Morning Brew Daily - Google Wants to Charge for Search!? & Solar Panel Fencing

Episode Date: April 5, 2024

Episode 295: Neal and Toby discuss the rumors of Google putting its AI-powered search product behind a paywall, which would be the biggest shakeup in its business model. Then, how the devastating earthquake that shook Taiwan reveals a key vulnerability in its chip manufacturing business. Next, cheap solar panels are being sent all over the world from China. U.S. Secretary of Treasury Janet Yellen has something to say about it. Also, this week’s stock and dog of the week. Meanwhile, Bluey has made an impact all around the world…so why hasn’t a 4th season been green-lit yet? Finally, Botswana wants to check Germany by sending 20,000 elephants to see how they would deal with it. 00:00 - Intro 02:45 - Google could charge for premium 7:10 - Taiwan’s earthquake readiness 10:45 - Solar panel glut 14:20 - Stock/Dog of the week 19:45 - Will ‘Bluey’ continue? 23:45 - Botswana elephant package Get your Morning Brew Daily Merch HERE: https://shop.morningbrew.com/products/morning-brew-daily-sweatshirt?utm_medium=multimedia&utm_source=podcast&utm_campaign=mbd&utm_content=shownotes Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Disclosures: Robinhood Gold Card is offered by Robinhood Credit, Inc., and is issued by Coastal Community Bank, pursuant to a license from Visa U.S.A. Inc. Terms apply to the Robinhood Gold Card rewards program and are available at http://robinhood.com/creditcard. Fee applies to Robinhood Gold subscription. Visit http://robinhood.com/gold for more information. Some limitations or conditions may apply. Must have Robinhood Financial brokerage account to redeem cash back. See rewards program terms for details. Rewards program terms are subject to change. Investing involves risk. Interest is earned on uninvested cash swept from your brokerage account to program banks. The cash sweep program and Robinhood Gold are offered through Robinhood Financial LLC. Terms apply. Rate is subject to change. Robinhood is not a bank. First 30 days of Gold are free and then you’ll be charged a subscription fee. Robinhood Financial LLC (member SIPC) Learn more about your ad choices. Visit megaphone.fm/adchoices

Consider this comparison. PWC data found the percentage of CEOs who report revenue gains or cost reductions from AI is almost equal to the percentage who say they're still stuck. What separates these two groups? PWC points to a clarity issue. Even for CEOs, it's hard to tell what's AI hype, what's reality, and where this tech can make a tangible difference. Learn where AI can actually make an impact and what successful adoption looks like at

pwc.com slash US slash brew AI. That's pwc.com slash us slash brew AI. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Hal. Today, would Google really make you pay for search? It's certainly possible in the age of AI. Then you'll hear how Taiwan was able to weather a powerful earthquake

while keeping its critical semiconductor infrastructure up and running. It's Friday, April 5th. Let's ride. Neil, after two weeks, hundreds of thousands of votes in some Intentious debate, you all have finally answered the question, what is the greatest invention of all time? To catch you up to speed, we put together a March Madness style bracket where we pitted 64 inventions against each other to crown a Geote greatest invention of all time. Our championship wrapped up today and in the heavyweight matchup of fire versus electricity,

electricity came out on top. Electricity, greatest invention of all time, according to our audience. Makes sense because electricity has enabled a lot of other inventions, but its eligibility was also questioned because electricity, as anyone who's seen lightning knows, humans didn't actually invent it. It does occur in nature. We just harnessed it, which, you know, I think we as the selection committee, we said that was fine, but I totally understand the questions. Still, I think it is a wake-up call that we need to host a MBD camping trip. Get away from this plugged in life a little bit. Get off the grid a little bit. Yeah, there were a ton of upsets in our bracket. All the number one seeds, fire electricity, the wheel, and the internet made it to the final four, which just means that the selection committee did its job.

It did such a good job. But this was fun. Thank you to everyone who participated. That ran on our morning brew socials over the last two weeks. And it's just a fun thing that we do every March Madness. Now let's hear a word from our friends over at Robin Hood. Today, I want to tell you about Robin Hood, Gold, Robin Hood's Premium Team. here, and it feels premium all right.

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Windows 11 PCs. Eligible students get a year of Microsoft 365 premium and a year of Xbox GamePass Ultimate with a custom color Xbox wireless controller. Learn more at Windows.com slash student offer. While supplies last, ends June 30th, terms at AKA.m.MS slash college PC. There are three things certain in life, death, taxes, and not paying for Google search. But the third one's more uncertain now after reports that Google is considering charging users for AI powered features on search. If it happens, it'd be the biggest shakeup to its business model ever and send shockwaves across the tech industry. So why would Google do this? It's because AI is insanely expensive, far more than traditional search due to the massive amounts of computing required. And as loaded as Google is, it still needs to recoup the cost of running AI systems somehow, especially at the scale searches operating on. Plus, its bread and butter advertising model might not be such a sure bet anymore. Generative AI chatbots from OpenAI or Jeff Bezos-backed perplexity gives you full answers to your questions instead of a list of links like Google does. That instantaneous feedback has been alarming Google ever since ChatGPT rolled out a year and a half ago.

Toby, nothing is set in stone, but every other AI company has a subscription tier for their chatbots. How can Google avoid doing that? Yeah, this would be a seismic shift for Google's business model, which has long just relied on advertising. but it's also causing Google to have maybe a little existential crisis because these search engines that provide those more complete AI-generated answers. You mentioned perplexity that no longer require users to kind of sift through these big links that are linked to advertisers' websites. That is a threat to Google's very core of how it monetizes. So not only do I think that Google is trying to figure out how it can afford to recoup its investment in this AI, but they're also trying

to figure out if their business model, their search business model, still plays in this new AI. It definitely is an existential crisis. Google made $175 billion in revenue just from search and related ads last year. That's more than half of its total sales. But if you are going to invest in AI, which Google is doing, because you need to do that to choose your stock price or else you're going to get left behind by all the other tech companies, then you need to add revenue because those cost so much. We talked about how much data centers, all of these. tech companies are building. Those aren't cheap. Just last week, Open A& Microsoft announced plans to build a $100 billion data center. Mark Zuckerberg at Meta is spending $9 billion just on

Nvidia GPUs alone. Amazon announced that a single training model that it ran cost $65 million. So this is an extremely expensive investment, and Google, if it wants to keep investing in this, is going to need to charge users it feels like. The other even more valuable resources than even GPUs from Nvidia are actually talent because there's this massive talent more going on in the AI space right now. Open AI's former head of developer relations who left Open AI in March just announced this week that he was joining Google and big tech is just poaching talent left and right. Remember, Amazon increased its stake in Anthropic by $2.75 billion last week. Apple has been quietly buying up these AI startups.

Microsoft obviously has Open AI. It also did this. weird aqua hire of a company called inflection where they pay the startup 650 million to license its AI model. But really, everyone knew they just wanted to hire most of its employees. So we're seeing these crazy things happening right now. There's rumors that Mark Zuckerberg is pending these heartfelt emails to try to woo potential recruits to come over to meta. So we are seeing a talent where unlike we've seen in a very long time. No, I mean, you're absolutely right. Elon Musk said, he said very forthright that he was raising compensation. for artificial intelligence workers at Tesla because Open AI was coming to poach them.

He said it was the craziest talent war I've ever seen. So you're right. This is like a huge resource for companies, not just data centers, not just GPUs, but the actual humans behind the artificial intelligence boom. While we're on the subject of Google, there were reports yesterday that it is looking to possibly buy HubSpot, the marketing software company, which has a market value of $35 billion, So any acquisition would be probably more than that. And that would mean that this would be Google's biggest acquisition ever.

Yeah, it's definitely, I mean, I'm going to say it one more time, what do you do when you go through a midlife crisis? You start buying a lot of expensive things. And HubSpot would be Google's biggest acquisition of all time. Earlier this week, Taiwan experienced a powerful magnitude 7.4 earthquake that shook the island, injuring thousands, and killing 10. Though the quake was strong and more than 300 aftershocks course through the island over the next 24 hours, structures on the island stood remarkably firm. One director at Northeastern's Global Resilience Institute said similar-level earthquakes in other societies have killed far more people, underscoring just how uniquely prepared Taiwan was for such a natural disaster, a combination of improvements in building codes, wide-scale public awareness and a highly trained search and rescue force, reduced the destruction. force of the quake to a minimum, which was especially good news for the semiconductor industry that relies heavily on Taiwan and TSM to manufacture its delicate silicon wafers.

Despite losing a few wafers to the tremors, the company said overall impact to its operations were minimal, and they were quickly making up for lost time. Neil, of all the places for an earthquake to impact, Taiwan was somehow both the most prepared and the most vulnerable when it comes to its role in the global supply chain. Yeah, it was definitely one of those moments, kind of like the ever-given in the Suez Canal and attacks on ships in the Red Sea, where you, everyone looks at these bottlenecks in the global supply chain, and we realize just how fragile is because there are these choke points, there are these points of concentration for the semiconductor industry, which is extremely important to the global economy. Taiwan is that most critical single point of failure because they have established over the past few decades one of the most amazing semiconductor industries in around, I mean, they do dominate the industry, especially for the highest end chips. So they produce 80% to 90% of the highest end chips there that companies, like we just talked about,

all the AI companies and Nvidia use for AI. And so it's, it's a Taiwan semiconductor manufacturing company is the largest company there. It's the ninth most valuable company in the world. So when you look at just the physical, how our global economy kind of sits on these fault lines, so to speak. metaphorically and physically, yeah, you're absolutely right. Because you're right, TSM has invested a lot of money in specifically earthquake-proofing its operations because manufacturing semiconductors

is an incredibly precise process that can be thrown off by even the slightest vibrations. And here they are where a lot of their factories are situated on literal fault lines. So it is something that you have to think about. Taiwan in general, too, is just amazing what they've done to their city to almost earthquake-proof it. I want to talk about Taipei 101, which was once the tallest building in the world.

It's 1670 feet tall. And it has this 703-ton steel ball hanging between the 88th and 92 floors. This ball acts as this dampener system, which reduces the sway of a building up to 40% during an earthquake. It is wild to see in action. You can literally, they have a cutout within the building that you can go and observe this massive ball. There are videos of it online of it swaying as it's offsetting the movement of the building. building, just a very cool piece of structural engineering. That kind of makes me wish I went into the structural engineering field. And they've turned it into a tourist attraction, so good for them.

But no, the concentration of semiconductors in Taiwan is really worrying to observe us, especially as China maybe threatens to invade their. Blueberry economics estimates that a war over Taiwan would cost the global economy $10 trillion, which dwarfs the cost of the COVID pandemic and the global financial crisis. Solar panels have become. so cheap in some European countries that people are using them as fencing for their gardens. Sure, they're not angled efficiently to capture the sun's rays, but at this point, panels are like those free t-shirts you get freshman year of college. There are just so many, you throw them anywhere you have space.

And this isn't just a funny anecdote. It actually touches on one of the most significant geopolitical conflicts of our age, which is China's dominance as a producer of green technology. The reason solar panels are so cheap is because China is cranking them out in extraordinary volumes, creating a glut that has driven prices down by half in the last year alone. China produces 80% of the world's solar panels, and it also makes about two-thirds of the globe's electric vehicles, wind turbines, and lithium ion batteries. China's stranglehold of climate tech production, or overproduction, if you want to call it that, is raising major alarm bells in Europe and the United States, who believe that domestic manufacturers are going to go out of business with all these cheap products coming in from,

China and utter undercutting them on price. Toby, we could be looking at Trade War 2.0 climate edition. Yeah, welcome to the solar coaster, Neil, where for years, all we were trying to do is get the industry to adopt more solar ramp up production, and now we're concerned with overcapacity issues. Solar panel supply globally will reach three times the present forecast for demand. So we have, again, this massive oversupply glut, which is not words that I thought we'd be saying about a green energy source anytime soon. But at the same time, installations have become more expensive. So even though the physical solar panels are cratering in price, there is rising labor costs associated with them. So a lot of these solar panels are just sitting in factories

or being used as the much less intensive gardening fences that we are seeing across Europe right now. So it is interesting to see these massive imbalance between the labor, the cost, and the cost produce these things. And it's all because of China and how much they're making. And it's this really interesting tension between, it's amazing that we have cheap green tech technology. We've been wanting that forever to create cheaper solar panels so we can move from a carbon economy to renewable energy economy. The problem also is that China is making them. And the West, Europe and the U.S. are saying we do not want China to keep flooding our markets with these cheap products because then we don't have a manufacturing base of our own to make electric vehicles,

to make batteries, to make solar panels. And so there is a distinct prospect that there are going to be more tariffs, more trade barriers coming to stop the flow of cheap Chinese goods that are coming from China over to the West. And we've seen this many times before in many other industries, steel is one thing that comes to mind where the U.S. imposed tariffs on Chinese steel because they accuse China of dumping them on their shores. Right. And we've spoken a lot about Europe, but this is also an issue affecting the U.S. a lot because solar power manufacturers are getting subsidies in the U.S. under that $369 billion inflation reduction act, but still those imports from Asia are coming in at discounts to U.S. made stuff. So even when accounting for the tariffs we apply to those imports, even when accounting to the subsidies we're giving domestic manufacturers. So you're right. It is just completely undercutting the industry in the U.S. and Europe, want to protect their own domestic industries. Up next, you get to hear Neil and I talk stocks in our Stock of the Week,

dog of the week segment. You know what time it is. Stock of the week, dog of the week time, where Neil and I tell you about one stock that thinks the latest season of Curb Your Enthusiasm is good, and one stock that thinks it's bad. Neil, since you are the one with the bad curb take and you lost the pre-show game of Pesto making, I'm up first, and my stock of the week is Spotify. Spotify is raising prices again.

and investors are loving it, stacking up prices by about $1 to $2 a month in most of its major markets by the end of April, with a U.S. bump coming later this year. The higher prices will go towards covering the cost of audiobooks, something that Spotify recently added into its offerings this past year. The addition of audiobooks means it's reshuffling its tiers a little bit, too. It's bringing in a new basic tier that will offer music and podcasts,

let's freaking go, but not audiobooks for $11 a month. On the other end of the spectrum, Spotify is still cooking up a super premium plan, which would give customers access to high fidelity, aka high fi audio, which has long been anticipated. Overall, despite the price changes last year, Spotify posted its best year of user growth ever with 113 million new signups to its free and paid plan and is no doubt hoping customers will be equally price insensitive this time around. Neela stock is up 14% in the last week. It's flying high right now. It is.

I mean, Spotify is on the road to profitability, which it has not been. It's lost money every single year since it went public in 2018. It has a huge cost base because it has to pay musicians royalties for every time a song of theirs is streamed. That accounts for 70% of its revenue. So for every $10 that comes in, it has to pay $7 out. And so that creates not the most profitable business model. It thinks audio books and these other audio categories, will allow it to become a higher margin business that will eventually lead to profitability.

It is interesting that it's banking, its future, at least in part, on audiobooks, because people will have to pay. If you don't want audiobooks, you can stay on this particular price point. But if you do, you can opt into that higher tier. We'll see how many people convert. Right. Investors have definitely been looking to Spotify, to diversify its revenue streams from these things where you have to pay out seven of every $10 you generate to music artists. So it went all in on podcast. That was kind of its famous push into podcasts that didn't go so well. It did say its podcast will turn to profit this year,

but it's already sunk billions of dollars into its podcasting approach. The big difference between Spotify's approach to audiobooks and the market leader, Amazon's right now, Audible, which is owned by Amazon, makes you pay for almost every individual book you buy, whereas Spotify customers will get a little taste of audiobooks 15 hours a month, for free, have that limited access, or you can buy the plan and get access to its audiobook. So it is a little bit different in terms of the approaches that the current market leader is taking and then how Spotify hopes to kind of chip away at what Audible has built up. Yeah, it does seem to be at this point that Spotify does have a decent amount of pricing power.

Okay, my dog of the week is Ulta, the beauty store chain, whose epic run seems to have run out of steam. Its stock is down 13% this week after its CEO warned that slower growth. is coming, and it's coming faster than anyone expected. Ever since COVID started, the cosmetics and beauty industry had defied gravity. People just couldn't get enough skin care and makeup during the pandemic, after the pandemic, in the face of storing inflation. It didn't matter. Last year, it was the fastest growing category in all of U.S. retail, with consumers shilling out $94 billion to look and smell nice. But there's only one Cal Ripkin, and the beauty boom

seems to be losing some juice. Oldt's CEO said that higher credit card, debt and the return of student loan payments, we're putting the squeeze on consumers, and as a result, Ulta's sales. The question now is, is this a short-term blip on the road to new heights, or is beauty set for a longer-term slowdown? I tell you, one industry that is really watching with apprehension right now is the physical retail world, because a lot of these big box retailers have invested a lot into the makeup boom, the cosmetic boom, Target has open Ulta's shops in a lot of its stores. Coles plans to open Sforced shops in all of its location. Macy's also doubling down on its beauty chain, blue mercury. So if we're seeing this beauty market that has seemed

almost unimpeachable, it's been this unstoppable force that has rolled through all sorts of economic hardship. If we finally start seeing this downturn, as retail is embracing it, it could get ugly for a lot of different industries. That is a great point. And beauty is one of those consumer retail sectors that people pay attention to maybe more than its actual dollar amount may be worth. And that's because of what's called the Lipstick Index. And it was created in 2001 by Leonard Lauder, one of the heirs to the Estee Lauder fortune. And he found that during times of economic hardship, people bought more lipstick. And that was a sign that even during recessions, people would shell out for these affordable

luxuries to treat themselves. So now that lipstick sales are going down, what does that? that say about our economy that we're doing well? Yeah, I think so. Or we just discount the lipstick index completely. Right. I don't know. It's never been proven.

We're going to have to check in with hair and makeup and see what their thoughts are. I'm surprised you didn't loop a hair and makeup joke in there. It's coming. It's coming. All right, all right. All right. One of the world's most popular TV shows could be ending its run just as it was ramping up global domination. That show is about a family of anthropomorphic Australian blue healer dogs

and all the young parents listening know exactly what show I'm talking about. It's Bluey. Bluey will wrap up its third season next Sunday, and the team has been mysteriously silent about whether there will be a fourth. Speculation is rampant that the episode will see the family move houses, which is unheard of in an animated series. Have the Simpsons ever moved out of their house? No, which is why there's huge concern that moving trucks might signal the end of the show.

And if Bluey did end, it'd be like Michael Jordan leaving basketball. for baseball at his peak performance. Bluey wasn't just the most watched kids show last year. It was the second most stream show overall behind suits. Americans watch 731 million hours of Bluey in 2023, more than NCIS, Gray's Anatomy, and even Friends.

All those eyeballs have spawned an entertainment empire that puts Bluey's valuation at around $2 billion. More like Bluey Vaton, am I right? You are so right. One generation had Snoopy for this generation. there is Bluey. It is just an absolute juggernaut. And one of the reasons it's the juggernaut is because parents will tell you it is good. They genuinely like the show. There is this big Bloomberg profile of it that said Bluey was conceived by a genuine art outor in the mold of Donald Glover's

Atlanta or Jesse Armstrong's Succession. Literally comparing this TV show that runs episodes that are seven minutes long to Succession is interesting. But it really does go to show you that this approach that Bluey took towards children's content is resonating not only with the kids, not only with the dogs that end up watching the show, but with parents themselves. Oh, yeah, my friends say, who have little kids say they love and so remarkable show. Let's talk about who's making money and who's not making money from Bluey. Well, one person, one company that could be making a lot more is Disney. Disney had the opportunity to license the Consumer Products Division of Bluey and its,

its merchandise and its theme parks, but it declined to do so. It just sort of bought the broadcasting rights, and that was actually huge for Disney Plus. It, Bluey debuted in 2018, Disney Plus debuted in 2019, and during the pandemic, Bluey really carried Disney Plus. It accounted just last quarter. It accounted for 29% of all Disney Plus viewing hours. So there is a lot of speculation that Disney whiffed maybe the first time in seeing the potential of Bluey, and it may come back, albeit at a much higher price point to buy Bluey because there is a lot of synergy with Bluey and Disney. Absolutely. That 29% stat is excluding the movies on the platform, but still,

it just goes to show you how big of a president's Bluey is on Disney. U.S. networks were interested. Nickelodeon kind of was interested early on when Blue was first rising, but they decided to pass because they already had Blue's clues, which is another anthropomorphic blue dog. So it is interesting to see the cultural impact this has had. And yeah, it's kind of been this get out of jail free card for Disney Plus. Of all the shows that I invested in, Bluey seems to have supported it. And in Bob Iger's transition to try to get the streaming division to make money, I could definitely see a world in which Disney buys Bluey in the coming months or coming years.

But the Bluey creator, Joe Blum, who's this Australian, we should say all of these, all these dogs have Australian. They're all Australian. He didn't even want to make a second season because he's very, guarded about the content but it would just be the most epic mic drop ever to just say three seasons I'm out. Even better than

Seinfeld which stopped before it was, didn't Seinfeld stop before it went on too long? Oh I thought that was... No, it was already on its way down in season nine. For our final story of the day, we're checking in on Botswana president Massisi who is threatening to send

20,000 elephants to Germany which has already been inducted in the MBD Hall of Fame for the craziest lead into a story. The background here is that the environmental ministry in Germany is seeking to ban the import of trophy animals due to poaching concerns, which on the surface seems like a good thing, but it's more complicated than that. Botswana is struggling with an elephant overpopulation problem. According to Massisi, Botswana's elephant population has grown to around 130,000 as conservation efforts have allowed the species to absolutely thrive. So to tackle the issue, it's offered

8,000 elephants to nearby Angola, 500 to Mozambique, and now 20,000 to Germany. Something tells me this one is a little bit more tongue-in-cheek. There is a long-running tension between Western moral opposition to hunting and African countries that feel it's necessary both for economic and conservation reasons. So while this disconnect has produced some interesting headlines, this really is a debate that has to be had. It's a big issue. I mean, think about how many elephants, 130,000 is.

are big creatures. They're causing all sorts of havoc in Botswana, which is home to a third of the entire globe's population of elephants. And Germany's, if Germany blocks the import of these trophies, then it could hurt Botswana's economy. They did ban this practice in 2014 until 2019, and a 2017 paper found that it did hurt local economies. It reduced jobs in the area. So you can see why the Botswana leadership is saying, Germany, you don't know what's going on the ground here. We have an elephant infestation in a sense, and we need you to come and take some off our hands. It's not a population control thing. Germany just imported 26 elephant trophies last year. It's not going to meaningfully reduce the population, but by bringing jobs, but by bringing economic

development, it could lead to better population control efforts by Botswana. Right. Animal rights advocates on kind of the European side say killing animals for sport is wrong. Sport hunting by tourists will actually increase the likelihood of extinction events for certain animal species. But trophy hunters and also some more of the more pragmatic conservationists say, as long as trophy hunting remains controlled, which it is a controlled industry, it has more financial benefits for the local community. Plus, it does help a little bit with population control. You are right, though, that 26 licensed to import those trophies pales in comparison to the sheer amount of animals there are. And then just to be clear, trophy hunting is a regulated industry,

unlike poaching, which is illegal. So do not conflate the two things. And that's what Botswana's president also wants to put forth that. We're not encouraging poaching. We're encouraging legal hunting practices. All right, enough elephant talk. Let's wrap it up there for the week. Thanks so much for listening and happy Friday to everyone who celebrates. Did you know a new survey found that the average American worker clocks out on Friday at 403 p.m., which is a full hour earlier than they did last year. Hope you find yourself in that position today. The inbox has been full of wonderful notes recently, so keep them coming to Morning Brew Daily at MorningBrew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Liu is our producer. Olivia Graham is our

associate producer. Yuchinawa Ogu is our technical director. Billy Minino is on audio. Hair and makeup is not loving this beauty slowdown. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. I wish you well.