OpenAI and Microsoft's Tension, Apple Screens Everywhere, Meta’s Toothpaste Massacre

27:35We know you don't do that. And you don't include your training costs in the profit calculator. LLM adjusted EBITDA for those who weren't with us last week. We ranted. We ranted a good amount. But I think the most important part of this article was that, again, that image of bankers sitting around trying to, and I think they'll probably take themselves seriously because they're going to be getting paid a lot in fees over when you're dealing with this kind of money, but still with a straight face based on all of the training they have ever had around any other kind of deal, trying to come up with things like what should this be worth?

28:20How are they going to convert into a for-profit company? AGI elements of the contract, all these kind of things. Someone must be just kind of messaging in the background what the F is going on. Oh, yeah. No, definitely. It's obviously untraditional. This doesn't happen usually. Actually, it's unprecedented, to use your word, for a company that starts as a nonprofit to end up becoming one of the highest valued private companies in the entire world. Just to go back to the including your training costs and profitability thing, I did look into this this week and I found out some interesting things, which is, and this is potentially one way you might look at it, which is that the nature of models might change and that training cost could actually be quite variable.

29:09So if you think about it with the O1 model, OpenAI's reasoning model, You ask the question and then it reasons through after the prompt. So a lot of that compute actually happens in the inference part as opposed to the training, even though the model is super smart. So this idea that like training costs will necessarily go up and are a fixed cost as opposed to a variable cost, maybe that's not the case because of different techniques and approaches over time. And maybe that's why you include, you say, if we're looking at profitability, we can can ramp up training costs and we can ramp them down.

29:45And let's just put that out of the picture for now so you can get a better picture of where we might be. I think that's probably the argument that is being made and will be made. And while I don't think it's completely unreasonable, again, the idea that is it a fixed cost that's amortized over a long period of time or is it something that is applied to essentially a cost of goods sold and applied to every query or transaction. I think this is a new world in that sense. But to me, what was it in terms of their expense structure? The percentage of the vast majority of your expenses are on this one thing that powers your entire business to say that that should not be included into how you determine profitability is generous.

30:39This is the generous episode. All right, I'm with you on that one. Also, there was an idea that was brought up actually in our YouTube comments that this is gonna be that training will no longer be included as a cost because OpenAI is going to stop with GPT-6 because just the training and the computing data costs will be so high that you can't really go beyond that. I looked into that and that's not true. So I don't think that's gonna be the end of it, although they're certainly gonna come into, at least I think as far as OpenAI is concerned, although they will certainly come into some resource constraints pretty soon.

31:17So they just might have to train differently. But the idea that training costs will go to zero once they hit GPT-6 because they're done then, that's not right. I think that's the right way to look at it for now. For now. So let's talk about this Apple story. By the way, the second most fascinating company in tech right now outside of OpenAI, I think, is Apple. Apple, of course, is pushing hard into artificial intelligence with Apple intelligence. And it's seen slowdowns in China. It had, what, five of six quarters going back to last year at one point with revenue growth declines. And it's seemingly getting beat by meta and AR and VR.

32:00And it has this powerhouse iPhone. And you really wonder, like, what's Apple's next chapter going to be? Well, we got a hint from Mark Gurman where he says, look, they're going to get into a smart home strategy. And they've tried this before. Hasn't really worked with the HomePod. But folks, it's coming again. And this is from Gurman. For years, Apple has sold the go-to devices for our pockets, wrists, backpacks, and desks. But it has struggled to achieve that kind of success in another key area, in other key areas, the car, the face, and the home. Now the company is setting out to conquer the smart home with an aggressive new strategy, putting Apple screens and software throughout the house in a way that creates an end-to-end experience.

32:47Over the next two years, Apple will deploy a new home OS operating system and smart display, as well as a higher-end robotic tabletop device. So AI is going to govern how these products work. The tabletop device, for instance, will use AI to understand its surrounding environment so it can sense who is looking at the screen, what people are doing, and who is speaking. And that capability, Gurman says, can make the device compelling. It might actually be the first product built from the ground up for Apple intelligence, which he says they claim the Apple iPhone 16 is, but really it isn't. And the tabletop device is going to be very interesting.

33:29It's going to be about$1 ,000, he says. It's going to focus on home security monitoring, advanced video conferencing, media playback, high quality audio, and the screen would be positioned atop a swiveling robotic limb, helping it stand out from competitor products. Ranjan, I know that you are a proud and potentially frustrated HomePod user. Do you think that it's going to work for Apple this time? When I started reading this article, I actually would have completely disagreed with you that they're the second most fascinating company in tech. I would actually have started to call them the most boring company in tech right now because nothing they're doing is that interesting to me.

34:12Apple intelligence is a dud. The Vision Pro has certainly not captured our imaginations in the way they would have hoped for, but damn it, this tabletop device got me all excited again. I thought I was out and they brought me back in. They, that's Tim Cook, the greatest dealer of all time. I, uh, no, but seriously, I, so I have HomePods throughout my house. They are not great. I, I'd switched from Alexa's too, but all my lights, I have routines and they work pretty well, but they're definitely to get them to work takes a lot of work. It's not the kind of thing I think the average consumer would ever invest the time to do.

35:02You have to be a bit of a smart home nerd. But to me, what do they do? Great. Make devices with screens. And I've been thinking more and more because I used to have an Amazon, whatever the one is that has a small screen. The show. The show. So the difference between having that and having just basic image or video content show up as a part of the answer to the question. Again, the simplest one, what's the forecast? Probably something I ask every day. To have that displayed as well as spoken to you is a pretty powerful thing. So thinking about how that can actually become the, if it can become the central hub of your home, and it's a product that's kind of a big, cool iPad that you're, I'm FaceTiming on, I'm using for watching some videos, I'm just using for like basic iPad stuff, as well as being the smart home hub.

35:58God damn it. That excites me. Rontown's back. Well, you know what's interesting because we watched Apple unveil Apple Intelligence in that big vision setting event at WWDC. And we should have known the moment they sent that notification that was basically like your flight is leaving this time. It's going to take this. You should probably get going or should I adjust it for you? And all this like personal intelligence coming right to you through the phone. It should have been obvious that this is where they were going to go because that strategy, if it works, and that's still a big if, right? We haven't really seen the returns yet.

36:32If. But that strategy, if it works, is built for the in-home device and the in-home display. So it's one of those things where like the Apple intelligence, if they do get it going, and maybe they will, right? We're still in the early innings here. It could be like a double grand slam because it will help sell more phones and then also build this new line of smart devices, screens on robotic arms in your houses that know you and will help you and be assistive to you. And that is a compelling vision. Yeah, again, Apple products are already kind of the fabric of my home. And I know that might sound a bit grandiose, but between the Apple TV, the HomePods, I can set lights, routines, everything from my phone, speak it to the HomePod.

37:21And again, that took a lot of work and essentially programming on my part. So the idea that anyone can eventually do that and just plug and play and it just works and they can literally map their entire house and have it. And the only company I feel that people will, big tech company that people will feel secure doing this with is Apple. That's one of the big reasons I did switch from Amazon products. So I think it puts them in an interesting place. And I mean, I'd pay well over$1 ,000 for this, whatever this tabletop device is. Again, I'm hooked. I'm already in. But they got to deliver basic Siri functionality just to build this dream.

38:05Just still Apple. It's predicated on intelligence, like German says. By the way, quick stat before we go to break. Apple, in the first three weeks after the iPhone 16 came out, saw a 20 % increase in sales in China, which has been a weak point for the company. That being said, it's still dropped the iPhone's total iPhone sales still dropped 2 % on the year in the first three week period because it's according to Reuters because of decreased sales of older models and increased competition from Huawei's Mate and Pura series. Okay, so very interesting mixed picture from Apple. Very interesting, especially as we head into earnings, because of course we know that early prospect, those early days are gonna be included in earnings.

38:50So let me just quickly tease Dan Ives and Stephanie Link are gonna be joining me on the show to break down the story on Apple, as well as the other big tech companies that are reporting earnings. We're gonna do that next Wednesday, so make sure to stay tuned. And if you're not subscribed to the show, subscribe so you can get that on Wednesday. All right, we're going to talk about Netflix earnings briefly. We're also going to talk about Meta's toothpaste massacre in the time that we have left. We're also going to take a quick break. But before we go to break, I just want to make one more plea for ratings on Apple Podcasts and Spotify.

39:25Again, these are the only public facing metrics that we have for the podcast that people can take a look at to see whether people listen to it, to see whether people enjoy it, and to see whether they or the executives that they represent should appear on the podcast. So if you're willing, it takes a second, a five-star review on Spotify or Apple podcast, talking about how you like the podcast or even just hitting those five stars will take 30 seconds. We'll go a long way in us showing that we have folks listening and that people should give us some top tier execs to come back on the show or to come on the show for the first time.

40:00So So I'd love it if you could help us there. Again, when we come back from the other side of this break, we're going to talk about Netflix's earnings. We're going to talk about the, as we're calling it, the meta toothpaste massacre. And we'll be back right after this. Did you know your credit card points and miles can lose value to inflation? Credit card companies often reduce the redemption value of your points and miles. Now, imagine a credit card with rewards that can grow in value. With the Gemini credit card, you can earn Bitcoin or one of over 50 other cryptos instantly with no annual fee.

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41:21you're used to hearing my voice on the world bringing you interviews from around the globe and you hear me reporting environment and climate news i'm carolyn beeler and i'm marco werman we're now with you hosting the world together more global journalism with a fresh new sound listen to the world on your local public radio station and wherever you find your podcasts

41:48And we're back here on Big Technology Podcast Friday edition with Ranjan Roy. We're talking about Netflix earnings. And let's do it briefly, but it's very interesting. Netflix came in to the quarter on a massive heater, as they say in market talk. The share price had almost doubled in the past year. It was up 46 % year to date. It was on an unbelievable run, and it beat all of its expectations. and today on Friday, let's just take a look. The stock is up 10%. It's at a new all-time high. It's worth$324 billion, but the company's engagement in the first half of this year was effectively flat, up only 1 % from the previous reporting period, the first half of last year.

42:39That was despite adding 39 million new subscribers after its password cracked down. So it shows that the company, I think, has maybe saturated the market. It's gotten its existing users to pay more, but it hasn't really added much net new users or net new watch time, despite the really nice looking numbers. They asked me on CNBC yesterday, is it peak Netflix? I say it's a valid hypothesis. Ranjan, what do you say? Wait, sorry, hold on. I thought they added five million subscribers last quarter, correct? Yeah, so I said 39 million that they added was between Q2 2023 and Q2 2024. Okay, so over a...

43:23One year. Which is pretty significant. And as you said, I think the password crackdown, what's really interesting about that to me is that's the kind of UX thing and also that has massive business implications that could have gone terrible for them. It could have received some major backlash. People got very used to it. It was almost like a cultural meme. And instead, people are just subscribing. So it shows this is something people want. It's almost reaching that, maybe it's saturation, but it's almost household utility. You just don't not subscribe to Netflix. So to me, these numbers were just a heater, as you called it.

44:08Even one thing that I thought was really interesting was they just broke through their October 2021 high. So the stock being up 10 % today. And this is something, if we all remember May 2021 and where the world was and where every stock was absolutely on a heater through the roof. So this is a company that's back and established and was in trouble because no one else has made the economics of streaming work. None of their competitors, they're all funneling money into it. And it's essentially a money losing operation. The Disney Pluses of the world, the HBO Maxes of the world. And they have shown this business model can not only work, it can keep growing.

44:54So I'm going to put them as the second most interesting company in tech right now. Well, explain the minimal growth on engagement. I mean, average watch time per user is going down. And they only grew engagement like total minute hours watched on the service by 1 % over a year. Exactly. But I think, I mean, there's obviously my own personal anecdotal behavior. But I think overall, this is good. People kind of, I feel, have a portfolio approach to their streaming media. Like in the past, Netflix would have been the one you have and you just binge whatever is on there. Now people will choose maybe two or three or four.

45:36What are you going to pay for each month? And within that, you're going to cycle back and forth, but you still have the must haves. And as long as Netflix is able to grow their overall customer base and remain essentially a utility in the streaming portfolio, I think decreasing engagement is fine as long as people get enough to keep subscribing. Maybe. They're going to raise prices, so we'll see what happens. I don't even know what I'm paying right now. I feel, remember it used to be 9.99 a month, very clear, very, I think it's probably like 17 a month now maybe. I know exactly what I'm paying.

46:16It's 6.99 a month because I'm on the ad tier baby and I'm a sicko. And I love seeing what's going on on these experimental tiers and also saving the money. And so here I am, 6.99 a month for Netflix and ads. Wait, this is interesting. In my portfolio, I'm a Hulu ad tier guy. okay they've never made the jump to no ads but netflix i just can't do it i'm still uh maybe it is interesting i think that's an interesting and i'm curious from listeners what their own streaming portfolios look like but which ones are you full price which ones are you ad tier which ones are you uh downloading the torrent not that anyone would do that you know what i just thought if i was single i could never do netflix ad tier um thank god i'm married because imagine netflix and chill with like ads that you can't skip for chevrolet it's like do you want to come over hey let me put some netflix on you have a glass of wine start watching a romantic comedy and next thing you know you have 180 seconds of ads to sit through and watching the timer just tapping tapping hello yeah the least smooth move you know it's going in the lady group chat you wouldn't believe the experience I just had.

47:36I went over to watch Netflix with a guy. He was ad tier Netflix. An advertisement came on. Poverty mindset.

47:46Speaking of. Speaking of. The poverty mindset. Perfect segue. All right. So Meta, this is from the Financial Times. Meta fires staff for abusing $25 meal credits. Meta has fired about two dozen staff in Los Angeles for using their$25 meal credits to buy household items, including acne pads, wine glasses, and laundry detergent. The terminations took place last week, just days before the$1.5 trillion social media company separately began restructuring certain teams across WhatsApp, Instagram, and reality labs. Like most big companies, Meta offers free food to employees based out of its sprawling Silicon Valley headquarters as a perk, but staffers in smaller offices without a canteen are offered Uber Eats or Grubhub credits for food to be delivered to the office.

48:35Staff are given daily allowances of$20 for breakfast,$25 for lunch, and$25 for dinner, with meal credits issued in $25 increments. Those who were fired were deemed to have abused the food credit system over a long period of time. Some of them had been pooling their money together while others were getting meal sent home, even though the credits were intended for the office. Those who violated the company rules only on occasion were reprimanded, but not terminated. So clearly this is the chronic violators. In one post on the anonymous messaging platform Blind, one former Meta staffer wrote they had used the$25 credit on items such as toothpaste and tea from the pharmacy Rite Aid.

49:23The person who indicated they had a salary of about$400 ,000 at Meta and worked nights and weekends wrote that they admitted to the oversight when human resources investigated the practice before later being unexpectedly fired. It was almost surreal that this was happening, the person wrote. Ranjan, I think you're on the whose side are you on on this one? I couldn't tell. I'm on the side of efficiency and Mark Zuckerberg on this one in a big way. I will admit, I have never worked at a big tech company. I have worked at startups, medium sized companies. And I have always been a little jealous of the perks that they would receive.

50:05Even just seeing getting 70 bucks a day in meal credits when most people who go to work at any other company actually pay for their own lunch or maybe get some kind of lunch provided. And then with a total comp of$400K and to still feel the need to try to get household items with this, to me, I actually think this is an important story because I think it's like in terms of the whole remote work debate and what our employees feel that they're entitled to, I am guessing anyone who was doing this in no way thought it was wrong. like the fact that if they're doing it pulling money together doing it on a long-term basis and it it really is representative of like that complete breakdown in culture that's happened over the last few years at a lot of these companies where people could actually be so comfortable thinking that this is fine like yeah it's an uber eats thing but i can get other stuff on uber so i might as well even though this is for food i think it they're sending a signal that's that's an important one.

51:15Okay, I have a couple of points to bring up here. First of all, how much is it the person's fault? And how much is it the system's fault? Effectively, like, I don't know, I mean, it could be both the system in terms of meta just giving these open credits. And also, maybe people were just brought up with scarcity, and they see these credits. And even though they're making 400 to grand, they, it's sort of tough to get out of that, you know, mindset and you sort of decide to go, I don't know. I mean, I'm just going to bring this up for the sake of argument. Go ahead. I like that. That's a noble way to take the other side.

51:55I think you're bringing up the existential question. Should I hate the player or the game? And in this case, it's still the player i'm sorry once you scarcity mindset be damned when you're making 400k right you should you should understand that if you want to keep that there's certain things that are okay and not okay and and okay i will blame the game enough that i'm sure things were so freewheeling over the last few years that people probably got used to lots of different small little little tweaks of the system like this, but at some point it has to stop and it's starting to. You know, Meta gives free toothpaste out in the office.

52:40Just saying. I'm just saying, if you're sitting in the office and you want to order it at home, maybe you can. And actually, I've been to the Meta offices here in New York and the dining options and the coffee options and overall, everything was pretty nice. So I guess, yeah, though, I guess, hold on. In fairness, these, the vouchers were given to more satellite offices that don't get these things. So I guess the idea is that they're equating those offices with headquarters or like larger campuses. I mean, maybe this is also just a reminder that kind of like Amazon's return to office five days a week.

53:22a lot of this is these satellite offices are not the future of the company and there is there the things that made him kind of nice to work at you just off to the side no one's really watching you you're buying your toothpaste are going away and it's also a signal which is that we're going to be nice to you but don't abuse the privilege yeah do yeah we're not going to sustain these bad habits i guess it's the year of efficiency part two part two the year of efficiency becomes the decade of efficiency i don't know your efficiency rolls on is he still using it i think they're still using no because you can't you can only use year of efficiency for one year that's the statute of limitations on the year of efficiency yeah actually i'm gonna go back and look now i'm curious if mark zuckerberg is still using the term year of efficiency because i'm curious now but you You only get one year.

54:15Only one year. So I tweeted the anecdote from the Financial Times and it kind of blew up. And I got some really fascinating and fun replies. And there was this one guy who said, he said that in his company, they gave free Diet Cokes until somebody started calculating how much they were spending per person on Diet Cokes. And because they were not drinking the Diet Cokes, demanded an extra$1 ,000 in comp for a year.

54:47I mean, I can only imagine the like the conversations at the highest levels over these things and how fired up you almost have to imagine this is where you put like 10 executives in a room and put this in front of them. the anger will feed on itself and the rage at these kind of behaviors. And just, I mean, I'm guessing that's why these kind of things, because it's just, you're working here. You're getting a lot of money. Just do the work, get the money. The fact that that one commenter included nights and weekends, I actually think was the most telling thing. Because at that point, they made clear that they felt they deserved the$70 to go to toothpaste because they're working nights and weekends, even though the two should have nothing to do with each other.

55:41I could see a loose relationship there, but okay. But the other side of this, and we'll close with this, is that, do you know about the financial independence, retire early community, FIRE? I do not. Oh, oh man, we should do an episode on FIRE. So FIRE is this, basically, it's this pretty religious type of, approach to money where people save like crazy and try to maximize their earnings through their 20s and 30s. And then they retire. Basically, they become financial independent. They put all that money that they saved in the market. They realize they can live on 4 % of it and they just kind of do what they want.

56:22And this is sort of behavior that's kind of, I don't want, I wouldn't say it's representative of fire, but there's like a religiosity to it. And I had a couple people bring it up. So first of all, do you know Ramin Bichetti? He had a Netflix show called I Will Make You Rich. So he quote tweeted my tweet and he says, were these employees in the FIRE community? I need to know. And then there was another person, an Anon account who was like, there is a hyper competitive financial subculture in tech fueled in tech fueled in part by FIRE and Reddit. It includes credit card churning, brokerage, bank bonus farming.

57:00It's a dopamine hit, but penny wise, pound foolish begins to erode ethics. No room for reflection in the bubble. And I don't know if this is necessarily a outcropping from that ethical persuasion, but I think that, you know, maybe that is sort of where it comes from. I think you've just ruined my weekend because I'm going to spend a lot of time on the fire read it. Oh, you better. It's really fascinating. We should really talk about it next week. There's a blog that you should look for and it's written by, and I'm not kidding. The name is, it's just so fitting. The author of the blog is Mr. Money Mustache.

57:40Mr. Money Mustache. I will be finding you in just a bit. Read it up. I can't wait to read the margins post on fire. I think you're going to have a field day on it. I wonder what's the Venn diagram between effective altruism and the fire community. I would say almost no overlap because I think effective altruism... Oh, because they want to live off their money. So they essentially would drain down to... Oh my God. We should bring on a fire and an EA to debate each other. Yeah. I like this. I like this. But I think maybe the overlap of aura rings and whoop bands is probably 100%. Again, I would say the fire folks, they spend no money.

58:22so ah that's true this idea like mr money mustache for instance did this experiment where he like did uh extra uber driving and wanted to see if it was worth it from like a financial standpoint you know to do it on on the nights and weekends and like goes through like all the calculations car depreciation gas and all this stuff before finding finally coming to the conclusion that it wasn't i mean this is how how deep they scrutinize every dollar spent and earned it's very it's Fascinating. Honestly, I think it's fascinating. And it's mostly, it's ultimately a rejection of the system because they're basically like the system wants us to make us wage slaves and we're going to opt out.

59:00But there's definitely been some, I think, regret from folks that have picked up on this because it has sort of led them to a unfulfilling conclusion once they do retire and then they get back into the workforce. Because they get ad tier Netflix while trying to date. Exactly. Hence the lack of fulfillment. Watching truck ads with their dates when they're in the middle of a rom-com. And it never ends well when you live that life. All right, Ron, John, great to see you, man. Thanks for coming on. All right. See you next week. See you next week. And thanks, everybody, for listening. We'll be back again on Wednesday with Dan Ives and Stephanie Link.

59:38We'll see you next time on Big Technology Podcast.