Ben Thompson from Stratechery on AI ads, the end of SaaS, and the future of media

Ben Thompson, the internet’s premier tech analyst, joins John for a wide-ranging conversation on the mechanics of the internet economy. They discuss the origins of Stratechery and the "1,000 true fans" model, why Taiwan is the most convenient place to live (and the best Uber Eats market), and why the public markets are wrong to think SaaS is "canceled." Ben also explains why the US failure to control the TikTok algorithm is a disaster, why he’s a "crypto defender" in an age of infinite AI content, and gives John some very direct feedback on Stripe’s ACH implementation. Timestamps (00:00:20) Visiting Taiwan (00:04:59) Aggregation and AI (00:23:53) TikTok/Bytedance (00:29:58) Aggregation and AI redux (00:35:31) Agentic commerce (00:45:08) Is SaaS canceled? (00:52:21) Stratechery (01:03:36) How Ben uses AI (01:06:06) The TSMC break (01:13:53) Rapid fire (01:20:53) Feedback on Stripe

• 0:01Speaker 00

  Ben Thompson is the founder and author of Stratechery, the newsletter that everyone in tech reads to make sense of what's happening. He's also heirloom to the premium newsletter model that's become very popular in media nowadays. For many years, he ran Stratechery as a solo founder in Taiwan. Cheers. Good to see you.

• 0:16Speaker 01

  Cheers.

• 0:20Speaker 00

  It feels like people in San Francisco have not properly discovered Taiwan as a tourist destination. Like, do you agree with that characterization?

• 0:27Speaker 01

  Oh, this is because people always ask me about Asia. And the way I always characterize Taiwan is there's lots of great places to visit in Asia. And I would also put Japan on the list. But I like to think I went to Japan before it was cool.

• 0:40Speaker 00

  Yeah, nothing against Japan, it's just...

• 0:41Speaker 01

  Well, the whole thing with Japan is going to Japan pre-smartphone was a completely different experience than going there post-smartphone. Like, you think, oh, the subway system's amazing, the trains. Try navigating that with no smartphone and nothing's in English. Like, Japan used to be very low on English. It's still lower than places like Taiwan.

• 0:59Speaker 00

  It's surprisingly low.

• 1:00Speaker 01

  Yeah. And Japan, it just has the... The way to visit Japan is you just walk. Like, don't go to, like, set destinations. But the way I would talk about this is places to visit, but the best place to live is undoubtedly Taiwan. The one word everyone says for Taiwan, sounds not that impressive, but the word is convenient. Like, it is the most convenient place to live. So part of that is actually...

• 1:25Speaker 00

  7-Eleven has really good food.

• 1:26Speaker 01

  Well, it's actually downstream from the Japanese. Because Taiwan was a Japanese colony for the first 50 years of the 20th century. And it's laid out a lot, like, why is it great to walk on Tokyo? Because Tokyo's all mixed-use, right? That's how Taipei is as well. You have these big blocks where the exterior will be commercial. And the interior of these big blocks is all residential. And the first four is all, like, small shops or restaurants, things like that. So wherever you live, you basically have access to everything all around you. But I think the downside as a tourist is it's kind of an ugly city. Like, Taiwan's kind of notorious for just these dumpy, dilapidated buildings. And you go inside, and they're like palatial on the inside.

• 2:10Speaker 01

  Like, Taipei is very, very rich.

• 2:12Speaker 00

  Yes.

• 2:12Speaker 01

  It's like in the top 10, I think, as like number of billionaires in the world or something like that.

• 2:16Speaker 00

  Yes.

• 2:16Speaker 01

  All downstream from building out China, things like that. It's a very beautiful country. From Taipei, thirty minutes to the ocean, thirty minutes to the mountains, east coast is amazing.

• 2:25Speaker 00

  But i- if people listening to this are visiting, like, I feel like one thing they should do is, it's a mistake to try and use Yelp or anything like that too much, cause like, you should maybe just try and go to a night market and follow your belly and see what, see what looks good. And there's like a lot of excellent street food. And so that'd be one thing is to, don't try to overplan.

• 2:42Speaker 01

  Well, here's the problem though, where tech, tech has made it worse, I would argue as a tourist. Which is, Taiwan is arguably the greatest Uber Eats market ever. Because there, there's amazing options, it's all delivered by scooter, so it's always like ten minutes to get, to get dinner and things along those lines. I think you were gonna ask me about difficulties moving to the States, not having access to that is definitely one of them. But the problem is that it's such a huge market now, that I think there are fewer and fewer restaurants.

• 3:10Speaker 00

  Hmm.

• 3:11Speaker 01

  In that a lot of these places actually just straight up close their storefronts are just ghost kitchens, basically.

• 3:16Speaker 00

  Ah.

• 3:17Speaker 01

  And all they do is just make Uber Eats orders all day.

• 3:19Speaker 00

  I see. So, I mean, famously, yeah, the, um, the restaurant economy in places like Taipei would have been really good, but it's gotten worse because people are eating in more with Uber Eats and stuff like that.

• 3:28Speaker 01

  I think so, I think so. As far as the like walking around and just like stuff on, no, there's still plenty of places, it's still great.

• 3:34Speaker 00

  Yeah.

• 3:34Speaker 01

  But there are like, uh, there's a number of restaurants I used to always take people to, like, holes in the wall that I knew were super good beef noodles or something. And I remember a couple of times like, oh, there, you can't actually go eat there anymore, but they're still on Uber Eats.

• 3:45Speaker 00

  That's a bummer. It's like a separate problem, the San Francisco problem at restaurants is that nobody drinks anymore. And so the restaurants can't, you know, uh, they've lost a major restaurant.

• 3:52Speaker 01

  It's so bad you, you had to get a, cover your own office.

• 3:56Speaker 00

  Exactly, we're trying just firsthand to, uh, uh, to, to fix it.

• 3:59Speaker 01

  Be the change you wanna see in the world.

• 4:00Speaker 00

  Should people visit places beyond Taipei or harsh?

• 4:03Speaker 01

  Oh, for sure. Yeah, I know, Taipei is great, it's great to walk around. Uh, Taipei 101, uh, which is obviously very much in the news these days with, with the, the scaling.

• 4:12Speaker 00

  But you can go up the elevator on the inside.

• 4:13Speaker 01

  You go up there because there is a massive ball at the top.

• 4:17Speaker 00

  The mass tamper, yeah.

• 4:18Speaker 01

  Yes, which is amazing. It's like, I, I do, if, if you're into like engineering, uh, that's actually a very underrated thing. National Palace Museum is amazing. But the whole, the east coast in particular is, is incredible. You, you, like, you drive, there is a train, but the driving, you can drive, like, you're driving on the coast, like.

• 4:33Speaker 00

  It's like the last coast of Hawaii, kind of.

• 4:35Speaker 01

  Exactly. Uh, the problem, there's an incredible gorge called Taroko Gorge.

• 4:39Speaker 00

  That's close.

• 4:40Speaker 01

  That was really, yeah, messed up by an earthquake a couple of years ago, so I don't know if it's even reopened yet.

• 4:44Speaker 00

  Yeah.

• 4:45Speaker 01

  But I used to take people to that all the time, cause it's, it's world-class.

• 4:48Speaker 00

  Yeah, yeah. It is impressive that they said we're going to build the tallest skyscraper in the world in like a very frequent earthquake region.

• 4:55Speaker 01

  Yeah, it's a big skyscraper. You've worked all well for the Netflix.

• 4:58Speaker 00

  Yes. So you've talked a lot over the years about aggregation theory and really popularized this idea where pre-internet often power would live with the supply, whereas on the internet, because of the different marginal cost dynamics and things like that, power will rest with the demand aggregators. And so Booking.com is a much bigger company than any hotel chain, something like that.

• 5:25Speaker 01

  And Booking.com is the particularly interesting one because they aggregate all hotels, but they are also aggregated by Google. So they're like Google's biggest customer, even as they're also on the other side.

• 5:36Speaker 00

  I feel like Booking.com is a very underappreciated success story in tech. They're a European company, kind of much quieter in a lot of ways, but if you invested a dollar in Booking.com and a dollar in Google 20 years ago, you made much more money as a Booking.com shareholder. And I think people don't appreciate that fact. It was a very well-rounded business. Where I was going with this is how does aggregation theory apply to AI? How does one need to update the framework?

• 6:03Speaker 01

  TBD to a certain extent. I mean, this is part of the huge, probably one of the most angsty debates that I have internally, generally, which is OpenAI is sort of welfare going forward. I put forward a few years ago that actually OpenAI could stop making models and be one of the most valuable companies in the world just because of ChatGPT. That's their most valuable asset. And part of the problem issue that they have is that was definitely the case in 2023, 2024, but you have to actually build the business model around that. And I've, you know, I think fairly famously, at least based on all the tweets that I got

• 6:47Speaker 01

  when they announced that they're going to launch ads, I've been losing my mind about this fact for a long time. And I think this is interesting. I'd actually be curious your view of this. Which is, there's this mindset in the valley of this skepticism of advertising. And people have sort of like internalized that it's it's bad and evil. Do you do you do you sense that? Do you feel that?

• 7:10Speaker 00

  I agree, there's kind of a knee jerk skepticism of ads. And like, look, you know, when I, I mean, YouTube premium subscriber, when I see someone, uh, you know, uh, watch a video without premium.

• 7:19Speaker 01

  That's horrifying.

• 7:20Speaker 00

  I gasped. Yeah, yeah. It's like, what are you, what are you doing with your life? And so, like, I get the knee jerk reaction. And Stripe at some level is kind of the, the anti-advertising company. And like, we're the opposite, uh, uh, form of monetization. But, uh, I don't know, I have no particular, um, the issue. I think it's like a very efficient form of monetization. It makes a lot of sense for a certain product. Um, and so I think it's just different strokes for, horses for horses.

• 7:45Speaker 01

  You're, you're, I think you're with Stripe. You're, you're on the, you're on the skepticism side. I think ads are amazing. And, uh, and, you know, I'm talking in my book a little bit. Stratechery has gotten tremendous traction just by not hating ads. Even though I'm not an ad model myself.

• 7:59Speaker 00

  Exactly, but you're a paid model.

• 8:00Speaker 01

  Uh, well, it's actually, it's funny. I actually think I got a lot of traction over the years by talking about ads when no one else was. Despite the fact it's the most important business model in tech. And I look back and all my early writing about ads was terrible. I have no idea what I, but I'm just by virtue of talking about it, it was, it was helpful. Uh, the, the reality of advertising is, number one, people, if you're making a product in the world, like, Stratechery is very fortunate. Like, it is definitely a new model or a new internet native model in that I have subscribers in like 200 countries, right? Like, I'm literally, the whole world is my market. Uh, and Stripe obviously helps make, helps make that possible.

• 8:41Speaker 00

  A few in the Vatican, you know, they're following along with.

• 8:43Speaker 01

  I could go check. I mean, I, I, I would put the odds are very high that I do have at least one subscriber in the Vatican.

• 8:51Speaker 01

  And, but where I benefited from is I was a massive beneficiary of social media, particularly Twitter. And that back in their early days, good days of Twitter, or if you want to say whatever it was, uh, there was currency in sharing smart links. And so if I was a regular provider of links that people felt made them smart, so they would share them and talk about them and be sort of back and forth. And so that solved my customer acquisition. Issue.

• 9:17Speaker 00

  Yeah.

• 9:17Speaker 01

  Uh, the reality, though, is most, because the other thing about about content, actually, is a point I'm interested to come back to. Is it's something to talk about. It's something that's commonality sort of, sort of between us that we can both read the same thing. We can both have opinions on it or react to it. The sort of product that I buy on Instagram is not what I'm, I'm not gonna like post about it or talk about it, but it can be tremendously beneficial. And they, in theory, have this, those, these small businesses or whatever they might be, um, or Chinese suppliers or whatever. They have the same opportunity, which is sell to everyone in the world. They just need a way to tell people about it. Yeah, someone who buys way too many products off of Instagram. And by the way, one of the great things about being back to the US.

• 10:02Speaker 01

  Is the Instagram ads are unbelievable.

• 10:04Speaker 00

  Oh, that's pretty much better.

• 10:06Speaker 01

  They're so much better in the US. So like, oh, this is the best part of living in the richest country in the world.

• 10:10Speaker 00

  Advertising.

• 10:11Speaker 01

  It's amazing. Like, I'm like, what's this native content? Give me more ads. Um, which, by the way, Facebook is very happy to do over the last six months.

• 10:18Speaker 00

  Totally.

• 10:18Speaker 01

  Um, lots of ads these days, but, uh, I get stuff that I never would have thought of. I didn't even know about, and it's great. It's amazing. And it's a real benefit to me as a consumer who subscribes, who for sure subscribes to YouTube Premium and looks down on people who don't. But finding things that I didn't know about that make my life better. So as a user, I'm benefiting, as a rich user, I'm benefiting. As the world is six billion people, most of whom do not have disposable income that I have, much less you have, much less anyone else in San Francisco has. They get the same experience I do.

• 10:53Speaker 00

  Mm-hmm.

• 10:53Speaker 01

  And something for AI, like, when you think about, particularly when it's so costly to provide. And the free product is so much worse than the paid product. Of course, it's a win for them to be able to get access. Like, so to have a mission of believe that AI makes the world better.

• 11:11Speaker 00

  Yes.

• 11:12Speaker 01

  And to not embrace ads.

• 11:14Speaker 00

  No, no, I, I agree with ads being an efficient form of monetization. What do you think is the right way for consumer AI apps to do ads? Like, uh, you know, ChatGPT just announced that they're doing ads.

• 11:23Speaker 01

  Right.

• 11:23Speaker 00

  And they're, uh, doing them.

• 11:24Speaker 01

  They're terrible.

• 11:25Speaker 00

  Well, no, they're doing them as a very separate experience to the answer.

• 11:29Speaker 01

  No, I just agree. No, this is why it's so bad. This is why I'm so frustrated with them. So what they're doing is the bare minimum easiest solution.

• 11:37Speaker 00

  Like banner ads, basically.

• 11:38Speaker 01

  It's banner ads, but it's based on the context of the conversation. And the problem is that like they release like their ad principles, right? Which is our ads do not influence your answer. If you're using the easiest possible way to target ads, which is based on the context of the conversation, we're going to show you a roughly relevant ad. Number one, your market's way smaller because you have to hope someone starts a conversation that matches the inventory you have. Number two, you're getting into a my T-shirt answers questions that my T-shirt is raising sort of situation where if the ad is clearly connected to the answer, you're going to raise suspicion in the user's minds about about what sort of the connection is. So I would prefer if the ads had nothing to do with the answer.

• 12:20Speaker 01

  The way you get there is you build a meta-style understanding of the user and show them stuff that's relevant to them, like in Instagram. The best Instagram ads don't have anything to do with the stuff I'm surfing. It's from Meta's understanding of me broadly.

• 12:34Speaker 00

  So are you saying that like the AI ads should be more like Facebook ads than Google ads? And you know, right now the focus is on doing targeted ads that are related to the prompt, whereas instead it should all be profiling the user and who this person is and what their interests are?

• 12:48Speaker 01

  Yes, I think that would be better. It would it would present less conflict of interest, less uncertainty amongst the user. And it's it's a model that I think I'm I'm not the world's biggest fan of search ads, precisely for the reason why they work so well. I think there's a lot of

• 13:03Speaker 00

  Because the confusion between organic

• 13:05Speaker 01

  No, they're cannibalization.

• 13:06Speaker 00

  Yeah.

• 13:06Speaker 01

  Like, why is it that I have to buy my own name in search ads, right? Because someone else will like go go in there and you're getting a harvesting a click on the ad that would have been there sort of organically, which is fine. It works. The search is providing a lot of value. But the the the challenge obviously is they only have one space for inventory, which is in ChatGPT.

• 13:26Speaker 00

  Well, sorry, it's not offensive, Google Ads, that everyone complains about the branded search and yeah, you're paying for cannibalization, but Google pays so much attention to search quality that the sponsored listings themselves have a ranking of the, like a relevance ranking of them. And so it's really just like the Yellow Pages where, you know, you need to pay to be listed in the Yellow Pages.

• 13:50Speaker 01

  Oh, it's fine. I don't, I'm not, I don't, again, I'm the ad lover here. I just think that meta ads are more broadly valuable because they're showing me stuff I didn't know that I wanted.

• 14:00Speaker 00

  But if the AI apps are to generate a profile of you, does that profile include the content of all your conversations?

• 14:08Speaker 01

  And isn't that the same thing? So this is the thing. So Demis is out there saying, well, I can't believe they're adding ads and we're not going to do that. Which is hilarious because the entire Gemini deep mine apparatus, what is it funded by?

• 14:21Speaker 00

  Sure, yeah, it's the Google ad machine.

• 14:23Speaker 01

  It's funded by ads and that actually is probably the ideal model. So it's actually very funny. I was actually in New York City last year. That was me, actually was meeting with someone in the office in the shared office or across the hallway. It was like, it was a hedge fund or someone. And they came over and he's like, oh, long time reader, you're responsible for our worst decision ever. And I'm like, what? He's like, putting money in Twitter. I'm like, I've never said to put money in Twitter. Like, that's always been a terrible company. I would stop covering them because it was such a bad business. And I'm like, oh no, I remember what it was. It was when they bought Mopub. And my theory, my problem with Twitter advertising has always been that it, especially it was very textual. I think text doesn't work. There's a problem for the, all this applies to the chat clients.

• 15:09Speaker 01

  Text isn't the best interface for ads. Obviously visuals are generally better. And there's also a posture. If I'm on Twitter, I'm like, I'm ready to do battle. I'm locked in. I'm searching for information. If I'm on Instagram, the whole point of like seeing an ad is I don't really care what I'm seeing right now. I'm wasting time. You're actually in a much better posture, I think, to absorb, just like TV. Like you're sort of absorbing, can absorb the ad. And Twitter is like bad for that, but Twitter, because it's an interest-based network, at least in theory, it should be able to understand a lot about you above and beyond theoretically pixels and SDK sort of all over the web. And so my theory at the Mopub acquisition, I thought it was a great acquisition.

• 15:49Speaker 01

  Cause like, oh, they can harness signal from Twitter and manifest it in other apps through this sort of Mopub, Mopub network. Now Twitter was incompetent, so they did nothing with Mopub, gave it to Apple and who's now written Mopub to like the top of the world. But that was sort of my thesis. And I think that could apply to AI as well. I think the ideal outcome for Google is they never put ads in Gemini, but they understand so much about you because of what you do in Gemini, that they can then manifest that through ads on YouTube, through ads on Google, through ads on their other properties. And the challenge for OpenAI is they only have one place for inventory, which is, which is in chat GPT.

• 16:29Speaker 00

  Okay. So you're saying that Google could use Gemini to just improve the targeting of the ads across the Google properties. And then maybe if you want to have ads in Gemini.

• 16:40Speaker 01

  I don't think you'd ever put ads in Gemini.

• 16:41Speaker 00

  But just if you did, you would also have the profile that Google has.

• 16:45Speaker 01

  For sure.

• 16:45Speaker 00

  Of you from across the web and you could do that.

• 16:47Speaker 01

  And you don't need to have ads that are like making the user feel weird because why are you showing the ads about what I'm asking about?

• 16:53Speaker 00

  Okay, but in the scenario you're just describing for Google, wouldn't that have the same, just like the, you know, Metas, listen to your microphone conspiracy theories? However, the targeting is too good, people get concerned, like, wouldn't you get similar?

• 17:05Speaker 01

  I think that's a made up concern.

• 17:06Speaker 00

  No, it is, but sure, but like people, people have it and wouldn't you have a similar issue where if you're using the Gemini data to make better ads, won't ultimately the targeting be too good and people find it weird?

• 17:21Speaker 01

  I mean, I think that that's a bridge that every tech company would be happy to cross if they came to it.

• 17:25Speaker 00

  I see. It's a thing that people say when you have very good targeting.

• 17:27Speaker 01

  I think there's a lot of, like, I honestly, I think a lot of the, there's a real stated versus revealed preference about a lot of this stuff. The reality is, is people like even the US, they go, you could pay for Facebook or you could show, people would rather see the ads.

• 17:41Speaker 00

  Yeah.

• 17:41Speaker 01

  I think most people don't care. In this, a lot of tech, and this sort of ties into the skepticism of ads.

• 17:47Speaker 00

  Yeah.

• 17:48Speaker 01

  It's sort of an elite town, there's, there's elite regulators, everyone's thinking about these very theoretical things.

• 17:53Speaker 00

  Isn't a bit of the challenge banner blindness where? Instagram advertising works so well because it's a picture feed and it's showing you pictures.

• 18:03Speaker 01

  So the amazing thing-

• 18:03Speaker 00

  And then some of the pictures are like commercials.

• 18:05Speaker 01

  So this is where Facebook-

• 18:06Speaker 00

  Whereas with an AI app, you're like looking for an answer and you don't want to look at the banner.

• 18:09Speaker 01

  No, it's a huge concern. And this is one of the great ironies of Meta slash Facebook is the extent to which, I mean, of course, Mark and everyone hates Apple for lots of, I think, very justifiable reasons. But Apple saved Facebook from itself. Like back in the day, remember Facebook platform, there's like Facebook payments and all this sort of thing. And Mark has always wanted to build a platform. And if you're just an app on a phone, you can't build a platform. And the problem is that I think being an advertising-based model is generally incompatible with being a platform.

• 18:48Speaker 01

  The whole point of a platform is you're letting something else shine, something else bring to the surface. You're just on, you're, you're the support structure for something to take over. So you had operating system is not about the, ideally, it's the application on top of it that's, that's you're using. When Facebook was forced to not be a platform, but just be an app, suddenly, they could be fully lean into being an advertising thing. And think about a Facebook app, even back in the day, it was a feed ad or a story ad. Literally, your entire device is all an ad. And somehow, it's not a banner, that's a little thing on the edge.

• 19:22Speaker 00

  Yes.

• 19:22Speaker 01

  They literally have achieved permission from users-

• 19:26Speaker 00

  Yes.

• 19:26Speaker 01

  -to take over your entire device-

• 19:28Speaker 00

  Yes.

• 19:28Speaker 01

  -to show you a full screen ad every five seconds. It's amazing. And they, they were forced into it by Apple.

• 19:35Speaker 00

  Do you, okay, this reminds me of, and I want to come back to AI dynamics, but this reminds me of a view I've had this, I'm curious for your thoughts on, which is often when tech companies become really big, they become really big just because the core idea works better than-

• 19:55Speaker 00

  Even the founders could have realized. And so Meta is a really big company because they have a feed and the feed got really big and they like were very smart along the way where they bought Instagram and they're like incredibly targeted.

• 20:07Speaker 01

  No, it's the feed.

• 20:08Speaker 00

  Good at monetization. But it turns out people spent a lot of time and many people, you know, the P times Q of that with the feed and they monetized it very well. And that's what got really big. And same with Nvidia. It just turns out that the GPU market got really big and they sell a lot of GPUs. And so maybe founders, because they're often like high powered individuals who want to have lots of new ideas, they're often thinking about the next thing or like what the second act or the third act is and everyone wants to invent an AWS. But I'm curious what you would say to the idea that just generally it's making the core thing really big and there's more orders of magnitude at the top than you thought.

• 20:43Speaker 01

  Yes, I think that's always the case. And I think that sometimes people end up making something that they didn't want to make and they continually push back. I think Meta is the perfect example. I, my impression is Mark's not very interested in ads. He's had very good people along the way that have helped him build these ad products. I think Meta has suffered from that because he has not been front and center fighting for, actually ads are good. They are societal good. They get, they are the driver of all the consumer surplus that tech throws off. Like the president uses the same search engine as the guy on the street or the same AI or whatever it might be. That's because of ads. And the

• 21:28Speaker 00

  Probably not. The president probably used like a Palantir search engine or something.

• 21:31Speaker 01

  Yeah, it's probably worse. Google, I slipped a lot to prepare. There's so much junk online, but the, I don't know, does Donald Trump ever search? I don't know. That's a good question. But, but he's not made that case. And I think Meta has suffered because of the failure to make that case. And then you get things like we're gonna do the metaverse, we're gonna do XYZ. It's always coming back. We'd be a platform, be a platform. And Meta is an entertainment company. I wrote this like years ago about the, like, I think this is actually, it was simultaneously a good call and a bad call. Do you remember that Paul Krugman quote, the internet's not gonna be very big or the fax machine because people don't much of a dream to say? I actually defend that quote.

• 22:16Speaker 01

  And because it's actually true. Most people actually don't have that much interesting to say. And I brought up that quote around 2015 by saying this is a fundamental limiter on Meta's long-term potential. As long as they think of themselves as a social media company, they're going to run into a problem with their feeds becoming insufficiently interesting over time. Now.

• 22:40Speaker 00

  Uh, the move from kind of peer content to.

• 22:44Speaker 01

  Well, so that was, that was a, if I might say so myself, a very brilliant insight. The bad insight was my prescription, which was they needed to do more with professional content makers, like more funding of like the BuzzFeeds of the world and share revenue, all that.

• 22:57Speaker 00

  Exactly, it was user-generated content.

• 22:59Speaker 01

  The actual answer is what TikTok did, which is TikTok's not a social network at all.

• 23:04Speaker 00

  Yeah.

• 23:04Speaker 01

  It is a harvesting and YouTube, you know, the same sort of idea.

• 23:08Speaker 00

  It's like personalized TV, yeah.

• 23:09Speaker 01

  What actually matters, and this is a key thing. People get hung up on relative numbers, what matters is absolute numbers. So it is better to have point one percent of your content is good. If your content is like in the billions or trillions, as opposed to, oh, 10% of our content is good, but you only have 100 pieces of content, that's actually worse, even if it's a better hit rate. And so spurring lots of creation, writing the algorithms to, to capture the good stuff, put it up there. That actually solves the Polk Room and Fax Machine problem. And Facebook was blindsided by that. They were so stuck on their identity of being a social network that they let TikTok take this huge chunk. It was their blind spot.

• 23:53Speaker 00

  Speaking of TikTok, I feel like you don't write about ByteDance that much. And I'm curious just what your thoughts are on ByteDance from here and the TikTok sale and everything.

• 24:01Speaker 01

  I mean, what a, what a, what a mess. Uh, I had to make a decision a long time ago. I, I wrote about Chinese companies more previously, and I think there's, uh. It's too, number one, I have to decide what I'm gonna be able to cover or what I'm not. I'm not in China. I was in Taiwan. It is a different internet. And there was too much sort of uncertainty and unknowns, just in general, about a lot of Chinese companies. I would write about them occasionally in the context of US tech companies. So I think I wrote about WeChat and what it meant for the iPhone's relative competitive position in China, how it's different than sort of other countries. I think that sort of held up pretty well. Wrote about TikTok in the context, I mean, more about TikTok, I think, in the context, particularly this kind of meta.

• 24:44Speaker 01

  TikTok came up around the same time as the, was Quibi, which Quibi was the example of that. Quibi was like, it was actually right that there was room for a mobile entertainment product.

• 24:55Speaker 00

  Yeah.

• 24:55Speaker 01

  It was totally wrong about the content acquisition strategy. So even if the hit rate was higher, their total volume was way too small. I follow them, but not super closely. It's just a hard market to understand and the...

• 25:08Speaker 00

  But like TikTok's very relevant to the US market.

• 25:10Speaker 01

  So TikTok, TikTok, I, so I wrote The TikTok War, basically making the case that the problem with TikTok, and back then everyone was talking about user data. Who cares? Like, the whole user data thing, people have this view of like the East German Stasi and like folders, like going through people's datas, like, these are like vector databases with like numbers that no human can parse. Like, they're, it's really quite anodyne, it's just related target ads. And I was very skeptical about that being a forcing function in terms of forcing divestiture or whatever it might be. The issue I had was the algorithm.

• 25:51Speaker 01

  And I noticed, I think it was when the Hong Kong protests happened, and Daryl Morey, the then GM of the Houston Rockets tweeted like "Free Hong Kong" or something like that. And there's a huge meltdown, the NBA games are canceled. And I noticed that on TikTok, and this was from, I tested it from Taiwan and via VPN from the US, if you search for every single NBA team, you got NBA clips. Except for Rockets, you got nothing.

• 26:18Speaker 00

  Oh, that's funny.

• 26:19Speaker 01

  And I'm like...

• 26:20Speaker 00

  They got demonetized.

• 26:21Speaker 01

  There is, there is a thumb on the scale here. And I started talking about it then. And my, I did support the ban of TikTok or the forced sort of divestiture from China. Because it seems fairly insane to have a primarily information source controlled by your chief geopolitical adversary. Yeah, same like there's rules over TV station ownership and it's like not wildly different. And so I, I, you know, everything's a trade off. Of course, I'm pretty well known for being a pretty stark defender of free speech and against censorship. And my issue wasn't TikTok per se, it was the reality of China is the founder of TikTok of ByteDance is long gone.

• 27:03Speaker 01

  Because he got called to the carpet for ByteDance showing a little too much of what people liked, which is mostly like hot girls dancing. And being insufficiently like showing the right things that the party wanted. It's in China is like, the reality is China has, the price of doing business is they get, you know, they're on, somewhere on the the control structure, they can tell you what to do. And this just seemed like a very foolish thing to tolerate. Unfortunately, um, the US political process, or fortunately, maybe the reality is, is the US process and system is such a mess. Can anyone really truly impact it over time?

• 27:42Speaker 01

  Uh, the way that shows up messily is we somehow do pass the law banning TikTok and it didn't get banned. And now it is sold, but China still controls the algorithm. So I think it's a big disaster. It's also like, what, what can I say about it? I said my piece. Yeah. Um, we ended up in the worst possible case, which is we violated property rights and we did all this stuff that's ridiculous and we probably bartered XYZ for ABC. And we didn't get the most important thing, which is control the algorithm. Has that not happened as part of the sale? No, ByteDance still controls the algorithm. I didn't know that. Yeah. Hmm. Good job by us. That does seem like it was the point of the spin out. Well, the data was always the, was always the most salient political point. Yeah. And so when I wrote about it, that was my point. It's like, I don't care about the data.

• 28:27Speaker 01

  The issue is the algorithm. Yes, yes. And unfortunately, that did not care. Maybe I should have wrote about it more, but anything like all the politics stuff, there was a period. I mean, thank God for AI. There was a period, I wrote like, when I wrote Asian theory a couple of weeks later, wrote like something about. Regulation. I'm like, this is going to drive a bunch of regulatory issues and antitrust things and all these bits and pieces. When that actually happened, the late end of the last decade, of course, I was writing about it. I was watching congressional hearings, all sort of thing. And that is the closest I came to quitting and burning out. I think burnout is not a function of how much work you're doing. It's doing work you don't enjoy. And at one point, I'm like, oh, either I quit or I stop covering congressional hearings.

• 29:09Speaker 01

  So I decided to stop covering congressional hearings. I only wrote about antitrust stuff. It was super prominent. And I've been much happier ever since. And maybe that's part of the price of just not writing about that is maybe I should have pushed on the TikTok thing more.

• 29:24Speaker 00

  That's interesting.

• 29:24Speaker 01

  I said my piece.

• 29:25Speaker 00

  Yeah. Is stratechery very widely read in DC?

• 29:29Speaker 01

  It is. Uh, yeah, it is. Uh, sometimes it's gratifying. Uh, it's great when you get called and asked for your opinion. Or you know, you get certain responses or you see impact. It's less gratifying when you get yelled at and people are mad at you, but

• 29:47Speaker 01

  fortunately, the key thing to succeeding on the internet is something I have in spades, which is a very high level of disagreeableness. So you can yell at me all you want. I'm not going to change my mind.

• 29:57Speaker 00

  Okay, but getting back to aggregation theory as it pertains to AI, like a simplistic view you could have is that the AI apps are the new aggregators. And so a huge amount of economic value will accrue to them and that's it. You can also say that that's too simplistic in a bunch of ways because one of like we're saying the, you know, booking.com, you expected to return you hotels that you should book, but you expect a little less of a commercial incentive from the AI apps. And this is like a little more of an abstract technology where it's actually not trivial to insert all of the, you know, commercial incentives in the right way. And anyway, you could you come up with various objections. And so

• 30:38Speaker 01

  Well, I think the ad model is probably the way to start, which is I just talked about before, sort of the lean in versus lean back. Ads are very tied into human psychology and like what you're sort of tapping into and people's response to that and how do you make something creative? And in the short term, you know, technology often makes old business models even more powerful. Before it kills them.

• 31:01Speaker 00

  Mm hmm.

• 31:01Speaker 01

  Right? So you have something like, uh, you know, suddenly you're a newspaper. I used to be limited to my geographic area.

• 31:09Speaker 00

  Right.

• 31:09Speaker 01

  Now I can reach the whole world.

• 31:10Speaker 00

  Yes.

• 31:11Speaker 01

  Oh, wait, a few years later, everyone can reach the whole world.

• 31:14Speaker 00

  Yes.

• 31:14Speaker 01

  I mean, pure competition, I'm screwed. And that is certainly a concern about this model. If you get to a world of, say, agentic commerce and the agents are just buying the right thing.

• 31:26Speaker 00

  Mm hmm.

• 31:26Speaker 01

  Like, and this is, I think this is also something that has driven a lot of tech skepticism of ads. People in tech tend to be fairly nerdy, fairly obsessed. Uh, they're doing a ton of research to find sort of the exact right thing.

• 31:39Speaker 00

  Yes. Why would anyone tell me what to buy when I've, you know, researched it for two hours?

• 31:43Speaker 01

  That's right.

• 31:44Speaker 00

  Yeah.

• 31:44Speaker 01

  But it's like, ads have no effect on me. Well, what if that sort of obsessive deep dive approach is now trivially available to everyone because AI is the one actually doing it? Now, where, where do ads sort of function? And I think this is definitely a bit of a be careful what you wish for scenario.

• 32:05Speaker 00

  Mm hmm.

• 32:06Speaker 01

  Because what this entails is, of course, more transparency, more details, more understanding, sounds good. What it actually entails is sort of perfect competition, which is a very sort of brutal game that can just wipe out entire categories. That's, you know, that's basically what happened in newspapers, uh, in many respects. So that's, that's number one. Number two, in a world of this sort of world, you're sort of by definition anchoring on whatever specifications or whatever can be measured, can be put down. And you had the old sort of Steve Jobs adage about feeds and speeds versus like the feel of something,

• 32:48Speaker 01

  where the intersection of liberal arts and tech, what the, what the does that mean? And just like, well, uh, what it actually means is there's things that can't be measured and that don't go on an Excel spreadsheet. And everyone you talk to. acknowledges this, say, yes, there's things that can't be measured. And the way it actually plays out in practice is only the things that measured sort of matter. I think this has happened to a, this, I think a huge problem with sports analytics is a great example of this. Where there, I think basketball is my favorite sport. There's a lot that goes into basketball and winning. That is somewhat hard to wrap your hands.

• 33:22Speaker 00

  It's not like baseball, is it very measurable?

• 33:24Speaker 01

  Baseball is very measurable. I do think there's aspects about clutchness and stuff that I'm, that I don't know that are properly measured. But around basketball, for sure, there's the interaction and way teams play together and how your effort on, or your involvement on offense can affect defense or sort of back and forth. And you see again and again, like to take my, you know, I like Daryl Morey. Um, I think there's a reason his teams haven't won. They've over optimized at the expense of some of these, these other issues. And

• 33:57Speaker 01

  if you can't measure them, they tend to get devalued. And in a world of AI mediated everything, how many things that can't get measured? Fall by the wayside because then we end up with, it's very utilitarian sort of goods that have no soul to them. Um, sort of a silly sort of thing to worry about in some respects. It's like, or it sounds silly, but I'm a human. And I anticipate liking and preferring the humanity of things of all sorts in the long run.

• 34:32Speaker 00

  But you could say this, um,

• 34:37Speaker 00

  like

• 34:39Speaker 00

  e-commerce aggregators like Amazon and lots of others have led to, you know, fairly anonymous manufacturers of lots of everyday goods. Uh, the kind of Amazon basics type stuff.

• 34:52Speaker 01

  Yep.

• 34:52Speaker 00

  And a much lower price point than they, you know, were at previously. That's still perfectly good quality. Isn't that, isn't that fine?

• 35:02Speaker 01

  No, this is where you throw my ad argument in my face.

• 35:03Speaker 00

  Yeah.

• 35:04Speaker 01

  Which is like, actually it brings up the base level for everyone. Like your basic consumer, the access of items they have to.

• 35:12Speaker 00

  There's no soul in an Amazon Basics power adapter and that's fine.

• 35:15Speaker 01

  Everyone thinks back to like, oh, my washing machine was so much better than 1960s. And it's like, yes, that's true. And also far fewer people had washing machines. And so I'm now like making the opposite argument.

• 35:25Speaker 00

  I will leave and you can have a one person.

• 35:28Speaker 01

  Switch back and forth.

• 35:29Speaker 00

  Yeah, exactly. You can change sides of the booth. And you mentioned agentic commerce. Where, you know, we obviously are big into that and had our announcement with OpenAI.

• 35:39Speaker 00

  Uh, back in October. Where do you think that goes? Like, how do you see agentic commerce playing out?

• 35:43Speaker 01

  I mean, the contrast between, uh, your OpenAI's announcement and sort of Google's announcement, I think is is pretty interesting and speaks to what the companies are driving for. OpenAI wants to be the place you do everything. They want to be like the radiator. I think a critic would say people compare them to Netscape. I think the better analogy, if you're an OpenAI skeptic, would be AOL. Uh, where they want to be sort of like the interface for everything that you might do. And it goes through their channels. And Google, just as they were relative AOL, is like, actually, we want to, we want to make, equip everyone. Knowing that if everyone is capable, we are the greatest beneficiaries because we still marshal sort of the

• 36:27Speaker 01

  the sort of front end demand sort of in that regard. Now, how does that actually manifest in terms of commerce? The funny thing about tech is I don't think it will manifest in terms of airplane tickets, which is everyone's example. Like, everyone could never think of a better example than that. But what, what is the AI going to buy? What is it going to get? I don't know. I think, I would like to think people will want to have agency in their buying decisions. But then again, I, you know, we have like assistants, whether it be like, you know, for work or whatever it might be. And they make buying decisions that we're necessarily not involved in. And that I think is a good predictor precursor of what people will ideally like, do I really need to know?

• 37:09Speaker 01

  Actually, I have very strong paper towel ideas. That was gonna be my, that was gonna be my, but once I, once that's set, can that be sort of moderated and done? So I don't know. I think this is a very unsatisfying answer, other than to say it has big implications on things like advertising and on things like, like, is that gonna be a viable business model going forward? What margins are going to be available? Is there going to be perfect competition? Things along those lines.

• 37:34Speaker 00

  Okay, let me try.

• 37:37Speaker 00

  This on you for agent of commerce and I'm curious to have you critique it, which is sort of how I see things playing out. I think some skepticism is triggered by people pitching a very far end state with a lot of agentic autonomy. And so it's like, please book me a honeymoon in Japan and all the activities. It was like, no one actually does things that way. Whereas actually, you should go from the bottoms up in some very basic building blocks, where step one is just replacing filling out web forms. That's an activity that sucks, no one likes it. And so imagine you find the winter jacket you like and you copy the URL into chat GPT and just say, please buy this for me.

• 38:19Speaker 00

  And that's a much better experience than going clicking around a site you've never been to before. And so there's just the agents doing kind of tool use on your behalf. And everyone can agree that maybe it clarifies there's multiple colors, which one do you like? But it's just replacing filling out form fields.

• 38:33Speaker 01

  This is, by the way, one thing that I am very, a lot of people are skeptical of this, but I am very optimistic about, which is, I call it just in time UI.

• 38:43Speaker 00

  Exactly.

• 38:43Speaker 01

  The, the like.

• 38:44Speaker 00

  It's a better UI.

• 38:45Speaker 01

  That's right.

• 38:45Speaker 00

  Okay, so that's like, level one is a better UI for, for kind of doing it in action, you want to know. Okay, then level two is better discovery and search. It is crazy that we've gotten this far in e-commerce with keyword based search. Like keyword based search works really well when you're buying a book that you know the name of. It's like, I want to go buy this particular type. And for a winter jacket, it's like, I don't know, I want, it's like a puffer, like what's it called? And so instead you want to be able to say, I'm looking for a jacket, this kind of, I'm going to this place, it's going to be this cold. You know, I like these kinds of things, whatever. And so step two is just better search and the ability to search with parameters

• 39:27Speaker 00

  that like no existing search UI lets you specify the temperature of the place you're going to actually get, you know, a jacket of appropriate warmth. That's obviously with a jacket, one of the core things. And so better search UI is kind of level two from our point of view.

• 39:40Speaker 01

  Right, which I think is already sort of manifesting.

• 39:42Speaker 00

  Exactly, you're already saying, and like in the early usage of that kind of chat GPT buying experience. That's one of those like super cool features. And then level three, which we haven't really seen play out yet, is this idea again of a persistent profile of the user.

• 39:57Speaker 01

  That anticipates their needs.

• 39:58Speaker 00

  Exactly. It's like, I want to be able to just pin things I like as I go along. Or maybe, you know, if I can share my browser history, or maybe if I can just like, you know, share a Pinterest board of just like, these are some styles I like. Give me a good winter jacket for the cold, based on that. Here are some photos of me, you know, based on this. And so starting to get.

• 40:16Speaker 01

  Even better, I have an even better idea. Imagine if you were using ChatGPT and it's circa October 1st. And there is an ad for a great winter jacket. That is perfectly suited to me because they've been understanding my interests. They understand the context of where I am. I'm not searching for winter jackets because I don't plan well. It's gonna get cold and then I'm searching for a jacket. But what if it could anticipate that and show me an ad at the right time when I need to see it?

• 40:42Speaker 00

  Okay, maybe that's level four is like the.

• 40:44Speaker 01

  That's what I've been wanting them to build. This is my whole bit before. Like, this is like, this is why they're so late.

• 40:50Speaker 00

  Yes, yes.

• 40:50Speaker 01

  They should be shipping that this year. You're only shipping that this year if you started your ad product two or three years ago. This is doable today. This is what meta ads are. You need to be on more, you need to watch more reels. Like, just the, I've bought more ski equipment this year that I don't need. Just because it just shows up, I'm like, I'm moving back to Wisconsin, so I'm buying stuff for the house.

• 41:11Speaker 00

  Yes, yes.

• 41:11Speaker 01

  And I get, oh, those ski hangers, I bet those would be great. That sounds very useful. They're still in a box. I would actually put them off, but.

• 41:17Speaker 00

  Yeah, so there's a limit to kind of with just kind of banner ad type experiences to what you can do, whereas I think the search thing is very powerful. But yeah, I'm curious what you think of kind of step one, just the very act of checking out. And then, or level one, the very act of checking out, level two, better search, and then level three, defining your own embedding space of preferences.

• 41:41Speaker 01

  No, I completely agree with that approach. I just think you underrate the extent to which level three has already been built. Actually, one thing that Mark Zuckerberg said on a couple of earnings calls ago that I thought was very astute is we get hung up on technological definitions for like, what is an agent? And he's like, actually, the largest and most successful agent in the world today is Facebook advertising. Which is exactly right. Facebook advertising, people have it in their head. That you go and you put in like demographics and your targeting and stuff.

• 42:10Speaker 00

  No, it's a very autopilot.

• 42:11Speaker 01

  Yeah, what you do is you go in and you say, uh, this acquiring a customer for this is worth $10 to me. I'll spend up to $10 and they will deliver you a customer for $10.

• 42:23Speaker 00

  Yes.

• 42:23Speaker 01

  They'll, their margin will actually increase because they'll make sure they deliver it at exactly $10. They could do it for more. And they actually make more money. You get exactly what you asked for. It's, I think the extent to how powerful this already works. They're stuck on the 50% of my ads work, so I don't, I don't know which ones.

• 42:39Speaker 00

  Yes, yes.

• 42:39Speaker 01

  No, on Facebook, they all work.

• 42:41Speaker 00

  Yes. I feel like a bunch of new, very big, successful companies will be created in AI-powered e-commerce. It just feels like a different enough product space.

• 42:52Speaker 01

  But what, what, you're talking about retailers, merchants, or just, or agents?

• 42:56Speaker 00

  I was talking about discovery and kind of the demand side, but also probably retailers.

• 43:01Speaker 01

  Yeah. Well, I certainly think, I, I think that the, the part that I think would be new, which is a bit, which you're maybe talking about, is this real anticipatory aspect, which is, right now, what is amazing about, to go back to meta ads, is it helps merchants who have a very specialized product, find customers that they never would have found otherwise. But there's the inverse of, I need a very specialized product. How do I find what it is? Which I think you were referring to before. But to what extent can that not just be an in the moment, I need this specific? I remember I needed a, a server, a piece for my, a rack to mount like this router. Cause I had like an extra, I didn't want to buy a whole new thing or whatever. I had this extra router.

• 43:44Speaker 01

  And of course, there's some guy in Australia that does 3D prints that perfectly matches this on Etsy or something. And it was great. I found this random guy. I'm sure he made a bunch of money selling me a $40 piece. That cost him $2 to make. Good for him.

• 43:56Speaker 00

  Yeah.

• 43:56Speaker 01

  Uh, but what if an AI should be capable of anticipating that need? So it's not, I, oh, I have a need, let me go find it.

• 44:05Speaker 00

  Yes.

• 44:05Speaker 01

  It's like, I know you're going to need this.

• 44:08Speaker 00

  Yes.

• 44:09Speaker 01

  And let me acquire it. And that would be very powerful.

• 44:15Speaker 00

  In his excellent newsletter, Stratechery, Ben often argues that whoever controls the customer relationship shapes the entire ecosystem. And in mobile apps, there's always been this interesting tension here with in-app purchases, where historically, app developers had an intermediated relationship with their customers through App Store policies. Over the past year, that layer has started to open up. Mobile developers can choose what they use for in-app payments. Developers now have more freedom, but with that freedom comes new challenges. App Store payments were previously handling a whole bunch of different tasks, like payments, tax, fraud, disputes, all bundled together. Stripe Managed Payments is built for this new world, handling all that operational complexity for you, with Stripe as the merchant of record. And with our new App-to-Web Flow,

• 44:58Speaker 00

  customers can check out in seconds in an experience that feels native. It converts like in-app payments, but it runs on Stripe.

• 45:08Speaker 00

  The public markets indicate, as of January 2026, that SaaS is cancelled. Are they right?

• 45:19Speaker 01

  I think it's probably a mix. The, I think the, one of the brilliance of American business is, actually, this is one of my theories about why the Europeans are so gung ho about data privacy and regulation, is because they so often interact with European companies. So like, I was in Paris a couple of years, or a couple of years ago. And of course, going on a tourist trip, going to the Louvre, going to the Museum of Art, or wherever it is, like, or not, whatever it was, seeing a bunch of museums. They all have their own homegrown registration systems. And they're collecting so much data.

• 45:58Speaker 00

  And they're widely insecure.

• 45:59Speaker 01

  It's like, yeah, what's your age? What's your pet? What color is, like, it's like, why do you need to know all this information? They're all non-standard forms. They need, this is where you need AI to fill all this sort of thing in. And it's like, what, like, there's like this theoretical idea in their head, if we capture this data, it could be useful. So they built these homegrown things in like the 2000s that are horribly insecure. And I use them, I'm like, where's the regulator? Can someone, this is ridiculous. So I get, I get the mindset. US companies don't do that. Like, US companies are so good. I think one of the big strengths of of US business culture is understanding. And I think about this personally, because when I give life advice. What's the number one mistake people make when they're young in particular?

• 46:44Speaker 01

  They focus on their weaknesses. Like, I have to ameliorate my weakness. Like, no, what you do is you double down on your strength. You get rich reward for that, and then you hire someone to take care of your weaknesses. Right? Like, I'm a big believer in the Getting Things Done system. Like, great book, anything's up. Even if you don't use the system, the book is really good, lots of great insights. There's this whole thing like tickler files and like all this sort of thing. It's an amazing system. I'm completely incapable of managing the system on my own. So there is a Mac app called OmniFocus that is completely built around this system that I don't have a license for. My assistant has a license for. And I text him stuff, and his job is to maintain my Getting Things Done file. Because I can't do it. What I, what do I do? Actually, my wife is very, very optimized around.

• 47:29Speaker 01

  I write three pieces a week, I do an interview, and I do three podcasts. And all my focus and energy needs to be on that. And if I do that, that will make a lot of money, and I can pay to fix all my problems sort of elsewhere. And I think American business does this very well. They don't waste time and energy on stuff they're not good at. They double down on what they're good at, and they're focused on the upside, not on their cost centers.

• 47:53Speaker 00

  Probably results in a very large market in the US.

• 47:55Speaker 01

  I think so, and just the the competition, it would be in a very large, uh, common market. So you you like, you you don't have your, like, you go back to like newspapers, they have lots of homegrown stuff. Like, if you're a publication, like, online, if you're, if you're like me on the internet, I get paid to comment on the big tech companies. It's probably the most competitive market on earth, right? Like, lots of people have takes on the big tech companies. Uh, and so you have to be super focused. Given that, that speaks to the enduring value of just paying someone to manage these these business functions from a software perspective. Now, there's a lot of set, like, there's a, there's a lot of SaaS applications. Not sure they're all sort of strictly necessary and and worth the price. I like to think, people don't, tech, I mean, a big five, I would say there's a big six.

• 48:41Speaker 01

  The six was Silicon Valley Inc. Which is basically this cookie cutter. VC goes to this founder, addressing this specific business case with a SaaS business model. Everyone likes to, they're gonna talk about changing the world. It's actually the most predictable thing yet. That's why VC returns compressed. But because they're also very predictable in terms of like this sort of mission going. A big problem there is that all seat based. Like anyone seat based that has some of a signal that just, there's gonna be probably fewer seats. Uh, and then if the replacement is more small scale. Uh. Ideally, there's lots of, you know, the internet in general has. Writing or content is a good example. There used to be sort of, you wanna be in the big pond.

• 49:24Speaker 01

  And everyone the big pond sort of ate. If you, if you had a job at Conde Nast and one of their magazines, like you lived life well, if you wrote like four, four magazines. Today, if you wanna be a writer, I give advice to people that wanna be content producers all the time. I'm like, look, you don't wanna be, you don't wanna be in a pond with me. Right? Uh, Bill Simmons is like the like first internet sports writer. And you don't wanna be doing a Bill Simmons impression on the internet because he got there first. And what you wanna do is you wanna make your own pond. The internet enables the creation of a million different ponds. So you would get to define your own pond. Be the only biggest fish in that pond. That's how you succeed. To the extent AI makes that, I think this is the upside case, is AI makes that possible for more than just content.

• 50:08Speaker 01

  For all sorts of businesses to be lots of smaller scale, individual entrepreneurs or small teams. All of whom don't really fit in the Salesforce driven seat based model for a lot of these companies. So there might be a big return to self-serve. Um, you know, the, uh, or maybe they'll just roll their own because their, their needs aren't that large. Yes. Um, so that's more a larger structural change, but.

• 50:36Speaker 01

  The problem is it's fine to say businesses will be okay as they are. If you're eliminating the growth, that's the big problem. I think that's the biggest issue for all the compression.

• 50:46Speaker 00

  Via headcount growth?

• 50:48Speaker 01

  Just growth in general. Like, if these are just stable businesses with astronomical stock-based compensation, that is predicated on we're going to be very large.

• 50:59Speaker 00

  Yes, I can see two critiques you might have of kind of the software space and why everything's traded down. One is where, you know, everyone's just going to use Claude code to rebuild their own version in-house. And so the software mode is less. And the second is actually just that many of these products price on a per-seat basis. And so if you're growing headcount less.

• 51:20Speaker 01

  Or shrinking.

• 51:21Speaker 00

  Exactly, yeah. On the first, like Anthropic just installed Workday.

• 51:26Speaker 01

  I know, famously.

• 51:27Speaker 00

  Exactly, so I don't think, I don't think, you know, we're Claude coding.

• 51:32Speaker 01

  Systems of record are, that's the category that is definitely much safer.

• 51:36Speaker 00

  You know, we see this with Fribung as well. Like, I don't think it ends Claude coding one of those systems of records anytime soon that we use Workday. I don't know what to make of the second criticism, but again, it just feels like for a very broad and deep system of records, it's kind of hard to make the argument that the business is somehow impaired versus a urete.

• 51:54Speaker 01

  Right, but I think, but I think that that's my point though, is people saying they're going to zero are wrong. But if the assumption is you're fine, but you're not going to be growing indefinitely. Like, that shift from thought of as being a growth company to being a stable.

• 52:14Speaker 00

  I see.

• 52:15Speaker 01

  That's a haircut, and again, it's combined with these whole compensation structures.

• 52:18Speaker 00

  Yeah, you're now valued on EPS rather than revenue or something, so, yeah. Can we talk about your business and Stratechery?

• 52:26Speaker 01

  Sure.

• 52:27Speaker 00

  So you were very early to the, I mean, the sovereign writer concept. I think you were one of the first premium newsletters?

• 52:37Speaker 01

  I think so.

• 52:38Speaker 00

  Yeah.

• 52:39Speaker 01

  Well, so.

• 52:41Speaker 01

  There's two predecessors to talk about. One is just on Wall Street in general. There's a long history of Yeah. faxed out newsletters and things like

• 52:51Speaker 01

  Uh, the difference there is those were very expensive and a very small addressable market. Yep. So, uh, the difference for Stratechery is it's much cheaper. Yes. And the market's much larger. Yep. Uh, the other person that deserves a call out, which I think was the first person to do it before me, otherwise I think I was the first, was Andrew Solben, who did, uh, I haven't realized he had a paid newsletter. He did for like a year. Uh. The problem is he did it all wrong. You're doing it wrong. Uh, he was like, he would churn out like 50 posts a day. Mm-hmm. Right? Just about a gazillion different things. He totally burned out and like all, all, all this sort of stuff. But, um, that was, happened to be a great fit for the advertising model back in the day.

• 53:31Speaker 01

  Cause you would always go back there and just always be new stuff. And I'm sure he had a gazillion, I'm sure he drove a gazillion impressions for The Atlantic, especially when he was with them. He went independent. He was pretty successful. I think he had, he did like around a million dollars or something like that. But it was a, this very leaky paywall. It was like after like 35 posts, then you'll hit like a paywall. And there's a bit where you're like, you're punishing your worst users. It's very easy to get around. Um, and so, but he was actually very inspirational in how I thought about the model. In that he was hailed as a failure because he like burnt out and then quit. But like, he made a million dollars, right? Like, that's, it's pretty good. Uh, I wanted, from the beginning, just think about the psychology of this. When I started Stratechery, I had a gazillion ideas of things to write about.

• 54:15Speaker 01

  And I limited myself to writing a max of two times a week. And the reason is I had this subscription model in mind. And when I added the model, I didn't want it to be, I'm taking stuff away and now you have to pay. I'm like, you like this so much, if you pay, you can get more. And so I always wanted to be, you're paying to get more, sort of, sort of aspect. And I think that probably mattered more at the beginning, especially because the model was new. Uh, you know, I had, I had, my metric I looked at was people who visited Stratechery on days I didn't post. Cause they were people that were going there hoping I had posted that day and they were leaving disappointed. Yeah, yeah. And so in this case, usually previously a paywall would disappoint people if they hit it.

• 54:58Speaker 01

  In this case, the paywall would alleviate their disappointment. Yes. Cause they, they, they could now get what they wanted. And so I'm like, if I can capture X percentage of these visitors, it'll be very good. Um. One day goal, one week goal, one month goal, failed to reach all of them. Uh, what happened was, I, I, I actually thought it was good, not gonna work. I was gonna have to go back to like, teaching English or something like that. Uh, the, but it sort of grew and grew and grew. And at six months, I actually hit my one year goal, which was a thousand subscribers, thousand true fans. You know, it was a hundred thousand dollar run rate. And I posted a little-

• 55:31Speaker 00

  Sorry, how long to get to a thousand subscribers?

• 55:33Speaker 01

  Six months.

• 55:33Speaker 00

  Okay.

• 55:34Speaker 01

  And I posted a little note saying, hey, you know, model works. You know, my goal is a thousand for a year, I've already reached it. And this is the only step change in subscribers I've ever had. In the next 24 hours, I got 250 new subscribers, 25% increase.

• 55:51Speaker 01

  What they were was, I had identified those people who wanted to be subscribers. They just didn't trust that it was gonna work, that I was gonna go out of business and take their money. And so, once they realized I wasn't going anywhere, then they all, they all signed up. And then those people signed up, so I actually had my, my metrics were right. But I didn't properly calculate the uncertainty in people's fear of losing their money. Uh, so I'm very grateful that now people just sign up for stuff all the time, right? Uh, you know, I, of course, I'll probably, you know, go to my grave being most well-known for Shrekery, but I am equally proud of the model and let lots of people make a living doing this.

• 56:27Speaker 00

  How far do you think this model can go? Like, again, it, the, the defining characteristic to me seems like the unbundling. Like, you know, maybe 30 years ago, you would have been writing for a publication. Whereas now, it's unbundling, it's the direct relationship with your subscribers. It's direct monetization and generally paid. I mean, there might be some ad-supported components as well paid. Obviously, kind of Substack has proven that this is very broad applicability. But how far do you think this goes versus traditional media bundling?

• 57:00Speaker 01

  There, I think there's a couple interesting angles to this. Uh, number one, I think people, including people in tech, serially underrate how large the internet is. You know, like, this is the biggest pushback I got when I announced, like, the Shrek your Pay product, was from VCs, I won't say who.

• 57:14Speaker 00

  Yeah.

• 57:15Speaker 01

  It's like, love you, Ben, this doesn't, not gonna work on the internet. Um, the, uh, so, and my bit about ponds before, I don't know that we've scratched the limit of how many ponds can be sort of built in the world and you can sort of occupy. And, and the other part of this, the critical piece of this, and AI is actually an important factor here, is- The key to the model is your costs. So you need, just as technology enables you to reach everyone, you need to leverage technology to keep your costs very, very low. And so for the first several years, for sure, it was just me. So as long as I could feed my family, I was, I was fine. And this is, this is the problem for the traditional, like, media companies.

• 57:59Speaker 01

  Their cost structures were not internet cost structures. They were, they were predicated on, on much higher revenue. And there, you know, and this is, it's interesting to think about and talk about this because a lot of this is like not really applicable. It's like before, I write about ads a lot and I'm not in that business. In this case, I write about VC, high scalable companies, but my actual business is very sort of boutique and small. Artisan. And artisan in that, yeah, that's right, in that regard. And this is a super important point, is managing your costs. If you manage your costs appropriately, then the possibilities, but that also means there's some things that don't work with this model. Like your traditional, classic investigative journalism, six month sort of piece. Yeah.

• 58:42Speaker 01

  It, it, it's not well supported by this. What did support that was the bundle. Having lots of different writers in one publication altogether. And the thing I worry about, I wonder about, is bundles are good for everyone involved, and no one wants to be a part of it. So TV is the classic example. Why did we have a TV bundle? Because you have like, so in, I think it started in Pennsylvania. So you have like a television station in Philadelphia, then you have the Allegheny Mountains. And you have a bunch of towns there that want to get the signal from Philadelphia, but they can't get a good signal. So they band together, they put up a big tower to get the signal. They run actual cable from that tower to all their houses.

• 59:28Speaker 01

  And all of cable television started in small town rural America to get TV from the big cities. And Ted Turner comes along, is like, I could just broadcast directly to these towers. This would be amazing. And you get the model and suddenly every, but you had a for geographic forcing function. And you ended up with all these companies with the best business model in the world. They, everyone paid them whether they watched you or not, and they made a ton of money. And what happened the moment they could do something different? I could also go directly. I could I could stream directly. And there's just something about business in like, because it's it's a it's almost like you have to be forced into the game. The optimal game. From like a game theory perspective. And the moment you can desert, everyone always deserts, even if it's the best thing.

• 1:00:12Speaker 00

  Yes.

• 1:00:12Speaker 01

  And I so I wonder, so I do wonder, can bundles-

• 1:00:14Speaker 00

  How does this apply, yeah, to your world?

• 1:00:16Speaker 01

  Because in theory, there should be bundles. Substack should be a bundle. Uh, like you should be only one fee and get everything. But they, you know, they started, I think a mistake Substack made. And I'm a huge Substack fan, just to be clear. I've I've made this creep before and they get mad about it, but is they characterize themselves as being totally writer friendly. And I think that was a mistake because it's impossible for them to be ultimately writer friendly because the most writer friendly setup is running up open source software like on your own server. Like that, no one could do anything to you. And uh, by definition-

• 1:00:47Speaker 00

  I thought you were gonna say like the most writer friendly thing is to have like a humming consumer business.

• 1:00:51Speaker 01

  It would be, but the problem is so they they, all their initial terms let didn't made the bundles impossible. And all the individual publishers owning their own subscribers, having their own Stripe account and all these sorts of bits and pieces.

• 1:01:03Speaker 00

  But hang on, isn't there like a, I feel like there's a well trodden path in tech here where OpenTable started as like entirely, it started as on prem, purely software for restaurants. And then they added the customer discovery layer on top of it. Shopify started as a solution just for merchants. And then they added the shop pay kind of network fake layer for consumers on top of it.

• 1:01:22Speaker 01

  Yeah, but what what actually, even with those businesses though, like the shop pay bit is nice. It's not the driver of the business.

• 1:01:29Speaker 00

  It's a pretty cool part of the business these days.

• 1:01:31Speaker 01

  I like it, but it's but at the end of the day, the vast majority of shop interactions are, I see an ad on Instagram. And I go there and I get shop, the shop button, which is incredible, one of the greatest things.

• 1:01:41Speaker 00

  No, but yeah, but then it makes the Shopify offering to merchants so much more compelling because you get the shop pay network.

• 1:01:46Speaker 01

  And I I'm skeptical that's the driver of the business. I think it's a nice to have. I think the-

• 1:01:51Speaker 00

  But can Substack just add a Substack Prime bundle on top of it and merchants can or writers can choose to opt in?

• 1:01:58Speaker 01

  Yeah, the problem is the merchants who will drive, make that bundle valuable have no incentive to join the bundle because they could make more just monetizing users directly. So imagine I'm on Substack. How much more revenue does Substack have to give me for me to trade fifteen dollars a month for my subscribers for a smaller amount from?

• 1:02:21Speaker 01

  Whoever's part of this, this, and so the problem is they have to really pay me off to be a part of it. Meanwhile, everyone who doesn't have any subscribers, of course, they love to be in the bundle. So you, so this is why the geographic.

• 1:02:32Speaker 00

  It feels solvable to me.

• 1:02:34Speaker 01

  I, I think it's solvable at the beginning.

• 1:02:37Speaker 00

  No, sorry, it feels solvable now.

• 1:02:39Speaker 01

  I think a counter example is something like Spotify. Spotify is arguably the best bundle on the internet, but the reason why they were able to assemble the bundle is because they only needed to negotiate with like four, four entities. And so it's interesting because on one hand that limits Spotify's upside.

• 1:02:57Speaker 00

  Yeah.

• 1:02:57Speaker 01

  Because those entities are able to negotiate such a large share of Spotify's revenue. On the other hand, that's also why Spotify was possible. Cause they only need to negotiate with four.

• 1:03:08Speaker 00

  Yeah, yeah.

• 1:03:09Speaker 01

  And if you're trying to, to like get every artist on earth.

• 1:03:12Speaker 00

  Yeah.

• 1:03:13Speaker 01

  Well, of course I gotta get Taylor Swift. Okay. Good luck with that. Oh, all the small fry will sign up.

• 1:03:18Speaker 00

  Yeah.

• 1:03:19Speaker 01

  And the music's unique in particular because you, music, the moment a song comes out, it's not part of the back catalog. And actually people only ever listen to back catalogs.

• 1:03:27Speaker 00

  Yeah, yeah.

• 1:03:27Speaker 01

  Uh, so that, it's a pretty unique industry in that regard, but that is a bundle that formed. But I think it's because there's only four players.

• 1:03:34Speaker 00

  Mm hmm. Okay. And how do you use AI in writing strategy these days?

• 1:03:41Speaker 01

  I think it probably replaces what I used to do a lot of on, it's much more efficient Googling. Like, so I really, um, the most gratifying articles I write is when I write about a topic that I usually don't. And then someone from that industry is like, wow, I did, that's, that was good. Cause you, you, you're always.

• 1:04:01Speaker 00

  You have this imposter syndrome. Yeah.

• 1:04:03Speaker 01

  Well, I mean, fortunately I don't really have an imposter syndrome, but like if you.

• 1:04:06Speaker 00

  That's why it all works.

• 1:04:07Speaker 01

  No, what, what's the, uh, what's the mechanism where you're reading something about your. Yeah, that's right. It's like, this is totally wrong. And then you trust everything else. Uh, I am, yeah, I don't want to trigger Goldman's, uh, and, uh, uh, amnesia amongst anyone.

• 1:04:21Speaker 00

  Yeah.

• 1:04:21Speaker 01

  So I would, and people ask me like, I hate the book question, like what books do you read? I read a lot of books, but they're very targeted. Like, I will, I'm a very, very fast reader. So sometimes I'll write an article, I know there's a pertinent book, and I will just read the whole book in the morning. And like, I know there's really content in there.

• 1:04:39Speaker 01

  And but in general, I really want to make sure I fully understand a space, probably just new that I'm writing about. This is partly, though, why I have a big competitive advantage. I've been thinking about tech since I was in junior high school, and I've been writing about tech for thirteen years.

• 1:04:53Speaker 00

  Yes.

• 1:04:53Speaker 01

  So I've already done so much preparatory work that anyone starting from scratch, it's like, uh, it's hard. But something, so I want to dive into it.

• 1:05:02Speaker 01

  I'm one of the world's greatest Googlers, I'd like to think. I know every sort of parameter and how to find.

• 1:05:08Speaker 01

  So I think I can say it pretty authoritatively, Google has gotten worse. And I don't think it's Google's fault, I just think they're just, it's harder. One of these Google's fault is they got so biased towards recency. And so you have to be super like diligent, but um, AI is incredible for this. Like, just sort of getting background, making sure you understand an issue, the ins and outs of it. Um, how things work, you can query stuff, dive deeper. So that is by far my number one use case. I do, not always, but I will sometimes ask it to, and this is where I like ChatGPT. Like, I type in BB edit as an integration. This is also why I'm very annoyed by and am very sensitive to the cloying nature. Oh, this is really great. No, that's not what I'm asking for. I can watch you actually go in and find stuff.

• 1:05:53Speaker 01

  So I do not use it to actually generate any, any exact content, but.

• 1:06:00Speaker 00

  Okay, so targeted research and then critique.

• 1:06:02Speaker 01

  Yes.

• 1:06:03Speaker 00

  Yeah.

• 1:06:03Speaker 01

  Those would be the two biggest use cases.

• 1:06:05Speaker 00

  Um, you've written a lot about the TSMC break. This idea that the limiting factor on all AI expansion is basically the rate of TSMC capacity expansion. Because almost AI, all AI chips are fabbed at a TSMC.

• 1:06:28Speaker 00

  It seems like as you look at the AI space and everything interesting going on. So you know, for mostly chip constrained right now, which would not have to be the case, it could be power constrained and stuff. But if you're chip constrained, there's a population of people who want to expand very quickly. The AI labs, Nvidia, people like that. And then, yeah, famously, which, you know, TSMC, which is more conservative in how it expands. Why is that? Like, why, why does the market signal not cause them to build out fab capacity faster?

• 1:07:01Speaker 01

  Because the risks for fabs are basically larger than for anyone else. You're, you're spending billions and billions of dollars on a fab that if it's not fully utilized, if you end up with too much capacity, number one, those, all those, all your costs are locked in. Like basically 99.9% of the cost for a fab is depreciation. Which you're paying depreciation, no, like you already showed you're paid in cash flow, obviously, but it's on your accounting statement no matter what. So the fabs can be extremely profitable. TSMC's margins are higher than ever, but they can very quickly tip over into having a huge problem. And then once it's already built, these fabs can run for a long time.

• 1:07:44Speaker 01

  So that excess capacity is, depresses prices for years to go. I mean, we see this in memory all the time. Memory famously goes through these cycles. Like what's gonna happen, we're gonna, believe it or not, we are gonna have too much memory capacity in a few years because we have such a shortage right now. Like Micron just announced like a, they're a huge new fab in Singapore, like, right? And everyone's gonna do that, which, and so, but why does it happen in memory? There's three competitors in memory. If Micron doesn't do it, SK Hynix will. If SK Hynix does do it, Samsung will. And so you have a dynamic where. A healthy dynamic, which is the fabs know better, but they can't help themselves.

• 1:08:28Speaker 01

  And so they take on the risk and they build these fabs. The problem we have with logic is that TSMC doesn't have that pressure. And so they're actually behaving rationally. TSMC is giving up potential long-term revenue.

• 1:08:43Speaker 00

  Yeah.

• 1:08:44Speaker 01

  But the downside for a fab in particular is so large that they don't want to realize that downside.

• 1:08:50Speaker 00

  Can they not pass the risk on to the customer where it's like, you are going to pay for the entire fab?

• 1:08:56Speaker 01

  That's probably what they need to get to. And so Apple famously did a lot of this, sort of prepaid and particularly when TSMC was sort of expanding hugely in the 2010s. And they maybe need to get even more explicit about that. But I think the better solution and the cheaper solution for the hyperscalers in the long run would be to do what is necessary for TSMC to get better. Then you get it for free.

• 1:09:24Speaker 00

  Yeah.

• 1:09:24Speaker 01

  You don't need to prepay it. So there's this risk that's out there, this risk of overbuilding.

• 1:09:29Speaker 00

  Mm-hmm.

• 1:09:30Speaker 01

  Right now, TSMC is shifting all that risk to the hyperscalers, to Nvidia, to Apple. And the way it math, and the reason why they get away with it is because the risk is forgone revenue.

• 1:09:43Speaker 00

  Yeah.

• 1:09:44Speaker 01

  It's money you don't make. And worse than that, it's money you don't make four or five years down the road. And everyone, like, what does every company say on earnings holiday now? We could have made more, but we don't have enough supply.

• 1:09:55Speaker 00

  Yep.

• 1:09:56Speaker 01

  And if you think it's bad, why is it bad right now? ChatGPT comes out, every hyperscaler starts investing like crazy. What does TSMC do? They actually decreased their CapEx year over year, two years in a row.

• 1:10:07Speaker 00

  Hmm.

• 1:10:08Speaker 01

  They, there was no market response from TSMC to the ChatGPT moment. Now they increased to 41 last year, they're going up to like 60 this year. But even that increase to 60 is a less percentage increase than last year.

• 1:10:20Speaker 00

  Yeah.

• 1:10:20Speaker 01

  I think we're looking at a massive shortness in chips in 2029 or so.

• 1:10:27Speaker 00

  Yeah.

• 1:10:27Speaker 01

  And particularly as the other thing, the compute density of AI is so much larger, right? If you have an agent out doing stuff, it's doing so many more computations in a limited amount of time than me and my Googling is even humanly possible to do.

• 1:10:43Speaker 00

  Yes.

• 1:10:43Speaker 01

  And all these lookups, so we have a CPU shortage too.

• 1:10:46Speaker 00

  Right.

• 1:10:46Speaker 01

  And Intel, Intel. Shut down some of their CPU plants, right?

• 1:10:50Speaker 00

  Yes.

• 1:10:50Speaker 01

  Uh, so it's, the whole semiconductor, the, uh, I just think it's a, it's a big problem. And we're shifting to, for a long time, like, how can we get an alternative to TSMC? For geopolitical reasons. And the truth is, it's kind of like the bundling thing. It's really hard to get companies to buy insurance. Particularly when the insurance is, uh, number one, you have, uh, like, everyone wants someone else to do it. Right? Who's gonna be the one to go and make the sacrifice? But also, it might not happen. China might not attack Taiwan. And also, as long as it doesn't happen, it's super suboptimal to go somewhere else, because TSMC is better.

• 1:11:28Speaker 00

  Right.

• 1:11:28Speaker 01

  And their customers, it's not just their fab is better, their customer service is better, and they have all the IP blocks you need. And they've done this before, and you have existing relationship, and they'll punish you, because they have limited, they have control. Because they, like, they're, they're not gonna fulfill all their orders right now, because there's so much demand. And so they can pick and choose, sort of, who, and so people are scared. They don't want to go anywhere else. Uh, and, and the, uh, so how are we gonna solve this problem? And I think, I actually wrote on the front page of Chekri about this this week, even, which is basically the same thing I wrote in an update. But this was a, like, this, somebody, yeah, someone needs to, the hyperscalers in particular, need to appreciate, I think, a massive crunch is coming.

• 1:12:11Speaker 01

  And it's now on them to get Intel up to speed, to get Samsung up to speed, to get a credible alternative. Yes, in theory, you could pay.

• 1:12:19Speaker 00

  For geopolitical reasons or for shortage?

• 1:12:22Speaker 01

  No, we'll get the geopolitical reasons for free.

• 1:12:23Speaker 00

  Okay.

• 1:12:23Speaker 01

  I think there's massive economic reasons to do so.

• 1:12:26Speaker 00

  Yeah, yeah.

• 1:12:27Speaker 01

  Which is all the revenue you're gonna be foregoing in 2029 if you don't do it now. And then we'll happily get geopolitical, uh, insurance for free.

• 1:12:35Speaker 00

  But if TSMC are the best, like, isn't, rather than like, stand up Intel, which seems hard, isn't the answer just, again, prepay for an extra fab build out for?

• 1:12:44Speaker 01

  But this is like, how do we feel in tech about ongoing operational costs as opposed to putting in some money upfront and fixing the problem permanently? The, the market structure is a problem. You're dealing with a monopolist. And like, not a, like, a mean monopolist.

• 1:12:57Speaker 00

  Yeah, exactly.

• 1:12:58Speaker 01

  They're very nice, right? And they actually have not, arguably not raised prices nearly as much as they should have.

• 1:13:04Speaker 00

  Right.

• 1:13:04Speaker 01

  But the reality is, there's this market structure problem that is going to impact the hyperscalers. And it behooves them, I think, to fix the structure. Otherwise, the costs of... Ensuring or overcoming that are just gonna be be larger and larger.

• 1:13:21Speaker 00

  This seems like the topic you have felt strongest about in the past year or two.

• 1:13:25Speaker 01

  I felt pretty strong with Apple Vision Pro.

• 1:13:26Speaker 00

  Okay, fair. What was your take with Apple Vision Pro?

• 1:13:29Speaker 01

  They finally showed an NBA game and they kept changing cameras. They're applying 2D television production techniques to an immersive technology. Just let me stay courtside.

• 1:13:38Speaker 00

  The TSMC break seems like a bigger deal.

• 1:13:40Speaker 01

  Oh, probably.

• 1:13:42Speaker 00

  I have some rapid fire questions, or I'm not gonna say rapid fire necessarily, but more a collection of disconnected questions for you.

• 1:13:52Speaker 01

  I'll connect them, that's what I do.

• 1:13:53Speaker 00

  Great.

• 1:13:55Speaker 00

  How should schools do homework now that AI exists?

• 1:13:59Speaker 01

  I think they should incorporate it and they should probably do in-person exams, like, or in-person, like the...

• 1:14:09Speaker 01

  Yeah, I mean, it's silly to try to crush it out. I'm very opposed to these AI detectors, which they don't work. I mean, probably I'm particularly sensitive to it because obviously a lot of my pros is in these models.

• 1:14:20Speaker 00

  Yes, yes.

• 1:14:21Speaker 01

  No one, like, my thing was, I wasn't an M-dash user, but I'm the world's biggest semicolon user.

• 1:14:27Speaker 00

  Yeah.

• 1:14:28Speaker 01

  Which...

• 1:14:28Speaker 00

  I was a big M-dash user all along.

• 1:14:30Speaker 01

  Fortunately, the models don't seem to have really incorporated the semicolons. Maybe I haven't been that influential, but, but yeah, no, you want kids to use it.

• 1:14:37Speaker 00

  Yeah.

• 1:14:37Speaker 01

  Because whoever can use AI most effectively in their jobs going forward is going to have a big advantage. So there's probably some return to, you know, more in-class being more important. I think the, this is my, this is my view on content generally, this is, I just... I think there's a world in which not all content, but some content is more valuable than ever. Because AI is a perfectly individualized experience. What you read is not necessarily what I read. So stuff that we both read is actually compelling. And I'm very interested in figuring out how to leverage that to be sort of beneficial to people in the long run. And what can you get from school that you can't get elsewhere?

• 1:15:21Speaker 01

  Right? Like, I can read the notes, I can read XYZ, but there's being in class, having a discussion about it, like actually interacting, being pushed on these sorts of things. All this is a sort of a beautiful theoretical depiction of what school might be that is probably very far removed from the reality. But identifying...

• 1:15:42Speaker 01

  Things that are common experiences are gonna be more and more valuable.

• 1:15:46Speaker 00

  Yeah.

• 1:15:46Speaker 01

  Common content, common classroom time, live events.

• 1:15:50Speaker 00

  Yeah.

• 1:15:50Speaker 01

  Like shared experiences, because anything that's individualized.

• 1:15:54Speaker 00

  Yes.

• 1:15:55Speaker 01

  Is just gonna be completely swallowed.

• 1:15:56Speaker 00

  Yes. Do sports teams become more valuable in an AI abundance?

• 1:16:02Speaker 01

  Everything live becomes more valuable.

• 1:16:03Speaker 00

  Yeah.

• 1:16:03Speaker 01

  That's something I'm thinking a lot about as far as my business, right? Like the, there's some aspects of tens of thousands of people reading the same thing every day.

• 1:16:10Speaker 00

  Yes.

• 1:16:10Speaker 01

  That is actually really powerful. There's something interesting there. The possibility of doing live events where people can come together. Uh, I think a lot about community. I think no one's ever really solved community around content.

• 1:16:22Speaker 00

  Hmm.

• 1:16:22Speaker 01

  Like a message board or comments or not.

• 1:16:24Speaker 00

  Yeah.

• 1:16:25Speaker 01

  You actually get very bad dynamics. There's a few people that dominate it.

• 1:16:27Speaker 00

  Totally, yeah.

• 1:16:27Speaker 01

  Uh, but what is great is if we're in a group chat and you share an interesting article and you have a discussion about that.

• 1:16:33Speaker 00

  Yes.

• 1:16:33Speaker 01

  Uh, so there's, there's a lot of stuff around that I think is really interesting and that I'm thinking a lot about.

• 1:16:38Speaker 00

  What do you think of what's going on in crypto these days?

• 1:16:41Speaker 01

  What's crypto? No, uh, I've always been a crypto defender, like, uh, just because digital scarcity is fundamentally interesting.

• 1:16:48Speaker 00

  Mm-hmm.

• 1:16:48Speaker 01

  It's probably even more interesting to this point in a world of infinite content. Which you thought we had infinite content before, now we have infinite content on steroids.

• 1:16:56Speaker 00

  Mm-hmm.

• 1:16:56Speaker 01

  Uh, not just those six billion humans typing away, but agents generating stuff sort of constantly. And in that world, I think crypto as an identifier of

• 1:17:09Speaker 01

  authenticity is gonna be more and more important. Like, at the end of the day, I want the original. I don't want a reproduction.

• 1:17:17Speaker 00

  Mm-hmm.

• 1:17:18Speaker 01

  And

• 1:17:20Speaker 01

  I'm optimistic about humans' ability to create value where it seemed impossible it ever exists. I'm literally a professional like podcaster and content creator and get paid a lot of money to do it. Uh, imagine explaining that to someone on the farm worried about the, the automation.

• 1:17:37Speaker 00

  Speaking of that, you mentioned this, a majority of stratechery uh, consumption is now in the audio form rather than the written form.

• 1:17:46Speaker 01

  As far as I can tell, I don't do like, but the more than, well more than how my subscribers are subscribed to.

• 1:17:51Speaker 00

  I can see it in the audio form, yeah.

• 1:17:52Speaker 01

  It's quite interesting. I added the, this is actually where I started building my own software. I was begging everyone to support paid podcasts. There was dedicated paid podcasts and there was like writing ones and no one would do it. So of course I did hire engineers and build it myself.

• 1:18:10Speaker 01

  At which point it obviously was the right thing to do. Not everyone does it. Um, whatever. That's my fate in life, I guess. But the uh, yeah, people love it. Like, the interesting thing is, I'm not sure it's been good for my business.

• 1:18:21Speaker 00

  Why?

• 1:18:21Speaker 01

  Oh, because people don't share. The good news is, is I think it drives retention.

• 1:18:25Speaker 00

  Yeah.

• 1:18:26Speaker 01

  Because people would build up emails because it feels like a lot of work. And then you say, I haven't read this in ages. I guess I'll subscribe. Whereas they just consume seven minutes or eight minutes. The problem is they don't share.

• 1:18:35Speaker 00

  Yeah.

• 1:18:35Speaker 01

  Audio content is not shared.

• 1:18:37Speaker 00

  Totally. I listened to this in the car on the way home from work and uh, that's great. And then I.

• 1:18:43Speaker 01

  Never think about it ever again.

• 1:18:44Speaker 00

  Exactly.

• 1:18:45Speaker 01

  But it's good for me because I can write the same, I can say the same thing the next day. You're like, oh, that was a very insightful comment. You didn't even know I said it yesterday.

• 1:18:52Speaker 00

  Yeah. If we reason about hot sectors are going to be important down the road.

• 1:18:59Speaker 00

  You know, for the AI build out, energy is um, it's going to be a big, a big deal in the ability to actually power the data centers that are coming online. Uh, that may be a bigger constraint going forwards than even chips. Uh, robotics are clearly going to be a big thing. It seems like China is doing better on energy and better on robotics and is catching up on chips. Doing okay on, you know, the AI models, but does that mean China is potentially very well positioned for the coming wave of tech trends?

• 1:19:30Speaker 01

  I mean, I think any country that is capable of actually building things is well positioned. But then again, the counter argument of I could support, sort of put a silver lining on it is the challenge, the trick going forward and to sort of defy the doomers, as it were, is actually creating new sorts of value, new sources of value in a way that humans are uniquely capable of. And that is by definition, a sort of an innovation story. It's a freeing up resources from things that can be done by machines. To more productive, it's, it's having a consumer market that pulls out that sort of innovation. That makes it possible to write a newsletter or a podcast and actually pay for it.

• 1:20:15Speaker 01

  And so there is a scenario where China is well positioned to win the total commodification of everything.

• 1:20:25Speaker 01

  Which doesn't have much margin. And the actual value creation and what makes humans, humans and generates the value that I think people in AI are skeptical can be created. Despite the fact 90% of us use working agriculture and like 1% do. Uh, for some reason that's not going to repeat.

• 1:20:48Speaker 01

  If you want to be optimistic, that's the sort of thing that America has always done well.

• 1:20:54Speaker 00

  What's your Stripe feedback for us?

• 1:20:56Speaker 01

  Oh, where to start? I mean, I am obviously, it's hard for me to write about Stripe because I'm not biased because I was very early. I think you, you introduced the billing API in 2011. Which is a direct spur for money to streak or you thinking this is a business model that's possible. So very, very big thumbs up on that. The you didn't warn me about this. I should have heard about this. Actually, you do have, you have one huge issue that I was just dealing with. Oh yeah, ACH. Your ACH implementation is, is is someone can go in and if I try to add on to an ACH plan, so say I have a team. Cause that's where you use ACH like large companies and they want to add someone on. If that add on fails, the entire plan gets canceled.

• 1:21:39Speaker 01

  So we have to build a bunch of logic to handle that independently.

• 1:21:42Speaker 00

  Okay.

• 1:21:42Speaker 01

  So that's a very detailed, specific problem that we're facing.

• 1:21:46Speaker 00

  Buggy ACH subscription interactions. Okay. That's a good one.

• 1:21:50Speaker 01

  There's, I'm, there's definitely more. I'd have to go back and think about it, but I mean, I do think the you, you know, we didn't talk about stable coins in this sort of area of, of, I've always been a big skeptic of like microtransactions. Because the problem, it goes to the investigative reporting thing. You can't build something sustainable if you're only monetizing in the backend. And the only way to do that is to have a very large market. This is what YouTube is. YouTube is a bunch of speculative video makers, hoping that they'll get enough views that the ads will pay for it. And they're such a large scale and they monetize their ads so effectively that it works. There's no market like this for written content or like podcast content. And you can't, people are like, oh, we pay for one article. Like no, what you're paying for and you when you pay for me is you're paying for my ongoing production.

• 1:22:35Speaker 01

  I'm making a promise to you. I'm going to write something every day. And you're paying for that promise. You're not paying for the actual content. The content is, is a byproduct of that. The question for AI and microtransaction is you have all these labs paying people all over the world to generate data and like, you know, if you're like a radiologist, you get paid $300 an hour, I saw this article about it and all these sliding scales and they're all duplicating work because they're all, you know, everyone feels a sense that I can get differentiation. What we clearly need is some sort of market mechanism for data generation that in the long run will replace what we're getting from journalistic enterprises, which are even

• 1:23:18Speaker 01

  more doomed than ever before. So how do you generate, uh, like we are paying directly for content and then AIs can get it and can, you can build a large market like YouTube?

• 1:23:29Speaker 00

  Yeah.

• 1:23:29Speaker 01

  That people will speculative do it, trusting that they'll get paid because the market is large enough. That's what needs to happen. Like a lot of things, there's this massive valley of how we get from here to there. Um, but we'll see. I know Cloudflare is trying to push on that, so we'll see what happens.

• 1:23:45Speaker 00

  Yeah. Last question. How would you rate the execution of the major tech companies?

• 1:23:50Speaker 01

  Like the big five?

• 1:23:51Speaker 00

  Yeah, sure.

• 1:23:51Speaker 01

  Uh, Apple traditionally very strong. Their manufacturing has remained amazing. Like the iPhone Air that just when the alarm went off and make sure I turn this news off. Uh, the greatest smartphone ever made.

• 1:24:04Speaker 00

  Really?

• 1:24:05Speaker 01

  Oh, yeah.

• 1:24:05Speaker 00

  I've never even seen one. Oh.

• 1:24:07Speaker 01

  Oh, it's.

• 1:24:08Speaker 00

  It's thin. Is the battery life good?

• 1:24:10Speaker 01

  Good enough.

• 1:24:11Speaker 00

  Yeah, it's bad.

• 1:24:13Speaker 01

  What's that?

• 1:24:13Speaker 00

  It sounds like it's bad, but then.

• 1:24:14Speaker 01

  No, it's fine. Uh, I mean, I actually forgot my extra battery and it's doing okay now. And I'm back in Wisconsin after wearing jeans because it's cold and it slides right in. It's been, actually, I love it.

• 1:24:24Speaker 00

  Okay.

• 1:24:24Speaker 01

  I'm very devastated to hear they might not make it regularly. Uh, obviously Apple's, Apple's software has gotten pretty rough. Their relationship with the, I mean, Apple is so interesting because the reality is when it comes to platforms. You have to build, the price of becoming a platform is making a great product. So, Apple gets platforms so they make great products and they're terrible stewards of the platforms. Microsoft is a great platform steward. But they can't make good products, so they never get the permission to sort of have big platforms. Uh, which is sort of a tragedy there. Um, but Apple, it's some, you know, it's an old company, driven by managers, not founders. And maybe they, you know, the, the, the AI Siri got as bad as it was, is obviously really bad.

• 1:25:09Speaker 01

  But at the end of the day, we still need devices, they're still better than anybody else. So, they'll probably be okay. Um, Google, I've had the hardest time understanding Google. In part because I think Google does a lot of stuff. Suboptimally, almost everything, I feel like they do suboptimally. But I think that lack of, like, as Apple can be super optimist. But I think it's their lack of optimization that actually makes them maybe the most resilient of all the tech companies. Because they never, they never get so exactly doing what they should do and they have all this extra fluff and doing things and gazillion science projects. But because their, their, their core business model is so good, it throws off so much cash.

• 1:25:54Speaker 01

  They can just sort of like be sort of Yeah, yeah. Very flexible. And I've come to appreciate that about them. Everything that frustrates me in analyzing them. Actually has this hidden benefit of resiliency and strength and adaptability. And, you know, they're like the, the, the amorph, what's this, what's the, the slime? That just will like, and if they're coming in your direction, like you're actually in big, it might take them a really long time to get there, but when they get there, you're doomed. Um, so, Microsoft, Microsoft is always, I've got a lot of mileage to write about Microsoft. Everyone is especially into the SaaS era.

• 1:26:34Speaker 01

  All these companies are like, oh, the Microsoft sucks, we're gonna make the best of breed product. And guess what? Uh, you start up in Silicon Valley, they wanna buy all the best breed products and they have No, no, no. The capabilities to sum together. Joe in managing the tire shop doesn't care about that. He just wants this crap to work and to work together. And if it's all mediocre, but it kind of works together, that's better than best of breed. And Microsoft just squashing these companies to grow and boom, just hit that Microsoft wall again and again. Is that going to persist in an AI world? It's probably tied to the SaaS question sort of before in some respects. Their distribution and power there, you know, remains sort of substantial. Meta's probably, in my experience,

• 1:27:17Speaker 01

  been the best. You just see stuff like interacting with PR or executives. Like they just run such a tight. Yeah, that's always been very impressive to me. I think the, again, I think their ad model is underrated. The trick with them is keeping engagement, like that's what makes the whole thing go. They've done a decent job of that. Hours spent in ChatGPT, hours not spent on Instagram are not spent, and I think that that's an underrated area. And I think they're kind of betting that,

• 1:27:50Speaker 01

  look, that's all fine and well today, but in the long run, this is an infrastructure game. We have cash flow to fund it and OpenAI does it. I think OpenAI might be a bigger threat to Facebook than Google, something worth considering. But Facebook is obviously clearly spending to to meet it, so. No, Amazon. Amazon, there's a lot of, there's a lot of fab capacity and power being spent on Tridium that one wonders could be better spent on on other chips, but we'll see what happens.

• 1:28:20Speaker 00

  Aren't people happy with the Tridium chips?

• 1:28:23Speaker 01

  The degree to which Amazon optimized

• 1:28:27Speaker 01

  cloud computing, I think is underappreciated.

• 1:28:31Speaker 01

  When you're operating in a commodity market, so there's two ways to succeed, right? You could have a differentiated product where you can charge a high margin, or you can have a lower cost structure in a commodity market where the Price floor is the market price, but your cost structure is lower than your competitors. So that's where you make your margin. That was how Microsoft, that was how Amazon dominated the cloud. Their, their, their, their cloud was way more optimized than anyone else's. The whole Nitro architecture, like just the way they architected everything, doing a lot of their own chips, shifting to Graviton. I think the thing with Graviton, their sort of their ARM CPU is they could, who's the number one customer for Graviton? Amazon itself. And so they can move all their loads to that, optimize it, build all the software libraries,

• 1:29:15Speaker 01

  and then start offering it on a cost-effective basis to others. That's the playbook they're trying to run with Tranium, where the number one customer of Tranium in the long run is Amazon. But then they develop all the capabilities around it for other people, for it to be attractive to other people at lower prices. And they, they have that structurally smaller cost structure. The problem is that works when you sort of leveled off in performance, right? Amazon executed this model between 2005 and 2025. Of course, processors got faster in that time, but not, it wasn't like the 80s or 90s when every leap was massive. Does that, does that work in a relatively new market when there's massive leaps being made generation on generation?

• 1:29:58Speaker 01

  And they have Nvidia servers. Do they have as many as they could?

• 1:30:02Speaker 00

  Yeah.

• 1:30:03Speaker 01

  Uh, because they're on this strategy, um, probably not.

• 1:30:08Speaker 00

  Ben, thank you.

• 1:30:09Speaker 01

  Thank you.