Morning Brew Daily - Microsoft and Alphabet Ready to Spend Big on AI & Parents Dropping $4k on Sorority Consultants?

Episode Date: July 26, 2023

Episode 111: Neal and Toby dive into the earnings reports from Microsoft and Alphabet and explain why big tech is ready to spend big on AI. Also, UPS Workers agree on a deal worth $30 billion to avoid a strike. And why did Twitter's rebrand to 'X' cost the company almost $20 billion in brand value? And how the UN is stepping in to stop a massive oil spill from a decaying tanker. Finally, why Americans don't feel guilty spending cold hard cash and some parents are spending thousands on... sorority consultants. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew, daily show. I am Neil Fryman. And I'm Toby Howell. On today's pod, there's at least one devastating strike we won't have to worry about after the Teamsters and UPS agreed to a new contract. And we'll head to the Red Sea where a dramatic operation is underway to prevent a massive oil spill from a crumbling tanker. Then we're back with another hefty helping of big tech earnings where we'll see who is riding the AI wave like Prime Kelly Slater and who just wiped out. Then I found a new dream job, Neil, that I'm unfortunately not qualified for. sorority consultant.

It's Wednesday, July 26. Let's ride. All right, so Messi played his second game for Inter Miami last night. Two goals. Easy. I know. The big question is like, is he going to score 100 in MLS? This is exactly what everyone predicted, and I'm so glad we're seeing it happen because

there's nothing better than Messi scoring goals. Do you think he's going to get bored? Because he's playing with children. I know, but there's nothing more fun of the world than scoring goals. just a pure joy on his face. I think he loves America, by the way. Like, he really does. He's having a great time there. So, and I think the players playing with them are just on cloud nine. They're like, I went from being last in the MLS to playing with the greatest player of all time. So God, love Messi. And then in more soccer news,

the U.S. women's national team plays against the Netherlands tonight in their second game at the Women's World Cup. So that'll be fun to watch. That's a rematch from last World Cup's final. So, yeah, I'll be watching. And the final note is Toby and I, are definitely on the bad side of the Jamaican Soccer Federation after we did that story on how the Jamaican's women team has had to crowd fund themselves because they're not getting support from the Federation. Our clip on Twitter kind of went viral with everyone tagging the Jamaican Football Federation saying how pissed they were at that.

Yeah, hundreds and hundreds. We went viral on Jamaican soccer Twitter. And yeah, people are really mad. They're very disappointing the Federation. So maybe we'll affect some change. All right, Neil, let's jump into our first story where it's that. time of year where earnings are pouring in as thick and fast as fresh honey on a sunny summer Sunday. Yesterday, we got a healthy dollop of big tech earnings with Snap, Microsoft, and Google's

parent company Alphabet all reporting. The big theme of this earnings cycle was how each company's AI investments would shake out. And boy, did it go well for some and not so well for others. First, for the good, Microsoft had a solid quarter beating revenue expectations by around a billion, while also promising that they are going to continue to plow money into building out its AI infrastructure. Alphabet also proved that reports of its search business demise were greatly exaggerated. Search advertising sales grew to $42.6 billion, topping projections in showing that Microsoft's AI-powered Bing isn't a true foe right now.

Then finally, there is the problem child. Snap stock fell 18% after reported its second consecutive quarterly. drop in revenue. The good news is that it said that over 150 million users have sent over 10 billion messages to the weird AI chatbot it rolled out. But the bad news is that it doesn't seem that advertisers actually care. Neil, dealer's choice here. Where do you want to talk about first? My takeaway from these was that these companies, especially, I mean, Microsoft and Google, we can talk about Snap Later, have such strong existing core products that they're still printing money on that they can use to funnel into AI investments. Yeah, absolutely. I mean, Microsoft alone

had its highest capital expenditure since at least 2016. So they jumped from $7.8 billion last year to $10.7 billion this year. And pretty much all of that jump can be attributed to plowing money into building out these data centers for AI work. They're just basically, yeah, they have almost an infinite money generator from all their other business lines. So they're like, sure, we'll build out AI infrastructure. And then Google, you mentioned search revenue. Everyone was a little worried about whether, you know, everyone would switch to chat GPT as their default search engine. Yeah.

That clearly hasn't happened. I mean, even Google was afraid of it. They declared what they called it code red late last year as Bing and chat GPT came on the scene. That hasn't panned out. And then YouTube returned to growth, which was very important for them because YouTube had kind of stagnated when the ad, digital ad market slumped. And now YouTube's back growing. And so things are looking good for, you know, the bread and butter of Google. And they can use all of the money that they're making on their core products to spend on AI.

And investors are loving it. Yeah, it is interesting, though, because Google is a litmus test for the broader ad market, but not actually their search business because that tends to do well, no matter what macro environment is. But YouTube is much more fickle and much more reactive to, yeah, the broader market. and if interest rates are rising, then advertisers are pulling back spending. So to see advertising sales climb 4% at YouTube, that's a good news, and that's a good sign for the rest of the ad market. Another stat that stood out to me was that Alphabet's headcount was actually 5% higher last quarter than a year before. And imagine all the headlines that we were talking about, which was, oh, big tech is slashing workers.

They're laying off people and mass, which was true. But they're actually, that was just the underperforming divisions. and they're hiring in AI. And you see that they actually have more workers last quarter than a year before, which kind of is surprising given all of the headlines about mass layoffs at these big tech companies. Yeah, definitely surprising. Okay, but we got to talk about our problem-child stamp. It's so funny to me.

I mean, Neil, you've been in the content game for a long time, and you've noticed this pattern that every single time after SNAT reports earnings, it seems like their stock drops double digits. And then eventually, like, climbs back. and then we go through it all over again. And that happened again, like it fell 18% again. It's crazy. They are the small fish in a really big pond.

I mean, they're competing for the same ad dollars that morning brew is, but also, that's also a very small fish. But TikTok and Facebook and Instagram and all these other social media companies, and Snap has to make a compelling pitch that their ad product is going to be better than someone else's. And that's just not working out. So they always kind of disappoint when it comes to ad sales. And this was the second declining quarter of revenue, which is not something you want to see. And yeah, the stock plunged as it always does.

Yeah. Although there are some signs of life. So Snapchat Plus, which is their subscription program, has more than 4 million subscribers, which is kind of crazy to me that 4 million people are paying to use Snapchat. And then also their AI chat bot, which again, a lot of people hated when they rolled out because you can't get rid of it. it's at the top of your snap screen. They're saying that they're testing some advertising links there where they use your chat history to serve you relevant ads.

That feels a little invasive to me. But again, you've got to kind of ride the AI wave and say you're using it to grow your core business. So you kind of have to say that, but I don't know if users are actually going to like that. It doesn't seem like they do, but it does seem like it could be a potential moneymaker for Snap and it needs that. If you want more big tech earnings, there's meta today, and then Apple and Amazon next week.

You're going to hear AI so many times. It's going to lose all meaning. All right, we have to move on. Everyone can breathe a big sigh of relief because a potentially disastrous strike by 340,000 UPS workers that could have happened next week seems like it's been averted.

The Teamsters Union representing those workers in UPS reached a tentative agreement yesterday that the Teamsters boss, Sean O'Brien, was super hyped about. He called it the best contract in the history of UPS. So what did Brown do for them? Wage bumps, particularly for part-time workers, existing part-time and full-time UPS Teamsters got a $2.75 pay increase this year, rising to $7.50 over five years. And then this is a big sticking point.

They're getting air conditioning and cargo ventilation in most vehicles bought after this year. Some UPS workers were working in 120-degree heat with no AC in their cars, just a major safety hazard. UPS called this a win-win-win agreement, and I'm not exactly sure who the third win is for, but let's go with the economy because it was in for a world of pain if this strike were to happen. It was expected to lose $7 billion over just a 10-day strike, and who knows if it would have been that short. Yeah, that's my big takeaway is this would have been so, so bad. UPS moves approximately 5% of the nation's GDP every single day. So they're moving roughly 3.8% of goods every or 3.8 billion dollars of goods every single day. So yeah, any amount of strike. This isn't exactly the Hollywood. I mean, I'm not, I don't want to diminish any strike,

but this has a massive, massive economic repercussions. So yeah, we kind of were saved by the bell. Although the union itself actually has to approve it. And there has been a little bit of like, oh, there's always some people that said, oh, we wanted bigger price or salary increases. So it's still just a preliminary agreement. But, yeah, not... That's why this is like a full-out marketing effort by the Teamsters guy to sell it to the constituents to the members. And he's just like, yeah, UPS put $30 billion more on the table.

And he's now selling it back to the members, being like, you guys need to vote for this. I just secured this amazing negotiation, you know, the art of the deal, baby. Yeah, I actually do have a theory about who the last win was. You said it was a win-win-win. This is a big win for the White House too because we're going into an election cycle. And so you definitely don't want the economy shutting down for 10 days because the UPS drivers are on strike. And then also there was rumblings that certain business associations like the Chamber of Commerce,

chamber of commerce, whoa, wanted Biden to intervene to end the strike because it would just be so bad for business. And Biden really didn't want to do that because you do not want to be seen as like anti-union, anti-labor. So I think the White House is our third win in this. So I wish we could say that this hot labor summer might not, you know, might get through without another strike. But there is one that could happen. The United Auto Workers Union, there's almost 200,000 of them. And they have four-year contract cycles. And this one is coming up on September 14th.

So they need to negotiate new contracts with GM, Ford, and Stalantis. And yesterday, GM reported earnings and CEO, Mary Barrow was like, hey, we are doing. really good right now, but if this strike happens, it could be really bad. The last one, they did strike during the last contract negotiations in 2019, and GM lost $3.6 billion from a 40-day strike. The workers there, one of the main sticking points, like we're seeing with, you know, actors and AI, is about these new electric vehicle battery factories that automakers are building, and they want assurances that they will be able to transition and get a foothold in those

new plants. Yeah, big strike summer, baby. All right, Neil, let's move on to our third story. We are officially three days into Elon's X experiment, and honestly, the rollout has gone about how you'd expect. So remember, Elon ditched the bird logo on Monday and officially renamed Twitter as X, complete with a brand new logo. He did all this within a span of 48 hours

and even leaned on Twitter users to help design the new logo. Well, the problem with doing all that on the fly is that he didn't exactly dot his eyes and crosses T's when it comes to the legal side of things. First, everyone and their mother owns some sort of trademark when it comes to the letter X. A trademark attorney counted nearly 900 active U.S. trademark registrations that already covered the letter X in some range of industries.

That includes Microsoft and MEDA who own X trademarks related to video games and social media respectively. Neil, I feel like we saw this coming, right? You can't just change your name to a one-letter word. It's the one-letter thing. Yeah, and get away with it. The whole point is your logo has to be differentiated and unique that ties it to your particular company and is a signifier of what you stand for and what people associate with you.

So when you change it to a letter, a single letter, it's pretty much the dumbest move you can possibly make because someone out there has a single letter logo or branding. And people in the future will make that as well, and they can challenge you. And you will have a very tough time defending it, especially if you're Twitter slash X. Yeah, and then right now on the site, it's just a brutally confusing time to actually use Twitter because while it says X in the corner where the Twitter logo used to be, you still see search Twitter or you still press a blue button in order to tweet. So there's all kinds of mixed messages.

And then I think this is the funniest wrinkle is that Twitter didn't actually reach out to the person who owns the X handle. So on Twitter you have a username, which you can change, but then you also have a Twitter handle, which you can't really change. And so someone owns the at-X handle. And he talked to TechCrunch, and he was like, I'm a photographer. Like, no one reached out to me. Like, I'm open to giving up the handle.

But Twitter didn't even attempt, or Elon didn't even attempt to reach out to him. So just a very classic Elon moment. And he said, I would sell it for the right price. Right. Which I'm wondering what that would be. I think, like, Instagram handles go for multi-thousand-dollar, like, desirable Instagram handle. So I could see him holding out for, yeah.

But clearly Twitter doesn't seem interested in getting the X handle. This is such a... The other funny story about this is that in Twitter's San Francisco headquarters, they have this big Twitter sign, and I guess Elon called in the crews to take it down because they don't want to be

associated with Twitter anymore. They got five letters in before the city came and showed up and we're like, what are you guys doing? You don't have permits to do this. So they made them stop. And right now, if you go to downtown San Francisco, you will just see the Twitter building

with just an ER because that's where they had to stop and they can't continue the construction or taking down the sign until they get the permits to take down the ER. Classic, classic. Okay, and this was just a rumor I saw, but apparently a tech reporter was talking to some friends that were on the ground. And they said that the crane that Elon was using to take down the letters was confusing self-driving cars driving around San Francisco. So there were all these self-driving autonomous vehicles that were stopped and being confused, which is just the most 2023 San Francisco thing you can ever, man. I think they were sent in just want to watch the show.

Yeah, exactly. All right, Neil, before we jump into our next story, we're going to take a quick break. All right, Toby, Tom Cruise might not have to wait long for inspiration for his next stunt because there's a real-life Mission Impossible playing out right now in the Red Sea. Yesterday, a UN-led crew began a dramatic rescue operation that aims to prevent an oil spill four times the size of the Exxon Valdez disaster in Alaska in 1989. Here is what's going on. So there's this massive oil tanker, the FSO, Sofer, anchored in the Red Sea off the coast of Yemen.

The problem is that it's carrying over 1 million barrels of oil, and because of the Civil War in Yemen, it hasn't had any maintenance in eight years. So it's all rusted, it's falling apart, and at any moment could leak oil or explode, which would be a total economic, environmental, and humanitarian catastrophe, 1.1 million barrels of oil spilling into the sea, crushing marine ecosystems, contaminating desalination plants that provide water to 1 million people and disrupting a heavily tracked trafficked shipping lane it'd be the ever-given times a hundred but they think they can prevent it the u.n bought a 55 million dollar ship pulled it up next to the suffer and yesterday began pumping the oil from the

other ship to this to the u.n ship in a process that should take about two weeks toby i need a live cam on this like philly did with i 95 i'm so nervous for this because basically the UN officials have been saying that this has been a ticking time bomb and that they're surprised through a mixture of luck and just like good fortune, it hasn't blown up already yet. And so now they're going in. And the problem is that oil sitting in tanks create all these toxic gases that are very dangerous. So they have to go in and kind of balance the levels of gas by like neutralizing it with other gas.

It's just crazy operation. They had to test every valve and pipe to make sure that it was safe to carry oil because many of aren't. Imagine sitting in salt water for eight years. I know. I've seen in the sun, in like the hundred degrees sun over there. I cannot believe this tanker is still in one piece. It's actually crazy. One of my favorite, there's so many different aspects of this operation that are so exciting. First of all, they have like a water balloon around the tankers to make sure that they don't hit each other while they're doing the transfer. I feel like if you touch this ship, it's going to explode. And then do you know what they're calling the very large crude

carrier that they're pulling up alongside the existing oil tanker. No. They're calling it the VLCC, the very large crude carrier. Really? That's the technical name for the ship that they're transferring the oil to. So I just love every part of this, and I really hope it goes off without a hitch. It might, but it might not, which is why this is one of my favorite details. They've contracted with 13 different insurers to make sure, you know, if anything happens,

they have this backstop, which seems like a lot. Then there's the question of once you have the oil, what do you do with it? And that's a whole another disputed thing. I mean, 90% belongs to this Yemeni company. But it's $75 million worth of oil. And I guess oil doesn't go bad if it's sitting in this tanker because it's still usable. Yeah. They could sell it on the open market.

Right. They're planning on selling it and yeah, returning the profits to Yemen. But oh my gosh, UN, like, I hope it goes well. I'll be looking. I'm telling you, they need a live cam. Yeah. But to close out, I think we need a win over the oceans this year. Because we've had the orcas biting.

We've had shark attacks. You know, we've had the submersible. Yeah. Like, we need a win. I hope this is the win because, yeah, we definitely do need it. All right. We have to move on. MBD listeners, I'm addressing you right now.

Have you ever decided to buy something with cash because you're a little embarrassed about it and won't have to confront it on a credit card statement later? Yes, we have all been there. But now there's proof that people opt for cash over a card when they know they're making a regrettable purchase. A study published by Stanford Business School researchers earlier this month found conclusive evidence that people dip into paper cash for guilty pleasures. It's consistent with the concept of motivated memory that people make decisions based on what their future self will recollect. So the

researchers devised a few experiments to test this hypothesis. I'll just touch on one. They went to the Stanford bookstore and coded all of the items on how guilty shoppers would feel about buying them. Sure enough, across 118,000 real-world purchases, people were more likely to pay in cash for those harder to justify items like Christmas ornaments are a foam hand for a football game. These things are so expensive at university bookstores. I would never buy one, but if I did, I guess I would pay in cash. And they would more likely use a card for useful things like books or items for class. This makes sense, Toby, but it's interesting to see how our brains were kind of behind the scene. Yeah, absolutely. I think

the funniest part of this study, which comes from these Stanford researchers, they got the idea from it from a comedian. So there's this skit from Mitch Hedberg that goes, I bought a donut and they gave me a receipt for the donut. I don't need a receipt for the donut. I'll just give you the money and you give me the donut. End of transaction. We don't need to bring ink and paper into this. And that's just a true psychological phenomenon is that people don't want a paper trail when they make a purchase that they think can come back and like it feels incriminating or they feel guilty about it. Oh, I've been there. I've been there. Also, it's not what? Another finding through one of the experiments was it's not just cash.

It could be a prepaid debit card or any sort of alternative payment mechanism where you're not really confronted with what you just bought. And crypto is actually the new cash because not a lot of people carry cash anymore. So they did find in another experiment that people were more likely to gamble away Bitcoin that they earn versus cash that they earn. So this is just another like advancement of crypto is like coming in as the new. I will tell you. I, when I bought the Taylor Swift tickets, I bought it using a credit card that I can't log into because I forgot the password and just it, you know, it auto pays at the end of every month because I, that is something I just did not need to see again. And that was the equivalent of cash because I was like, here, take it, like, I'm going to do it. I kind of want to forget about it afterwards. That's your, Taylor Swift is your donut. That makes sense.

Well, at those prices, yes. Yeah. All right, Neil, let's move on to our final start of the day. where I stumbled across a new business I want to tell our listeners about. We're heading into the beginning of rush season where hordes of young ladies tried to get into sororities of their choosing. Well, apparently, an industry has popped up in recent years for sorority consulting services. Because getting into a sorority can be as competitive as getting into college itself.

Parents have been hiring consultants to help their daughters land a bid. Neil, wait until you hear what some of these firms are charging. So recruitment ready in Atlanta has a bid day package that costs $1,000, while the $2,000 fabulous and chic package from Greek chic in Manhattan will help you with everything from wardrobe to social media. I'm not finished. Georgia-based sorority consulting firm, it's all Greek to me, offers a $3,500 all-axis package,

but the most expensive one comes from a firm called hiking in heels whose top tier will run you $4,000. Insane, right? These prices. I mean, I read this blog by this economist Tyler Cowan, and whenever these stories pop up, he has a phrase, and it's called Markets and Everything. And if there's inefficiencies in a market, in this case, there's untapped demand for sorority consultants. Are people, you know, helping you get into a sorority, which is a very big deal for a lot of people, then others will come in and make money off of it. Markets and everything.

Yeah. Okay, but I do want to talk about some of the advice that the sorority consultants are passing out. So there's this quote from hiking in heels, the one that charges four grand. It says be trendy but not too trendy, modest, but not too modest. Fit in, but be unique. The trick is blending in and standing out. If that doesn't sum up the plight of just like the modern woman in society, I don't know what does. It reminds me of that scene in, no, the one where they go to Hawaii, forgetting Sarah Marshall, where Paul Rudd is the surf instructor.

And he's like, stand up, sit down, stand up, sit down. Don't do anything. Do something. It sounds extremely stressful, and it's only made more heightened by TikTok. Over the past few summers, Rush, Bama Rush talk has kind of blown up and shown how high stress, intense, this culture is, especially in the South, of getting into a sorority. You have to submit, you know, 30 letters of recommendations. Crazy. You have to have all these different outfits.

You have to scrub your social media of anything. I would show you binge drinking. Yeah, anything that shows you're like a real human being and not just like someone who volunteers for charity every single day. But yeah, it's crazy. I mean, yeah, the biggest thing, actually one of the biggest things they're saying that the consultants are focusing on is a lot of modern women entering college aren't as good conversationally as they were in the past because of like things like social media

and just texting. And so a lot of the conversations with these girls, just is how to make conversation, how to make eye contact, how to make small talk, because that's a big part of just being well-liked. I don't think we'd make it in the sorority world. No, but if anyone, maybe I'll start an Acapella Consulting business. If you need to get into a mildly low-tier Acapella group in college, I don't think I can charge $4,000, but maybe like $30 or something.

All right, that's all the time we have. We'll have to wrap it up there. I hope everyone has a wonderful Wednesday. If you want to write in and let us know what purchases you make in cash, our email is Morning Brew Daily at Morningbrew.com. Emily Milliron is our editor and producer. Samantha Vela's and Raymond Loo are associate producers. Eugenwa Ogu is our technical director. Billy Minino is on audio.

Hair and makeup is ditching us to become a sorority consultant, and I don't blame them. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show then, Neil. Let's run it back tomorrow.