Sora Is No Mora

0:20Travis Hoium:Welcome to Motley Fool Money. I'm Travis Hoium joined today by Lou Whiteman and Rachel Warren. And guys, the OpenAI news continues to come out. Lou, we talked about this a little bit yesterday with Tyler Crowe on the show. But the breaking news yesterday was that they are shutting down Sora, this sort of social media video app that they launched not too long ago, a few months ago. But not only that, they're actually shutting down making their own video models. Rachel, this seems like a huge shift for OpenAI. Now, they're really focusing on kind of the enterprise side, coding, you know, their Codex product.

0:56Travis Hoium:We talked about that. It was so striking that they have put so much time and energy, even a billion dollar deal with Disney, to try to build up this video business, one of those spaghetti at the wall kind of things. And now they're just saying, you know what? We're done with that. Yeah. I mean, there was a lot of viral buzz around Sora, but there had also been kind of some major challenges. So, you know, Sora had this ability to generate lifelike videos. It was generating unauthorized clips of people like Michael Jackson and Martin Luther King Jr. So there was fierce opposition from actors unions, family estates.

1:27There was even an issue they were having with the Japanese government demanding that OpenAI stop using copyrighted anime and manga characters in Sora v2. The other point I think to make here is very high computational costs required to run these models, very much putting a dent, I think, in the bigger dream of OpenAI for profitability. responsibility ahead of its reported IPO, potentially later this year. I think they're really refocusing on their upcoming SPUD model, their AI agents, right, designed for coding and robotics. I think they're really trying to kind of cut their losses and reallocate their resources towards autonomous AI agents, enterprise grade tools.

2:03It is interesting, the impact on Disney. I mean, they have this three-year billion dollar partnership that included licensing over 200 characters from Marvel, Pixar, and Star Wars. That feels dead. You know, Disney publicly said they respect OpenAI's decision, but there was some reports that the news caught the company off guard that maybe they didn't even hear about it until about 30 minutes after a joint meeting. So a lot going on there. I mean, for Disney's part, they're now an active free agent in the AI space. You know, they're reportedly engaging with other AI platforms to find a new partner.

2:34So that could be something interesting to see. I think now with this kind of leader out of the race, a lot of eyes are turning to Alphabet and Anthropic. You know, Anthropic has notably chosen to avoid video generators entirely. So maybe this is something that we're not going to see as much investment in the space. That remains to be seen, but it is a big shift for OpenAI from, I think, where a lot of people thought the business was going.

2:55Travis Hoium:Yeah. Lou, it does seem like they're at least focusing. And we've asked a lot of questions about how are they going to build a sustainable business model? So this is maybe a step in the right direction. But the other interesting thing is it seems like they're kind of seeding a lot of this consumer space. You know, if you want to make a video, go to Gemini. And that was the theory even 12 or 18 months ago was that Alphabet was going to be in Google or going to be disrupted. This is kind of seeding that entire area to them.

3:23Lou Whiteman:You're giving them the focus award, Travis. Is that a thing? Yeah.

3:27Travis Hoium:Well, I mean, for now we'll see until they go public and then start throwing spaghetti at the wall again.

3:32Lou Whiteman:I think this is a rare moment of honesty from open AI, a company that loves a good press release. For all of the bluster, for all of the statements about how wonderful it is, things are not going well. We're supposed to make bold statements here, Travis. This may not come true, but I am increasingly wondering if OpenAI will ever get to an IPO. The simple math here is that they were not making money on this. As Rachel said, just the sheer bandwidth needed was too much for the revenue. Also, I think it's fair to say that they didn't see a path for revenue, which is kind of the scarier thing. And add into it the fact that even with a billion-dollar sweetener from Disney, if they would have kept going, they still couldn't justify it.

4:17Lou Whiteman:I think the conclusion here is they were losing tons of money with no path to profitability. And hey, I guess credit to them for at least backing off. But look, Anthropic is doing it better. Anthropic is using a lot fewer resources to actually grab the enterprise customer. So copying them makes sense. I don't know if the consumer matters here. I think the enterprise matters for now. And yeah, Anthropic is showing the way. OpenAI would be insane not to follow.

4:47Travis Hoium:So is the theory there, if you're looking at a potential IPO that, hey, the consumer space is just going to be too hard. Maybe Alphabet is already there with the ad business in particular, something that OpenAI really said they didn't want to do until it was kind of too late. So if you want to build a real business and go public, you have to go after these coding opportunities, these enterprise opportunities. And that's what they're focusing on, even though we've seen seemingly everything else. We had the browser shut down. We've seen now Sora shut down. Is even ChatGPT going to be the future of the company?

5:22Travis Hoium:Or is it really just Codex at this point?

5:24Lou Whiteman:It's weird to compare them to Alphabet because it's such a different set of circumstances. One is an established business that in part is backfilling. Let's be honest. It used to be Alphabet is going to get killed by OpenAI because Search is going to be destroyed. Instead, they're just transitioning Search. But you have an established customer base and an established business. It makes sense to stay in that business that you know so well. I think on the OpenAI side, like Anthropics, starting from scratch, you need to earn customers. The cost of acquiring a customer in almost any business is high.

5:57Lou Whiteman:So you want to go after the customers with the highest payout. That's on the enterprise side. I mean, again, we'll see what becomes a consumer AI. We'll say maybe we all will pay hundreds of dollars a month for these magical tools that make our lives better. There's time to fight that out if and when that happens. For now, if you are trying to build a business, you need to see your efforts generate revenue. And clearly, I mean, I don't think this is unique to AI or anything. thing. Clearly, the enterprise is the customer to go to get that.

6:29Travis Hoium:Yeah. I think it makes a lot of sense in a lot of ways, especially if you are trying to get to the IPO. But it's just striking how many things they've tried that were supposed to be the future of technology, the future of artificial intelligence, and they just didn't really work out. So we will see where OpenAI goes. I'm sure we're going to be talking about this again soon. When we come back, we're going to talk about crypto and what the future of stable coins looks like. You're listening to Motley Fool Money. Have you been sleeping on your mattress a little too long like I have? My back's getting sore more than it used to, and I feel like Homer Simpson with my body shape imprinting on the mattress.

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8:36Travis Hoium:But this would make that illegal, Lou. And the interesting thing here is this would make it maybe a little less attractive to be holding those stable coins in an account like Coinbase. But if you do still hold them, and you don't really care about that 3.5 % because it's a more efficient payment method or whatever your logic is, this is actually going to make companies like Coinbase more profitable because they're not going to have that rewards expense. So it's sort of an interesting reaction from the market. Stocks are down, but at least short-term, Coinbase should make more money because of this ruling if it ends up passing.

9:10Lou Whiteman:Yeah, I keep thinking of that. Life comes at you fast when I see this. Sure, Travis. You know what? Banks would make more money if people just put their money in without demanding interest. So you're right, definitely. But look, I don't know if this is fair, but I think it's the right call. And look, life is not fair. I'm not pro or anti-stablecoin. I'm not going to say that, but I want them to solve problems, not create problems. And for all of the -

9:37Travis Hoium:And do you not see the efficiency of - Well, let's go there.

9:39Lou Whiteman:Let's go there, okay? For all of the issues we have with our US banking system, and it's not perfect, it does work and it is the model the rest of the world bases itself on. We have a good thing here. Just like in medicine, the first rule should be do no harm. And to the extent that these stablecoins are a threat to that core system, I think regulators should be aware and trying to avoid harm to this system that serves us well. I keep saying this about fintech, but it is so true. The house always wins. Regulators are risk adverse. That's a feature in the system. It's not a flaw. If you want to come up with something better, it has to be significantly better than the status quo.

10:26Lou Whiteman:because again, the status quo for all of our complaints about it works really, really well. And most of the world wishes they had the problems we had.

10:35Travis Hoium:I've been following stable coins for quite a while, but the efficiency of moving money with stable coins, if you own a business and you're paying 3 % for credit cards, having an alternative, which a company like Stripe does, they charge about half of the fee to take stable coins as they do to take credit cards. So that would be the disruptive angle. Is Lewis saying it's good that we're not allowing or we're not enabling some of this disruption from stable coins, which is going to just entrench companies like Visa and MasterCard? You know, I guess, what are your thoughts looking at that? Because that seems like the angle that Coinbase or Circle is going for is, hey, this is better.

11:11Travis Hoium:It's more efficient. But now we have regulatory capture coming in, which is always going to be a challenge. Well, and I think another way to look at it is this. We have heard some pretty lofty ambitions for what stable coins can do for the consumer, for big business. And one of the hallmarks of adoption, one of the on-ramps that enables adoption is greater regulatory environment and more regulations in place. And so I think that in the long term, should this legislation pass, I actually think it's a good thing. When you think about companies like Coinbase, They've been leaning pretty heavily on USDC rewards to drive engagement and revenue.

11:45So obviously, this is kind of massive regulatory red line, so to speak. If you think about the Genius Act and other recent bills have really essentially been trying to treat stable coins more like traditional cash and less like speculative investments, which again, is a really important element of long-term adoption. So I think by cutting off rewards, regulators are hoping to prevent a massive drain of deposits from traditional banks. I think that's one piece of it. But I think it's also about kind of the fundamental safety of the financial system. And there's also the redemption factor. So the new rules would mandate that stablecoin holders get priority in case of an issuer's bankruptcy.

12:22And that would finally give users some of the same protections that they would expect at a regular bank, which again, there might be individuals and entities that have hesitated to adopt stablecoin that should those regulations be in place would be more induced to do so. So I don't think this is a dead end. The free money, so to speak, via rewards might be going away. But I think that core utility of stable coins is still very much intact if you believe in this space. I think for the big players, this is more of a regulatory speed bump, if you will, than a dead end. They'll have to pivot their business models, focus more on transaction fees and infrastructure.

12:58But I do think that the genie is already out of the bottle here. And I think stable coins are probably here to stay.

13:03Travis Hoium:Well, Lou, I do want to push back on that a little bit, because the piece that we're missing here is there is still money, billions of dollars of revenue coming into these stablecoin companies because these assets are backed. In the case of USDC, I think it's their around$80 billion market cap today. That money isn't just sitting in an empty room. It's sitting in bank accounts. It's sitting in US treasuries. That is generating interest. What they're doing with rewards, what they're calling rewards, is just returning that to the people that are actually holding the coins. Now you're saying you can't give them that money.

13:35Travis Hoium:So that profit is going to go to companies like Circle and Coinbase. Is that better? I think that's the argument you guys are making, is that that's better not to give the rewards out. That seems a little bit backwards.

13:45Lou Whiteman:A couple of things. For one, we'll see how much of that money stays there for them to generate the interest if this evolves, if there isn't a use for it. Rachel said they can make it up in fees. If the goal is that, hey, this is better than Visa and MasterCard because there's none of those pesky fees and the fees are less, here comes the creep. Again, the house is going to win here. Visa can cut their fees in half a lot easier than these companies will find it to just raise them.

14:11Travis Hoium:Well, it would be Visa and the banks, though. I think that's going to be the sticky part is that Visa takes a relatively small chunk of that 2.9 % or so. But again, this is margin.

14:22Lou Whiteman:And it's always the path of least resistance is the incumbents lose a little margin versus a new system comes into place. That has happened over and over again. This isn't just about, quote unquote, protecting Visa or protecting the banks. Right now, the system that we all benefit from works because, in part, the banks have so much access to cheap deposits. To the extent that we threaten that for the sake of lower credit card fees, we are potentially causing a bank crisis down the road that will do more harm than the toll that they are extracting on the economy. You can say that this is fear-mongering.

15:03Lou Whiteman:You can say that it'll never happen. You can say, oh, that's the worst case. The job of regulators is to avoid worst case. It is to keep the system stable and functioning because again, the system basically works. So this may not be fair. It may not be consumer first friendly. It might mean that businesses still have to figure out what to do with credit card fees. All of that can be true and it can still be the right decision in terms of financial stability and long-term financial stability. That's the point. And we can argue till we're blue in the face about fairness. We can argue about, oh, what are you doing in that?

15:39Lou Whiteman:But at the end of the day, the job of the regulator is to keep the status quo working because the status quo has gotten us 200 years in pretty well. And that's exactly what they're doing here. And I'll be on it. Maybe I'm just a old Luddite, but I appreciate that holding. and look i think you put it really well and i think you know the investors who are listening

16:03Travis Hoium:to this who own maybe shares of banks maybe shares of visa or mastercard the credit card processing companies or like myself i own shares of coinbase think about that you know what sort of disruption is there what does disruption potentially look like and what is holding off that disruption because i think you laid it out that you're arguing that the status quo is beneficial even if it's less efficient and less consumer friendly does that ultimately win you know, that's something that the market is going to eventually figure out one way or the other. But for now, regulatory capture rules the day.

16:36Travis Hoium:When we come back, we're going to talk about Amazon's latest robots. You're listening to Motley Fool Money.

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17:52Travis Hoium:Welcome back to Motley Fool Money with the Hidden Gems team. Amazon is one of the biggest employers in the world, but it may not be for long if it keeps buying robotics companies. Last week, they acquired a company called River that makes a kind of dog-looking delivery robot. This week, it added Fauna Robotics, a humanoid-ish, like a short, like a four-foot-tall humanoid robot that's supposed to be, quote, capable, safe, and fun for everyone. And also, we've got Zoox in the mix. Rachel, what is going on here? Is this a company that's going to have a billion robots and no employees a decade from now?

18:28I mean, maybe that's the long-term vision, right? So River, they're the Swiss startup known for their dog-like quadruped robots. They're designed to navigate stairs and drop off packages directly at your door. And then Fauna Robotics makes this humanoid-ish robot called Sprout. It's about three and a half feet tall. As you noted, when you add Zoops, obviously the self-driving robotaxi and delivery service to the mix, this picture starts to get kind of clear. You know, you think about, could we be living in a world where a Zoox vehicle drives itself to your neighborhood, the river dog hops out the back to climb your porch steps, and a fauna humanoid potentially manages the human interaction or complex tasks in the warehouse?