America Votes Against Data Centers, Implications for Big Tech and Beyond, Were Google Bears Right All Along?

Ben and Andrew begin with reactions to this week’s elections and their implications across tech. First: The resounding rejection of AI data centers in localities across the country, why a pause in Texas is particularly problematic for U. S. AI infrastructure, widespread resentment of big tech, and the big tech blind spots that led to this point. From there: A digression SpaceX and data centers in space, why hyperscalers figure to be the beneficiaries of a buildout bottleneck, and a word about China. At the end: A Google state of the union after last week’s earnings, Reddit scrambles to adapt to a new environment, and AI Show & Tell spawns a discussion about the group chat era of software.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Andrew Sharp?

  Hello and welcome back to another episode of Sharp Tech presented to you by Stripe. I'm Andrew Sharp. Joining me in studio today, Ben Thompson. Ben, how you doing?

• 0:15Ben Thompson?

  I'm doing okay. I do need to know what is more annoying.

• 0:18Andrew Sharp?

  What?

• 0:19Ben Thompson?

  I have a ranked choice list.

• 0:20Andrew Sharp?

  Okay.

• 0:21Ben Thompson?

  Number one.

• 0:22Andrew Sharp?

  Your voting's not over this week. Here we go.

• 0:25Ben Thompson?

  By the way, ranked choice, terrible idea, but anyhow. Number one.

• 0:28Andrew Sharp?

  Topic for another day.

• 0:30Ben Thompson?

  Flight delayed.

• 0:31Andrew Sharp?

  Uh, okay.

• 0:32Ben Thompson?

  We gotta get the list first. Number two, no Wi-Fi on the flight.

• 0:35Andrew Sharp?

  Hmm.

• 0:36Ben Thompson?

  Number three, this is take three because we've been having some technical challenges.

• 0:40Andrew Sharp?

  We had a couple of good starts also, so I'm gonna go with number three there. That is by far the most annoying.

• 0:47Ben Thompson?

  I could see it. You came in all chipper and cheery after no Wi-Fi, no flight delay.

• 0:51Andrew Sharp?

  Momentum, good rhythm.

• 0:53Ben Thompson?

  And now you're just getting madder and madder. I can see it.

• 0:56Andrew Sharp?

  Absolutely. Red as hell here on YouTube. In any event, I'm ready for a great show now that we're finally off and running here. I've got two Diet Cokes by my side. Lot of ground to cover on this episode, so we'll see what we get through. We will begin with the elections this week. You may have heard elections all over the country. And all over the country, everyone was voting against AI data center construction. Out of 44 local ballot measures that oppose data center construction, 43 of those measures passed.

• 1:29Ben Thompson?

  Good. I'm glad you got that right. You said everybody. You sounded like everyone on Twitter who was like, every single one failed. No, we strive for accuracy. North Dakota was pro-data center.

• 1:37Andrew Sharp?

  We're gonna have to pause for a fact check. Maybe even more important than the...

• 1:42Ben Thompson?

  Actually, can I add on that, though? It wasn't just that all these measures against data centers failed.

• 1:45Andrew Sharp?

  Mm-hmm.

• 1:46Ben Thompson?

  In several different places, like mayors or like board commissioners got recalled.

• 1:52Andrew Sharp?

  Yes.

• 1:53Ben Thompson?

  Which I think is arguably more important than these measures failing, because that is like a signal to everyone in office. If you like your job.

• 2:01Andrew Sharp?

  Your job's on the line.

• 2:02Ben Thompson?

  That's right. So it's like, it's not just that these measures passed.

• 2:07Andrew Sharp?

  Mm-hmm.

• 2:08Ben Thompson?

  It's that future measures that don't go to the ballot, but just go to the mayor's office or just go to the board.

• 2:12Andrew Sharp?

  Watch your step. Exactly. No, and look, there's been a groundswell of opposition. Even since we last podcasted about it, I think we talked at length about the data center opposition in April or May.

• 2:24Ben Thompson?

  Look, we've been... There's gonna be a lot of, like I said, like we talked about previously, but I do think this is one, we like, we were very much on the ball.

• 2:32Andrew Sharp?

  We were early, and then the acceleration has just been unbelievable to watch. And maybe even more important than the local ballot measures, Gina Hinojosa was elected governor in Texas. She ran on a promise to impose a moratorium on new data center construction until the state legislator can...

• 2:50Ben Thompson?

  Right, the state legislature that only meets every two, once every two years.

• 2:53Andrew Sharp?

  Oh, I wasn't aware of that.

• 2:54Ben Thompson?

  Oh, you don't know, this is a great thing about Texas.

• 2:55Andrew Sharp?

  So that's part of the bottleneck. Okay.

• 2:57Ben Thompson?

  Yeah, what a great thing about Texas, where one of the unique things about Texas, maybe a better thing to say, yeah, their legislature meets once every two years.

• 3:03Andrew Sharp?

  Wow. Okay.

• 3:04Ben Thompson?

  So there's, this is more meaningful. And the other thing about Texas, you are right to say, more importantly, Texas.

• 3:13Ben Thompson?

  Back in the spring, when we were talking about this, I went to a conference and I was talking to someone very senior in the data center game. He had been very heavily involved in the Wisconsin data center right up the road that we talked about in our previous podcast that got canceled. But basically, his take was, it's fine. Everything's just gonna get built in Texas.

• 3:32Andrew Sharp?

  Because Texas. Yeah.

• 3:33Ben Thompson?

  Right? And it's, Texas, it's not just the...

• 3:37Andrew Sharp?

  Is that just because of available land and power?

• 3:39Ben Thompson?

  Power.

• 3:39Andrew Sharp?

  Yeah.

• 3:40Ben Thompson?

  There, there is so much natural gas in Texas, there is, they set it aflame. So like, they're pulling like oil out and there's just tons of natural gas coming out that, like, all that is there to be captured. There's a reason why there was a huge Bitcoin mining thing in Texas before, because there's just all this excess energy. And it's its own grid, which is, has pluses and minuses, but in this case, it can like, it's easier to get in a position.

• 4:06Andrew Sharp?

  Okay.

• 4:06Ben Thompson?

  For all the, bring all this power online, you're not dealing with like, in the US, there's three grids. There's like the east grid, the west grid, and the Texas grid. It's like its own thing.

• 4:14Andrew Sharp?

  I didn't know that. Wow.

• 4:15Ben Thompson?

  Oh, wow. This is a very, you have a very educational episode.

• 4:18Andrew Sharp?

  That's right. So many fun facts here.

• 4:19Ben Thompson?

  No, but that's why that is the one that really matters. Because the presumed backstop for all data center opposition has always been, we'll just build it in Texas.

• 4:29Andrew Sharp?

  Everybody's going to Texas. Yeah, I mean, they were on track to be home to 25% of US data center capacity by 2030.

• 4:37Ben Thompson?

  And in the long run, if you talk to anyone, the assumption is it was gonna be way more than that.

• 4:41Andrew Sharp?

  Wow.

• 4:42Ben Thompson?

  Like, just going forward, yeah, it's fine. New York's gonna pass a moratorium. Even Ohio, which is a very significant portion of it, that's, you know, yeah, might, might, might end up there.

• 4:53Andrew Sharp?

  Well, we have 50 different states that can compete for these projects, but infrastructure-wise, Texas obviously has all kinds of advantages and may not be replaceable.

• 5:03Ben Thompson?

  And the assumption that it was gonna have friendly government.

• 5:06Andrew Sharp?

  Mm-hmm.

• 5:06Ben Thompson?

  And so that will take care of it.

• 5:08Andrew Sharp?

  Well, that is out the window for now. We'll see what the state legislature says whenever they get around to meeting about any of this. So what should the tech industry actually learn from the midterms? Can they actually change public opinion on AI, AI data centers? Is that a lost cause at this point?

• 5:26Ben Thompson?

  Well, the question is, is the lost cause is, can the tech industry learn? We should probably start there.

• 5:32Andrew Sharp?

  Fair enough. Well, and looking at the market, it is a wipeout as we record this on Thursday afternoon.

• 5:38Ben Thompson?

  Weird it took till Thursday.

• 5:40Andrew Sharp?

  We had a little dead cat bounce on Wednesday to throw everyone off the scent. Now, who knows?

• 5:47Andrew Sharp?

  Is the American growth story just cooked in light of all these developments? Like, where's your head at as we process all this?

• 5:54Ben Thompson?

  Yeah, the, um, I think we were right before. You're gonna have to get a lot more transactional. Like, there, there is, the degree of arrogance around this data center thing has been pretty stunning. And on multiple levels. Number one, just starting out and being like, these people don't get it. They're dumb. There's not a water issue, et cetera, et cetera.

• 6:17Andrew Sharp?

  Yeah.

• 6:17Ben Thompson?

  Missing, like, getting stuck on the details of what people were saying and not grasping the overall, like, people... Why is it that people are grabbing on to, this goes back to the whole fake news debate?

• 6:30Andrew Sharp?

  Mm-hmm.

• 6:30Ben Thompson?

  The, everyone gets the whole fake news things wrong for ages and ages, in that they get cause and effect backwards. They're like, people hear fake news, they believe it, therefore they support the wrong thing.

• 6:44Andrew Sharp?

  Yeah.

• 6:44Ben Thompson?

  And no, what the fake news thing is confirmation, it's feeding into confirmation bias. It's giving people ammunition for what they already want to believe.

• 6:55Andrew Sharp?

  Hmm.

• 6:55Ben Thompson?

  And so you go back, you know, way back when, to like, you know, 2016, the whole fake news thing was coined. You, you have to sort of zoom out and understand, why is this getting traction?

• 7:06Andrew Sharp?

  There's widespread resentment of political elites.

• 7:09Ben Thompson?

  That's right. So it's like, right, so it's not like, and, well, it's just so infantilizing.

• 7:15Andrew Sharp?

  Infantilizing, sure.

• 7:16Ben Thompson?

  Oh, I wasn't really sure about that one. It's so infantilizing.

• 7:20Andrew Sharp?

  Or paternalistic, yeah.

• 7:21Ben Thompson?

  Right, where it just assumes people are stupid.

• 7:27Andrew Sharp?

  And if we give them the right information, they will change their minds.

• 7:29Ben Thompson?

  That's right. That's right.

• 7:30Andrew Sharp?

  Right.

• 7:31Ben Thompson?

  And, um, and, but you understand why people come up with the people are stupid, because some of the fake news stuff is stupid.

• 7:41Andrew Sharp?

  Well, some of the misinformation surrounding AI data centers is just easily disproven or refers to the way data centers operated years ago.

• 7:50Ben Thompson?

  You're operating on the wrong level, right? You're, you're trying to refute facts when what you're actually dealing with is sentiment.

• 7:59Andrew Sharp?

  Right.

• 7:59Ben Thompson?

  And it's the sentiment that is attracting stories, and that's why people will discard, okay, fine, that's not true. And they'll find another reason to oppose the data centers. They just oppose the data centers. And why do they oppose the data centers? Like, there is just a fundamental distrust and unease, I think, with technology generally. And certainly with AI specifically, that's why I do think this isn't, even though it was all about data centers. And people are talking about the environmental costs and electricity, I think people...

• 8:30Andrew Sharp?

  Are just voting against this version of the future.

• 8:33Ben Thompson?

  Yes.

• 8:33Andrew Sharp?

  Yeah.

• 8:34Ben Thompson?

  Uh, and why not, given the version of the future that's been sold? And this is where, when you go back to globalization, people didn't have a vote.

• 8:44Andrew Sharp?

  Right.

• 8:44Ben Thompson?

  The factories just closed. In this case, once people had a vote, they're not too happy about it.

• 8:50Andrew Sharp?

  Absolutely. I mean, if we go back to the spring, I said then, I still feel now, it's an understandable human response. Given what AI portends, the way it's been marketed, and the ongoing centralization of wealth among a handful of big tech companies. People just want a chance to stick their finger in the eyes of big tech.

• 9:14Ben Thompson?

  And why not? I mean, I can't stand most of big tech in the way they talk about AI.

• 9:19Andrew Sharp?

  Mm-hmm.

• 9:19Ben Thompson?

  Like, we, the, you know, I'm very proud of this one. I might repeat this one every podcast for the next several. If you love advertising, you're optimistic about AI.

• 9:29Andrew Sharp?

  Okay.

• 9:29Ben Thompson?

  Because why, why do I like advertising? Because I, advertising, good advertising...

• 9:37Ben Thompson?

  Helps the customer realize they have a problem in their life and then it gives them the solution to it. Now, sometimes it's very cynical. You're like creating a problem that doesn't exist and then saying you'll answer it. We've seen lots of political ads the last few months. We know exactly how that works, right? But sometimes it's true. It's like, I actually, yes, I could actually use that thing. There's a problem I didn't have and that's gonna help solve it. This is very analogous to the AI question in two ways.

• 10:06Andrew Sharp?

  Okay.

• 10:06Ben Thompson?

  Number one, everyone trying to create AI for consumers fails to do this. The, the, the issue isn't that you're not showing people, you, you're not showing people like what are problems you have in your life? And how AI solves it. Like, that's why the AI show and tell thing we do, like, we got tons of responses. I, I appreciate it. I saw you moved it up in the outline today, so you actually get some into the show. But like, it's, there's an aspect of just realizing there's a, like, the humans are so adaptable. And so we actually adapt to tons of problems in our lives. We just accept that's the way it is. And actually, it could be better. So number one, AI has terrible marketing in the, like, it can actually make your life better.

• 10:52Ben Thompson?

  In part because it feels like no one in this industry has any sympathy or understanding for normal people, which why not? They're all like crazy rich, all the way around the coast, no conception of what normal people live.

• 11:01Andrew Sharp?

  Well, and I will also add that they're building a technology that is exceptionally expensive to build and doesn't have a clear application beyond saying, well, this can actually just replace wide swaths of the workforce.

• 11:15Ben Thompson?

  No, exactly. Because, because, because they can't articulate it, even though I, I absolutely thinks it, think it exists. And then number two, where, where they fail is in the, again, this is where I think there's a relation between not appreciating advertising as a medium, is they see humans as utilitarian cogs in the wheel. Like, that are, that can be replaced. Because their desires and symbols are all noble and understandable and we can just design the perfect system. No, this is where you get the, the alignment with this sort of Marxist view of the world, communist view of the world. Of, look, we can design the system because we know all the inputs and humans are just reduced to an input in the system. And we can recreate the input with AI.

• 12:00Ben Thompson?

  And actually, no, the adaptability point is, isn't just we can deal with discomfort. We can also generate new needs. So like, like, humans are like need generation, desire generation machines. We come up with all sorts of crazy stuff we want or want to do and, and then people rise up to meet those needs. Or people figure out, oh, some number of people have this need. I'm gonna figure out how to serve it. Wow. The capability I developed is scalable or other people could do this. We just need to let other people know they have this need. That is like what good advertising is. And, and the whole industry, not the whole industry, but huge chunks of the industry are just, they have such a narrow view of the world.

• 12:41Ben Thompson?

  That they, they're, humans fit in this column and the measurement marks on that column are like IQ points. And that's how they rank the whole world. And they're like, oh, well, AI is climbing up the column, gonna wipe you all out, think how much money we're gonna save.

• 12:56Andrew Sharp?

  Superior to everyone else, sure.

• 12:57Ben Thompson?

  And so implicit in this isn't just the fact that the only message that is coming out of Silicon Valley is AI is coming for your jobs. Imply in that is all of you are worthless. You, all of you, like, are, are uninteresting to us. And this is why I go back to.

• 13:17Andrew Sharp?

  All of us, I, I didn't vote against data centers, but all of Americans are raising their hand to the sky and flipping the bird to all these tech companies.

• 13:26Ben Thompson?

  Absolutely. And why wouldn't they?

• 13:28Andrew Sharp?

  Yeah.

• 13:28Ben Thompson?

  And, and so, now, now, that's not gonna say they're not gonna get built, but the, just the, it's one of those things, like, I'm in tech and there's aspects of this industry that are just so disgusting to me.

• 13:42Andrew Sharp?

  And have driven you crazy for years. Um, well, threshold question in all this, because I do wanna get into the implications for a, a variety of players in this market, but

• 13:54Andrew Sharp?

  how durable and widespread do you think the backlash will ultimately be here? Because to me, that remains something of an open question.

• 14:01Ben Thompson?

  It is an open question. I think some things sort of come along and, and then, and then they, and then they go away and then it's not, not being a deal.

• 14:07Andrew Sharp?

  There's definitely been a memetic quality to the backlash and the opposition and the misinformation around data centers. And movements that have grown with that memetic quality over the last 10 years or so generally tend to peter out over the course of two or three years. But these are a pretty important two or three years stretch.

• 14:29Ben Thompson?

  Well, that's the question is, is this, is this a data center question? Or is this an anti-tech manifestation?

• 14:36Andrew Sharp?

  Right.

• 14:36Ben Thompson?

  Because I think.

• 14:37Andrew Sharp?

  That is probably gonna be pretty real for a while.

• 14:40Ben Thompson?

  I don't think that's going away. That's why, like, I concluded the piece by saying, look, this is going to be on the ballot going forward. So I do think this is gonna be an ongoing, an ongoing thing. And it is going to, your point, what does the industry learn? The industry, the, the sad fact of the matter is, maybe there is like some sort of fantastical past. Where corporate America did things out because it was the right thing to do, right? Multiple shareholders, our workers matter, our communities matter, like, all, like, we're sort of all in this together. And one of my big critiques of America generally, corporate America, I think this really started on Wall Street, even going back to the eighties,

• 15:22Ben Thompson?

  was the reduction of morality to legality.

• 15:26Andrew Sharp?

  Yeah.

• 15:26Ben Thompson?

  If it is legal, it is, it is morally okay. That's right. And the, and where I've come at that point before is in the, the problem with this of not doing things because it's the right thing to do is you're forcing more laws and regulations to be made. Because if, if you don't, like, just naturally do the right thing and you're always finding the loophole and cutting corners.

• 15:47Andrew Sharp?

  You have to regulate everything, absolutely.

• 15:48Ben Thompson?

  And once you regulate everything, the problem is that is severely limiting on your upside. Because basically you're forcing regulation to curtail these downside outcomes. But when you cut off the downside, you cut off the upside.

• 16:03Andrew Sharp?

  Less room for innovation and ingenuity, sure.

• 16:05Ben Thompson?

  That's why it's so important. There's another angle on this here where, you know, there was a world where the tech companies would have approached data centers, not with the, um, it's just been very, like, what's been the big strategy? Go back to, like, say, the, remember the Amazon headquarters thing? They actually ever built any of that and it's all by you, isn't it?

• 16:29Andrew Sharp?

  Uh, I think they built some of it, but not all of it.

• 16:32Ben Thompson?

  It was, it was embarrassing for the tech industry, that whole episode.

• 16:38Andrew Sharp?

  So this is the episode where Amazon basically like auctions off its alternate headquarters to various markets around the country.

• 16:46Ben Thompson?

  Yeah. And like, all these cities are like.

• 16:47Andrew Sharp?

  Who's gonna give us the sweetest deal? Sure.

• 16:50Ben Thompson?

  It was like, one of the most powerful companies in the world is just basically saying, we have a lot of economic impact.

• 16:58Andrew Sharp?

  We don't wanna pay taxes. We want all kinds of subsidies, sure.

• 17:02Ben Thompson?

  And it was shameless, like, that entire episode. And that has characterized all of this stuff. Everyone just assumed, oh, I, who wants to pay up for the data centers?

• 17:13Andrew Sharp?

  It was baked into the business models of all these companies, sure.

• 17:16Ben Thompson?

  Absolutely. And the right thing to do would have been to not be so shameless. To realize this is like, we, to have some degree of awareness of how normal people might think in the full context of our messaging, people's overall increasing discomfort with tech, with like, social media, with all the sort of things that we've talked about. And to realize we need to get ahead of this.

• 17:44Andrew Sharp?

  Okay.

• 17:45Ben Thompson?

  And we need to be making the case about the industry as a whole. And we need to be making the case to local communities about how these, these benefit you, instead of going to local communities and saying,

• 17:55Andrew Sharp?

  Right. Shaking them down. Or we'll go somewhere else. Who's gonna pay us exactly what we want?

• 18:00Ben Thompson?

  And so what we're gonna end up in is, fine, big tech.

• 18:04Andrew Sharp?

  The communities shake down the big tech companies.

• 18:06Ben Thompson?

  You want a transactional model, you're gonna get a transactional model, good and hard. And you're going to end up.

• 18:15Ben Thompson?

  Paying people off. That's what's gonna happen.

• 18:17Andrew Sharp?

  And the question is, will that work? Because there are still going to be community members who oppose these on philosophical grounds, or because they just resent tech, generally resent what tech has done to modern society. I think it's interesting going forward because you mentioned there were bipartisan campaign ads that you saw.

• 18:39Ben Thompson?

  Well, that was the crazy thing. There were so many data center ads.

• 18:42Andrew Sharp?

  And both sides are trying to outflank one another and be more anti-data center.

• 18:46Ben Thompson?

  It was not like the, like you would think zooming out, like, okay, the Democrats are nailing the Republicans on this. Republicans generally pro-business, et cetera, et cetera. And I think in general, that was the overall tilt.

• 18:58Andrew Sharp?

  Six months ago, that's where we were. And then the Republicans were like, holy crap, people really don't like data centers. So now we don't either.

• 19:05Ben Thompson?

  There was one race that was in the Madison market first. I don't even know who it was. And every single, they would go back to back of them attacking each other for data center support. Like they would just like manufacture means by which they somehow had supported a data center at some point in the past. It was crazy. And like the whole time in the run-up, like, I don't, this is some life advice. I don't pay hardly any attention to the election. Once the election happens, then I will look at the results, think about what it means and analyze it. Because guess what? The election's gonna happen no matter what. You don't have control of the election.

• 19:40Andrew Sharp?

  Maybe the polls are predictive, or maybe they're not. Maybe the predict, prediction markets are on it. Maybe they're not.

• 19:46Ben Thompson?

  I'm just gonna say, we have some people in our lives.

• 19:49Andrew Sharp?

  Who are living in the cross tabs.

• 19:51Ben Thompson?

  Spent a lot of time that has basically no fan, but maybe it's entertaining for them.

• 19:55Andrew Sharp?

  Well, fair enough.

• 19:57Ben Thompson?

  But, but the one thing that was in my head early on is like, okay, this data center thing's unbelievable. I cannot believe how many ads there are. We talked about it before, and it's just, it's clearly way more potent. And again, the fact that there was just, there was no affirmative message for data centers, nowhere. Everyone is sprinting away from them as.

• 20:17Andrew Sharp?

  That was a losing message this cycle, probably will be next cycle. By the time we get to 2030, I don't know whether there's still gonna be this like massive outrage about data centers. And what interests me is there's a difference between campaign incentives and governing incentives. And so over the past couple of months, it wasn't surprising to me to see both parties fall all over themselves to be more opposed to data centers than the opposition. Like even Greg Abbott, who had been supportive of data centers, was cowed into opposing data centers in Texas. But.

• 20:51Ben Thompson?

  Well, that is a big, I mentioned the globalization angle before. At the end of the day, call me a big tech shill, a data center is great for a community.

• 21:01Andrew Sharp?

  That's the thing. And like, these are basically the cleanest and most profitable industrial projects in American history.

• 21:10Ben Thompson?

  Well, so this, but this is a good example. So people would, including, I think I wrote this at some point, because it is true. Point to Lord, Lorden County.

• 21:17Andrew Sharp?

  Loudoun County. You screwed this up the first time. We talked about Loudoun County. Loudoun County in Virginia.

• 21:22Ben Thompson?

  Loudoun County in Virginia, richest county in the, in the country.

• 21:24Andrew Sharp?

  Property taxes have gone down. I didn't even know that was possible.

• 21:27Ben Thompson?

  I believe power prices have gone down. Like every part of, already a rich county, has gotten better because of data centers. Now, why are data centers there? This actually goes back historically to, uh, there was a major like interconnect there from when the internet was built. It might even have been pre-internet. But because DC is, is actually is downstream from DC being close. And so AOL started there.

• 21:52Andrew Sharp?

  Yep.

• 21:52Ben Thompson?

  And just in general, that was clear. And if you were built there, you were relatively close to Europe. You were, the most populous part of the US was in the East Coast. It's like the most natural, and there was lots of power available. It was the most natural place to start building data centers. And you got this virtuous cycle where you got more and more data centers, you got more and more power to serve the data centers, you got more and more connectivity. And you end up with like this, it, it's a great example.

• 22:15Andrew Sharp?

  And you have an area that knows how to build data centers because of the industry that has sprung up around there.

• 22:19Ben Thompson?

  There's just, it's an entire ecosystem, right? It's like, uh, what you see in China around these manufacturing sites. Just everything sort of feeds on itself until there's nowhere else that's competitive. And it's still the largest place in the world. And by the way, it's phenomenal for everyone that lives close to there. They don't pollute. Then you have tons of power, your power prices are lower. You have amazing like city parks and services and schools.

• 22:43Andrew Sharp?

  Right.

• 22:44Ben Thompson?

  And you don't pay anything in property taxes. It's like, it's unbelievable.

• 22:47Andrew Sharp?

  It's not a bad deal. And so if you're.

• 22:48Ben Thompson?

  Relatively speaking.

• 22:49Andrew Sharp?

  If you're governing one of these communities or states and watching these projects go somewhere else, there's gonna be an interesting tension there because jobs are on the line.

• 22:59Ben Thompson?

  But so, so big tech would, there's a tendency when you're looking at things at scale, to look at it like at the end state. But you have to get to the end state. Loudoun County.

• 23:11Andrew Sharp?

  That's right.

• 23:12Ben Thompson?

  Uh, the, the data center started being built there 30 years ago. So yes, you're seeing the outcome of a 30-year virtuous cycle. In the meantime, if you build a data center.

• 23:25Andrew Sharp?

  And you're not power neutral and everyone's prices are going up.

• 23:28Ben Thompson?

  Paying to the grid. Guess what? Electrical prices are gonna go up. Now, electric prices go up, more demand, they're gonna build new power generation. So in the long run, it will pay off. But there needs to be more cognizance of, you can't sell the long run.

• 23:45Andrew Sharp?

  If you're not mitigating the downsides for people who can vote against your project.

• 23:49Ben Thompson?

  Right. And again, not just not mitigating, but demanding to be paid for the privilege of running up people's electrical prices, right?

• 23:56Andrew Sharp?

  Correct. And I, I would guess that the industry will be able to sort of accept that as a baseline for any of these projects going forward. Even if they do that, I don't know that that's a guarantee that the bottleneck will be removed in a place like Texas. We'll have to wait and see. For the sake of argument though, let's assume that the bottleneck does remain in place over the next two or three years. And again, pretty critical two to three years as far as the build out is concerned and the compute demands.

• 24:24Ben Thompson?

  Well, maybe. So a lot of the stuff, so even in Texas, the moratorium is on new permitting for, there's a lot of stuff under construction.

• 24:34Andrew Sharp?

  There's like, I believe 130 projects under construction right now.

• 24:38Ben Thompson?

  Which so, 2027, 2028, all that stuff is still coming online. I think where the concern is, is more about 2029 going forward. So there's a few things that might happen. Uh, number one, going abroad. Like that is unfortunately something that is probably likely to happen. I think like there's just a huge big announcement of a new project in Malaysia by, by Google, I think.

• 25:02Andrew Sharp?

  15 billion for a data center in Malaysia. Yes.

• 25:04Ben Thompson?

  And so you're going to get,

• 25:08Ben Thompson?

  tech is shameless. Uh, remember, tech is the industry that started globalization. Getting Intel shipping chips to Hong Kong for, for test and assembly. And, um,

• 25:20Ben Thompson?

  and so I'm sorry, you're not gonna, you're not gonna get, tech will do the right thing when it is no other choice to do it. They're going to.

• 25:28Andrew Sharp?

  Well, these are multinational corporations. That's the way they operate. Sure.

• 25:32Ben Thompson?

  And so, yes, for sure, going abroad is gonna be one thing and playing countries off each other. So the, you know, that is, that should be a big concern. Uh, obviously, number one. Number two, uh, this was the whole thesis behind the SpaceX thing. Like, I'm like.

• 25:47Andrew Sharp?

  We're going to outer space. Now we have to.

• 25:50Ben Thompson?

  Well, I mean, you.

• 25:52Andrew Sharp?

  Or might have to. I don't know. It's in play.

• 25:55Ben Thompson?

  I mean, this was always, I think this was, this was always a possibility. Like, because even if you didn't have this backlash, well, number one, when I wrote about SpaceX and the rest one, it was when this backlash was already building. So I sort of built that in with, from my analysis from the beginning. Number one, these are more viable than you think. It doesn't mean they're easy.

• 26:13Andrew Sharp?

  Can we go Cliff Notes on that in terms of the viability of space data centers?

• 26:18Ben Thompson?

  Well, I think the, the big thing is people have in their head, you're gonna have big warehouses floating in space. And basically what you will have is like individual racks, which are, like an NBL 72 is about the size of a Starlink satellite today. Like the, the, uh, the current ones, not even the big ones that are adding all the cellular capabilities.

• 26:36Andrew Sharp?

  So a bunch of individual racks and redundancy built into the system.

• 26:40Ben Thompson?

  Well, they, well, I mean, the, the challenge is cooling. So you have to, they have to have radiators, um, that are, you know, that, and the amount of cooling is like an exponential increase. They basically have these massive radiators going into space to dispel, spell cooling. Like all this is like fairly insane and nuts. But you already have Starlink up there. You already have the, the, the laser-based communication for them to send data back and forth. You're going to have, in the long run, the shift to inference that happens independent of humans. Like, and so the, the, just.

• 27:12Andrew Sharp?

  So inference that's serving agents and time doesn't matter.

• 27:16Ben Thompson?

  Right. Or matters less. Well, you don't need sort of the immediate response. Basically, the pieces are there. It's just like, why would you do this if you can just build a data center?

• 27:27Andrew Sharp?

  We have a lot of land in this country. It's a fair question.

• 27:30Ben Thompson?

  Well.

• 27:31Andrew Sharp?

  Or in the UAE, or wherever, on earth.

• 27:34Ben Thompson?

  You had this escalation in bottlenecks and the bottlenecks gets solved, right? So we were short on chips. We didn't make a bunch of our chips. Oh, now we're short on memory. That will be resolved eventually. Uh, then you're short on, we're short on power. And by the way, I do think we're far enough, far enough along in power projects that when and if this bubble bursts, where the, maybe the bursting's happening right now as we're sitting here, who knows? That, that was always the question. What's the long-term payoff of the bubble? What stuff gets built that is like economically nuts, but is actually worth it in the long run? And we put our power generation. If we end up, like, we've been living in power poverty for 50 years, like since the oil crisis, basically. You know, it's funny, people go back and they're like, oh, do you remember the 50s and 60s when America was dynamic and growing?

• 28:19Andrew Sharp?

  We had a lot of power.

• 28:21Ben Thompson?

  We've treated energy as completely abundant. There wasn't a consideration for anything. Just build all the factories, build the beautiful long Cadillacs that, you know, that are like 15 or 20 feet long, the boats. Right? Um, build the, the, the crazy like overpowered engines. Like, why? No one cared about efficiency, right? And you, it's funny, like that sounds scandalous to anyone today, because we've all grown up in a world of efficiency. And like, you know.

• 28:54Andrew Sharp?

  Do more with less. Sure.

• 28:55Ben Thompson?

  Yes. And it is, I think it's a, it's been such a limiter in what is possible. And I think it's been a limiter on imaginations. Like, what does it actually mean to have infinite power? This is why the, the nuclear thing is such a tragedy that, you know, and we should have had infinite clean power by this point. Um, but.

• 29:18Ben Thompson?

  If what happens is the bubble bursts, but we actually brought to bear tons and tons of new power, that is a long-term payoff that is going to be hard to calculate, like what it was worth.

• 29:32Andrew Sharp?

  Right. And we're on the way to bringing on some of that surplus power, correct?

• 29:37Ben Thompson?

  For sure. There's been a ton of, I think, there's been a ton of new power projects. And I think like more of this stuff, to your point, will get over the line. This is the difference with globalization. Globalization, the factory leaves, there's no upside.

• 29:47Andrew Sharp?

  Right.

• 29:48Ben Thompson?

  Right? Again, there was no veto, but there was also no upside. In this case, there is a veto, and that's what we're dealing with right now. There is an upside and

• 29:59Andrew Sharp?

  If the demand is there, there are enough people who will be incentivized to get some of these projects across the line that I don't really worry about.

• 30:07Ben Thompson?

  If you want to get a data center built, put checks, put money in people's pockets.

• 30:10Andrew Sharp?

  Exactly.

• 30:12Ben Thompson?

  Just the

• 30:14Andrew Sharp?

  And if that's what it takes, that's what will happen. On the other hand, the space example, I wanted you to give a Cliff Notes of that because like when I first heard about that, I was envisioning like a data center in space. And that, that concept sounds completely insane, would be completely impossible to maintain at that level. But the more atomized version that you lay out there where you're talking about individual racks and the capacity to launch all those

• 30:47Ben Thompson?

  Yeah, well, that's the thing. It's the capacity thing that's interesting, right? So like with Starlink, so you, we talked about the Craig Moffett interview where he's like, why does Elon want to get into the cellular game, which is a crappy business?

• 30:59Andrew Sharp?

  Yeah.

• 31:00Ben Thompson?

  And that is correct if you're starting from like zero. Like, we're going to build launch capacity that is going to let us deploy satellites so we can be a cell phone company.

• 31:12Andrew Sharp?

  Crazy thing to attempt. Sure.

• 31:14Ben Thompson?

  The launch capacity exists. It's, it is coming regardless. And there is a lot about Starlink where there is, you almost have to think uneconomically. In that if you think economically, you should think about the cost of all the inputs and figure out, does it make sense? From a Starlink perspective, it's kind of like launch is free.

• 31:34Andrew Sharp?

  Yeah.

• 31:35Ben Thompson?

  Because it's not really free. That's not correct.

• 31:37Andrew Sharp?

  Whereas for anyone else who wanted to do this, it would be insane to attempt that capacity.

• 31:43Ben Thompson?

  They built out this capacity and they need to use it for something, right? I mean, this is how you get, uh, this is how you get, uh, say like in the shipping industry. You'll have shipping companies that will run losses for years. And it's like, why are you, like, how do you operate at a loss? Well, it's an accounting loss because they're, they are shipping at a, they don't ship, if the marginal costs are uncovered, they don't ship. What are the marginal costs? Fuel, port fees, crew, all of which pale in comparison to the depreciation cost of like the ship itself. So maybe their marginal cost to ship a container is like a thousand dollars. What that means is they will, if someone will pay $1,100 to ship a container, they'll ship the container.

• 32:27Andrew Sharp?

  Yeah.

• 32:27Ben Thompson?

  Even though the cost on their accounting balance sheet is actually shipping that container costs $2,000. But a thousand dollars of that cost is depreciation, which is like, it's not fake. That's real money that went out the door, but the, that money's been spent.

• 32:42Andrew Sharp?

  Yeah.

• 32:43Ben Thompson?

  So as long as you're making anything incremental over your marginal costs, you will continue to operate, even though from an accounting perspective, you operate at a loss. This is a super important principle to understand because it explains why companies will seem to operate at losses for ages. It's like, why don't you just shut down or how are you surviving? Well, their cash flow is still positive. Um, again, where they, what happens is they end up not having enough money to service their debt and then they go bankrupt. That's how bankruptcy happens. Cause to buy these assets upfront, you take out loans because you're going to have a 30-year useful life. So ideally you're paying it back over 30 years.

• 33:14Andrew Sharp?

  Right.

• 33:14Ben Thompson?

  Anyhow, but the, just the way money moves around and, and how bankruptcies happen, how companies operate at, at paper losses for ages. But, cause what happens with the shipping industry, you get a period like COVID where containers are now, it's like $17,000 a container. You're making so much money that like, this is the crazy thing about commodity markets. That's happening in memory right now, right? Same, same general sort of concept. And so the reason why

• 33:38Andrew Sharp?

  And by then it takes too long for anybody else to bring supply online.

• 33:43Ben Thompson?

  Right. And so people will, wow, what an opportunity. Let me buy a bunch of ships and then it crashes. And then it's great for the incumbents because they crash, they go bankrupt. Suddenly cheap ships are available.

• 33:52Andrew Sharp?

  More business. Yeah.

• 33:53Ben Thompson?

  Who wants to buy new ships?

• 33:54Andrew Sharp?

  That's right.

• 33:54Ben Thompson?

  So, um, the, uh, that's why in commodity markets, like I admire people in commodity markets because the way to succeed, it is the ultimate sell the top, buy the low sort of business. You need to be in the muck. Your business bleeding money, that's the time to invest because then you'll be ready when it comes back, right? Uh, if you wait till it comes back, it's too late. But the, in these markets, the fixed costs are so high. Like buying a ship is really expensive. Building a fab is so expensive. It's like you, that's why you see like TSMC, we've talked about it. They don't want to expand too much because they're the one

• 34:33Andrew Sharp?

  Taking the risk.

• 34:34Ben Thompson?

  That's right. Yeah. Uh, and so where does this tie, tie to SpaceX? It's not a perfect, I'm not saying this is an accounting thing, but there's almost a mentality thing where, look, we've built launch capacity. Starship is coming. Starship can launch much larger satellites. It can launch a ton of them. What's this going to be used for?

• 34:59Andrew Sharp?

  We'll find out.

• 35:00Ben Thompson?

  Well, no, but it's like, well, suddenly you start thinking about data centers in space from a marginal cost perspective. Like how much to, but that marginal cost is like building the space rack, deploying it, operating it, and you kind of treat the launch capacity, not just the launch, like not just the overall cost of developing the starship, but also the launching itself. Because why? You want to launch more. So you keep learning, keep improving. Like, uh, most companies in general are usually very good about their, their learning functions. Like, and so continue going on. You kind of treat that as a given. It's free. Now, it's not free, to be clear. I'm not saying this is an accounting calculation, but

• 35:42Ben Thompson?

  the reason why you, if you're Elon, you're not thinking about building a cellular service and fully internalizing all the costs. You're sort of, this whole cost, which is actually the biggest cost, we're going to pretend it doesn't exist.

• 35:55Andrew Sharp?

  Sure.

• 35:55Ben Thompson?

  Wow, what a big opportunity we have, right? Because there's, we just, they, they, there, because there's a drive to use up this capacity. And I think there's a similar thing with the data centers in space. Like, would you start from scratch, build a new rocket, get launch capacity, or even would you consider the price of launch capacity? I mean, Starlink looks very profitable in part because they just pay the bare cost. There's no premium charge to them buy. So SpaceX itself is actually much more profitable and Starlink is much less profitable in a true arms apart sort of calculation of, of the costs. But all, all this is to say is like, Starlink and SpaceX is the ultimate hammer looking for a nail company.

• 36:36Andrew Sharp?

  Yeah.

• 36:36Ben Thompson?

  They've developed this hammer, incredibly valuable hammer, which is this launch capability, regular cadences, tons of stuff. They need stuff to put in space.

• 36:46Andrew Sharp?

  Well, that's why I said, we'll see in terms of how exactly they monetize this. And look, data centers in space sounds less crazy today than it did three days ago.

• 36:56Ben Thompson?

  Well,

• 36:59Ben Thompson?

  broke that a few months ago.

• 37:00Andrew Sharp?

  Okay. Do you want to pat yourself on the back here?

• 37:02Ben Thompson?

  No, but that, that is why like a Verizon or an ATT or T-Mobile should be nervous.

• 37:06Andrew Sharp?

  Yeah.

• 37:07Ben Thompson?

  Because the most terrifying thing as a business is going up against competitor that seems to be acting irrational. Right? It's irrational for Starlink to build a cellular service.

• 37:19Andrew Sharp?

  Yeah.

• 37:19Ben Thompson?

  But in a weird, which I was trying to explain here, I'm not sure if I fully explained it, in a weird sort of Elon thinking way, it is rational. If your overall goal is increasing launch capacity, increasing like billion on the warning function, I want to get to Mars.

• 37:34Andrew Sharp?

  I was going to say, his overall goal is going to Mars at the end of all this.

• 37:38Ben Thompson?

  That's right. And so, um, yeah. So, and I think the, the, the stuff in space makes sense in that regard. And, uh, and by the way, just from a purely strategic asset, you can see the value of, of that. Uh, so

• 37:54Andrew Sharp?

  Yeah. Uh, well, I have more questions on specific

• 37:57Ben Thompson?

  That said, most of the data centers are going to be built on land, especially for the foreseeable future.

• 38:01Andrew Sharp?

  Yeah. I, that's more of like a five to 10 to 15 year solution as opposed to the next couple of years when the crunch is coming.

• 38:08Ben Thompson?

  I don't know. That's going to be like, like, there's going to be a lot of data centers on earth.

• 38:11Andrew Sharp?

  For now, today's show is brought to you by Stripe, the economic infrastructure for AI and for Strategoy itself, and a company that processes digital payments for millions of businesses around the world. I learned that on Strategoy this week that the total revenue processed by Stripe is equivalent to 1.7% of global GDP. Just an astounding figure. Uh, we're going to be spending more time in the next couple of months going into some of the Stripe data. Ben, you spent a lot of time analyzing individual companies and industries. Have you spent any time with the Stripe data thus far?

• 38:46Ben Thompson?

  I have not, uh, full disclosure. The, I mean, I think the, the, they have a Stripe blog that write up, writes about some of these things.

• 38:53Andrew Sharp?

  Stripe economics, yes.

• 38:54Ben Thompson?

  Well, it's kind of funny because one of the challenges in writing about the stock market, which, you know, again, um,

• 39:01Andrew Sharp?

  You do a little bit of that?

• 39:03Ben Thompson?

  No, I don't actually.

• 39:05Andrew Sharp?

  Okay.

• 39:05Ben Thompson?

  It's actually, it's pretty interesting. It, it is almost a challenge this week where my assumption was there was going to be a big drop, uh, because of these things. Again, it was weird. It didn't happen on Wednesday. Um, then the Democrats decided to be like, uh, let's investigate all the corporate leaders and ban data centers everywhere. It's like, it's almost like they're like

• 39:25Andrew Sharp?

  I saw that as I was getting on the plane. Literally 24 hours of moderation and now here we are.

• 39:31Ben Thompson?

  It's like, yeah. Uh, it's like they were counting on the stock market drop. So they're like, it needs a little nudge. Let's give it a boot over the edge. Um, but, so I assume that would happen. But what I wanted to write about, like, what are the implicated, what does it mean if there's real friction in data center building? Like, and so that was the 10 takes of, of, you know, good for the hyperscalers, I think, moderately good for, for, for the frontier labs. We, we can sort of keep talking about it, but also there can be such a disconnect between

• 40:01Ben Thompson?

  What's happening on the ground and what's happening in the market, which is sort of anticipating things. So this week, the little factoid was, you know, like this spring, everyone's

• 40:11Andrew Sharp?

  mid SaaS apocalypse.

• 40:12Ben Thompson?

  That's right. Which, by the way, uh, so that's happening. Meanwhile, Stripe's like looking at their data, all these small companies, actually accelerating, like the revenues are increasing.

• 40:22Andrew Sharp?

  Including new companies, which I thought was interesting in the Stripe notes.

• 40:25Ben Thompson?

  Right. And so, um, that's not to say the stock market hasn't wrong. Like, I actually think for the, for the, the, the.

• 40:32Andrew Sharp?

  Like long-term pressure on SaaS.

• 40:34Ben Thompson?

  There's a terminal value question. Like, does this stuff go to zero? There's also like, how much growth is there? But it is interesting to see, when you get a widespread view, that you would think, my assumption would be, actually, oh, stuff will be static. Growth's gonna go away. But the fact that it's actually been growing, um, the amount that, that companies are spending on SaaS, uh, it just, it gives you pause. And it's like, um, because it's very easy to get in your head about theoretically what makes sense and is going to happen. And then reality can sort of be like, well, some confounding factors here.

• 41:08Andrew Sharp?

  SaaS products are still doing fairly well.

• 41:09Ben Thompson?

  Uh, so it's interesting. So Stripe does get a good view of that. Um, I am looking forward to getting more sort of.

• 41:14Andrew Sharp?

  I am too.

• 41:15Ben Thompson?

  That's sort of interesting.

• 41:16Andrew Sharp?

  Yeah, it offers kind of a complimentary view of what's going on in the economy beyond, like, earnings reports and whatnot.

• 41:23Ben Thompson?

  It's actually funny for me. It's almost like, it's a little like uncomfortable. It's like, um, it's more fun being in the theoretical data world.

• 41:30Andrew Sharp?

  What you wrote sounds good. But this is what's actually happening.

• 41:33Ben Thompson?

  Here's some hardcore data. Uh, yes.

• 41:35Andrew Sharp?

  Yeah, Stripe Economics. It's a cool sub stack. It's, it aggregates all the macro data in a bunch of interesting ways. So, uh, in any event, we'll put a link in the show notes if people want to check it out. Uh, back to the show. As far as specific companies, it is sort of an ironic twist, based on what you wrote this week. Considering much of the opposition to AI data centers is rooted in like, deep, abiding resentment for big tech companies. Big tech companies may in fact be the beneficiaries of a lot of this opposition. Is that right?

• 42:10Ben Thompson?

  I, I think so. Well, you know, when you think about the, uh.

• 42:15Andrew Sharp?

  They always win.

• 42:16Ben Thompson?

  They do always win. It's amazing. Um, and like, where, where does, where does value accrue? Right? If you have the stack, you know, I think it comes from integration. Like, like when you have different pieces you can put together. And what things can you integrate in the AI stack? So you, on one hand, you could say like the frontier labs, right now, they want to be on the leading edge, but you would say, you know, is that a sustainable business? What, if you're easily substituted out, if another model come along that's better, that's a tough place to be.

• 42:47Andrew Sharp?

  Yeah.

• 42:47Ben Thompson?

  So one argument is they need to go up into more consumer-facing applications. So you're, you're, you're integrating like the consumer-facing service with the model itself. And then that's how you win. So you, you.

• 43:01Andrew Sharp?

  You build a moat that way.

• 43:02Ben Thompson?

  Another thing is, maybe the frontier companies want to have a leading edge model, and they're going to build their own data centers and design their own chips that are like meant for their model. And they're going to be able to serve much more efficiently than anyone else. And so that's another point of integration, that sort of, that sort of could happen. Uh, but one of the challenges is they need money to do this.

• 43:24Andrew Sharp?

  Yep.

• 43:24Ben Thompson?

  Number one. Uh, number two, they need to build new data centers. They don't have an existing footprint. Like Anthropic is talking about it. They have this deal with Broadcom to get chips. Those all need to be built.

• 43:37Andrew Sharp?

  Mm-hmm.

• 43:38Ben Thompson?

  Meanwhile, you have the big tech companies, which have a ton of data centers already. Uh, they still have the best access to capital.

• 43:47Andrew Sharp?

  Can I ask you one question before you go on? The big tech companies with all their data centers that already exist, how many of those legacy data centers could be like converted into AI data centers?

• 44:00Ben Thompson?

  Not very many.

• 44:00Andrew Sharp?

  Okay.

• 44:01Ben Thompson?

  So, but the, the issue, so, because previous data centers were by and large air-cooled, um, whereas modern GPUs need, uh, water cooling. I think modern GPUs are much, much denser. Uh, whereas you have like more sort of spread out, uh, because you're using air cooling. You're trying to build it for the lowest cost possible. There's a lot of different assumptions. And you kind of, if you want to take an old data center and convert, it's a significant, you're basically rebuilding it.

• 44:28Andrew Sharp?

  Yeah, you just knock it down.

• 44:29Ben Thompson?

  But you already have the land. You already have the power. You already have, like, like, or in just, you already have the relationships. You already have the, the, the community is used to you being there. And so there's, I think you're just starting further ahead than trying to get a net new data center.

• 44:47Andrew Sharp?

  Sure.

• 44:47Ben Thompson?

  Somewhere else.

• 44:48Andrew Sharp?

  Yeah, like I read, uh, a meta spokesperson this week said, in lieu of building new data centers, one of the things we're going to be doing is expanding the data centers that we already have to some, to meet some of this demand. Um, all of which is much easier to do if you're a meta or you're an Amazon.

• 45:04Ben Thompson?

  Right. So they already have lots of assets. Number two, you have the, the financing ability, right? They have free cash flow. Now, that free cash flow, they don't have free cash flow because it's all being consumed by the data centers.

• 45:13Andrew Sharp?

  They had free cash flow.

• 45:15Ben Thompson?

  No, but the point is, if you're spending, what is Amazon, what was Amazon's thing? Like $200 billion on CapEx? And you're, wow, that exceeds their cash, free cash flow of $180 billion. That's still $180 billion, right? So we're talking about a much smaller increment.

• 45:31Andrew Sharp?

  $180 billion ahead of Anthropic or OpenAI.

• 45:34Ben Thompson?

  Who have, no, they have negative free, like, or in the fullness of time. So the, um, so number one, they just had this huge base. Number two, they get better credit because they have other businesses that generate all that free cash flow. So their ability to borrow, their, their price to borrow is much lower. And that's why you end up with these deals where they're basically financing, like they, they get these great deals with Anthropic, like Amazon does, because they can finance them. Even if the, if Amazon has to ultimately finance it themselves, it's like an arbitrage opportunity because my ability to finance is cheaper than yours.

• 46:09Andrew Sharp?

  Sure.

• 46:09Ben Thompson?

  Um, this ties into Nvidia and, and the Neo Cloud and all that sort of thing as well. And then number three, they can issue equity. And if you're in Anthropic, like Anthropic needs to get to market, again, they need to get to market. We'll see if that actually happens. They, which I think it will, but it might be a little hairy. Uh, all their equity is 100% on will Anthropic succeed or not.

• 46:34Andrew Sharp?

  Yeah.

• 46:35Ben Thompson?

  When Amazon issues equity, that equity, some amount of it is, will this CapEx be worth it? But it's also, there is an existing business that is very successful that you're getting a piece of. So of course, it's going to be damaging to existing shareholders because you're diluting them. And that money is going to this speculative thing that may or may not work out. But by and large, the, the sort of, the support for their equity is much more than it will be for anyone else.

• 47:03Andrew Sharp?

  Yeah.

• 47:04Ben Thompson?

  And that's the, that's the funding of last resort, right? You just start giving away parts of the company to get more money, which is, we're in that stage. Everyone is issuing equity at this point. So, but in all those stages, better free, more free cash flow, cheaper credit, more ability to issue equity, the hyperscalers are just in a better spot than anyone else.

• 47:24Andrew Sharp?

  Mm-hmm.

• 47:24Ben Thompson?

  And they have more capacity to build data centers. Number, they're gonna be better at lobbying. They're gonna be better at like, sort of getting these things over the finish line. And if you think about that, they are, those aspects might end up mattering most. I think they're, if data centers are going to be more expensive, because you have to pay off the local population.

• 47:44Andrew Sharp?

  Sure.

• 47:44Ben Thompson?

  Like, they're in a better place to fund that, to sort of, to pay for it. Um, and yeah, big tech, I think wins again.

• 47:51Andrew Sharp?

  We talked about it last week in terms of Anthropic and some of the pressures on them going forward, some of the equity deals that they did in the past in exchange for compute and what those could look like a couple of years down the line if Anthropic can't pay for the compute all by itself. Um, I wonder, like, in a compute-constrained environment where you've got like Amazon and Google that have all this compute, does Anthropic, do OpenAI, do they just go hat in hand to some of these hyperscalers?

• 48:21Ben Thompson?

  Yeah, there's a good chance. I mean, I think one of the scenario, OpenAI and Anthropic, I don't think will ever go away.

• 48:27Andrew Sharp?

  Yeah.

• 48:27Ben Thompson?

  The question is, who are the equity holders?

• 48:29Andrew Sharp?

  Who's owning that?

• 48:29Ben Thompson?

  That's right.

• 48:30Andrew Sharp?

  It's like, does Google just own Anthropic at some point in the near future?

• 48:34Ben Thompson?

  Yeah, it's like a Google, Amazon joint. Because there's, yeah, the, the.

• 48:39Andrew Sharp?

  And it's funny because Amazon, I mean, Andy Jassy, people were hating hard on Andy Jassy and Amazon, uh, after the earnings call a couple of weeks ago. And now, like, they are sitting pretty in a world where no one else can build data center capacity.

• 48:53Ben Thompson?

  Well, they're also sitting pretty in a world where everyone has to kind of slow down. That's the other bit. Like, you've had this, they will all tell you, oh, don't worry, we have buyers lined up, et cetera, et cetera. That's always the case until, I, this is like, when you have like all the crazy stock market things.

• 49:12Andrew Sharp?

  Yeah.

• 49:12Ben Thompson?

  Um, you know, the, uh, like 2008, everyone's like, on paper, don't worry, there's a backstop. There's a guaranteed buy. The problem is, what happens when the backstop goes away? And you get this chain reaction. You could see this risk still coming up, right? Like, where, uh, yes, we have a guaranteed buyer. That buyer's OpenAI. You go down the chain, all these sort of things. Um, the, uh, it's, so, so, yeah. But they have to compete, right? What if Amazon doesn't invest? Then, well, Google's gonna invest and take more and more. And Microsoft sort of kind of briefly stepped on the brakes slightly, and then suddenly we didn't have enough compute, and it was a big problem. And so everyone's like, I

• 49:55Ben Thompson?

  can't slow down if they're not slowing down. You have the same, we've talked about this dynamic with the labs themselves. This is the problem with Anthropic's S1. The fact their inference looked so amazingly cheap should actually terrify you, because the part they have to keep spending.

• 50:11Andrew Sharp?

  They're still spending a lot of money.

• 50:12Ben Thompson?

  That's right. And it's out of their control. If they don't spend to be on the leading edge, OpenAI will, and they'll lose their position.

• 50:17Andrew Sharp?

  Yeah.

• 50:18Ben Thompson?

  And, uh, or Google, or Meta, or sort of whoever, whoever it might be. And in a world where everyone hits friction.

• 50:27Andrew Sharp?

  Take a breath amidst this murderous CapEx build-out here.

• 50:30Ben Thompson?

  The shareholders love it because, oh, we had like a bunch of projects canceled. What a bummer. And so our CapEx is going to be flat. Or you'd imagine like an earnings call like this, right?

• 50:41Andrew Sharp?

  Mm-hmm.

• 50:41Ben Thompson?

  And everyone sort of announces this. Investors are like, thank goodness.

• 50:46Andrew Sharp?

  Yeah.

• 50:47Ben Thompson?

  Suddenly, their stock goes back up. Now they can issue more stock uh to get more money.

• 50:54Andrew Sharp?

  Yeah.

• 50:54Ben Thompson?

  They can like that like that currency is more valuable. Maybe they're the credit like if the the big question is when does the revenue come?

• 51:03Andrew Sharp?

  Mm hmm.

• 51:03Ben Thompson?

  If the once the revenue comes, all these things unwind themselves in a very positive direction. And so if there is an external force that forces a slowdown such that revenue can get there in time to relieve all these capital pressures, everyone could win. This could actually be a diffusing.

• 51:23Andrew Sharp?

  Win, win, win, win, win. Sure.

• 51:25Ben Thompson?

  But especially the hyperscalers. And so uh and so yeah, uh it it's yeah. Yeah, everyone thinking about AI jumps to the final state where intelligence is a commodity.

• 51:39Andrew Sharp?

  Mm hmm.

• 51:39Ben Thompson?

  And

• 51:42Ben Thompson?

  there that state might take a very that implies infinite compute.

• 51:47Andrew Sharp?

  Yeah.

• 51:47Ben Thompson?

  And it just might be the longer it takes to get there, the more analysis predicated on intelligence being a commodity isn't actually useful to understanding the world as it is. In a world where there's infinite power, infinite compute, what is like, what does Nvidia do? Like, there's gonna be other chip products, right? In a world where you're limited in power, you have to repurpose your data centers. Suddenly, whatever margin you have to pay to get the most efficient, most powerful chips, it suddenly makes a lot more sense, right? And so it it's this, the analysis in a market defined by scarcity versus a market defined by abundance is fundamentally different.

• 52:30Andrew Sharp?

  Completely flips.

• 52:30Ben Thompson?

  Right. And and I think the the time defined by scarcity has probably been elongated.

• 52:36Andrew Sharp?

  Okay, uh well, it'll be interesting to see whether there is ever a capex slowdown because at this point, I'll believe it when I see it. Whenever we get there, it will be fun to look back at some of the capex we've seen over the last couple of years and just how consistently insane it was. Like, I think there was a stat where a couple of these companies were spending more combined than the Pentagon spends every year. And that's just where we've been living for quite some time now. So uh we'll see what it turns into. Uh Nvidia, you just mentioned them. How should we think about Nvidia in a world where US data center construction is constrained over the next several years?

• 53:17Ben Thompson?

  Well, in the short term, it's definitely a problem because they're, you know, they're selling chips, there's nowhere to put them.

• 53:21Andrew Sharp?

  Okay.

• 53:22Ben Thompson?

  Um, you know, there's their market being limited. On the other hand, overall, this has always been a a counterintuitive point about Nvidia, which is the one I just made. A world defined by insufficient power

• 53:35Andrew Sharp?

  Mm hmm.

• 53:36Ben Thompson?

  or insufficient data center capacity is the the entity that delivers the most tokens

• 53:42Andrew Sharp?

  The best machine, the most the most efficient machine

• 53:46Ben Thompson?

  Right.

• 53:46Andrew Sharp?

  will be worth the upcharge.

• 53:48Ben Thompson?

  Exactly, because at the end of the day, the the tokens are gonna be more valuable. This is also a weird thing with the Neo clouds. Like, all the existing Neo clouds out there are now, if if we reduce the rate that capacity comes online, all those are more valuable.

• 54:05Andrew Sharp?

  Hmm.

• 54:05Ben Thompson?

  Right?

• 54:06Andrew Sharp?

  Yeah.

• 54:06Ben Thompson?

  But at the same time, and so it's kind of weird to think through what this means, what this means for the Neo clouds. Uh, you know, can they get, they're gonna have a harder time getting new projects started, coming to market, are they ever gonna have sufficient scale? But what they do have might be more valuable. Um, and so I think in this world, I think there's a lot of these things where

• 54:28Ben Thompson?

  do you mean better absolutely or better relatively?

• 54:31Andrew Sharp?

  Okay.

• 54:31Ben Thompson?

  Right? Like, uh, on an absolute basis, uh, maybe this is worse for Nvidia to sell fewer chips. On a relative basis, as opposed like their ability to hold back or withstand the push for ASICS and, you know, defined chips, like, maybe this is better.

• 54:50Andrew Sharp?

  Yeah, well, and a future where compute is abundant is probably not great for Nvidia.

• 54:56Ben Thompson?

  It's gonna be challenging.

• 54:57Andrew Sharp?

  Yeah.

• 54:58Ben Thompson?

  Um, like, it's hard to sustain margins uh in a world.

• 55:01Andrew Sharp?

  People inevitably come for their margins in that scenario.

• 55:03Ben Thompson?

  Right. Uh, well, I mean, you you think about, you know, why, why was Nvidia so gung ho about China? Because China is not a country that's defined by a lack of power.

• 55:13Andrew Sharp?

  Mm hmm.

• 55:14Ben Thompson?

  Right? And so i- if they don't keep people locked into their ecosystem using their software, using CUDA, defaulting to their chips, over time, it's like, well, I'll just build inefficient data centers with more chips and not pay the Nvidia fee, which is, I think they've resigned themselves to it in the long run.

• 55:32Andrew Sharp?

  More coal power over there in China. Uh, well, that was gonna be my next question. So uh, how should we think about the competition with China in a world where data center construction is constrained?

• 55:45Ben Thompson?

  I mean, it's a problem. I mean, we in the we have a huge chip advantage, obviously. We've created the conditions where China has to figure out the chip thing on their side. When and if they do, they're going to have a lot more ability, I suspect, to build more data centers and more power than we will.

• 56:09Andrew Sharp?

  Okay.

• 56:09Ben Thompson?

  And in the fullness of time, how does this not look like the manufacturing world where they're just like have so much more scale and are so much cheaper that they actually end up owning all the all the compute?

• 56:21Andrew Sharp?

  So they will have far more compute than the American side in the fullness of time, even if they're using less efficient chips that are inferior in a lot of respects.

• 56:31Ben Thompson?

  They'll move down the learning curve, their chips will get better and better over time.

• 56:33Andrew Sharp?

  Okay.

• 56:34Ben Thompson?

  Right? And and so, but again, this is a huge timing question, right? Like, the fullness of time. Everything's possible in the fullness of time. As we're gonna move to the dorm room, right? We should have a dorm room theme when we want to have a dorm room discussion next time.

• 56:46Andrew Sharp?

  It's tricky for me because as the host of Sharp China, who's reading news about China every week, I personally have never been less concerned about the competition with China between the United States and China. And so China's always like invoked as a stalking horse in these arguments. And everybody this week is like, well, voters just handed the future to China. Um, and I I don't know that I disagree with that because obviously China will have advantages that it can bring to bear over time here.

• 57:16Ben Thompson?

  And we're gonna build data centers.

• 57:17Andrew Sharp?

  I'm not that panicked about it, so.

• 57:20Ben Thompson?

  And this is more, this is a retardation.

• 57:22Andrew Sharp?

  Build another data center in the United States, then we can have a conversation about it.

• 57:26Ben Thompson?

  Right, exactly. You know what, you know what, though? This is why I don't like to think about politics.

• 57:30Andrew Sharp?

  Okay.

• 57:30Ben Thompson?

  This is like, I'm like, sick of this. I wrote an article, we've talked about it.

• 57:35Andrew Sharp?

  Uh, fair enough. Uh, well, final question then, because we can move on to Google for you. Uh, Zach says, when people discuss building data data centers.

• 57:45Ben Thompson?

  By the way, maybe I'm the, that is evidence of tech's disdain for normal people. I have the problem that I'm identifying.

• 57:52Andrew Sharp?

  Well, I mean, I don't think there's any problem with not wanting to talk about politics. That sounds fantastic. Uh, Zach's, I'm so excited to move back to only caring about basketball for the next several weeks.

• 58:01Ben Thompson?

  Move back, move back to Washington DC, but you're already there.

• 58:04Andrew Sharp?

  It's in my blood in DC, you know, I grew up with it. Uh, when people discuss building data centers, Zach writes, it seems to be either the US or in space. Why don't we just turn Mexico into a data center? Is it because it would be even harder to get the power, construction, and financing all set up in another country than it would be in space? We alluded to this earlier. I mean, Canada has a lot of power as well. Um, is there any reason we don't go that direction?

• 58:33Ben Thompson?

  Well, I mean, they have to agree.

• 58:35Andrew Sharp?

  Okay.

• 58:35Ben Thompson?

  It needs to, you know, ICD wants to be a place that is safe and secure.

• 58:40Andrew Sharp?

  Yeah.

• 58:41Ben Thompson?

  There's, you know, so, yeah, no, for sure, there's gonna be a globalization aspect to this. Like, I already mentioned the Malaysia deal. You're going to see this. Uh, tech is going to go out and say, who's gonna give us the best deal? Lots of data centers will be built. This, one thing that is interesting, this does tie to the election, I guess somewhat indirectly. I sort of assumed a lot of data centers would be built in the Middle East.

• 59:02Andrew Sharp?

  Hmm.

• 59:03Ben Thompson?

  Um, data centers not so, don't do well with explosives.

• 59:07Andrew Sharp?

  Little hairier over the last nine months.

• 59:09Ben Thompson?

  There's like an AWS on the brain, I think. They had to like tell customers like, your data's gone forever.

• 59:15Andrew Sharp?

  Um, oh, wow.

• 59:16Ben Thompson?

  Oh, yeah.

• 59:16Andrew Sharp?

  I didn't see that.

• 59:17Ben Thompson?

  Oh, yeah, yeah, like the, you know, because it, there's a, you know, some stuff, like, you might have a law or you put it in your thing, I only want this data center, I only want it in this this game. If you had your data in the brainy, brainy?

• 59:30Andrew Sharp?

  Uh, I have no idea. Bah, Bah, Bah, Bah, Rainy?

• 59:33Ben Thompson?

  Yeah, I don't know. Uh, data center, and it's gone.

• 59:37Andrew Sharp?

  Okay.

• 59:38Ben Thompson?

  Turns out, uh, an explosive drone or missile or whatever, I ran lobbed at it. Uh, wasn't so good for the data.

• 59:44Andrew Sharp?

  Funny because I almost interjected earlier to say, lot of power in the Middle East, you can build all the data centers you need. Uh, security would be a pretty urgent concern.

• 59:55Ben Thompson?

  Fairly urgent concern.

• 59:56Andrew Sharp?

  Right now.

• 59:57Ben Thompson?

  When you're dropping billions of dollars into these

• 59:59Andrew Sharp?

  Yeah.

• 59:59Ben Thompson?

  data centers, uh, you would prefer they don't get blown up. So that will be a concern.

• 1:00:03Andrew Sharp?

  Google has gone to Malaysia. Um, all right, well, speaking of Google, I'll read from Bloomberg last week. Alphabet shares fell more than 13%, erasing more than $500 billion in its biggest ever market plunge after the company reported disappointing search and advertising sales that reinforced investor concerns about AI's threat to its core business. The Google parent reported sales falling short of analyst projections. Ad sales from search and other channels, a business line that accounts for roughly half of overall revenue and is critical to financing the massive AI investments, also missed forecasts, growing at the slowest pace in five quarters. So you wrote about these earnings on Monday.

• 1:00:47Andrew Sharp?

  Uh, you wrote that the call, last week's earnings call, gave you Facebook deja vu. Can you unpack what you meant by that?

• 1:00:56Ben Thompson?

  Well, this is a very optimistic read of Google's call, but just there was the language they were using, I'm like, I've heard this before.

• 1:01:03Andrew Sharp?

  I enjoyed your zag, uh, relative to every other analyst I saw reacting to Google's call.

• 1:01:09Ben Thompson?

  So the, uh, this actually goes back years for for Facebook. But the two most prominent examples that I've written about, um, was stories and reels.

• 1:01:20Andrew Sharp?

  Mm hmm.

• 1:01:21Ben Thompson?

  In both cases.

• 1:01:24Ben Thompson?

  You had this new format for social media that people loved.

• 1:01:28Andrew Sharp?

  Yeah.

• 1:01:29Ben Thompson?

  And so you open Instagram and there's yours, the story of your friend, you know, your friend posted the whole thing, your, your network's already on there.

• 1:01:36Andrew Sharp?

  Snapchat and Instagram.

• 1:01:38Ben Thompson?

  So what people did was they clicked it and they started just going through stories all the time. What were they not doing?

• 1:01:44Andrew Sharp?

  Watching ads?

• 1:01:45Ben Thompson?

  They were not scrolling through the feed. Where were all the ads?

• 1:01:48Andrew Sharp?

  In the feed.

• 1:01:49Ben Thompson?

  In the feed, right? And so, and you had this thing with advertisers where if you talk to people, I think Eric Supert has talked about this. If you talk to people in the space that were doing advertising, people who would go in and do stories ads got unbelievable return on their investment. But the problem is like, there weren't tools built around it to measure it. And so most companies, if they can't measure it, they, they're used to digital advertising.

• 1:02:14Andrew Sharp?

  We're not spending on that. Yeah, sure.

• 1:02:15Ben Thompson?

  So they would just spend where there were tools for. And so there was this crazy alpha for companies that would market into stories. Cause there, no one was buying stories ads.

• 1:02:25Andrew Sharp?

  Mm hmm.

• 1:02:26Ben Thompson?

  And that, but they actually, they worked because that's where all the people were. And they made, there was an opportunity to make tons and tons of money. Putting ads in stories where the ad was way underpriced, when it was actually worth you. So of course Meta over time, they build an overall, you put it like, so part of the whole AI ad sort of platform, uh, whatever it's called. Um, is you put an ad in and they will figure out where to put it, make sure you get the return. Part of that is to paper over this. Advertisers choosing where to put their ads, like little, let's take care of it for you. Um, so that, this, we'll give this to Google too. So, and then they also build measurement tools and they build the sort of thing so that you can see how many people are looking at your ad. How is it converting? All this sort of stuff.

• 1:03:08Andrew Sharp?

  Okay.

• 1:03:08Ben Thompson?

  Such that stories, of course, stories ads end up hugely successful. It, and this, the reason that was a reason to buy Facebook is you want to buy a digital advertising company when their inventory is exploding.

• 1:03:23Andrew Sharp?

  Mm hmm.

• 1:03:23Ben Thompson?

  Cause all that, that, that causes prices to fall. If that, that sometimes cannibalizes what is their existing product. But in the fullness of time, they'll figure it out. And now they have that much more space to make that much more money.

• 1:03:38Andrew Sharp?

  Yeah.

• 1:03:38Ben Thompson?

  This was why the reels thing was such an, was, it was crazy. It happened all over again.

• 1:03:44Andrew Sharp?

  Mm hmm.

• 1:03:45Ben Thompson?

  The exact same thing happened. Turns out people freaking love reels, right? We've talked about this. What do you do if you're watching reels on Instagram?

• 1:03:53Andrew Sharp?

  Uh, just scroll and scroll and scroll.

• 1:03:55Ben Thompson?

  You're not looking at stories and you're not looking at the feed.

• 1:03:58Andrew Sharp?

  Yeah.

• 1:03:59Ben Thompson?

  So you have your existing surfaces suddenly monetizing less. Meanwhile, you have this survey, and by the way, what happened in reels?

• 1:04:06Andrew Sharp?

  They haven't monetized reels yet. Okay.

• 1:04:09Ben Thompson?

  Huge arbitrage opportunity for the early advertisers that got in there, like just made.

• 1:04:15Andrew Sharp?

  Before Facebook knew how to measure things and before.

• 1:04:18Ben Thompson?

  Everyone's knew how to make the right ads and all this sort of thing. And so it's, in, in Meta would talk about, so this is the dynamic broadly. The way Meta talks about it is, well, first we build, figure out the right product.

• 1:04:31Andrew Sharp?

  Mm hmm.

• 1:04:31Ben Thompson?

  Then we scale it, get the user experience right. Then we scale it to the world and then we monetize it. Uh, you know, that's, that's the story they tell, which is broadly correct.

• 1:04:41Andrew Sharp?

  Okay.

• 1:04:42Ben Thompson?

  If you think about it, that's how you would want your company to operate, right? You want them to shove ads in something that doesn't work yet?

• 1:04:48Andrew Sharp?

  No, you want it to be popular and well-oiled by the time you start like juicing the ad money.

• 1:04:55Ben Thompson?

  That's right. So I'm reading the Google call last week and they're like, we want to get this product right first. We, then we're scaling it to the whole world and now we need to monetize it. I'm like, oh, that, that sounds like Facebook. Now, the question is, is Facebook has a proven track record of doing this? Google has just been shoving ads into search for 25 years, right? So the question is, can they pull this off? But there is a very viable story here, which is yes, actually AI search is better. People are engaging more, which is a point they kept coming back to. They're spending more time, more queries because maybe like, it's kind of manly because if you click more, you're now in this AI mode and you're like in a chatbot mode, which is kind of annoying if you just want the Google experience.

• 1:05:40Ben Thompson?

  But you can see why it's actually training people to use it more. Like the most used chatbot in the world is probably actually AI mode in, in Google.

• 1:05:47Andrew Sharp?

  I'm sure.

• 1:05:48Ben Thompson?

  At least in the markets where it's fully rolled out. But the problem is if they're, so they're spending lots of time on Google, right? Googles make more money.

• 1:05:55Andrew Sharp?

  Hmm.

• 1:05:55Ben Thompson?

  No, because the ads, the ads are in the old product. They're in the SERP, the, the search engine results page, not in the AI mode. And now the question is, can they actually make ads that work in that mode, that resonate?

• 1:06:09Andrew Sharp?

  Mm hmm.

• 1:06:09Ben Thompson?

  But right now, it, it's not.

• 1:06:12Andrew Sharp?

  Because previously, Google search, it was basically the best ad surface that there's ever been outside of Meta.

• 1:06:21Ben Thompson?

  Well, part of it is so unfair, right?

• 1:06:22Andrew Sharp?

  Sure.

• 1:06:23Ben Thompson?

  You had to like, you had to buy your own brand name to put it at the top of search results.

• 1:06:26Andrew Sharp?

  Top three or four links are all ads at this point.

• 1:06:29Ben Thompson?

  That's right. Uh, so.

• 1:06:31Andrew Sharp?

  But like chatbots, generally speaking, thus far, we haven't seen ads done anywhere near as successfully as that.

• 1:06:39Ben Thompson?

  Yeah. I mean, chat GPT, they're reportedly making like a billion dollars or something. Like it's, there's, if there's a human there and if there's attention involved, the, you're, someone's going to figure out the answer.

• 1:06:49Andrew Sharp?

  I don't, I don't dispute that people can make money. Unfortunately for Google.

• 1:06:53Ben Thompson?

  Can they make it as well?

• 1:06:54Andrew Sharp?

  The standard is literally the greatest business that has ever existed.

• 1:06:58Ben Thompson?

  Right. No, exactly. So all those are fair questions, but I actually think the Facebook story that they told is totally fair and legitimate. They deserve more benefit of the doubt.

• 1:07:10Andrew Sharp?

  Okay.

• 1:07:10Ben Thompson?

  Like, once they have a mode broadly, let's see what happens when they think, when they really start shoving ads in there.

• 1:07:17Andrew Sharp?

  Mm hmm.

• 1:07:18Ben Thompson?

  And I think there's a decent chance that it's actually going to make a lot of money and it's going to, this is why I've been a blip.

• 1:07:25Andrew Sharp?

  Okay.

• 1:07:26Ben Thompson?

  In, in, in sort of the one, just like the stories ended up being a blip for, for Facebook. And the reels is like the greatest blip of all time, when their stock was like $83 a share.

• 1:07:34Andrew Sharp?

  So you mentioned Facebook. You've been right on Facebook over and over again. Now Meta, uh, for the last like 10 or 15 years.

• 1:07:41Ben Thompson?

  Right. And wrong about Google.

• 1:07:43Andrew Sharp?

  So I'm wondering whether your benefit of the doubt is actually a bearish signal in terms of where Google is headed over the next couple of years.

• 1:07:51Ben Thompson?

  100%. You should always do the opposite of what I say about Googles. So the, the question is, maybe this just doesn't come back.

• 1:07:57Andrew Sharp?

  Yeah.

• 1:07:58Ben Thompson?

  But this is the part two of the Google story, which, um, I think I was right about.

• 1:08:03Andrew Sharp?

  Oh, do you want to pat yourself? Like you're on the couch. Yeah. Just reach back there. Not in an office chair.

• 1:08:09Ben Thompson?

  We, we should have like a gag, like back patter. You could press a button, you could press a button and it just starts hitting me. Uh, it's, I think Google is transforming as a company, like right in front of our eyes.

• 1:08:20Andrew Sharp?

  Yeah.

• 1:08:21Ben Thompson?

  And the reality is that

• 1:08:27Ben Thompson?

  where does search make sense in the future?

• 1:08:30Andrew Sharp?

  It's fascinating to me because literally these were all the arguments we were having three years ago. And then everybody forgot about them. Google's stock went to the moon and now it's like, okay, maybe the bears had a point in terms of the shape that all this would take. And it's just, it, maybe it was happening over the last couple of years, uh, and Google was sort of juicing some of the search revenue. But now it's definitely happening.

• 1:08:54Ben Thompson?

  Maybe they were juicing the search revenue because they knew it was on its way out.

• 1:08:58Andrew Sharp?

  Yeah.

• 1:08:59Ben Thompson?

  And.

• 1:09:00Andrew Sharp?

  It ain't what it used to be. Tony Soprano.

• 1:09:02Ben Thompson?

  Well, this goes back to the Google capital company concept. This idea that we're going to just own, be the dominant infrastructure provider for AI. In a long run world where we actually just, we own all the data centers and on earth and SpaceX is up the sky. And by the way, we own a big chunk of SpaceX, uh, which, uh,

• 1:09:23Andrew Sharp?

  And we own a little bit of Anthropic as well.

• 1:09:25Ben Thompson?

  And.

• 1:09:26Andrew Sharp?

  More than a little bit. Yeah.

• 1:09:27Ben Thompson?

  Right. And at the end of the day, just, we have our own chips. We're going to have our, like the whole thing where that's where, and we're going to put our, the, the, the search business in the fullness of time was just the fuel to get the real business.

• 1:09:41Andrew Sharp?

  Yeah.

• 1:09:41Ben Thompson?

  And doing the Berkshire Hathaway comparison of seized candies, creating the money to get into railroads.

• 1:09:47Andrew Sharp?

  Mm hmm.

• 1:09:48Ben Thompson?

  A much worse business on a relative basis. The margins in candies, amazing. The margins in railroads are small. The absolute number is massive, like just, yeah, your profit margins are small. There's so much money, your total amount of money is much larger. Is Google thinking about AI broadly that way? Like, okay. Search is toast in the long run. Let's extract as much money out of this franchise as we can.

• 1:10:17Andrew Sharp?

  Mm hmm.

• 1:10:17Ben Thompson?

  Let's do a two course bet. Number one, we're going to completely change what search is. I think it's kind of amazing and not what you would expect from a company being disrupted. The extent to which they've, who's done more to obliterate the search experience than Google itself?

• 1:10:34Andrew Sharp?

  Sure.

• 1:10:35Ben Thompson?

  They've, it, search is basically a chatbot. It, you, it's kind of annoying to, you fall into the chatbot flow so obviously and simply now you have to work to get out of it.

• 1:10:44Andrew Sharp?

  Mm hmm.

• 1:10:45Ben Thompson?

  And I also think this is their agent story. I was like, where's the Google agent? They have a Google Spark. They have like one, they have Gemini. They have something in the workplace thing. The, the, goo, search is going to be your agent. Search is going to go do stuff for you. You're going to go to Google and that's, it's going to like book your thing for you and book. That's obviously where it's going to be. They have decided we're going to take our core asset. We're not going to protect the business model. We're going to use it as.

• 1:11:14Andrew Sharp?

  We are disrupting ourselves.

• 1:11:15Ben Thompson?

  Which you don't, companies, you, this is why I've found myself falling into like an admiration.

• 1:11:21Andrew Sharp?

  You admire the gumption?

• 1:11:23Ben Thompson?

  I do.

• 1:11:24Andrew Sharp?

  Okay.

• 1:11:24Ben Thompson?

  I do. Everything about Google is AI is felt incompetent, except for search. It's like, the, the part of the company that seems most threatened is somehow the most capable of delivering day after day, month after month, like the, you know, do you know how much work has to go into developing models to do that at scale? How much money that takes to be like doing AI mode everywhere? And they're just pell mell straight ahead. But I think that's where this other bet comes in is we're also going to be the infrastructure for all of this.

• 1:11:56Andrew Sharp?

  Yeah.

• 1:11:57Ben Thompson?

  And.

• 1:11:59Ben Thompson?

  Does it make ultimate financial sense? I think they're, I don't know. I think it's, it's fair for their stock to be punished. I do kind of admire it. Like they're, they feel more like any other company. They're a company that will live forever.

• 1:12:15Andrew Sharp?

  Yeah.

• 1:12:15Ben Thompson?

  Because in part because they're so hard to understand, in part because they're so undisciplined. There's just like, part of that is.

• 1:12:25Andrew Sharp?

  It's the blob. Bet against them at your own risk. Well, if not for the Google capital company trajectory, I would be significantly more worried about Google's position today than I am.

• 1:12:37Ben Thompson?

  I mean, the cloud, like the, the numbers are incredible and they're not stopping. Like the amount of money they're making, the profit margins are skyrocketing quarter after quarter.

• 1:12:46Andrew Sharp?

  And the barriers to entry for future competitors are impossibly high.

• 1:12:51Ben Thompson?

  And, and by the way, new participant in the call, Thomas Kurian.

• 1:12:55Andrew Sharp?

  Oh, boy, that's right.

• 1:12:57Ben Thompson?

  That's kind of a promotion right there. And I saw some people like, why is he on the call? He's the reason that they're, whatever it might be. It's like, to me, it's like, business is about trade offs. And Google,

• 1:13:11Ben Thompson?

  their trade off has been like, this is, this is our priority. And all the evidence points in that direction. And you know what? I admire a company making choices.

• 1:13:20Andrew Sharp?

  Fair enough. Well, OpenAI says the volume of search-like queries in ChatGPT is now one-fifth that of Google, and that tracks with my own usage. And Max Anderson on Twitter had a long tweet about what Google has been doing with its search business. Manufacture revenue growth via short-sighted, highly extractive customer hostile tactics.

• 1:13:42Ben Thompson?

  Isn't it?

• 1:13:42Andrew Sharp?

  It was from a week ago.

• 1:13:44Ben Thompson?

  No, it's from July 23rd, 2026.

• 1:13:46Andrew Sharp?

  Oh, okay.

• 1:13:47Ben Thompson?

  No, it was a big thing over the, over the summer.

• 1:13:51Ben Thompson?

  People were pushing back on some of this stuff. How much is it true or is it not? I don't, so I don't know to the degree that this, this tweet is true or not. But it's not implausible that Google is absolutely, if you think.

• 1:14:05Andrew Sharp?

  If they see the writing on the wall and say.

• 1:14:07Ben Thompson?

  Get as much money out of it as you can.

• 1:14:09Andrew Sharp?

  No, it makes sense. And for me as a user, I just marvel at how much better ChatGPT is than Google these days. Like I now use ChatGPT for 80 to 90% of what I used to use Google for. Like as I'm writing every week, when I need articles.

• 1:14:26Ben Thompson?

  Even if you're looking for a specific link where it used to be like, oh, you.

• 1:14:30Andrew Sharp?

  That's when I use ChatGPT. It's like, I know exactly what I need, but it's impossible on Google.

• 1:14:35Ben Thompson?

  Right, there's a while where it was like a Wikipedia type thing where it'd give you the answer, but it's like, no, I need a link to get to this. Now it's like, can you give me the link about this thing? Like, boom, here you go. There it is.

• 1:14:43Andrew Sharp?

  It's wild. So anyways, times are changing. Speaking of which, Reddit CEO Steve Huffman on the company's earnings call last week said Reddit is still a, a top search term in Google. So this does not say anything about the internet consumer's demand for Reddit. People still want Reddit. It is just Google is not sending them to Reddit the way they used to. Given our strategy is to make Reddit a direct destination, this is actually in line with our strategy because Google is teaching people that if you want to come to Reddit, you need to come to Reddit. So Huffman's valiant attempt at the end of that quote to spin the reality positively was unsuccessful.

• 1:15:25Andrew Sharp?

  Reddit lost about 30% of its share value in the past week or so. Will the rest of the open internet experience an identical trajectory to Reddit as Google sort of resets its approach?

• 1:15:40Ben Thompson?

  I mean, you know, it's all, it's always funny. One of the, I want to talk about the article you put on Sharptext this week about X and.

• 1:15:52Andrew Sharp?

  I personally, it was very painful for me to call it X at various points in that article, but here we are.

• 1:15:58Ben Thompson?

  You know, there was a, um, uh, there was a VC that I was talking to a while ago that had some money come from like Saudi Arabia or something like that. And they were like, yeah, we used to like, we, we debated a lot and we was like, this is our, like, we're just going to say we're aligned with the US, with the federal government. If they see Saudi Arabia as an ally, fine, then we're, they're an ally from our perspective. Now, is this very self-serving? Yes, of course it is. But also there, there is an aspect of just outsourcing to the official thing. Just avoid the controversy.

• 1:16:32Andrew Sharp?

  Sure.

• 1:16:33Ben Thompson?

  At the end of the day, there are lots of trade offs with these things. And that's sort of like, it's the US, it's the federal government's job to decide who our allies are. Right? Not me individually.

• 1:16:43Ben Thompson?

  So in that vein, when it comes to like naming things, I'm like, let's just align with whatever the official thing is. I'm not, it's like the, like federal, I just take off the federal holidays, right? Like, like, I'm not going to make decisions.

• 1:16:56Andrew Sharp?

  This is like how Sam Hinky had one outfit that he wore every day to remove that decisional anxiety. You can sort of remove the burden.

• 1:17:05Ben Thompson?

  I'm going to control it. I can control it.

• 1:17:06Andrew Sharp?

  Defer to the others. Sure. So I guess we'll call it X, whatever.

• 1:17:11Ben Thompson?

  No, I would say let's violate this policy and just call it Twitter. The worst thing is, is like, that actually is, that one is, it's definitely X. It's not Twitter anymore. Like there's some debate about the like, what is it like, Gulf of America?

• 1:17:24Andrew Sharp?

  Gulf of America, Gulf of Mexico.

• 1:17:26Ben Thompson?

  Defense versus Department of War. Like, can you change that via executive action or does that be like congressional action or whatever? So in those, it's like you're more free to like choose. Other companies like, I feel Meta is just Meta.

• 1:17:40Andrew Sharp?

  Yeah.

• 1:17:41Ben Thompson?

  They like, not that that's a good name, but they needed a new name because Facebook was a product and also a thing. But like Google, we don't call it Alphabet. We do call it Google. The thing about X and Twitter is just, Twitter's just such a good name.

• 1:17:57Andrew Sharp?

  Yeah.

• 1:17:58Ben Thompson?

  Anyhow, digression.

• 1:17:59Andrew Sharp?

  Well, and it's, there's no alphabet. It's one product that's always been Twitter, so it is what it is. Well, and on the Reddit front, I only asked because it reminded me what happened to Reddit. First of all, was inevitably going to happen to Reddit. Like so much of their traffic when they went public was coming from Google. Tracks with my experience, the only time I ever end up on Reddit is when I Google something and there's a Reddit link populated at the top and I'll check it out. And so Google was always going to take that rug out from underneath them. And now the article you wrote a couple of weeks ago, the end of the internet.

• 1:18:38Ben Thompson?

  So this is what, this is what I was.

• 1:18:39Andrew Sharp?

  This is the other side of the coin.

• 1:18:41Ben Thompson?

  I was circling towards, so you write this, you write this great article on X slash Twitter. Which I gotta, so there's a digression of the digression. It's a trace where we are. So X slash Twitter. And one of the things we were talking about the article, I hope we talk about it in a moment. But is, it's hard to get a feedback mechanism from X. We should call it X because it's different than what Twitter used to be. Whereas like, like.

• 1:19:05Andrew Sharp?

  Dominated by for you.

• 1:19:06Ben Thompson?

  I have numbers I can look at, subscriber numbers, website numbers that are just like doing very well. But like some things like there's not like, sometimes there's discussions, sometimes there's not. And whereas the X algorithm has been very tuned to posts on X are what get pushed and promoted.

• 1:19:25Andrew Sharp?

  Wrote every Strategery update and article as a long tweet, you would get 100X the engagement.

• 1:19:31Ben Thompson?

  Right, which is by the way, just a horrific user experience.

• 1:19:35Andrew Sharp?

  I hate reading those long tweets. And there's lots of thoughtful stuff, so it's extra painful, but it is what it is.

• 1:19:41Ben Thompson?

  Yeah, like the, whoever, yes, it drives me nuts. But it is, it is what it is. This is the reality of the algorithm, which is, that is one relevant point of this discussion. But so one of the, one of the things that I have to take as feedback is, you know, subscriber email, numbers, things like that. And also is Andrew excited to talk about what I wrote about?

• 1:20:04Andrew Sharp?

  Okay, great. I'm glad I'm part of your process.

• 1:20:06Ben Thompson?

  So a couple of weeks ago, I write about like the dying internet or the dead internet or what did I call it? I had a better.

• 1:20:12Andrew Sharp?

  The end of the internet.

• 1:20:13Ben Thompson?

  The end of the internet. And which I actually think was fairly optimistic, the sort of the group chat era, you know, not defined by doing things at scale. You know.

• 1:20:24Andrew Sharp?

  Didn't make it to our rundown.

• 1:20:25Ben Thompson?

  Didn't make it to our rundown.

• 1:20:28Andrew Sharp?

  I forget what crowded it out, but we had covered a lot of that on the previous episode that we recorded.

• 1:20:35Ben Thompson?

  We actually had.

• 1:20:36Andrew Sharp?

  I did enjoy the article for the record. To make you feel better two weeks later.

• 1:20:41Ben Thompson?

  So, um, so anyhow.

• 1:20:42Andrew Sharp?

  But the end of the internet.

• 1:20:46Ben Thompson?

  Thank you. It made, thank you for bringing it up just now because that's where I was going to go with the, uh, the Reddit.

• 1:20:51Andrew Sharp?

  And I don't recall that being addressed in there because a lot of that was about cybersecurity and sort of the erosion of trust that we've come to enjoy over the last 25 years.

• 1:21:01Ben Thompson?

  Part of it is also like the, the, everyone on the internet, when we talk about Google doubling down, extracting every last dime or moving people to this new paradigm.

• 1:21:12Andrew Sharp?

  They're screwed.

• 1:21:13Ben Thompson?

  They're screwed.

• 1:21:14Andrew Sharp?

  Right.

• 1:21:14Ben Thompson?

  And, uh, you know, it's

• 1:21:16Andrew Sharp?

  And so like the entire economy that we have come to understand and experience as news consumers, that's all going out the window and it, and it's been headed that direction for quite some time. So it's not really news, but I feel like it's becoming more pronounced over the last six to 12 months.

• 1:21:34Ben Thompson?

  Right. Now, when I, that, that was a provocative title. Would I call it the end of the internet?

• 1:21:37Andrew Sharp?

  Mm hmm.

• 1:21:38Ben Thompson?

  It's like the end of the internet as we know it.

• 1:21:40Andrew Sharp?

  Yeah.

• 1:21:41Ben Thompson?

  Which is like one market and everything is about scale. And so much of the, what, what strikes me about this AI thing is AI is so empowering on like an individual level.

• 1:21:55Andrew Sharp?

  Mm hmm.

• 1:21:55Ben Thompson?

  But if you're out there being like, I can vibe code. I can make an app and sell it to the world. It's like, yeah, no, that's not gonna happen.

• 1:22:03Andrew Sharp?

  You 10 million other people.

• 1:22:04Ben Thompson?

  Because anyone else could do it. That's right. And so, so much of these payoffs are actually very small scale in nature. And by the way, this, this is a lot of the internet is sort of, is the internet is this weird bifurcation. I've called it the smiling curve. On one side, you have these astronomical platforms that serve everyone. And on top of them, you can build little, small gardens, like say a stratechery that is, you know, predicated on there being these big platforms, these free distribution to anyone, but it's its own little world. And the analogy that I've talked about is like group chats. Like one of the, the best social network in the world is actually very small, very high trust. Always, all the benefits of the internet. You can be connected from anywhere with anything, anywhere in the world, to anyone.

• 1:22:48Andrew Sharp?

  So much better than the internet. Yeah.

• 1:22:49Ben Thompson?

  Right. And it's so much better. The challenge is all the companies that were predicated on reaching everyone and having this funnel feeding them, which was Google, right? And Reddit was a, you know, did very well in Google for the same reasons, very well in all the LLMs.

• 1:23:06Andrew Sharp?

  Right.

• 1:23:07Ben Thompson?

  But on Google, Google had always, you know, this goes back to, Google was almost like the last true altruistic, like do it because it's the right thing, the part of the whole, don't be evil ethos. Which part of it was, we're going to index your site. It's going to make our product better.

• 1:23:27Andrew Sharp?

  But we will send you traffic.

• 1:23:28Ben Thompson?

  A ton of traffic. And by the way, we'll also build an ad network for you, AdSense, so you can help monetize your site. And you, it's kind of funny, like there's that lawsuit about like the network and are they monopolizing versus publishers and things like that.

• 1:23:43Andrew Sharp?

  Right.

• 1:23:43Ben Thompson?

  Um, and to some extent, I think the answer is no, publishers' problems are not Google ads. Uh, have they acted somewhat of, in a beautiful manner? Yes.

• 1:23:56Andrew Sharp?

  Probably.

• 1:23:56Ben Thompson?

  Well, but, but part of that is like, it's that don't be evil ethos chipping away. You've got to hit a KPI. You got to hit a bottom line. You're going to tighten the screws a little bit more. And why? They need you. Like that was the weird.

• 1:24:07Andrew Sharp?

  Going back an hour and 15 minutes. These are all multinational corporations that behave in sort of a sociopathic way.

• 1:24:13Ben Thompson?

  And still at the end of the day though, they're going to send you a lot of traffic. And it's like, we've reached the end state of that, like

• 1:24:20Andrew Sharp?

  Actually, we can't do that anymore.

• 1:24:22Ben Thompson?

  Sorry, guys. It's been a good run.

• 1:24:24Andrew Sharp?

  We're growing out AI mode, which kind of sucks, but it is what it is.

• 1:24:28Ben Thompson?

  And so, yeah, so for, for a Reddit, uh, for lots of companies, the, they need to shrink down to what I talk about in like a stratechery type world, where you maximize your revenue per user, knowing you're not going to have a maximum, like you're limited in the number of users you're going to have.

• 1:24:50Andrew Sharp?

  Yeah.

• 1:24:51Ben Thompson?

  And whereas most sites, yeah, we'll have, we'll show ads to people who aren't logged in, come in via Google. The assumption is you make it up, that up in volume. The assumption of now you have to be logged in. Well, if you're logged in, easier to track you, easier to get, build profile on you, show you more targeted ads. Like we're going to need to, need to increase. I don't think Reddit's going to go to a paid model, but they need to dramatically increase the monetization of the ads that they have.

• 1:25:16Andrew Sharp?

  Yeah.

• 1:25:16Ben Thompson?

  And which means understand their customers better. Just, if you're going to, people evaluate, you're going to add a minimum after login. So we can know who you are. If you have a login experience, you can build as much of a profile about someone.

• 1:25:30Andrew Sharp?

  So they'll do what they can, but, uh, it doesn't sound like the future is all that attractive.

• 1:25:37Ben Thompson?

  Well, they do still have the core user base.

• 1:25:40Andrew Sharp?

  Mm hmm.

• 1:25:42Ben Thompson?

  Who generates content for them for free.

• 1:25:44Andrew Sharp?

  Yeah.

• 1:25:44Ben Thompson?

  Like Reddit, and Reddit still makes all this money from selling access to their data to LLMs, which in, it's super valuable because it's continually fresh data.

• 1:25:55Andrew Sharp?

  Mm hmm.

• 1:25:56Ben Thompson?

  And you, you remember you go back to the, um, the general internet paradigm, right? 1% of people post, 9% of people respond, 90% just lurk.

• 1:26:04Andrew Sharp?

  Yeah.

• 1:26:04Ben Thompson?

  The, at the end of the day, the people who generate all the value for Reddit are the people who post and respond.

• 1:26:11Andrew Sharp?

  Mm hmm.

• 1:26:11Ben Thompson?

  Those people are already logged in. And so there's an aspect of that other 90% actually aren't that core to what is the most valuable part of their business.

• 1:26:23Andrew Sharp?

  Okay.

• 1:26:23Ben Thompson?

  And so this, where are they really losing? And by the way, if people are logged in, maybe they're more likely to respond. Maybe they're more likely, they can actually, so it's going to be a painful process, but it makes a lot of sense that they're going in the direction that they're going. And it's just, yeah.

• 1:26:40Andrew Sharp?

  Well, and is it a situation where because they're a public company now, they're beholden to growth statistics and engagement statistics?

• 1:26:48Ben Thompson?

  No, but that's why you said a valiant attempt to spin the reality. I see it as a valiant attempt to state reality.

• 1:26:53Andrew Sharp?

  Yeah.

• 1:26:54Ben Thompson?

  And like, yeah, the stock took a hit because they have to fundamentally

• 1:26:58Andrew Sharp?

  Reorient the business and how they're measuring success.

• 1:27:01Ben Thompson?

  The, the orientation of the business is reorient, it's reorienting for them. And so it's acknowledging what's happening and let's shift to what makes sense going forward.

• 1:27:11Andrew Sharp?

  Fair enough. Um, all right. So we have about five minutes here. Do you want to talk about my article or AI show and tell or both?

• 1:27:18Ben Thompson?

  I already predicted AI show and tell is going to be higher up in the post.

• 1:27:22Andrew Sharp?

  Well, we've gone long. It was pretty high in the post. We went long on data centers. Let's do AI show and tell. We could close with my article quickly. John says, hello Ben and Andrew. In one of Ben's recent posts, he used the phrase, the group chat era for apps, which perfectly, which perfectly encapsulated so many recent experiences of mine. One, at work, I had a tiny software sized hole in my workflow. And when it is, when I described it in detail to Claude, Claude built me a solution in three minutes. It's not anything I'd ever share with anyone else, but it lets me adapt software to the way I want to work, rather than adapting the way I work to already existing software.

• 1:28:02Andrew Sharp?

  Two, I also built an app that started as a way to help me with my last job search, turned it multi-user when friends noticed it and asked if they could use it too. Three, my wife downloaded an app on the app store that acts as a front end wrapper for the school lunch menu for the public schools where I live. The information is posted publicly, but it's hard to find. While parents could technically navigate to the page and add to the home screen as a web app, downloading an app and setting up notifications is the workflow that most adults know now. And this is in a major US city, major US city. It's not like the public school system couldn't build something like this.

• 1:28:42Andrew Sharp?

  It's just if it did, it would probably be pushed to do way more than just tell people what was for lunch the next day. In the same way, group chats meet our social needs better than mass public social media ever promised it could. This new paradigm seems to be about building software that meets our functional needs better than mass apps ever could. But there does feel like there's a missing middle piece between I build stuff for myself and a company builds stuff for the masses. If I'm building software for myself and a small group of friends, AKA the group chat of software, what do the payments, authentication and security layers look like? And who is positioned to provide them?

• 1:29:23Andrew Sharp?

  The big players like Google and Apple, the AI companies like OpenAI and, and, and like OpenAI and Anthropic, the software stack builders like Versal and SupaBase, or some new undeveloped part of the value chain? Any thoughts on that?

• 1:29:39Ben Thompson?

  Well, there, it reminds me of number one, there's like,

• 1:29:45Ben Thompson?

  The cool thing about when you're a small scale

• 1:29:47Andrew Sharp?

  Mm hmm.

• 1:29:48Ben Thompson?

  Is suddenly the urge and the payoff from acting altruistically returns. This is like a benefit of being small. Like, like we talk about, I keep saying, oh, tech doesn't do the right thing. You're like, well, they're multinational corporations. Yes, that's part of the problem. The bigger you get, the larger scale you operate.

• 1:30:07Andrew Sharp?

  Duties to not do the right thing.

• 1:30:08Ben Thompson?

  Right, and who can even define what the right thing is at the scale of billions and billions of users, right?

• 1:30:13Andrew Sharp?

  Mm hmm.

• 1:30:13Ben Thompson?

  But this is part of the, the argument for more sort of local control, local government is like, what, when you're dealing with your friends and family, or your neighbors, or people that are close to you, there's more scope for acting quote unquote inefficiently. And because it's the right thing to do. And the payoff of the right thing to do is not just the self, I feel good about myself. People see you're a good person, right? There's like a status payoff, all these things. And what's cool, the way to think, I think, generally about some of these like vibe coded, not everyone's gonna vibe put apps. Like you have to be, think about it, identify the problem, all these sorts of things. But to make apps like for your local community that shows the lunch menu.

• 1:30:58Andrew Sharp?

  Yeah.

• 1:30:58Ben Thompson?

  This isn't a money making opportunity, but it is sort of like a status enhancing opportunity. Oh, you made that app, it's so great. I know you, there's, there's, the optimistic part of the end of the internet is in the return to like smaller scale aspects is there's actually an increase in opportunities to do things from it being, from being more inefficient. Like, there's a lot of money making opportunities in inefficiencies. And usually we think about it as being you sell efficiency, but sometimes an inefficiency is like, take your local sports columnist back in the day. There used to be a, the sports columnist in every town of America.

• 1:31:34Andrew Sharp?

  Yeah.

• 1:31:34Ben Thompson?

  Then you get to the internet and there's like one sports columnist, his name is Bill Simmons.

• 1:31:38Andrew Sharp?

  Sure.

• 1:31:39Ben Thompson?

  Right, the, the, this, the internet at scale wipes out all these intervening layers.

• 1:31:44Andrew Sharp?

  And by the way, I'm kind of curious whether that same sort of trajectory and shape will exist in the new reality here.

• 1:31:51Ben Thompson?

  That's what's exciting. And like, like if you think about, oh, I vibe coded this app, I don't want to be like, in this security environment, I don't want to publish this or be responsible for it. And by the way, there's no money to make anyway, because there's a five gazillion vibe coded apps, the competition's massive. But I have a group of friends, oh yeah, you, you have the same problem here, you, you use this, I made this up, you could share this sort of thing. And, um, and maybe at a very small scale, like there is money making opportunities, or it's part of a business that you build and.

• 1:32:21Andrew Sharp?

  But you definitely worry about security in that scenario. So who solves security?

• 1:32:26Ben Thompson?

  Well, all, all these things are to be solved, but I think just like the shape of things to add, maybe the app that I make for my friends and family. There's like, everyone's making that same app for their friends and family.

• 1:32:39Andrew Sharp?

  Mm hmm.

• 1:32:40Ben Thompson?

  And it's like, that's so inefficient. It's like, it's inefficient, but also

• 1:32:46Ben Thompson?

  it's better because it's made expressly tuned to your needs.

• 1:32:50Andrew Sharp?

  Sure.

• 1:32:51Ben Thompson?

  Uh,

• 1:32:53Ben Thompson?

  in a world of AI doing all this stuff at scale for quote unquote free. The, like, when we talk about humans creating needs, creating desires, it's kind of humans creating inefficiencies for each other.

• 1:33:07Andrew Sharp?

  Mm hmm.

• 1:33:07Ben Thompson?

  Right? Like, the most utilitarian thing is to wear the exact same hinky, wear the same clothes every day. Why is there a fashion industry?

• 1:33:14Andrew Sharp?

  Because.

• 1:33:14Ben Thompson?

  Because people are very inefficient about wearing clothes, right? You know what I mean? So, so I, to what extent does this new creation of new desires, new markets, which the tech mindset's so inefficient? Actually, no, it's actually welfare enhancing to have more inefficiencies in many respects, in a weird sort of way to think about it. So that, and I think that the optimistic view of AI is it fits in this. Now, how is that all gonna work? TBD for sure. All the AI companies are trying to build their own, like you have cloud environments, you can host stuff. Like, uh, and part of that is lock people in, part of it is just a, it's a problem to be solved. Uh, that's part of integrating the stack.

• 1:33:56Andrew Sharp?

  Cause like, I don't personally feel the need to create many apps on my own. And I feel less than sitting next to you who's king app maker. Uh, but like if my wife makes an app, I want her to be able to.

• 1:34:08Ben Thompson?

  Queen app maker from what I hear.

• 1:34:09Andrew Sharp?

  She is, she's referred to as, uh, the app queen at her consulting firm. Uh, if she makes something, I want it to be very easy to, for her to share it with me and secure.

• 1:34:22Ben Thompson?

  One interesting thing, uh, as long as we're on the Google fanboy, um, tour here. No, Google actually released this feature a couple of months ago. I, I'd never got a chance to write about it. Uh, it was actually, no, a few weeks ago, where they created a whole part of the Google Play Store where you can publish your own apps just for your friends and family.

• 1:34:40Andrew Sharp?

  Okay.

• 1:34:41Ben Thompson?

  Like, Apple, you can kind of do this with test flight, but it's like, it's a, it's a lot of like rigmarole. You have to have a developer account and people have to join and download, like, whereas this is just part of the app, Google Play Store. You can do, and it's just, it's sort of built in. I can publish my app, you can get access to it, the people that I define. And, and I think there's more and more opportunities for sure for Apple and for Google. I think Google is ahead on this point. I hope Apple sort of pays attention and, and catches up here. Um, and that's great. Like, like there's big.

• 1:35:14Andrew Sharp?

  That's exactly what we need.

• 1:35:15Ben Thompson?

  Well, then all this hosting stuff, right? I have my own hosting and like security and like, it's all a, like, right now, it's fairly insane, but that.

• 1:35:23Andrew Sharp?

  It's jerry rigged.

• 1:35:24Ben Thompson?

  These are all opportunities, right? And so I, and the fun thing about this era is it's very disconcerting. You know, I was speaking to a bunch of MBA students the other day, and it's very disconcerting. Uh, you know, what jobs are going to exist and, and, and et cetera, et cetera, which I understand that. My advice is the way to think about AI is if AI, if you see AI as an opportunity to do your job, you're in trouble.

• 1:35:52Andrew Sharp?

  Okay.

• 1:35:52Ben Thompson?

  The way they want AI is AI is an opportunity, like what's my advice I always give? Double down on your strengths and do like the bare minimum to ameliate your weaknesses.

• 1:36:00Andrew Sharp?

  Mm hmm.

• 1:36:01Ben Thompson?

  Because that's what, you're going to get paid for your strengths, not for your weaknesses. AI is like a machine gun you can train on your weaknesses. Like, take care of all this stuff. That's right. So that you can spend more time and attention doing what you're actually good at. That's, and it's funny, everyone thinks about AI and applies it to their primary thing. And AI is actually the most useful for all your secondary things.

• 1:36:28Andrew Sharp?

  Okay.

• 1:36:28Ben Thompson?

  All this stuff you don't want to do. And, uh, and so, you know, I forgot how I got on that point. Um, but yeah, I, I think the, I'm super optimistic about this possibility. Oh, the, the MBA students, the good thing is that when everything's being shaken up, that means the opportunity to build something new. There's just way more opportunities in general to start from, like, if you were building something on the internet in like the web 2.0 era, like there's so many possibilities. By the time you get to the late 2010s, not really an opportunity to build anything. It's kind of been done. Uh,

• 1:37:06Andrew Sharp?

  The dominant players are entrenched, sure.

• 1:37:08Ben Thompson?

  Exactly. Uh, but when something's new, so you, it's easier to differentiate yourself in part because the dominant players have wiped out everyone else. They've become so tuned to that paradigm.

• 1:37:24Andrew Sharp?

  Yeah.

• 1:37:24Ben Thompson?

  The app store paradigm, the, the.

• 1:37:26Andrew Sharp?

  Kind of complacent and sclerotic, sure.

• 1:37:29Ben Thompson?

  Well, well, actually, anything but complacent and sclerotic at their core business.

• 1:37:34Andrew Sharp?

  Okay.

• 1:37:35Ben Thompson?

  But incapable of doing anything else.

• 1:37:37Andrew Sharp?

  Anything new, sure.

• 1:37:39Ben Thompson?

  Um, so, uh, yeah, there's a lot.

• 1:37:42Andrew Sharp?

  Unbelievably optimized for their actual core business, sure.

• 1:37:46Ben Thompson?

  Yeah. Uh, so, yeah, so this, I mean, this email is cool. I love the, I love the lunch menu thing and.

• 1:37:52Andrew Sharp?

  It's such a great example of something that would make my life, like, I don't need a public school lunch menu app, but I can imagine how it's so much easier just opening an app than going to a website every day or the day before school. Um, and that's the sort of thing that, uh, public school, if they released a public school system, if they released their own app, I'm sure would junk it up with all kinds of different crap. And just simple, elegant, not trying to do too much. Hopefully we have lots more examples of stuff like that.

• 1:38:26Ben Thompson?

  Well, I, I remember I had the local news business model I wrote about ages ago. I'm like, why doesn't someone have like a newsletter that is just like about like Madison, city government, local stuff that no one's going to care about, doesn't scale? But they have a cost structure that actually makes sense, unlike the newspaper that is still carrying on printing, printing presses and trying, you know, running, they're just a terrible product, particularly the website. Um, and part of the issue, on one hand, like publishing was the perfect medium to do the one person business, because you really can do it all yourself. Still, you couldn't, most people didn't want to do it themselves. And so like, that's why Substack was, was an amazing company to come along, make it super easy to get started.

• 1:39:08Ben Thompson?

  But that's evidence that there, there are markets that are much larger than you think. If people don't have to worry about costs, or they, they can operate with very low costs. And so if, if you're a writer and you make a hundred thousand dollars a year, you're making more than the median newspaper.

• 1:39:31Andrew Sharp?

  Sure.

• 1:39:31Ben Thompson?

  Like, uh, particularly today. And so, uh, AI has the potential to do that for so many more areas.

• 1:39:40Andrew Sharp?

  Mm hmm.

• 1:39:40Ben Thompson?

  Like, I don't know that I buy some of the, like, talk about one person company being a billion dollar, maybe that's gonna happen. What I do definitely buy is there being that many more opportunities for one person companies that are a hundred thousand dollar businesses.

• 1:39:58Andrew Sharp?

  There you go.

• 1:39:58Ben Thompson?

  And, uh, and so that is, yes, and so platforms for that is going to be an opportunity. It might be the case we need to see people succeeding by stitching it all themselves, like Stratechery did at the beginning. And then a Substack will come along that answers this question, oh, that's the platform that makes this easy. So it might be a, a timeline where people have to prove it out. And then people will see the idea and then make it easy for lots of people to do. Um, but I think this is, you know, so many in tech, all these people that I'm annoyed at, none of them thought Stratechery would work.

• 1:40:31Andrew Sharp?

  Yeah.

• 1:40:32Ben Thompson?

  Um, I myself thought about building a Substack, wasn't sure like how many, exactly how many writers are actually going to be able to make money. Turns out a lot.

• 1:40:41Andrew Sharp?

  Whoops.

• 1:40:42Ben Thompson?

  Well, they, you know, they, they're, so, yeah, so I, I think, I think people underestimate the ingenuity and the market creation capability of humans. At, when you take costs out of the equation, you don't need to make that much revenue to make a living.

• 1:41:01Andrew Sharp?

  Mm hmm. And make it all worthwhile.

• 1:41:02Ben Thompson?

  And you make, there's more experimentation, more possibilities. So, yeah.

• 1:41:06Andrew Sharp?

  Well, I love the group chat era of social media, pretty excited for the group chat era of, of apps. I thought it was a good construction by you. Um, on that note, let's save the article, let's save it for Sunday Mailbag. What do you think?

• 1:41:20Ben Thompson?

  Okay, fine.

• 1:41:21Andrew Sharp?

  Okay. We've come long enough. Uh, great to see you as always. We will be back, if you're subscribed to Stratechery, we will be back in your feed on Sunday afternoon. For now, Ben, we're gonna take a little break and then get back to recording, but I will talk to you soon.

• 1:41:38Ben Thompson?

  Talk to you later.