Google's ad economics could constrain its move into AI search

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 31:08

   Probably the same at OpenAI, probably the same at Anthropic. When you look at the people that you likely will be competing against in the next 10 years, what do you think is the piece that's maybe going to give you the edge to win? Obsession about the user and good product taste. There's a lot of these things that require a lot of domain knowledge. Out of the list you mentioned, Google is the only company that actually has the product taste to do this.

2. 31:34

   and arguably all the distribution in the world, everything, right? Except the dilemma is also there. It's funnily like, you know, it's a search company, but it's also an ads company. And search is kind of almost exists in service of the ads company, not in the other way. And you could argue, okay, that's outside the search revenue every quarter, which is like close to... $200 billion a year, there's still like $100 billion other places, YouTube and cloud.

3. 32:06

   But the margins are all coming in search, right? Cloud is only like recently profitable. YouTube is not, never going to be a high margin business because number one, they don't serve ads on subscription users. And number two, they have to pay the creators, they have to pay the media partners. So it's never going to be as high margins as search. So you're arguing basically the stock price is going to be their encumbrance.

4. 32:33

   Correct. Because Wall Street is like crazy. It just automatically panics if search revenue goes down. But search revenue has to go down in a world where people are just directly talking to AIs and agents are doing stuff for them. That doesn't mean they're not going to do anything about it. They're still building Gemini and the new app. The hypothesis is that they're not going to be able to easily put it on the core Google where they already have all the billion users.

5. 33:00

   And that's true, right? Yeah, you're arguing that whoever wins this in the long run will kind of by definition need to come up with a new monetization model, a new business model. Yeah, there's like a ton of other problems to solve like for shopping or travel or like all these things like which merchants do you use or like which hotels do you plug into or who's the middleman there and who handles the booking and if a customer wants to cancel stuff.

6. 33:26

   Google actually solved a lot of these problems too, right? They're not just like, oh, a page rank or like MapReduce or, you know, all these advances that they made in like visual, like deep learning and like BERT, Transformers. It's not just that. That is great, but they also did a lot of other boring work of bringing Google Finance, Google Shopping, Google Flights. I feel like Perplexity is a better position to do these things than OpenAIR Anthropic because we have it in our DNA to care about the user and the product.

7. 33:54

   we're not just talking about reasoning and models right? But we are pretty much familiar with all those things and we are very much capable of taking the latest open source models and serving them ourselves and fine-tuning them and post-training them and doing evals we're not like AI illiterate. We're not going to like spend all our bandwidth building data centers and chips and like trying to just talk about like breaking the most reason coding a math benchmark I think there's value in that