The Next AI Phase Is Taking Shape
We are a full two-and-a-half years into current AI mania, and signs point to us entering a new stage. There is a greater focus on product and competition as the most formidable AI start-ups go after branding and users. In addition, Big Tech companies are looking to keep existing users by integrating AI into current offerings.
AI mania could be grouped into three segments or eras:
ChatGPT chatbot comes on the scene. Late 2022. Several factors came together to produce something of an ideal storm including post-pandemic desire for something new and big (with growth in mind). Internal power struggles at OpenAI contributed to the mania by taking over the news cycle. The turmoil was partly driven by the growing fascination that was flowing to ChatGPT.
AI-related capex boom (the NVIDIA surge). 2023-2024. Every Big Tech company except Apple experienced a rethink of their capital expenditures trajectory with AI-driven data centers, cloud infrastructure, and related assets in mind.
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The WSJ Was Right to Fire Its Tech Newsroom
In what were clearly decisions being pushed by editors, the WSJ embraced an anti-tech agenda that positioned Big Tech as the enemy of the people.
Earlier this month, the WSJ announced significant changes to its tech newsroom. A dozen tech reporters and long-serving editors were fired in a restructuring that amounted to a rethink of how it covers the tech industry. Those let go included beat reporters for Apple, Alphabet, Microsoft, AI, semiconductors, and video games. The new team, based in New York and overseen by Sarah Krouse who was most recently in charge of WSJ’s entertainment vertical, will jettison company-specific verticals. The changes are part of a larger shift that the WSJ undertook to win back lost relevancy and credibility.
WSJ CEO and publisher Almar Latour was somewhat up front in explaining the rationale behind disbanding the tech newsroom:
Increase engagement.
Grow readership.
Enhance quality.
In terms of the way the WSJ’s actions were covered by other tech-focused publications, moral outrage and virtue signaling were rampant.
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Tech Questions for 2024
Predictions don’t excite me. They are often lackluster attempts at providing answers to the unknown. To then get the timing behind such predictions correct makes the whole thing a charade with little to no added value. Instead, for the first Inside Orchard essay of 2024, we will embrace the unknown and look at tech questions that are on my mind for 2024.
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The Next TikTokification Phase Is Here
One of the defining post-pandemic shifts in tech has been unfolding in the social media space. Seemingly overnight, tech giants including Meta and Google found themselves on the ropes, fighting a new kind of competitor: TikTok and algorithm-fueled video timelines. From my vantage point of analyzing quarterly earnings, we are already seeing the next phase of TikTok’s influence seeping through the industry, and the observations make me increasingly worried about where things are headed.
Beginning in late 2021 and coming to a head in early 2022, Big Tech’s layoffs caught many people off guard. Various theories were floating around as to what was going on. Some of the theories came across as being a bit out there – such as Apple ATT being blamed for single-handily bringing down the entire advertising complex and all of the businesses that depend on it to drive revenue. The subsequent rebound (and we are talking in some cases strong rebound) in the advertising giants’ performance puts a fork in that questionable theory.
Instead, macro unknowns and TikTok hit Big Tech’s digital advertising revenue so quickly that management teams had no choice but to cut payroll ASAP.
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Smartphones Are Black Holes
Criticism facing Apple’s $3,500 Vision Pro headset has centered around a consistent theme: Isolation. Wearing the headset has raised concerns for some that society is headed in the wrong direction as we are increasingly removed from our surroundings. This isolation concern is said to be found with those wearing the headset, as well as those wanting to share experiences with headset wearers. A scene of a dad wearing Vision Pro to capture a child’s birthday party has been called everything from inhumane to dystopian. As an offshoot of this isolation argument, some people aren’t sure how experiences can be shared anymore if only some people are wearing Vision Pro.
What’s fascinating is how these isolation fears don’t extend to all headset companies. In what can only be described as mental gymnastics, Meta is said to offer an alternative to Vision Pro’s isolation risk because of Mark Zuckerberg’s social mandate of connecting people in virtual worlds.
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The Future of Search
The recent chatbot craze fueled by ChatGPT, which needs a good dose of cold water thrown on it, has led to renewed talk of search’s future. Microsoft’s investment in OpenAI led some to conclude that Google should be nervous. The thinking goes that the combination of Bing and massive language models will impact Google’s search dominance. I find such thinking rudimentary at best.
Much of the chatbot craze will fizzle out. We are still in the buzz part of the current curve. It would not be surprising if the fizzle burns out quicker than people are expecting.
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Wall Street Was Caught Sleeping on Digital Advertising
Judging by stock price moves, Wall Street experienced quite a few surprises last week. Consider the following price moves registered the day after reporting CY3Q22 earnings:
Meta: -25%
Alphabet: -10%
Microsoft: -8%
Amazon: -7%
Apple: 8%
The odd thing about these moves is that 3Q22 earnings contained very few surprises in Big Tech land. All of the major themes found in the numbers and on management conference calls have been on display for the past year (and discussed in these weekly essays).
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A VR Head Fake
There is something about the way the tech industry continues to prop up and push VR that doesn’t sit right with me. Too many companies are using VR to distract from a genuine rise in competitive pressure and unattractive business performance. As a result, we are getting warped expectations of what may materialize over the next three to five years.
It’s easy to understand why so many people are quick to compare the move into VR and AR to what happened with mobile.
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Funding the Next Big Thing in Tech
One takeaway from the just concluded earnings season in tech land is that the giants are not alike. Each is facing its own set of business and financial challenges – both macro and micro. Despite the challenges, each of the giants is determined to fund the next big thing. What had been periodic jitters about ballooning costs and expenses has turned into full-fledged anxiety and concerns on Wall Street.
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The Decentralization of Silicon Valley
Two months ago, “A Work from Home Head Fake” went over my position that most companies are not built to succeed with work-from-home structures. Team communication and idea exchange have not evolved enough for work from home to replace traditional office settings without negative consequences.
Since that Inside Orchard essay was published, work from home has turned into a polarizing topic online. Tribalism has now entered the discussion as some people dig in and position work from home into other agendas such as worker rights - a development that ignores the fact that many companies are not built to succeed with work from home.
While the work from home movement will hit a brick wall, the decentralization of Silicon Valley is a more promising development that stands to usher in more near-term change.
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Streaming Video’s Ongoing Revolution
There continues to be something that I call the “iPhone mentality” in tech. A singular product or service is positioned as quickly transforming a market or industry. A byproduct of this thinking is the tendency for consensus to prematurely declare that first movers are winners.
Netflix was declared the winner in paid video streaming back in 2018.
Spotify was declared the winner in music streaming in 2015.
Tesla was declared the winner in electric vehicles in 2017.
In each example, a winner was declared before we even knew what it meant to win in that respective industry.
New data out from Nielsen suggests that streaming video remains in a different place than what consensus assumes.
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The Smart Home Remains the Wild West
The smart home is still more of a concept than anything else. Those expecting one product or service to transform homes into smart homes have been left disappointed. The same goes for those who prematurely crowned a winner in the smart home race. The smart home remains the Wild West and is turning into a long-term play for the tech giants with strategy goals measured in multi-year increments.
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Snap’s Quest to Control Cameras in an AR World
Snap continues to be an interesting company. Thanks to spending years in Facebook’s shadow, the social media company has a credible claim to being perennially underestimated. Snap’s $96 billion market cap is just one-tenth of Facebook’s ($946 billion).
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The Future of Digital Tracking
A retailer (Amazon), social media company (Facebook), and information services company (Google) now capture more than half of all advertising spending in the U.S. The Inside Orchard essay “The Advertising Triopoly” focused on how the three were able to reach such a milestone: establish formidable ecosystems powered by not only software, but also customer data. As to where tracking will go from here, change is in the air.
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Elon Musk and a New Era of Tech Celebrity
Elon Musk continued his streak of being unlike any other CEO by guest hosting Saturday Night Live this past weekend. For those who have followed Musk over the years, including his Twitter activity, the show went pretty much as one would expect.
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NFTs, Tulips, and Misplaced Artist Hope
NFTs (non-fungible tokens) are the digital equivalent of signed art. Instead of using fiat money to pay for physical art, cryptocurrency is used to pay for NFTs. While there are more technical and expansive definitions for NFTs involving digital ledgers, complexity ends up adding unnecessary noise to the discussion.
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Carving Up Retail
Kmart was at one time the second-largest retailer in the U.S. After two bankruptcies, one as a Sears subsidiary, and a growing number of store closures, the big box department store finds itself on a gradual slide into liquidation.
After 43 years in the same location, a local Kmart closed its doors at the end of 2019. The 45,000-sq foot store – far too small of a store footprint for Walmart or Target but too large for most other retailers - anchored the town’s most visited shopping plaza. Its closure led many to fear that another small town had fallen victim to e-commerce.
Such fears ended up being misplaced.
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Robinhood’s Misdirection
Every few years, an event occurs that captures society’s mindset for a week or two. This past January, we saw the latest example of this with what is being called the GameStop frenzy. A group of unknown composition used the web to coordinate trades, targeting buying pressure towards a few heavily shorted companies. The goal was to increase share prices and in the process, squeeze hedge funds that were short the stock (betting that the stock price would decline).
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Music’s Trouble
The number of people paying good money for music continues to rise. In the U.S. alone, 75 million people are paying on average $90 a year to listen to music through a streaming service. On its own that’s a great thing, and music rights holders are riding decades-long emotional (and financial) highs. However, we are seeing what amounts to music’s destruction continue to unfold before our eyes.
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Online Product Reviews Are Broken
The premise behind a site like The Wirecutter, bought by the New York Times for $30 million in 2016, may make complete sense on paper. Have an “expert,” who apparently knows everything there is to know about a product category, test out an arbitrary number of products spanning the price and feature spectrums in that product category. Relying on experience and perspective, the expert issues a verdict as to the “best” product to buy - the product that everyone should use without fear of regret or disappointment.
In practice, Wirecutter is wholly disappointing.
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