on the platform. If advertisers can make money on a platform, they will spend money and they will make money. There is no ethical barometer with advertisers. Now, they may, you know, join these

alliances and say, okay, we're part of this, you know, do good of advertising. Let me tell you, I've covered advertising for a long time when advertiser says i can put a dollar in and make a dollar and one cents out it doesn't matter if they're advertising actual billboards and mordor they're doing it okay facebook was in the worst situation of its life nobody stopped they all continued the earnings were incredible for facebook in some of its worst moments now twitter's in a bad moment do i for second thing that advertisers all got together and said well because of Elon's behavior we're maybe there's a few of them that Elon told to F themselves we're now going to to shut off a profitable channel of um of ad spend because of Elon's behavior no I think Twitter always struggled

to show ROI for advertisers when Twitter started making you know especially because it's ad tech was always behind everybody else's. And you look at what's happening with Snapchat, by the way, Twitter's going through the same thing, but, you know, worse, because they have Elon who's a distraction. Sorry, but with Snapchat, they've really struggled to make money off of a large user base. Twitter has a smaller user base. It has a volatile owner. It has terrible ad tech. And by the way, in those big layoffs that everybody praised because, you know, Elon was able to keep Twitter working with 15% of the people, a large percentage of the people that were, like, go, we're salespeople, direct salespeople who were responsible for getting that branding dollars,

those branding dollars in who no longer were able to. So my big perspective here is that I don't think advertisers pulled back by and large because they felt that Twitter was, you know, not safe from a brand perspective. I mean, maybe some did, but I think they would be spending with Twitter if they can make money with Twitter. And I will say that whatever, whatever happens here, just, you know, no matter how merited people at Twitter think this. lawsuit is, it is going to get advertisers to think twice before spending there ever again because if one of the consequences of you spending a dollar on Twitter is that you could eventually be sued by Twitter, you really are not going to want to spend that dollar with

Twitter. I really wonder, no, I completely agree because, yes, Facebook, when Mark Zuckerberg is in front of Congress having to defend against destroying democracy and advertisers, I remember there's like murmurings of a boycott and then nothing happens the only thing that ever affected facebook's ad business was ios 14.5 and the ability to track not potentially destroying democracy so yeah i think advertisers would be very happy but when you look at twitter ads destroying democracy might be a bit too much but so okay you can no no i'm saying that's the accusation so if an advertiser really cared and didn't care about the r why but really cared about the perception and safety The charges were pretty strong against Facebook, or at least loud against Facebook.

We can evaluate if they're strong or not. So I think I completely agree that if an advertiser is going to make one cent ROI, they're going to go all in. But if you just look at Twitter's ads, it's there's already so bad. So creating that perception of quality advertising has been thrown out the door long ago. But I do think it's not even like the safety, the algorithm, one thing I've been noticing is any popular tweet, the next, the moment it goes viral, the next 100 responses are all just people posting memes, other popular memes or other viral content. It has nothing to do with the initial. They tweak the algorithm around engagement

in such a way that the entire response structure is just the incentivizing everyone to just throw up some and copy some viral meme in the responses. And there's certainly a lot of porn in there as well and so between all these things if you're an advertiser like maybe if you saw ROI you'd be happy but I'm guessing overall you're you just look at that and you're like there's no way I'm going to make money or invest any brand dollars into this correct and some of those memes are very very funny but some of them are inappropriate I imagine what do you think the game plan is what's what's next what's your prediction i do think the game plan is basically just like turn this into and everything up but i just haven't seen the execution there like when are payments coming

when i mean i guess they've done phone calls but no one calls people on twitter so i do think i do think the algorithm is better and i think maybe even better than it was when elon took over it has been super fun some of the stuff that it's got it's gone way more close closely tied to a ticot algorithm them they're doing vertical video i think it might they they're improving the content uh at least the quality of the content but then again i do think that just like some of the stuff on that's on the platform right now i mean i i don't know it's a it's a philosophical question about whether you want to keep it on or not um but you don't want to amplify it and i have seen some really bad stuff amplified so it's tough i don't know what do you think it is yeah i think

i agree the for you tab i still just start with the follow tab. But I think, yeah, it's to me, what exactly he's trying to do at this moment with this lawsuit or what the next steps are, I am so fascinated intrigued by and I'm sure we'll see more and more. And maybe there is no game plan and maybe it really is all knee-jerk reactions and momentary ideas that Linda cannot say no to. it reminds me kind of like the yeah reminds me of the broadway play the producers you know where they like try to make a terrible play and it becomes a hit like maybe that's sort of like what the uh just make it so bad like tell advertisers to eff themselves sue them when they don't

spend money with you and then all of a sudden all the money comes pouring in and or maybe the maybe it is simply too now like legally now that he's doing legally he has kind of been blaming the advertisers for a while now. So maybe the game plan is the more that comes out around the weakness of the business. And I think what was it? It was like revenues are down 70% or 80% from where they were pre-takeover. At least you just turn around and you're like, well, we tried, but they screwed us because of illegal behavior and what are we going to do? at least just to try to get an out Yeah, I mean, that could be that could be it

Or maybe, I don't know, maybe X-A-I is the savior It uses the Twitter data and then And then finds a way to build the superior model Don't count out of X-A-I if this is a scale game What are they doing 100,000 GPUs together So maybe that's the final end game there All right, Ron John Great seeing you. Thanks so much for joining

All right, see you next week and let's hope things on Sunday night in the markets give us a breather at summertime. No more volatility, please. Well, just, yeah, let's wait a little bit for that trough. And it might, who knows, we'll see what happens. But yeah, nothing more like this week. This was too much. I was trying to chill.

Couldn't chill. Anyway, follow along on the Wall Street Journal on the first day of my vacation. That sucked. Okay. So Nate Silver is going to come on. On Wednesday, we're going to talk about his new book On the Edge. It's one of the best books I've read in a long time, and I can't wait for you all to listen for that. So thanks again for listening, and we'll see you next time on Big Technology Podcast.