Morning Brew Daily - $13B Mega-Deal Creates Advertising Giant & Google’s Staggering Quantum Computer

Episode Date: December 10, 2024

Episode 471: Neal and Toby chat about the mega-merger to create the largest ad agency in the world as the industry contends with AI and social media platforms to stay alive. Then, Nvidia is hit with a probe from China, alleging breaking anti-monopoly laws as the US-China trade wars heat up. Also, Google unveils its new quantum chip capable of solving problems that even the most advanced supercomputers can’t do in minutes. Meanwhile, Toby dives into the latest trend of professional back scratchers that unlock a new level of relaxation to their customers. Lastly, the biggest headlines you should know about.  Visit https://www.sage.com for more! Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - CEO Shooting Suspect Arrested  03:00 - Mega Ad-Merger 07:30 - China Probes Nvidia  10:50 - Google Quantum Computer  15:35 - Back Scratching as a Career 18:24 - Headlines  Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. Today, the ad companies behind Got Milk and Think Different are combining to upend the marketing industry. Is it because they're worth it? Then, Google has made a quantum leap in quantum computing. It's Tuesday, December 10th.

Let's ride. A suspect in the killing of United Healthcare CEO Brian Thompson was taken into custody yesterday in Altoona, Pennsylvania. Luigi Mangione, a 26-year-old former high school valedictorian from Maryland, was arrested after being recognized at a McDonald's 280 miles away from the initial crime scene. They found Mangione in possession of a gun similar to the one used in the shooting,

multiple fake driver's license, as well as a three-page handwritten manifesto. According to online court records, Mangione has been charged with murder hours after he was apprehended. He was also charged with three gun-related charges and forgery. So, Neil, finally, a suspect in custody. What do we know about Luigi Mangione as of now? Well, we know quite a bit.

He had a very extensive digital footprint that people were combing yesterday. He did come from a prominent and influential real estate family in Baltimore, went to a prestigious prep school there named Gilman, then went to UPenn for engineering, got a bachelor's and a master's there. It seemed like he was very interested in technology, computer gaming. He even built a mobile app before college. And from his goods reads, it seems like he was very interested and is from his Twitter profile, very interested in things like self-improvement,

healthy eating, also veered into criticism of capitalism. And then it feels like a few months ago, he kind of went off the map after back surgery. In his manifesto, he railed against health insurance companies and corporate America saying they were seeking profits over putting customers and Americans first. So it's still a long way to go to understand what really motivated him. But quite a digital footprint that left a lot of people, you know, amateur sleuth researching. what this guy was all about. He's now being held without bail in Pennsylvania, and at some point, we'll be extradited to New York. Yeah, and we'll keep you updated as we learn more about this story.

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ends June 30th, terms at AKA. dot MS slash college PC. It was merger Monday on Madison Avenue as advertising giant Omnicom agreed to buy another advertising giant interpublic group to create, you guessed it, the largest advertising company

in the world. The tie-up is legacy marketing's response to AI and big tech firms like Facebook and Google revolutionizing the way advertising works at their expense. You may not have heard of Omnicom and Interpublic Group before, but their vast network of agencies are behind many of the TV commercials you mute and the online ads you scroll quickly past. Their client rosters include AT&T, Amazon, Pepsi, Unilever, and Geico, while they're

responsible for some of the most iconic ad campaigns in history, such as Apple's Think Different, L'Oreal's Because I'm Worth It and Got Milk. Together, the combined company will be worth more than $30 billion. But times, they are a change in, and this isn't don't. Draper's ad industry anymore. The days of asking Peggy and Michael to whip up some copy and present it to your client on an easel are over. Artificial intelligence has dramatically lowered the cost to create and serve ads while big tech is eating a growing share of the marketing pie. Neil, is it too late for Madison Avenue to compete with Silicon Valley? We're going to find out. I mean, these companies are trying to refashion themselves more as digital technology companies than classic media agencies.

they've been on a buying spree acquiring smaller companies over the past decade that you would think has nothing to do with classic advertising. These are digital brokers. These are influencer marketing platforms. These are e-commerce companies that help you sell on Amazon. The entire industry has shifted under their feet and they think they need to build scale now to compete against AI, which lowers costs and renders a lot of their services obsolete. You know, say I want to I would typically go to an agency to whip up some ad creative for me. Now I can just use maybe an AI generator that Adobe makes and create something on my own for a fraction of the cost. Maybe I would go to an ad agency to help me plan my media buying.

Where should I buy ad? Should I buy this billboard? Should I buy a TV commercial? Now I can just go to Facebook or Google and they'll all do it for me and have all these personalized services where I can target people in a way that I never could before. So this is a rapidly changing industry. and the big four, there's big four companies are buying all of these other smaller companies to keep up. So clearly these agencies are scrambling, trying to say that,

no, we're at the cutting edge, we're at the forefront of the AI boom to try to attract those clients. But another aspect of this, that even though that they're parading around AI is the reason for this merger, I do think scale is very important in the advertising business

because there's this thing called principal-based media buying where agencies go around and just snap up all this ad inventory in advance, then sell that in packages back to companies. This is definitely a little controversial because they don't tell the companies what they initially bought the media inventory

the price that they bought it at. But that is something that scale definitely lends itself to. If you can be the biggest player in the advertising industry, that means you can buy more of the ad inventory space. And that's where these are the company's bread and butter, which is media buying, which is managing media spend for big companies. So even though you hear this AI as the thing that they're saying,

This is why we're combining under the table. The scale is very helpful in just the good old-fashioned meat and potatoes, the ad industry as well. And scale could be a problem. As I mentioned, these are the third and fourth largest advertising companies in the world. And combining, they would be the number one eclipsing publicist group and WPP, which are one and two right now that could raise antitrust concerns. Yes, we are moving away from the Biden administration's very harsh antitrust stance. But the incoming Trump administration, Trump nominated Gail Slater, who's a pretty tough competition enforcer to run the DOJ's antitrust division. So this combined company could get a look from regulators.

She is known, Slater's known for going after big tech companies pretty hard. But we'll see, these companies want to fashion themselves as tech companies now. So we'll see what happens in the antitrust realm. China and Invidia are beefing over suspicions that the second biggest company in the world may, have been skirting anti-monopoly laws in the country. China's state administration for market regulations said yesterday that it had opened a probe into the company, specifically looking at a 2020 acquisition of an Israeli chip designer called Melanox technology. Beijing did give approval for the deal four years ago, but it came with certain conditions like Nvidia was not allowed

to discriminate against Chinese companies. Now, of course, this comes out of time when trade tensions between the U.S. and China are higher than ever. has barred Nvidia from selling its most advanced semiconductors to China, while also pressuring international companies like ASML to do the same with their chipmaking machines. China has fired back with export bans on key earth minerals used for semiconductor manufacturing, but Nvidia is its biggest target yet in the tit for tat tech trade war. The market reaction to this move was relatively muted. Nvidia finished the day down about 3% yesterday, but still, China accounts for about 15% of

its revenue. So antitrust scrutiny there is certainly not ideal, Neil. No, no, this is a big deal. I mean, the temperature in the trade war between the U.S. and China is absolutely heated up just in the last two weeks. And China is not revealing what NNVIDIA may have violated over this agreement that they made a few years ago. But this is absolutely sending a message to the United States that China will respond and will flex its government powers to put American companies, Nvidia, being perhaps the most prominent and the most important of any company in the world under the microsope. So we're seeing a rapid increase in rapid escalation in the supply chain warfare between the U.S. and China. And right now,

both countries are just laying their chips on the table, perhaps, to pursue a grand bargain, a big deal coming up in the next few months. But this is a big deal. It is confusing, though, if you're an investor in NVIDIA, is this going to impact NVIDIA's, you know, march towards being the biggest company in the world. And you can look at multiple data points that say, yes, it is, or maybe no, it isn't. Nvidia used to dominate China's AI chip market. They had a 90% market share before some of these curbs

started being put on the books. However, now China has been telling Chinese companies to buy chips from domestic companies like Huawei being the main one there. China did account for about 15%, 12% to 15% of Nvidia's revenue in the last year. But that is down from 26% two years earlier. So clearly that position is sliding downward.

So it is one of those things where, again, probably the moneymakers for Nvidia are going to be like the big tech companies based in the United States, like the metas, the Googles of the world. But China still has a significant size of the revenue. So that is why you might see a little bit of apprehension around the stock in like the next few weeks. And Nvidia is being squeezed on both sides, not just in China, but in the United States. The United States has barred Nvidia from selling its most advanced AI chips to China, which

are probably the most expensive. And then at the same time, the U.S. is also investigating NVIDIA for antitrust concerns because no one makes the chips that it does as well as it does. So it has a 90% market share of this AI, advanced AI chip market. So it is being investigated for whether it did so. It acquired this dominance illegally. So NVIDIA's is becoming one of the biggest political footballs in this, in this. trade war between the United States and China. Google just unveiled a revolutionary new quantum

computer, and let's just say, you won't have any buffering issues watching Netflix on it. This quantum computer took just five minutes to solve a problem that take the best supercomputers around 10 septillion years, 10 with 30 zeros. In a blog post, Google wrote this mind-boggling number exceeds known timescales and physics, and vastly exceeds the age of the universe. It leds credence to the notion that quantum computing occurs in many parallel universes in line with the idea that we live in a multiverse. Okay. This breakthrough is made possible by a new chip Google calls Willow, which has cracked a three-decade-old problem keeping quantum computers from making it to the big time. Experts compared Google's technological milestone to the first man-made

nuclear chain reaction in 1942. It's that huge. You're probably rolling your eyes and thinking, Come on, Neil, I've heard this before. Quantum computing seems like they've been trying this forever and nothing really has come of it. And you know what? You are right. The concept of quantum computing dates back to the 1980s and has despite billions and billions poured into the field

by companies and governments, these insanely powerful computers have yet to offer any useful applications to get something done practically. You're better off with a TI-89. But that could change thanks to Google's achievement. Toby, what was the key breakthrough here? Well, I just want to take a step back first and explain what the heck the difference is between a quantum computer and a regular computer. I would very much appreciate that.

I'll put on my technology hat here. So traditional computer, like your laptop or the smartphone you have in your pocket, it uses binary bits. It stores zeros and ones in those silicon chips. Performs calculation by processing those bits of information. The key to remember, though, is each bit can only ever be a zero or a one. A quantum computer, on the other hand, very hard to wrap your mind around. they use something called quantum bips, aka quibbits. Quibbits can hold a combination of ones and zeros. I think of it as Schrodinger's quibit. So one quibet can hold two values simultaneously. Two quibits can

hold four values, so on and so forth. As the number of quibits grows, the compute power grows exponentially alongside it. More quibits equals an infinitely more powerful computer. Now, the problem, and you said that, practically speaking, we haven't found any real uses for quantum computing. That's been true because one of the issues is that as the amount of compute increases, the number of errors usually also increases with it. Google said that its machine, its willow chip that it created, has surpassed the error correction threshold, which means that it allows one of these machines to reach its potential because errors aren't going up in exponential fashion at the same pace that quibits are. So that has been something that scientists have been after for decades, and it looks like they finally exceeded that threat.

That was pretty impressive, Toby. Nice job. Yeah, that concept of something existing in two states of matter at once is called superposition. Definitely look up Schrodinger's cat, which kind of is the most famous example of something existing in two states at once. So say we figure this out. Google said that it reduced the amount of errors that quantum computing is able to, you know, it's able to handle these errors. now and can maybe do these do these computations without you know many mistakes what are some potential use cases for this down the line because companies have poured in billions of dollars intel ibn google they're betting on quantum computing to actually be able to be commercially viable one day so one big use case that experts think could be used by quantum computing is drug discovery and drug design could crack encryption speed up decision making in financial transactions improve machine learning, even address climate change through forecasting and weather modeling.

So there are, do seem to be some ultimate, some ultimate applications. But I think even with Google's breakthrough, they're saying, like, don't expect anything soon. We're not going about to open up our MacBook and it's going to be a quantum computer anytime soon. You mentioned at the beginning of the segment that you can eventually watch Netflix on quantum computer. Can you imagine a world where you're just streaming in like, I don't even know, 4K, 8K, 16K, HD because we're all watching on quantum computers. Don't know if we'll ever get to that point, but fun to think about.

Up next, it ain't Neil's numbers yet. It's Toby's trends. Today we helped a... Latte for Sam. Coffee shop, get an insurance quote simply and easily. And made sure... A floral delivery van was able to make someone's day. We're the Hartford, with decades of experience

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It's the hot new field for keratin to bless individuals who are charging over a hundred bucks an hour for their services. They're not just targeting annoying inches in between your shoulder blades, though. The Wall Street Journal talked to various scratchers, who say their primary goal is to help people slip into blissful states of relaxation. Think candlelit rooms and the good kind of goosebumps. Some social media famous scratchers charge as much as $162 for a one-hour session. While long manicured nails often filed to a sharp point are the primary instrument for most scratchers.

Some like Julie Luther, who runs soft-touch ASMR spa in Pasadena, California, also introduce things like makeup brushes or rooster feathers to amp up. your sensory experience. The goal is to trigger the release of the Holy Trinity of chemicals in your brain, endorphins, oxytocin, and dopamine to leave clients feeling sleepy and satisfied. Neil, if you scratch my back, I'll scratch yours. I have never gotten a massage from a professional masseuse, but I would consider getting a back scratch because that sounds absolutely delightful. It's part of this growing ASMR economy. You have these ASMR

spas opening up in Los Angeles and New York. There's one right down the road from us in Williamsburg that will definitely have to check out. The global wellness industry was worth, what, over $6 trillion last year? This is part of that industry of people really caring about the way they feel in their bodies. So I am bullish on backscratching.

I am bullish, too. There's this one company called the Scratcher Girls Spa in Miami. They actually go on tour across the country multiple times a year because a big part of this phenomenon is social media. You watch these videos. You can kind of imagine yourself being in that scenario. You know what having your back scratching feels like. So it's really led to these big accounts blowing up. And the Scratchers Girls Spas in Miami, they're going on a European tour next year because they're like, people from all over the world watch our videos. I do think, too, that a part of it is not just the scratching experience, but some people whisper words of affirmation in their

client's ears saying like you are safe, you, you, uh, tracing a scene on the client's back and narrating what that scene is. So it's definitely a full sensory experience. It's not just a massage from a professional masseuse. It is something far beyond that. And my back is tingling, just thinking about it. And it feels like the only big overhead cost here is making sure your nails are good because this, some of these people have three inch nails that they have to keep perfect, you know, to be for, for optimal scratching. So that is just one of the consider If you have good nails, maybe grow them out to three inches, keep them filed and then open up an ASMR spawn. You could be raking in $160 for 50 minutes, which is what one of these people are charging.

Let's sprint to the finish with some final headlines from the news. Mandelaise International is hot for more chocolate. The maker of Oreos is reportedly thinking about buying Hershey in a mega deal that would create the world's largest confectionery company with sales of nearly $50 billion. Hershey owns more than 90 brands, including Rees and Kit Kat, but it's had a rough year due to skyrocketing cocoa prices and consumers pulling back on their buying, so shares have fallen at 14% in the last three months. That means Mondalez, which owns chips, a hoi, ritz crackers, and Sour Patch Kids, thinks it could snag Hershey at a bargain while boosting its chocolate portfolio. Toby, would this deal spark almond joy? First of all, hate almond joy,

so no, it wouldn't spark almond joy for me. But yeah, I do think. think that there is some potential here because, yes, as you said, Hershey's had a little bit of a tough year. Hershey Trust owns about 80% of the voting power at the company, and they have been slowly selling off a lot of its shares because they've said they want to diversify some of their holding. So it does look like they are maybe open or amenable to a transaction like this. This would be the biggest merger of the year, actually surpassing Mars's agreement to buy Kelenova, another big snack merger tie up. So if you're in the M&A space, you do. definitely like all this confectionary action that's going on.

I'm just excited to see what could happen to Hershey Park. A little sour patch kids ride there. We get some of Mondalese's portfolio. But besides that, it does seem like chocolate companies are being hurt a lot. Coco prices have more than doubled from the start of the year. And so these chocolate companies are maybe looking for a way out. But this is not the first time Mondalez has tried to buy Hershey's, tried to do it for $23 billion in 2016.

Hershey said no. Now we are, what, eight years later? It's going to be a much higher price. So we'll see if the Hershey Trust is going to accept the deal this time. Open AI finally released SORA to the world yesterday. It's highly anticipated text-to-video AI tool as part of its 12-day shipmiss product release series. Chat, GBT, Plus, and pro subscribers in the U.S. and a few other countries can now create videos up to 20 seconds long at 1080P resolution.

Remember, this was the tool that went viral when Open AI teased it a few months ago in February that lets you generate videos from text prompts, animate static images, or remix existing videos. Neil, a goal of OpenAI is to advance multi-modality, which is combining text, image, and video into one big suite of AI models, and this is getting it one step closer to that goal.

Yeah, and they're taking a lot of safety precautions with this release, because it's the first time where they're releasing it to the wild and being able to create videos from AI just by typing in a sentence and create a video. Certainly has raised a lot of concerns. All of these videos will have visible watermarks and metadata that show that it was created by AI. You are not allowed, it's not, they're not allowing users to create any photos with, or any videos with people now.

So it's likely to just be animals and scenes. So it'll be interesting to see what happens with SORA. in the meantime, since it was first introduced and now it's released, a bunch of competitors have stepped in. There's Google, there's runway, there's a company called Minimax, there's ones from China. So there's been a, you know, everyone was blown away by Sorba. Now it's certainly not the only player in this field anymore. The Stimis could be coming back, at least for New Yorkers. Governor Kathy Hochel said yesterday that the state brought in more money than expected from sales taxes

and plans to send that money back to New York residents in the form of direct payments. Hockel is calling the checks an inflation refund, and her stated goal is to top off the finances of New Yorkers struggling from price hikes over the past few years. If passed by the state legislature in the fall of 2025, New York could send $500 checks to families making up to $300,000 and $300 to individuals earning $150,000 or less. In total, $3 billion could be sent to $8.6 million New Yorkers. Toby, New York isn't the only state that's sent or present. plans to send surplus money back to residents. Is this endorsed by economists? I mean, it's a little bit controversial because the question is always, are surplus funds better spent this way or that way? Is it better to just write treks directly to citizens or is it better to invest in improving

services around the city? There is some pushback saying that one-time tax rebates don't have a lot of benefit overall to the economy. They don't really influence incentives around working or they don't influence incentives around investing. They don't have a big long-term effect. But if you are a maybe governor who is looking to get reelected, they do have a certain effect because people do like having money given to them supposedly for free. So you can read between the lines here and say like, hey,

this comes after a tough election cycle for Democrats. Voters regularly cited the economy. They regularly cited inflation as a big pain point for them. So sending them a $300 or $500 check is a way to get on voters. I wouldn't turn it down. This is a playbook used by other states as well. California did the same thing in the name of inflation in 2022. And Alaska, right, has this fund that since the 70s has sent checks to residents from surplus

oil revenues. They produce a lot of oil. They put it all into a fund. And then every year they send it back to residents. So this is a playbook that's been done before, you know, some people pointed out that if you're trying to combat inflation, sending more money into the economy for people to spend, is not exactly the best way to do that. So we'll see the state legislature still has to approve it.

And if it does, then those checks could be coming in the fall. The nominations for the Golden Globe Awards were announced yesterday with the precursor to the Oscars led by the Netflix Commission musical Amelia Perez, which received 10 nominations. Following closely behind the Adrian Brodie historical drama, the Brutelist, snagged seven noms, while the bear and only murders in the building also saw significant love. The award ceremony will take place in January and will be hosted by comedian Nikki Glazer. And Neil might just be worth it to tour in for Glazer alone. She's hilarious, but I love the Golden Globe nomination list, primarily because it gives incredible recommendations on what to watch. I thought I had watched a lot of movie this year, but apparently I had not because the top film nominees, five of them, I have just never seen.

Amelia Perez, the brutalist, conclave, Anora, which people say is incredible and the substance. I haven't seen any of those. I guess I've just been on the wicked challengers train. Those did get some nominations. Dune Part 2 only got two. I know. There's been so much controversy around Dune because, especially for the soundtrack, because Hans Zimmer used, who was my top artist on Spotify, by the way, since

Hans Zimmer used so many of the same kind of song basses from the first Dune, the second Dune movie wasn't allowed to be nominated. it didn't meet certain thresholds for that. So there's been a little bit of uproar against that because, yeah, if you watched Doom Part 2, the soundtrack was just obviously incredible, but apparently too similar to Doom Part 1. All right, that is all the time we have. Thanks so much for starting your morning with us and have a wonderful Tuesday. For any questions, comments, or feedback, send an email to Morning Brew Daily at Morningbrew.

And if this podcast scratches your back in all the right places, share it with someone else who's itching for a fun way to get news. I think Toby has a great recommendation for you today. Neil, you already stole my thunder. I want you to share the podcast with someone who you'd want to test out the back scratching spas with because what's a little scratchy scratch between two MBD listening friends? And speaking of sharing podcasts, check out the latest episode of the Brew's Investing Focus show After Earnings, hosted by our good friend Anne Barry.

She interviewed Salesforce CEO Mark Benioff, and they chatted all about the AI bubble, return to office policies, and if Mark is down to play ball with Elon Musk, and Doge. Great episode. Make sure you give it a listen. Let's roll the credits. Emily Milliron is our executive producer. Raymond Loo is our producer. Olivia Graham is our associate producer. Eugenua Ogu is our technical director. Billy Minino is on audio. Hair and makeup went down a quantum computing rabbit hole and we haven't heard from them since. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. Own it all. Pay off your home. Travel for life. Drive a Ferrari. In celebration of the

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