Google Is Burning Its Free Cash Flow To Win AI

0:00Eric Siu:So Neil, I think Google is doing something right now that is shocking to me because this is the first time that they're using up their free cash flow to win the AI race. So Google is going negative on their free cash flow, right? And so by the way, they make a lot of money. It's not like they're starving for money. I want to show this little chart over here and then we can react to it. Anthony Pompliano here tweets this. So Google is willing to risk the entire company to win the AI race. And then Google reports first quarter of negative cash flow. So this is free cash flow, right? This is reported by Bloomberg.

0:35Eric Siu:And you can see it for the first time it's gone down. They started in 2004 and then they've continued to move up. So anyway, I think it's interesting because my first reaction to this is, are they betting on the right thing? Now let's think about everything that Google has, right? Google has Search, which is their money-making machine. Google also has, they have their TPUs, okay? Google also has YouTube as well. Google also has Google Cloud. And then Google also owns what else? They have Android, so Android ecosystem. They have Chrome as well. And so they just have all the distribution in the world.

1:13Eric Siu:They have Waymo as well. By the way, you think about some of the investments that they've made from Google Ventures, like they do pretty well there as well. And so all this data center investments, build-outs that they're doing right now, is it truly a risk at the end of the day to win this AI race? In my opinion, I don't think it's much of a risk because of how well they've done over the years. You can say they're a big conglomerate now, but I think I was listening to the All In podcast. Did you listen to the recent one where Chamath was just talking about what the return on their investments has been in the last, I don't know, let's call it 10, 20 years or so?

1:56Eric Siu:Do you know?

1:56Neil Patel:I think he was talking about the Google stock in which the average returns of your shareholders roughly 30 % a year, not necessarily their revenue growth or their EBITDA growth. But what most people tend to forget is Google's not investing only for the sake of investing. They have a$514 billion backlog for its Google Cloud division to give everyone a quick perspective on the numbers and why they're spending all this money. They want to actually take that backlog and realize the revenue from it. Yep.

2:28Eric Siu:So I think, and I think they will, right? You look at all the demand. By the way, you look at Microsoft yesterday. They reported earnings, right? Their stock has gone up quite a bit. You look at how Azure, which is their cloud provider, like how much it's gone up. I think it was like 100 % year-on-year growth or something like that. So all that to say is they already have proven business models. And in fact, most people are going to be coming to them and they're not risking everything. You look at kind of how shaky things might be right now with like an Anthropic or OpenAI with these open models, right?

2:58Eric Siu:And so I think their business models are going to work, but I think they're getting a lot of pressure in other areas versus Google has already established themselves. Like they have plenty of business models that are already working for them.

3:09Neil Patel:Dude, totally. And people tend to forget businesses operate to maximize revenue growth and profitability. Their whole purpose is to keep making more money. People just don't invest for the sake of investing, especially this amount of money without really realizing how much more money they can end up making. It's done intentionally. And they're looking at how much more growth potential they can get if they do some of these investments. Yep.

3:35Eric Siu:So one thing I want to talk about, so I was reading this, this, this tweet from Naval, and I think this, this stuff all kind of ties in together. So you look at what Naval is tweeting over here. So he says, when software was expensive, so thin, horizontal, best of breed software stacks, extracted rents across every business. So what does that mean exactly? So we're talking about thin and horizontal. So horizontal means it can cover like a bunch of people, right? And well, what he's saying now is that now that software is cheap, keep in mind before you needed a bunch of software engineers. You still do, but today, anybody can vibe code something up, right?

4:09Eric Siu:And that's kind of how he's saying that software is cheap now. So now that software is cheap, value moves to vertically integrated businesses that deliver opinionated end-to-end experiences, right? So what does that mean exactly? That means instead of trying to be everything to everyone, okay, you actually now are, let's say Neil and I are both in marketing. So marketing would be one vertical, okay? So vertically integrated would be, and then let's say Neil has data from his companies that he works with. I have data on the stuff that I do. So Neil's going to have his opinion on how something should be built.

4:40Eric Siu:I'm going to have my opinion as well. But now that software is more democratized, this is where the value is occurring now. And that's why I think everyone needs to build a revenue brain, right? So I've talked about single brain, but a revenue brain is more vertical, meaning that it covers sales, it covers marketing. That revenue brain can be something that integrates with your cold outbound system. So it's handling cold outbound for you, but maybe it's also integrated with your AEO SEO software suite too. So it's creating content. It's also looking at the customer calls that you're having. So it's taking all the connectors that you have and figuring out, oh, where should we make retargeting ads from account-based marketing standpoint?

5:16Eric Siu:Where should we figure out where we should attack more on the cold outbound or just outreach standpoint? So if you have a revenue brain that's going, we've talked about having your website be like its own revenue agent. That is an example of a vertically integrated experience that you can deliver. because what I'm seeing right now is when you look at companies out there like Victor, they're doing really well. They're like, that's like a little, like a brain that lives inside your Slack. There's plenty of other competitors out there that's much more horizontal and that's self-serve. The way I look at it, I don't think agencies are going anywhere.

5:46Eric Siu:I think agencies are gonna evolve. I think for us, I know for us, it's more so, hey, we're on the revenue side because that's what we understand and we have our opinions there. And I had a conversation with Google this week, Neil, a couple of people from the Google Ads team. and they're like, oh man, they're like, we think traditional agencies are dead. I'm like, oh, it's interesting that you say that, right? Because I've talked to a handful of these traditional agencies, people that are trying to jump ship. They're like, yeah, that model doesn't work anymore. We're more interested in what you're doing on the agent side right now because we think what you're doing is going to, that's going to affect how agency work is going to be done in the future.

6:18Eric Siu:So that was the conversation that I was having. And I think all this stuff kind of ties in together. So I think whether you need a finance brain or a revenue brain or a company brain, whatever brain you need, you need these vertically integrated brains and there's going to be plenty of companies offering this stuff. Neil and I are probably more on the marketing brain, revenue brain side of things.

6:37Neil Patel:Not only are we seeing people build it themselves, we're seeing a lot of companies trying to offer solutions for it. But I think you're going to start seeing a lot of this stuff just productized by some of the major SaaS players and different verticals. So like the NetSuites of the world, my guess is over time they'll offer like a financial brain. A lot of the marketing software solutions will do that on the marketing side, so forth, so on. And I believe that people can end up building it in-house, and I think a lot of people will. But majority of companies will just pay for a solution that already exists, and they can just plug and play with everything else that they're already doing.

7:15Neil Patel:And I believe most of the software solutions that they're already paying for will start offering some of this stuff for free. It'll just be value-added to keep retaining you.

7:23Eric Siu:And that's why I think right now, like the way we think about the single brain stuff we're doing a lot of these these free pilots we're not even charging in in in many situations right because it very much is a situation where like how do you just get more logos in the door um and how do you because it is it is a retention and an expansion game for a lot of these these companies um and you know what i communicated a week or two ago was um right now like when we talk to the one of these investors are like oh we talked to our portfolio company like everyone's building this right now and therefore or like, you know, we, they think that because everyone's building right now, it's not going to be a hot thing.

7:58Eric Siu:I think, in fact, if everyone's building it right now and they have the engineering resources, it means that more people are going to need this because you're going to need people that are managing the, who's going to manage it, who's going to optimize it, who's going to upgrade it. So anyway, I think to Neil's point too, yeah, like a lot of these companies are just going to, they're going to offer this as well, or they're probably going to gobble up companies that are doing it too, so. all right so what's the next topic that you want to move on to yeah so um neil have you been using

8:28Neil Patel:chat gpt voice at all you know i've never used the voice feature inside chat gpt not once okay

8:35Eric Siu:have you seen remember the do you remember watching iron man uh-huh jarvis jarvis okay this is basically getting very close to a jarvis and so what i do in the morning now i take out my phone, I'm like, hey, give me the daily command center, right? It's like, okay, here's what's happening right now on the recruiting side. Here's what's happening on sales side. It's also evaluating all of the forms I have on my site to make sure nothing's broken. I just want to make sure everything's working, right? And it's like, here's a recommended action for these things over here. Do you approve or disapprove?

9:03Eric Siu:And I'm like, approve, disapprove. I'm like, what about this thing that we're working on yesterday? Where's that at right now? Where's that? Oh, by the way, not only is this operating in chat GPT, it's connected to all my other harnesses because my chat chibity can use my computer right so yesterday i was setting up buzz which jack dorsey released you know what i did to set that up i was just talking to him i was just talking to my chat chibity voice i'm like hey i need you to set up buzz for me i need you to invite these people over here i need you to make sure that all the permissioning is set up correctly and so now by the way it's hooked in it you can hook it in with uh you know you can have it sourced for you on the recruiting side you can have it send partnership emails you gotta have to do whatever you want, right?

9:40Eric Siu:But ChatGPT voice has been great because ChatGPT has a browser. And plus, you can control the other apps that you have. And so my Hermes harness is available because my Hermes is much more powerful from like a connector standpoint. So all that to say is that, you know, you hear about these people right now going on these like four hour hikes, and they're just talking to these things. Now, Neil, now when I'm on a commute to go see my dad on the weekends, guess what, I'm just going to be talking, no more need to listen to podcasts, I'm just going to be talking to this thing for an hour and asking it to do things for me.

10:11Neil Patel:Real quick, if you want to acquire customers faster and more efficiently this year with the latest strategies and tactics,

10:17Eric Siu:then check out singlegrain.com. That is my ad agency. Again, www.singlegrain.com. Check it out. And if it seems like a fit, we'll get in touch and help you with a free marketing plan.

10:28Neil Patel:Yeah, dude. And I think voice is going to get better and better. What I'm really waiting for is Apple to have a better Siri and it just being all integrated within your hardware that you have. And I believe they were supposed to partner with ChatGPT. It did not work out because ChatGPT or OpenAI is supposedly building hardware with Johnny Ivey because they ended up buying his company. And I think Apple claims that they stole some intellectual property or something like that.

10:56Eric Siu:They definitely did.

10:58Neil Patel:And then OpenAI is claiming that Apple never ended up integrating. I believe Apple's moving over to Google, but I'm waiting for their tech to get better and it just be integrated within, you know, the current systems and workflows.

11:12Eric Siu:Yeah. But Neil, why do you even need that when you already have, you're paid, you're already paying for chat, you're paying for the $200 a month version. And so your, your home computer, right? So the main thing is I have it set up on my home computer over here to desktop, right? So it's like your command center. It's already hooked in with everything else. It already has all the context. Plus you can control like your phone too. And so you already have all the context in the world. You want to just do this right now.

11:34Neil Patel:Honestly, I don't trust chat GPT. I've deleted a lot of my backlog and history, and it still pulls for it when I ask questions.

11:42Eric Siu:Oh, wow. I don't delete your data.

11:44Neil Patel:I fully deleted my data as an experiment. And then people are like, give it a few days, give it a week. I'm telling you, it's still pulling stuff from the past, not everything. So if I uploaded files, and I was careful, I never uploaded files that I shouldn't have uploaded. But some of those files. Yeah, you can get it from the pantry, buddy. So some of those files, they don't actually have the file to reference, but they reference it in chats in the past and the data that it referenced in the chats, that stuff is still there when I ask it questions, it's still pulling from it. But if I had to ask something new and I had to pull from the original file again, it's not doing that, but it's pulling from past chats where we analyze data.

12:28Neil Patel:And I just don't like it. So I hate to say I don't trust it. I still use it just being honest, but I won't use it for anything sensitive. I just don't like that.

12:36Eric Siu:So here's a question for you. Which companies would you trust with your data? Apple?

12:40Neil Patel:I trust Apple. I trust Apple probably more than most. I also trust Google and Microsoft. Sure. Let's sit here and eat it, buddy. The reason I trust Google and Microsoft is they're so big. You know, everyone's like, oh, they're using their data to figure out what search results to show. That kind of stuff, I don't mind. If I... You're so OCD. Just let William eat whatever he wants. Uh-huh. Well, I look to see and my wife, he ate a little piece of chocolate, but the chocolate doesn't taste good. I'll just tell you that. So you can assume what's in it. Like her brownies are made of sweet potato and dates and chocolate powder and vegetables.

13:24Neil Patel:Like her pancakes, she mixes spinach in there.

13:26Eric Siu:That's a scam. That's a scam chocolate. Yeah.

13:29Neil Patel:And I'm like, yeah, this stuff. She won't do dark chocolate because of caffeine, but still like it's, I've tried it and I'm like, what the heck is this?

13:36Eric Siu:Yeah.

13:37Neil Patel:So even like before we get back to it last night, my wife was gone. She had a family emergency. so I'm taking care of the kids by myself and they're like mom's not here we want a popsicle so I gave them one of their popsicles and there was three in there so I had one because the kids were like eat one with me it's like no added sugar it's made of pure food it tastes so nasty and the kids were like this is delicious because they don't know what the real stuff tastes like you know like the stuff we eat as kids

14:04Eric Siu:I took one bite and I threw it away