Why Andy Jassy Sounded the Anthropic Alarm, Meta's ‘Tokenminimizing’, & Xbox Spin-Out Plans

0:13Stephanie Palazzolo:Welcome everyone to the information's TI TV. My name is Akash Pasricha. It is Monday, June 15th. We are here in our New York studio where we are celebrating the New York Knicks championship. This morning we are also watching a couple of big deals. Fox is acquiring Roku for$22 billion. It is yet another media consolidation move. The$160 share price is the highest that Roku would be trading since the pandemic era. And in other deal news, Salesforce is buying AI customer service firm Finn for$3.6 billion. We'll talk about that shortly with our AI reporter. On today's show, Amazon CEO Andy Jassy has sounded the alarm over Anthropic and Fable 5.

1:01Stephanie Palazzolo:That is according to exclusive reporting from the information we are going to bring on. Stephanie Palazzolo, author of AI Agenda, in just a second to break that down for us. We'll also talk about our Meta news, that Meta is considering a move here to curb AI usage among employees. We've also got our Microsoft reporter joining us shortly to discuss his scoop that the company has been thinking about spinning out Xbox. And I'm going to close out the show with two founders coming on. We've got GPU infrastructure company Hydrohost coming on to talk about their funding round. And we will talk with Abridge co-founder and CEO Dr.

1:39Stephanie Palazzolo:Shiv Rao about his new play with NVIDIA. It's going to be a fun show, so let's get right on into it. Fable 5 had quite the U-turn after its impressive release. The Trump administration issued new export restrictions on the model. Anthropic, as a result, disabled the model entirely. My colleagues over the weekend caught wind of the behind-the-scenes discussions that led to that decision. And I want to bring on Stephanie Palazzolo to share with us what she found out. Steph, welcome back to the show. It's great to have you here. Thanks. Great to be here. Okay, so Fable 5 comes out. Everyone is trumpeting about how good it is.

2:17Stephanie Palazzolo:And we caught wind of a discussion that Andy Jassy may have had with folks in the government. What did we find? Yeah. So as you mentioned, this weekend was a bit of a crazy one for Anthropic. Essentially, you know, on Friday, the Trump administration said that the company would have to cut off access to Claude Fable 5 and Mythos 5, which are Anthropic's two most advanced models to foreign nationals. And then in response, Anthropic basically shut down access to the models for everyone because it's very hard for the company to tell who is and is in a foreign national accessing the models, not to mention that there are a ton of those within the company itself actually working on the models.

3:04So as some of my colleagues and I reported over the weekend, And a lot of this stemmed actually initially from a conversation that Amazon CEO Andy Jassy had with senior Trump officials, Trump administration officials, where he essentially kind of flagged some jailbreaks and other security-related concerns that he had to the officials from the government, which then kind of snowballed into what we saw on Friday with, you know, Anthropik at the end of the day having to cut off access to everyone.

3:36Stephanie Palazzolo:And so do we know any more details about this conversation between Andy Jassy and the Trump administration, or is the extent of what we know just that it happened? So it is, you know, there are definitely different details floating around about the conversations. Essentially, what we have gathered from ours and other outlet stories is it seems like Andy was basically flagging a jailbreak that Amazon researchers had found. And what a jailbreak is, is essentially a way for a user of a model to kind of bypass the guardrails on the model. So in this case, CloudFable 5 has guardrails that prevent users from asking cybersecurity-related questions, since that's an area that the model is especially good in.

4:22And Anthropic was worried that users would use this model to come up with different ways to hack websites and software floating out there. And so it sounds like basically Amazon found a jailbreak that worked to get around those guardrails and kind of flagged this to Trump administration officials. Now, it's not really clear kind of how much Andy Jassy expected this to escalate. It's totally possible that he was just kind of flagging this as like something to look out for and had no idea that it was going to reach the point that it did where, you know, now you see Anthropik basically cutting off access to these models for everyone.

5:02Stephanie Palazzolo:And I mean, it is kind of an interesting dynamic here because Amazon, of course, is a big investor in Anthropic. And so, I mean, I guess on the one hand, you know, flagging the fact that the model can be jailbroken, you know, AWS certainly has obligations to its customers here to make sure that everything is as secure as possible. On the flip side, I doubt, I wonder what that discussion between Dario and Andy Jassy was like, because, I mean, all weekend long I was on Claude and, you know, you had that bar saying Fable 5 is unavailable right now. And, you know, I guess you could click more, click learn more to see what it is.

5:46Stephanie Palazzolo:But I guess what I'm sort of thinking about here is how you think this plays out. I mean, we know that this call happened. Do you think maybe? Dario convinces Andy to make another phone call to the Trump administration saying it's actually fine. What do you think? Yeah, it's a really tough, you know, a really tough situation for Anthropic to be in. And, you know, just taking a step back, this isn't the first time that Anthropic has clashed with the Trump administration. Obviously, we've been reporting on this for months, but there's been a lot of kind of issues between Anthropic and the government, you know, I mean, all the way back to earlier this year when it was fighting against the Pentagon for the Claude models to be used in, you know, these cases where, you know, they were arguing basically about when Claude could and couldn't be used.

6:35And so in terms of what happens next, it's not really clear, you know, right now, Anthropic has sent some of its leaders to D.C. to discuss all this with the Trump administration. And so in my opinion, I do feel like there, I think it's pretty likely that we're going to see Claude Fable 5 come back in the next week or so. But obviously, I think Anthropic is going to have to make some concessions here to, you know, sweeten the deal for the Trump administration. And whether that is, you know, maybe upping the guardrails on Fable 5, maybe, you know, even most drastic case scenario, like maybe rolling back the public rollout a bit and still keeping it to a pretty small group of testers.

7:20Another thing that's been floating around a lot is this idea that the Trump administration is looking to take stakes actually in, you know, the biggest AI labs like OpenAI and Anthropic. So maybe this could be kind of a negotiating tactic that the Trump administration is using to try to get a stake in Anthropic as one of the most highly valued AI startups out there today. So it really has yet to be seen, but I think just giving the amount of pressure from customers, from investors on Anthropic, I think they're going to have to find a way out of this in the next couple of days or weeks.

7:57Stephanie Palazzolo:I want to bring this back for a moment here to the race between Anthropic and OpenAI, because last week I believe you had reported that while Fable 5 was certainly making inroads with customers and it had a pretty positive reception, you had reported that OpenAI has also been working on its own latest suite of models. Can you just remind us about where its model development efforts are at? Yeah. So as I had reported last week around the time that Fable 5 came out, OpenAI is obviously not just sitting around on its hands. It is working on developing its next generation of models. And some early testers told me that they were actually very impressed by the next models that OpenAI is working on.

8:44The next one will be GPT 5.6 most likely. And so in terms of what this means for the broader race, this is obviously going to handicap Anthropic for a little bit. But I think OpenAI is probably a bit worried about this too, right? Because if they want to come out with a fable or mythos level model, which of course they're going to need to do to stay up in the AI race, there is very much this risk that the Trump administration is going to do the same thing to OpenAI and also tell it to cut off access to its most advanced models. And so, you know, I think OpenAI is definitely keeping an eye out on this to see how the talks go with Anthropic.

9:21Although, to be fair, I think historically OpenAI has had a better relationship with the Trump administration than Anthropic has.

9:28Stephanie Palazzolo:Right. And I'm just thinking now, we of course know that Anthropic has a stake, a big stake in OpenAI as well. So I think, you know, people just need to – if Dario and Sam Altman are annoyed with the calls that Andy Jassy is making to the Trump administration, then I think they better have a good handle on his calendar because – Yeah, I would love to be a fly on the wall after our story broke and, you know, overhear the conversation between Dario and Andy because I'm sure Dario is not very happy. Well, and all I mean to say is, you know, if OpenAI comes out with a more powerful model, which poses similar concerns, maybe it can be jailbroken in similar ways, right?

10:12Stephanie Palazzolo:I mean, I can imagine Andy Jassy would have a perhaps maybe a more cautious conversation this time, but a similar conversation with the government. Anyway, it is all a fast moving story. And I want to thank you for coming on and helping us make sense of it. That is Stephanie Palazzolo, author of our AI Agenda newsletter here at The Information. Token maxing had its moment, but a new exclusive report from The Information's Meta reporter, Jyoti Mann, reveals the company has essentially gone the opposite direction now with its AI guidance for employees. I want to bring on Jyoti to share with us more about what we know.

10:49Stephanie Palazzolo:Jyoti, welcome back to the show. It's great to have you here. Thanks for having me. Tell me about this internal memo that you got a hold of that ran at Meta. Sure. So this internal meta memo, which we reviewed, shows that it's spending billions on internal use of AI. And now it wants to rein in the costs by setting up an efficiency program. Now, over the past year, the company has been encouraging employees to adopt AI heavily by using it for coding, research, or everyday work tasks. But the memo shows that it's now moving towards a more structured system for tracking and managing those costs.

11:24So this is really meta trying to place financial controls around internal AI tools after seeing just how quickly usage has exploded.

11:33Stephanie Palazzolo:And so what is that structured plan here? How do they plan to clamp down on token usage? Well, it's building an internal platform called AI Gateway, which will track AI usage and spending in real time. So different orgs or teams will be able to see how many tokens they're consuming, what they're spending, and eventually they'll operate under budgets and allocation systems. so that could see the company place limits on how many AI tokens employees can use or how much they're able to spend. And part of that plan actually involves trying to introduce alerts for unusual spending spikes and other better forecasting tools.

12:12Stephanie Palazzolo:And one of the other things I found interesting about your story is that it sounds like they're actually encouraging people to use their own AI tools more than external AI tools so that they can have more control or visibility, I guess, over the usage. Am I understanding that correctly? Absolutely. So part of this plan involves migrating and transitioning towards some of its in-house tools, like Metacode, for example, which is a coding tool. So they want to kind of reduce their reliance on outside providers, and being able to transition towards in-house tools will hopefully help them bring down some of those costs.

12:48Stephanie Palazzolo:That's kind of an interesting decision, though, because if MetaCode was so good, then I imagine it would be a product that Meta would try to sell externally. So I guess if we operate on the assumption, and again, I've never used it. I never coded a thing in my life. So I don't know if we could say that MetaCode is not as good as ClaudeCode. But if it was that good, I imagine they would try to sell it. And so it's sort of like telling your employees, hey, we understand this might make you less productive, but we can't really afford for you to use the latest and greatest. That's sort of the awkward calculus here.

13:26Absolutely. And that's why we're seeing the newly formed applied AI engineering org has been tasked with trying to improve meta code so that they can rely on it more internally. But I think what makes this memo so interesting is that it highlights a problem that not just meta is dealing with, a lot of companies are starting to face where AI has been adopted so heavily internally that the bill is becoming enormous. And now it comes down to trying to reduce those costs.

13:52Stephanie Palazzolo:Now, Jyoti, Meta is not exactly hurting for cash, although we do know that its CapEx bills are extraordinary. So I think efficiency is a smart play here. But do we have any idea why token maxing at Meta turned so quickly into what you call the story as this notion of token minimizing? I mean, was it really just senior leaders seeing the bills? or why did things change so quickly? I think in part, it could be the wasteful use of AI tokens. So back when token maxim was happening, there was a lot of encouragement from senior leaders at the company to embrace AI more. And some employees were kind of turning that into the internal competition to climb a leaderboard that was around at the time to show that they were a power user.

14:41And that inevitably drove up usage of AI tokens. But now they're kind of shifting their focus and saying the conversation's more about not use more AI, but use it more meaningfully so that it improves outcomes. So that's a transition that we're beginning to see across the broader industry as well.

15:00Stephanie Palazzolo:How have employees been reacting to this new paradigm with token minimizing? Yeah, I mean, well, it's not come as a surprise to some of the employees I've spoken to. They saw this as sort of inevitable, given that some staffers were using tokens in a wasteful way. So they see this move as quite sensible as they recognize that unlimited consumption is never going to be sustainable at this scale. But for some employees who have embraced AI heavily and are doing so in a meaningful way, there could be some frustration around tighter controls. And do you think that this could curb the progress at all that Meta has been making on its own models, its own products?

15:40Stephanie Palazzolo:And this kind of goes back to the earlier question we were talking about. I mean, do you think... Meta ultimately needs to, I mean, it needs to get a better model out there. It needs to get better products out there. Could this hamper that? Well, if Meta was simply becoming more disciplined about how employees use AI tools day to day, this probably isn't gonna hurt development very much. It's probably just gonna improve efficiency. The bigger risk would be if these cross controls extend to researchers and engineers who are using it for AI model development, where they might not be able to experience experiment as freely or lose access to the compute resources they need.

16:16But I suspect that these budgets won't be placed on those critical areas and there will still be enough compute for priority areas like AI model development. Great.

16:26Stephanie Palazzolo:Well, Jyoti, I want to thank you for coming on. That is Jyoti Mann, our meta reporter here at The Information. Microsoft is considering some major changes to its Xbox division. Our Microsoft reporter Aaron Holmes scooped some of its behind-the-scenes discussions late last week. I want to bring on Aaron to share with us more what he knows. Aaron, welcome back to the show. It's great to have you here. Happy to be here. What did you find out with respect to Microsoft and Xbox? So Xbox CEO Asha Sharma is planning a pretty major overhaul of the entire gaming unit. Specifically, we know that layoffs are coming and that she's planning to cut costs.

17:03But I also learned that Sharma wants to increase spending on game development in the coming year, potentially spending even more next year than Xbox spent in the past year. And specifically, she wants to speed up some of the new games that might be coming from franchises like Halo and Fallout and Elder Scrolls. Some of those haven't had a new game in more than a decade. At the same time, you know, I've heard that as Sharma sort of plots this major overhaul of Xbox, Microsoft has considered potentially restructuring Xbox's relationship to Microsoft to either make it a subsidiary or potentially spin it out entirely and possibly make it easier for Xbox to be sold to another company.

17:50I don't think there's any imminent plans for that, but I'm told that all of those options are on the table.

17:56Stephanie Palazzolo:Do you think this is more of a Microsoft-driven idea or an Xbox-driven idea, I wonder? You know, I think it's a mix of both. One thing that we've seen is that Xbox has much lower margins than the rest of Microsoft's business. Part of that is because they have this entire, you know, hardware business that's extremely low margin. they've also had a hard time selling consoles in recent years and those sales have been declining and costs have been rising significantly both in hardware but also you know just in the cost of all of the people that they employ and it's kind of becoming a problem in the eyes of some Microsoft shareholders so there is definitely an argument to be made that spinning out Xbox or selling it or you know just taking it off the balance sheet would make Microsoft a more kind of attractive stock for investors and shareholders.

18:51But at the same time, I'm told that, you know, CEO Satya Nadella very much believes in Asha Sharma's vision and really wants Xbox to succeed and, you know, potentially sees this restructuring as one way to make Xbox even more successful than it is as part of Microsoft.

19:08Stephanie Palazzolo:Now, you talked about the margins earlier. Is Xbox right now as is? Is Is it a profitable enterprise? Does Microsoft provide any additional funding or does it have a development budget at all that Asha Sharma and company can make use of? So Xbox is technically just a division of Microsoft, meaning we don't actually know exactly what its P &L looks like, that the company doesn't clarify that in their earnings. And it's possible that some parts of the business are being subsidized by other parts of Microsoft. Microsoft. What we do know is that Sharma actually said to staff in an email last week, which she then made public, she published the email.

19:52She said that they have accountability margins of 3%. And that's an internal metric that is, you know, roughly similar to EBITDA. So that, you know, suggests that 3%.

20:03Stephanie Palazzolo:That's it. That's, that's like nothing. I mean, like, right. Razor thin. Yeah. They're making money, but barely any. and tell me is this like the game the gaming sector at large i mean is is xbox kind of an anomaly here or has gaming broadly speaking kind of been been through the ringer as well in terms of business performance yeah i mean the the general sort of benchmark according to analysts uh for you know gross margins in the gaming industry is like roughly 15 percent um which is still you know much lower than you know typical software margins but at the same time it looks like potentially xbox is even lower than that right now um and and i think that's part of what sharma wants to fix is you know a cutting costs on things that don't seem likely to drive a lot of revenue and be spending in areas where you know they have these game franchises that are already known and beloved by fans and and trying to invest more in putting out new games from those franchises that are almost guaranteed to drive a lot of sales.

21:09Stephanie Palazzolo:Right. And Aaron, I should remind folks that you had a great weekend big read a couple months ago on Asha Sharma that we will link in the show notes and that I encourage everyone to read. But just remind us from that story and from the reporting you did, the changes that you reported on with respect to the game development last week, how does that fit into Asha Sharma's broader strategy for Xbox coming into this role? You know, in a lot of ways, I think that she is kind of walking a fine line where, on the one hand, you know, when she first came into the role earlier this year, she really wanted to prove to, you know, Xbox fans and also to her own employees at Xbox that she is not just there to, you know, wind this organization down or to cut costs and improve margins.

21:57Obviously, that is something that she does need to do, but it's not her sole focus. or she really wanted to get that message across. And I think that now what she is trying to do is kind of maintain that promise that she wants to keep investing in game development and actually making more games that fans want to see. But at the same time, she does need to make it a sustainable business. And she's been signaling. And from what I learned reporting this story this past week, I think that that might look like potentially spending less money on the dozens of smaller game studios that Microsoft owns.

22:30I wouldn't be surprised if we see Microsoft start to shutter some of its smaller game studios in the coming weeks or months, while basically, you know, consolidating more money into the larger already successful franchises, you know, including many of the franchises that Microsoft has spent billions of dollars to acquire over the past few years, by the way, and basically making those more powerhouses of new content for Xbox. Right.

22:58Stephanie Palazzolo:And I think one of the most important things you mentioned that I think could sort of determine this, at least in the short term, is, as you said, Satya Nadella seems to have a lot of faith in Asha Sharma in terms of building the business, at least for a little while here. So maybe that will sort of help buy some runway here in terms of not spinning it out immediately and helping to get some of those bigger changes underway quickly. Aaron, I want to thank you for coming on. That is Aaron Holmes, our Microsoft reporter, here at The Information. GPU hosting company Hydrahost raised$100 million at a$800 million valuation.

23:41Stephanie Palazzolo:The deal was led by Kindred Ventures. Joining me now to talk about the milestone is Hydrahost co-founder and CEO Aaron Ginn. Aaron, welcome back to the show. It's great to have you here. Yeah, thanks for announcing, I guess, the largest year of the day ever, right, with$800 billion, right? I was going to say, I was like, $800 billion, I think we would have put you at the top of the show if that's true. Yeah, with Elon, right? Yeah, yeah, okay. $800 million. Look, it's not chump change, it's a big round. Congratulations. We've had you on the show a couple times before, but never actually to talk about your company.