What an Old Idiom & Chat GPT Means for You
Definitions and Generally Accepted Interpretations:
- Something new is replacing something that is old or out of date[i],[ii]
- Life improves by replacing old things with new things.
- To discard older, legacy technologies or ideas, with new and improved technologies or ideas[iii]
Out With Old In With New: Good for You
The history books are quite clear on the matter: over the long arc of human history, life has improved. Generally speaking “out with old, in with new” has helped human beings live longer, healthier and safer lives. As recently as 1900, average life expectancy in the US was barely 48 years. By 2020 the number had jumped to 79 years.[iv] Progress.
The folks dedicated to technology deserve a great deal of credit for these improvements. Their achievements are invaluable. What I want to do is make the case we have been making for the last three years: that disruption is the normal state of affairs in technology.
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While good for you, as a person, out with the old and in with the new is terrible for technology companies. This is why it is such a brutal space to invest in. Don’t believe us? Look back at our chart comparing Staples to IT. “Disruptors get disrupted” is the law of the land and a critical component of Schumpter’s “creative destruction.”
The bloated weighting of technology in indexes and the rise of funds dedicated to investing in utter rubbish new age tech, that is an anomaly. It is not normal. As we explained in Apple II Flashback the Fantasy of Predicting the Future, divining who is the next Amazon is empirically impossible. All you need to know is that the “next Amazon” is, indeed, coming. In October 2020 we warned that the current crop of purportedly impossible to displace tech juggernauts were little more than a reprise of the Nifty Fifty. As that paper explained, in many ways the firms then were cheaper and perceived to have substantially better moats than today’s winners.
Mandeep Singh, Bloomberg’s TMT Lead and Senior Equity Research Analyst recently published a fantastic article on some of ChatGPT’s puts and takes. We believe this is but one tiny snapshot of the many disruptions taking place among the much-lauded disruptors.
Titled “ChatGPT Aids AI Accelerator Spend, Search Impact Low” they focused primarily on the potential for the technology to ramp up replacement cycles for devices and the implications for server and cloud infrastructure spend. But the piece did highlight issues that may slow ChatGPT adoption and suggest it is unlikely to alter the search landscape.
I’m going to take the over on ChatGPT and suggest it may be an enormous disruptor to ad spend on search:
The authors note that the query costs, at $0.07 per question, were far higher for ChatGPT than typical search which is paid for by ruthlessly exploiting users’ personal information advertising. The authors suggest, very understandably, that this could slow adoption.
If you told me that, to get access to the $0.07 cost query in ChatGPT, I had to watch a 5 second ad, I would watch that ad without blinking. People do this to watch idiotic garbage on YouTube already.
What would an advertiser pay to have a user, wanting very specific information from ChatGPT, be worth?
- Here’s what we would do: halt 100% of our SEO spending and put it all into ads for ChatGPT users
- Allowing us to send someone asking a question about portfolio management or investment styles a 5 second snippet about KCR ? No brainer.
- At $1 per ad, with hyper-targeting like that, the margin is 93% on that $0.07 cost, and I guarantee the results are better than spending for “placement” in Google search
There simply is no comparison. Here’s why:
ChatGPT offers a more conversational and interactive user experience compared to traditional Google search. With traditional search, it’s a game of trying to find the specific keywords and phrases to get results relevant to me. With ChatGPT, users can ask questions and have a back-and-forth conversation with the model, allowing for more natural language inputs and a more intuitive way of finding information. Additionally, ChatGPT can generate human-like responses, which can make the experience feel more personal and engaging, allowing me to learn about the topics at the speed, depth and rate most useful to me. Put our ad in front of a user having a conversation about best financial newsletters or behavioral finance and it is the right audience having a great experience relative to banging about Google.
We want to find that user.
In contrast, Google has used their monopoly power to extort force customers to hand them money for “ad placements” that have to be one of the worst experiences in advertising history. Here are my 5 key gripes:
- Cost: Google Ads can be expensive, especially for competitive keywords or industries like finance. Advertisers must be prepared to bid high for their ads to be seen by their target audience without knowing if they are actually even reaching the promised target audience.
- Quality Score: Google Ads uses an arbitrary “Quality Score” to determine the relevance and quality of an ad. Low-quality ads may be penalized with lower ad rankings and higher costs per click without telling the ad buyer what is going on.
- Limited control over ad placement: Advertisers do not have full control over where their ads appear on the Google network, and in our limited trials we found the stuff showing up in comically wrong places.
- Limited control over ad format: Google has full control over the format of the ads and the way they are displayed on the search engine and other sites in the Google network.
- Click fraud: Advertisers are exposed to the risk of click fraud which is an intentional or unintentional click on an ad by a person that is not interested in the product or service being advertised and drives an entire industry of click-farmers.
Now you all know that most of the “pro ChatGPT” part and the section on why Google ad spend is a waste of money were written by ChatGPT. While not perfect or all-encompassing, the “pros” and 5 cons are 100% spot on in my experience.
The disruption of disruptors is well underway in my view. Aside from the bipartisan support for antitrust laws that move away from Bork’s “consumer welfare” standard to one that favors labor and actual firm competition, there is advertising. The key to much of the big-tech profit pool.
Already, Apple is making monetizing advertising a top priority. Netflix and numerous other streaming TV content is back from the “innovation” of subscriptions and looking for ad dollars. Amazon is also aggressively inhaling ad dollars.
Cloud storage and compute? Same story. Many of these companies are also diving headfirst into vertically integrating chip design – hardly an industry known for low costs and stable economic moats. The monopoly power of big tech is under siege as they all turn to each other’s core competencies to try and grow.
Remember: Amazon didn’t get into groceries because it was a great business with high margins. They did it because their stock responded to sales growth and groceries are a big chunk of the consumer wallet. Now, with tech under pressure to earn profits to justify exorbitant valuations predicated on actual cash profits (ex SBC), they are all racing into each-others’ core competencies.
Capitalism. Crops up when you least expect it….
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February 3, 2023 |
| Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
February 3, 2023
Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin