About this transcript: This is a full AI-generated transcript of The U.S. Votes on Data Centers, Big Tech Impact, Google’s AI Response — Sharp Tech with Ben Thompson from Sharp Tech Podcast, published November 6, 2026. The transcript contains 18,872 words with timestamps and was generated using Whisper AI.
"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 are you doing? I'm doing okay. I do need to know what is more annoying. What? I have a ranked choice list. Okay. All right? Number one, your..."
[00:00:00] Andrew 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 are you doing?
[00:00:15] Ben Thompson: I'm doing okay. I do need to know what is more annoying. What? I have a ranked choice list. Okay. All right? Number one, your voting's not over this week. Here we go. That's right. By the way, ranked choice, terrible idea, but anyhow. Number one, flight delayed. Wait, we got to get the list first. Number two, no Wi-Fi on the flight. Number three, this is take three because we've been having some technical challenges.
[00:00:40] Andrew Sharp: We had a couple good starts also, so I'm going to go with number three there. That is by far the most annoying.
[00:00:47] Ben Thompson: I could see it. You came in all chipper and cheery after no Wi-Fi, no flight delayed. We had some good momentum, good rhythm. And now you're just getting madder and madder. I can see it.
[00:00:56] Andrew 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. A 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 data center construction. Out of 44 local ballot measures that oppose data center construction, 43 of
[00:01:29] Speaker ?: those measures passed.
[00:01:29] Ben Thompson: 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. We're going to have to pause for a fact check. Maybe even more important than the- Actually, can I add on that though? It wasn't just that all these measures against data centers failed. Mm-hmm. In several different places, like mayors or like board commissioners got recalled. Yes. 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- Your job is on the line. That's right. So it's like, it's not just that these measures passed. 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. Watch your step. Exactly.
[00:02:14] Andrew Sharp: 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.
[00:02:26] Ben Thompson: Is there going to be a lot of, like I said, like we talked about previously, but I do think this is one we were very much on the ball.
[00:02:33] Andrew Sharp: 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- Right. The state legislature that only
[00:02:51] Ben Thompson: meets once every two years. Oh, I wasn't aware of that. Oh, you don't know. This is a great thing about Texas. Part of the bottleneck. Okay. Yeah. What a great thing about Texas is where one of the unique things about Texas, maybe a better thing to say. Yeah. Their legislature meets once every two years. Wow. Okay. So this is more meaningful. And the other thing about Texas, you are right to say, more importantly, Texas. 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 going to get built in Texas. Right. And it's Texas. It's not just the- Is that just because of available land and power? Power. Yeah. There is so much natural gas in Texas. They set it aflame. So they're pulling oil out and there's just tons of natural gas coming out. 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 has pluses and minuses. But in this case, it's easier to get in a position or bring all this power online. You're not dealing with... In the US, there's three grids. There's the East grid, the West grid, and the Texas grid. It's like its own thing. I didn't know that. Wow. Oh, wow. This is a very educational episode.
[00:04:18] Andrew Sharp: That's right. So many fun facts here.
[00:04:19] Ben 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.
[00:04:29] Andrew 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. And in the long run, if you talk to anyone, the assumption is it was going to be way
[00:04:41] Ben Thompson: more than that. Wow. Like just going forward. Yeah, it's fine. New York's going to pass the moratorium. Even Ohio, which is a very significant portion of it, might end up there.
[00:04:53] Andrew 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.
[00:05:03] Ben Thompson: And the assumption that it was going to have friendly government. And so that will take care of it.
[00:05:08] Andrew 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?
[00:05:26] Ben Thompson: Well, the question is, is the lost cause is can the tech industry learn?
[00:05:30] Andrew Sharp: We should probably start there. Fair enough. Well, and looking at the market, it is a wipeout as we record this on Thursday afternoon. We had a little dead cat bounce on Wednesday to throw everyone off the scent. Now, who knows? Is the American growth story just cooked in light of all these developments? Where's your head at as we process all this?
[00:05:53] Ben Thompson: Yeah. I think we were right before. You're going to have to get a lot more transactional. The degree of arrogance around this data center thing has been pretty stunning 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. Yeah. 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 the whole fake news debate. 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. Yeah. 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. And so you go back, you know, way back when, uh, 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? There's like widespread resentment of political elites. Right. So it's not like, and well, it's just so infantilizing. Infantilizing. Sure. Wow. I wasn't really sure about that one. Um, it's so infantilizing. Or paternalistic. Yeah. Right. Where, uh, it just assumes people are stupid. And if we give them the right information, they will change their minds. That's right. Right. And, um, and, but you understand why people come up with the people are stupid because some of the fake news stuff is stupid. Well, some of the misinformation
[00:07:42] Andrew Sharp: surrounding AI data centers is just easily disproven or refers to the way data centers operated years ago.
[00:07:50] Ben 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, right? 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 are just voting against this version of the future. Yes. Yeah. 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, right? The factories just closed. In this case,
[00:08:47] Andrew Sharp: once people had a vote, they're not too happy about it. 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. And why not? I mean,
[00:09:16] Ben Thompson: I can't stand most of big tech in the way they talk about AI. 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. Okay. Because why, why do I like advertising? Because I advertising, good advertising 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 going to help solve it. This is very analogous to the AI question in two ways. Okay. Number one, everyone trying to create AI for consumers fails to do this. The issue isn't that you're not showing people, 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 appreciate, 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 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 around the coast, no conception of all normal people live.
[00:11:01] Andrew 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
[00:11:13] Ben Thompson: wide swaths of the workforce. No, exactly. Because they can't articulate it, even though I absolutely 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 knowable and understandable. And we can just design the perfect system. Sure. No, this is where you get the alignment with this sort of Marxist view of the world, communist view of the world of what 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. 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 serve. And then people rise up to meet those needs or people figure out, oh, some number of people have this need. I'm going to 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. They, 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, the AI is climbing up the column, going to wipe you all out. Think how much money we're going to save all efficient. Superior to everyone else. Sure. 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. Implied in that is all of you are worthless. Sure. All of you like are, are uninteresting
[00:13:14] Andrew Sharp: to us. And this is why I go back to- And so all of us, 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
[00:13:26] Ben Thompson: companies. Absolutely. And why wouldn't they? Yeah. And, and so now that's not going to say they're not going to 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. And have driven you crazy for
[00:13:44] Andrew Sharp: years. Um, well, threshold question in all of this, because I do want to get into the implications for a variety of players in this market, but, uh, how durable and widespread do you think the backlash will ultimately be here? Because to me that remains something of an open question.
[00:14:01] Ben Thompson: It is an open question and something sort of come along and then, and then they, and then they go
[00:14:06] Andrew Sharp: away and then it's not, not being a deal. 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.
[00:14:29] Ben Thompson: Well, that's the question is, is this, is this a data center question or is this an anti-tech manifestation? Right. Because I think that is probably going to be pretty real for a while. 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 going to be an ongoing, an ongoing thing. And it is going to your point. What does the industry learn? The industry, the sad fact of the matter is maybe there was 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 it's really starting on wall street, even going back to the eighties was the reduction of morality to legality. Yeah. If it is legal, it is, it is not a problem. Okay. That's right. And the re 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 you don't like just naturally do the right thing, you're always finding the loophole and cutting corners. You have to regulate everything. Absolutely. 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. Less room for innovation and ingenuity. And so 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 Amazon, remember the Amazon headquarter thing. They actually have a building to that. And that's all by you, isn't it? I think they built some of it, but not all of it. It was, it was embarrassing for the tech industry, that whole episode. So this is the episode where
[00:16:40] Andrew Sharp: Amazon basically like auctions off its alternate headquarters to various markets around the country. Yeah. And they're like, all these cities, like who's going to give us the sweetest deal.
[00:16:49] Ben Thompson: Yeah. Sure. It was like one of the most powerful companies in the world is just basically saying, we have a lot of economic impact. We don't want to pay taxes. We want all kinds of subsidies. Sure. 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?
[00:17:12] Andrew Sharp: Yeah. It was baked into the business models of all these companies.
[00:17:16] Ben 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. Okay. 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 benefit you. Instead of going to local communities and saying, Right. Pay up. Shaking them down. Shaking them down. Or we'll go somewhere else. So we're going to pay us exactly what we want. And so what we're going to end up in is fine, big tech.
[00:18:04] Andrew Sharp: The communities shake down the big tech companies.
[00:18:06] Ben Thompson: You want a transactional model, you're going to get a transactional model good and hard. And you're going to end up paying people off.
[00:18:16] Andrew Sharp: That's what's going to happen. 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. Well, that was the crazy thing.
[00:18:40] Ben Thompson: There were so many data center ads.
[00:18:42] Andrew Sharp: And both sides are trying to outflank one another and be more anti-data center.
[00:18:46] Ben Thompson: It was not like you would think zooming out like, OK, the Democrats are nailing the Republicans on this. Brooklyn's generally pro-business, et cetera, et cetera. And I think in general, that was the overall tilt.
[00:18:57] Andrew Sharp: I think six months ago, that's where we were. Right. And then the Republicans were like, holy crap, people really don't like data centers. No, but we don't either.
[00:19:05] Ben Thompson: There was one race that was in the Madison market. First, I don't even know who it was. And everything, they would go back to back. Yeah. 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 is going to happen no matter what. You don't have control of the election.
[00:19:39] Andrew Sharp: Maybe the polls are predictive or maybe they're not. Maybe the predict prediction markets are on it. Maybe they're not. I'm just going to say we have some people in our lives who are living in the cross tabs.
[00:19:50] Ben Thompson: Spend a lot of time that has basically no fan. But maybe it's entertaining for them. Well, fair enough. But the one thing that was in my head early on is like, okay, this data center thing is 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.
[00:20:17] Andrew 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 going to 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.
[00:20:51] Ben Thompson: Well, that is a big, I mentioned the globalization angle before. At the end of the day, call me a big tech shell, a data center is great for a community. That's the thing.
[00:21:02] Andrew Sharp: And like, these are basically the cleanest and most profitable industrial projects in American history.
[00:21:10] Ben 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, Lordon County. Loudon County.
[00:21:18] Andrew Sharp: You screwed this up the first time we talked about Loudon County. Loudon County in Virginia. Loudon County in Virginia.
[00:21:23] Ben Thompson: Richest county in the, in the country. Property taxes have gone down. I didn't even know that was possible. I believe power prices have gone down, but every part of already the 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 been pre-internet, but because DC is, it actually is downstream from DC being close. And so AOL started there. Yep. 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.
[00:22:13] Andrew Sharp: It's a great. And you have an area that knows how to build data centers because of the industry that has. Right.
[00:22:19] Ben Thompson: There's just, it's an entire ecosystem, right? It's like, uh, what you see in China around these manufacturing sites. Sure. 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 that you have tons of power. Your power prices are lower. You have amazing like city parks and services and schools. Right. And you don't pay anything in property taxes.
[00:22:45] Andrew Sharp: It's like, it's not a bad deal. And so relatively speaking, if you're governing one of these communities or states and watching these projects go somewhere else, there's going to be an interesting tension there. But here's the thing.
[00:22:58] Ben Thompson: Jobs are on the line. But so, so big tech would look, 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. That's right. The data center started being built there 30 years ago. Mm hmm. So yes, you're seeing the outcome of a 30 year virtuous cycle. In the meantime, if you build a data center. And you're not power neutral and everyone's prices are going up. And you're not power neutral and you're plugging into the grid. Sure. Guess what? Electrical prices are going to go up. Now, electric prices go up more demand. They're going to 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.
[00:23:45] Andrew Sharp: If you're not mitigating the downsides for people who can vote against your projects. Right.
[00:23:50] Ben Thompson: And again, not just not mitigating, but demanding to be paid for the privilege of running up people's electrical prices.
[00:23:56] Andrew Sharp: Right. Correct. And 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 buildout is concerned and the compute demands.
[00:24:24] Ben Thompson: Well, maybe. So a lot of the stuff. So even in Texas, the moratorium is on new permitting for new. There's a lot of stuff under construction.
[00:24:33] Andrew Sharp: There's like, I believe, 130 projects under construction.
[00:24:37] Ben Thompson: Right. 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. Number one, going abroad. Yeah. 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.
[00:25:02] Andrew Sharp: 15 billion for a data center in Malaysia.
[00:25:04] Ben Thompson: And so you're going to get. Tech is shameless. Uh, remember, tech is the industry that started globalization getting Intel shipping chips to Hong Kong. That's right. For test and assembly. And, um, and so I'm sorry, you're not going to, you're not going to get tech. We'll do the right thing when it is no other choice to do it. They're going to.
[00:25:28] Andrew Sharp: Well, these are multinational corporations. That's the way they operate. Right.
[00:25:32] Ben Thompson: And so, yes, for sure. Going abroad is to be one thing and playing countries off each other. So the, you know, that is, that should be a big concern. Obviously. Number one, number two, uh, this was the whole thesis behind the SpaceX thing. Like I'm like, we're going to outer space. Now we have to. Well, I mean, you might have to, I don't know. It's in play. 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, I wrote about SpaceX and the rest one, it was when this backlash is already building. So I sort of built that in from my analysis from the beginning. Number one, these are more viable than you think. It doesn't mean they're easy. Can we go cliff notes on that in terms of the viability of space data centers? Well, I think the, the big thing is people have in their head, you're going to 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. So a bunch of individual racks and redundancy built into the system. Well, they, well, I mean, the, the challenge is cooling. So you have to, they have to have radiators, um, that, you know, that the, and the amount of cooling is like an exponential increase. You basically have these massive radiators going into space to dispel, dispel 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.
[00:27:12] Andrew Sharp: So inference that serving agents and that time doesn't matter.
[00:27:16] Ben Thompson: Right. Or matters less. So 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?
[00:27:27] Andrew Sharp: We have a lot of land in this country. Right. It's a fair question.
[00:27:30] Ben Thompson: Well, or in the UAE or wherever. I mean, you had this escalation in bottlenecks and the balance gets solved. Right. So we were short on chips and basically make a bunch more chips up. Now we're short on memory. That will be resolved eventually. Then you're short on, we're going to be short on power. And by the way, I do think we're far enough, far enough long in power projects that when and if this bubble bursts where the, maybe the bursting is happening right now as we're sitting here, who knows that that was always the question. What's the longterm payoff of the bubble? What stuff gets built that is like economically nuts, but it's 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 since the oil crisis, basically, you know, it's funny. People go back and they're like, oh, do you remember the fifties and sixties and America was dynamic and growing? We had a lot of power. We treated energy as completely abundant. There wasn't a consideration for anything. Just build all the factories, build the beautiful long Cadillacs that are like 15 or 20 feet long. The boats, absolutely. Right. Build the crazy like overpowered engines. Like why? No one cared about efficiency. Right. And 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. Do more with less. Do more. Sure. 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 nuclear thing is such a tragedy that, you know, and we should have had infinite clean power at this point. But if what happens is the bubble burst, 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, what, what it was worth. Right.
[00:29:32] Andrew Sharp: Um, and we're on the way to bringing on some of that surplus power, correct? For sure.
[00:29:37] Ben Thompson: There's been a ton, there's been a ton of new power projects. And I think like more of this stuff to your point, we'll get over the line. This is the difference with globalization. Globalization. The factory leaves. There's no upside. Right. 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.
[00:29:57] Andrew Sharp: And 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.
[00:30:07] Ben Thompson: If you want to get a data center built, put checks, put money in people's pockets. Exactly.
[00:30:12] Andrew Sharp: Just the, 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 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. Yeah, well, that's the thing. It's the capacity thing that's interesting, right? That's interesting, right?
[00:30:50] Ben Thompson: So like with Starlink, so you, we talked about the Craig Moffitt interview where he's like, why does Elon want to get into the cellular game, which is a crappy business? Yeah. 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.
[00:31:12] Andrew Sharp: Crazy thing to attempt, sure.
[00:31:13] Ben Thompson: Right. The launch capacity exists. It is coming regardless. And there's 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. Yeah. Because it's not really free. That's not correct.
[00:31:37] Andrew Sharp: For anyone else who wanted to do this, it would be insane to attempt that capacity.
[00:31:43] Ben Thompson: They built out this capacity and they need to use it for something. Yeah. Right? I mean, this is how you get, this is how you get, say like in the shipping industry, you'll have shipping companies that will run losses for years. Mm-hmm. 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 aren't covered, 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 $1,000. What that means is they will, if someone will pay $1,100 to ship a container, they'll ship the container. Yeah. Even though the costs on their accounting balance sheet is actually shipping that container costs $2,000, but $1,000 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. Yeah. 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 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 cashflow 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 because 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. Right. Yeah. But just the way money moves around and, and how bankruptcies happen, how companies operate at, at paper losses for ages, but because 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 about commodity markets. That's happening in memory right now. Right. Same, same general sort of concept. And so the reason why. And by then it takes too long for anybody else to bring. Oh yeah. No, yeah. No. Why online. Right. And so people will, well, wow, what an opportunity. Why don't you buy a bunch of ships and then it crashes. Right. And then it's great for the incumbents because they crash, they go bankrupt. Suddenly cheap ships are available. More business. Yeah.
[00:33:53] Speaker ?: Yeah.
[00:33:53] Ben Thompson: 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. Right. Uh, if you wait till it comes back, it's too late. But the, 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, if 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 holding the risk. That's right. Yeah. Uh, and so where does this tie to, tie to, 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. Launch capacity starship is coming. Starship can launch much larger satellites. Mm-hmm. It can launch a ton of them. What's this going to be used for? We'll find out. 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 most companies in general are usually very good about their learning functions. Yeah. And so continuing 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 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. Sure. 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 by, so SpaceX itself is actually much more profitable. And Starlink is much less profitable in a true arms apart sort of calculation of the cost. But all, all this is to say is like Starlink and SpaceX is the ultimate hammer looking for a nail company.
[00:36:36] Speaker ?: Yeah.
[00:36:36] Ben 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.
[00:36:46] Andrew Sharp: 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.
[00:36:57] Ben Thompson: Well, I wrote that a few months ago. Do you want to pat yourself on the back here? No, but that, that is why like a Verizon or an ATT or T-Mobile should be nervous. Yeah. 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. Yeah. 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 building on the warning function, I want to get to Mars. I was going to say his overall goal is going to Mars.
[00:37:37] Andrew Sharp: That's right. At the end of all this.
[00:37:38] Ben Thompson: That's right. And so, um, yeah, so, and I think the, 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. Absolutely.
[00:37:53] Andrew Sharp: So, yeah. Uh, well, I have more questions on specific. That said, most of the days are going to be built on land, especially for the foreseeable future. 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.
[00:38:08] Ben Thompson: I don't know. That's going to be like, like, there's going to be a lot of data centers on earth.
[00:38:11] Andrew Sharp: For now, today's show is brought to you by Stripe, the economic infrastructure for AI and for Stratechery itself, and a company that processes digital payments for millions of businesses around the world. I learned that on Stratechery 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?
[00:38:46] Ben Thompson: I have not, uh, full disclosure. The, I mean, I think the, the, the, the, they have a Stripe blog that write up, writes about some of these things. Stripe economics. Yes. Well, it's kind of funny because one of the challenges in writing about the stock market, which, you know, again, um, You do a little bit of that? No, I don't actually. Okay. It's actually, it's pretty interesting. It is almost a challenge this week where my assumption was there was going to be a big drop because of these things. Again, it was weird. It didn't happen on Wednesday. Um, then the demo, 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. I saw that as I was getting on the plane.
[00:39:28] Andrew Sharp: Literally 24 hours of moderation. And now here we are.
[00:39:31] Ben Thompson: It's like, yeah. Um, 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 assumed that would happen. But what I wanted to write about, like, what are the implications? 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. You know, we, we can sort of keep talking about it, but also there can be such a disconnect between 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 what this spring, everyone's mid Sasspocalypse. 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. Yeah. Like the revenues are increasing. Including new companies, which I thought was interesting in the Stripe notes. Right. And so, um, that's not to say the stock market has it wrong. Like I actually think for the, for the, the, the, like long-term pressure on Sass. There's a terminal value question. Like, I think 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 always stuff will be static growth's going to go away. But the fact that it's actually been growing, um, the amount that, that companies are spending on Sass, uh, it just like, it gives you pause. And it's like, um, cause 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 good quality facts are still doing really well. Uh, so essentially, so Stripe does get a good view of that. Um, I am looking forward to getting more sort of, I am too. That's sort of interesting. Yeah.
[00:41:16] Andrew Sharp: It offers kind of a complimentary view of what's going on in the economy beyond like earnings reports.
[00:41:22] Ben Thompson: And for, 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. What you wrote sounds good. That's right.
[00:41:32] Andrew Sharp: This is what's actually some hardcore data. Uh, yes. Uh, 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? I, I think so.
[00:42:12] Ben Thompson: Well, you know, when you think about the, uh, they always win, they do always win. It's amazing. Um, and like, where, where does the, 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? Why? If you're easily substituted out, if another model come along, that's better. That's a tough place to be. Yeah. So one argument is they need to go up into more consumer facing application. 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, you, you build a boat that way. 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. Yep. 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 had this deal with Broadcom to get chips. Those all need to be built. Meanwhile, you have the big tech companies, which have a ton of data centers already. Uh, they still have the best access to capital.
[00:43:47] Andrew 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?
[00:44:00] Ben Thompson: Not very many. Okay. So, but the, the issue. So cause 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. Okay. Uh, whereas you have like more sort of spread out, uh, cause 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. Yeah.
[00:44:28] Andrew Sharp: You just knock it down.
[00:44:29] Ben Thompson: But you already have the land. You already have the power. The permits. 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. Right. And so there's, I think you're just starting further ahead than trying to get a net new data center. Sure. Somewhere else. Yeah.
[00:44:48] Andrew Sharp: 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. Right.
[00:45:04] Ben Thompson: So they already have lots of assets. Number two, you have the, the financing ability, right? They have free cashflow. Now that free cashflow, they don't have free cashflow. Cause it's all being consumed by the data center. They had free cashflow. 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 cashflow of $180 billion. That's still $180 billion. Right.
[00:45:28] Andrew Sharp: Like, so we're talking about a much smaller increment. So they're $180 billion ahead of Anthropic or open AI.
[00:45:34] Ben 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 cashflow. 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 the, like they, they get these great deals with Anthropic like Amazon does. Cause they can finance them. Even if the, if Amazon has to ultimately finance it themselves, it's like an arbitrage opportunity. Cause my ability to finance is cheaper than yours. Sure. Um, this ties into Nvidia and the, and the Neo clouds, that sort of thing as well. And then number three, they can issue equity. And if you're an Anthropic, like Anthropic needs to get to market again, they need to get to market. We'll see it. 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. Yeah. Yeah. When an 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. Mm-hmm . So of course it's going to be damaging to existing shareholders. Cause 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. Yeah. 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 cashflow, cheaper credit, more ability to issue equity. The hyperscalers are just in a better spot than anyone else. Mm-hmm . And they have more capacity built data centers. Number they're going to be better at lobbying. They're going to 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 going to, if data centers are going to be more expensive because you have to pay off the local population. Sure. Like they're in a better place to fund that, to sort of, to pay for it. Um, and yeah, big tech, I think.
[00:47:51] Andrew Sharp: I mean, 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 open AI? Do they just go hat in hand to some of these hyperscalers? Yeah.
[00:48:21] Ben Thompson: There's a good chance. I mean, I think one of the scenario opening AI and Anthropic, I don't think it will ever go away. Yeah. The question is who are the equity holders? Who's owning that? That's right.
[00:48:30] Andrew Sharp: It's like, does Google just own Anthropic at some point? Yeah. Well, Amazon. Yeah.
[00:48:34] Ben Thompson: It's like a Google Amazon joint because there's, yeah, the, the.
[00:48:39] Andrew 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.
[00:48:53] Ben 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 this is like, would you have like all the crazy stock market things? Yeah. Um, you know, the, uh, like 2008, everyone's like on paper, don't worry. There's a backstop. There's a guaranteed buyer. 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 opening eye, you know, you go down the chain, all these sort of things. Um, the, uh, it's so, so yeah, but they had to compete, right? What if Amazon doesn't invest then while Google's going to 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 can't slow down. If they're not slowing down, you have the same. We've talked about the dynamic with the labs themselves. This is the problem with anthropics. S one. The fact that their inference looked so amazingly cheap should actually terrify you because the part they have to keep spending a lot of money. That's right. Is it's our, their control. If they don't spend to be on the leading edge opening, I will, and they'll lose their position. Yeah. And, uh, or Google or meta or sort of whoever, whoever it might be. And in a world where everyone.
[00:50:26] Andrew Sharp: Take a breath amidst this murderous CapEx build out here.
[00:50:30] Ben 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're going to, you'd imagine like an earnings call like this. Right. And everyone sort of announces this investors are like, thank goodness.
[00:50:46] Andrew Sharp: Yeah.
[00:50:47] Ben Thompson: Suddenly their stock goes back up. Now they can issue more stock, uh, to get more money. Yeah. 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? 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 slow down such that revenue can get there in time to relieve all these capital pressures, everyone could win. This could actually be a diffusing win, win, win, win, win, win. Sure. But especially the hyperscalers. Uh, and so, yeah, uh, it's yeah. Everyone thinking about AI jumps to the final state where intelligence is a commodity.
[00:51:38] Andrew Sharp: Mm hmm.
[00:51:40] Ben Thompson: And there, that state might take a very, that implies infinite compute. Yeah. 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?
[00:52:04] Speaker ?: Yeah.
[00:52:04] Ben Thompson: Like there's going to 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. And so it's this, the analysis in a market defined by scarcity versus a market defined by abundance is fundamentally different. Completely flips. Right. And, and I think the, the time defined by scarcity has probably been elongated.
[00:52:36] Andrew 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?
[00:53:16] Ben 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. Okay. Um, you know, these are market being limited on the other hand, overall, and this has always been a counterintuitive point about Nvidia, which is the one I just made a world defined by insufficient power or insufficient data center capacity is the, the entity that delivers the most tokens
[00:53:42] Andrew Sharp: per watch machine, the most, the most efficient machine will be worth the upcharge. Exactly.
[00:53:49] Ben Thompson: Because at the end of the day, the, the, the tokens are going to be more valuable. This is also a weird thing with the neoclouds. Like all the existing neoclouds out there are now, if we reduce the rate, the capacity comes online, all those are more valuable. Mm. Right. Yeah. But at the same time, and so it's kind of weird to think through what this means, what this means for the neoclouds. Uh, you know, can they get, they're gonna have a harder time getting new projects started, coming to market. Are they ever going to 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 do you mean better? Absolutely. Or better relatively.
[00:54:31] Andrew Sharp: Okay.
[00:54:31] Ben Thompson: Right? Like, uh, on an absolute basis, uh, maybe this is worse for Nvidia. They'll sell fewer chips on a relative basis. As opposed to like their ability to hold back or withstand the push for. Asics and, you know, define chips. Like maybe this is better. Yeah.
[00:54:50] Andrew Sharp: Well, and a future where compute is abundant is probably not great for Nvidia.
[00:54:57] Ben Thompson: It's going to be challenging. Yeah. Um, like it's hard to sustain margins, uh, in a world.
[00:55:01] Andrew Sharp: Like people inevitably come for their margins in that scenario.
[00:55:03] Ben 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. Mm-hmm. Right. And so 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 or chips and not pay the Nvidia fee, which is, but I think they've resigned themselves to it in the long run. Do more with more coal power over there in China.
[00:55:35] Andrew Sharp: Right. Uh, well, that was going to be my next question. So, uh, how should we think about the competition with China in a world where data center construction is constrained?
[00:55:45] Ben Thompson: I mean, it's a problem. Hmm. 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.
[00:56:09] Andrew Sharp: Okay.
[00:56:09] Ben 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.
[00:56:21] Andrew 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.
[00:56:31] Ben Thompson: Well, they'll move down the learning curve. Their chips will get better and better over time. Okay. Right. And so, but again, this is a huge timing question, right? Like the fullness of time, everything's possible in the fullness of time. That's where we're going to move to the dorm room. Right. We should have a dorm room theme. We're going to have a dorm room discussion.
[00:56:45] Andrew Sharp: Honestly, 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. And we're going to build data centers. I'm not that panicked about it.
[00:57:19] Ben Thompson: So, I think this is more, this is a retardation.
[00:57:21] Andrew Sharp: If we never build another data center in the United States, then we can have a conversation
[00:57:26] Speaker ?: about it.
[00:57:26] Andrew Sharp: Right. Exactly.
[00:57:27] Ben Thompson: You don't, you don't though, this is why I don't want to think about politics. Okay. This is like, I'm like sick of this. I wrote an article and we've talked about it.
[00:57:35] Andrew 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.
[00:57:45] Ben Thompson: By the way, maybe I'm the, that is evidence of text disdain for normal people. I have the problem that I'm identifying.
[00:57:52] Andrew Sharp: Well, I mean, I don't think there's any problem with not wanting to talk about politics. That sounds fantastic. Uh, Zach, I'm so excited to move back to only caring about basketball for the next several
[00:58:01] Speaker ?: weeks.
[00:58:01] Ben Thompson: I would say move back, move back to Washington DC, but you're already there.
[00:58:04] Speaker ?: It is.
[00:58:04] Andrew 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 U.S. 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?
[00:58:33] Ben Thompson: Well, I mean, they have to agree. Uh, it needs to, you know, I, you know, obviously wants to be a place that is safe and secure. Yeah. There's, you know, so yeah, no, for sure. There's going to 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 going to give us the best deal. Lots of data centers to 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. Um, data centers not so don't do well with explosives. A little hairier over the last night. No, there's like an AWS in my brain. I think you had to like tell customers like your data is gone forever. Oh, wow. Oh yeah. I didn't see that. Oh yeah. Yeah. Like the, you know, because there's a, you know, some stuff like you might have a law or you put it in your thing. I only want it in this data center. I only want it in this. Okay. If you had your data in the Braini Braini. Uh, I have no idea. Uh, Bahraini. Yeah. I don't know. Uh, data center and it's gone. Okay. Turns out, uh, an explosive drone or missile or whatever I ran lobbed at it.
[00:59:43] Andrew Sharp: Uh, well, it's funny because I almost interjected earlier to say a lot of power in the Middle East. You can build all the data centers you need. Uh, security would be a pretty urgent concern. Fairly urgent concern.
[00:59:56] Ben Thompson: Right now, you're dropping billions of dollars into these data centers. Uh, you would prefer they don't get blown up. So that will be a concern.
[01:00:03] Andrew Sharp: Google has gone to Malaysia. 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. Add 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. Uh, you wrote that the call last week's earnings call gave you Facebook deja vu. Can you unpack what you meant by that?
[01:00:57] Ben Thompson: Well, this is a very optimistic read of Google's call. But just the, there was the language they were using. I'm like, I've heard this before.
[01:01:03] Andrew Sharp: I enjoyed your zag, uh, relative to every other analyst I saw reacting to Google's call.
[01:01:09] Ben 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 in both cases. You had this new format for social media that people loved. Yeah. And so you open Instagram and there's yours, the story of your friend, you know, your friend posted the whole thing, your network's already on there. Snapchat in Instagram. So what people did was they clicked it and they started just going through stories all the time. What were they not doing? Watching ads. They were not scrolling through the feed. Where were all the ads? In the feed. In the feed, right? And so, and you had this thing with advertisers where if you talk to people, I think Eric Suford 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're used to digital advertising on that. Yeah. That's right. Sure. So they would just spend where there were tools for. And so there was this crazy alpha for companies that would market into stories because they're, no one was buying stories ads. 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 and make sure you get the return. Part of that is to paper over this advertisers choosing where to put their ads. Like little, let us 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. Okay. 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. Cause all 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. Yeah. This was why the reels thing was such an was, it was crazy. It happened all over again. The exact same thing happened. Turns out people freaking love reels, right? We talked about this. What do you do if you're watching reels on Instagram? Just scroll. You're not looking at stories and you're not looking at the feed. Yeah. So you have your existing surfaces suddenly monetizing less. Meanwhile, you have this survey. They haven't monetized reels yet.
[01:04:07] Andrew Sharp: What happened in reels? Okay.
[01:04:09] Ben Thompson: Huge arbitrage opportunity for the early advertisers that got in there, like just made. Before Facebook knew how to measure things and before. Everyone knew how to make the right ads and all this sort of thing. And so 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. Then we scale it, get the user experience right. Then we scale it to the world and then we monetize it. That's the story they tell, which is broadly correct. Okay. 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? No. No.
[01:04:49] Andrew Sharp: You want it to be popular and well-oiled by the time you start juicing the ad money.
[01:04:55] Speaker ?: That's right.
[01:04:55] Ben Thompson: So I'm reading the Google call last week and they're like, we want to get this product right first. Then we're scaling it to the whole world and now we need to monetize it. I'm like, oh, that sounds like Facebook. 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 it's kind of maddening because if you click more, you're now in this AI mode and you're in a chatbot mode, which is kind of annoying if you just want the Google experience, 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 Google. I'm sure. Or at least in the markets where it's fully rolled out. But the problem is if they're spending lots of time on Google, right? Google's make more money. No, because the ads are in the old product. They're in 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? But right now, it's not-
[01:06:12] Andrew Sharp: Because previously Google search, it was basically the best ad surface that there's ever been outside of Meta.
[01:06:21] Ben Thompson: Well, in part because it was so unfair, right? Sure. You had to buy your own brand name to put it at the top of search results. Top three or four links are all ads at this point.
[01:06:31] Andrew Sharp: But like chatbots, generally speaking, thus far, we haven't seen ads done anywhere near as successfully as that. Yeah.
[01:06:40] Ben Thompson: I mean, chatgpt, they're reportedly making like a billion dollars or something. Sure. Like, if there's a human there and if there's attention involved, someone's going to figure out that.
[01:06:50] Andrew Sharp: I don't dispute that people can make money. Unfortunately for Google- Can they make it as well? Yeah. The standard is literally the greatest business that has ever existed.
[01:06:59] Ben 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. Okay. Like, once they have AMO broadly, let's see what happens when they really start shoving ads in there. Mm-hmm. 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. Okay. In short of the long run, just like the stories end up being a blip for Facebook. And the reels is like the greatest blip of all time. When their stock was like $83 a share.
[01:07:34] Andrew Sharp: So you mentioned Facebook, you've been right on Facebook over and over again, now meta, for the last like 10 or 15 years. Right. And wrong about Google. 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.
[01:07:51] Ben Thompson: One hundred percent. You should always do the opposite of what I say about Google. So the question is, maybe this just doesn't come back. Yeah. But this is the part two of the Google story, which I think I was right about. Do you want to pat yourself up? Like you're on the couch. Yeah, just reach back there, not in an office chair. We should have like a gag, like back pattern. You can press a button. You can press a button. It just starts hitting me. I think Google is transforming as a company, like right in front of our eyes. Yeah. And the reality is that where does search make sense in the future?
[01:08:30] Andrew 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 stock went to the moon. And now it's like, OK, maybe the bears had a point in terms of the shape that all this would take. And it's just maybe it was happening over the last couple of years. And Google was sort of juicing some of the search revenue. But now it's definitely happening.
[01:08:54] Ben Thompson: Maybe they were juicing the search revenue because they knew it was on its way out. Yeah. And it ain't what it used to be. Tony Soprano. Tony Soprano. 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. By the way, we own a big chunk of SpaceX, which.
[01:09:23] Andrew Sharp: And we own a little bit of Anthropica as well. And more than a little bit. Yeah.
[01:09:27] Ben Thompson: Right. And at the end of the day, just have our own chips. We're going to have our like the whole thing where that's where we're going to put our the search business in the fullness of time was just the fuel to get the real business. Yeah, doing the Berkshire Hathaway comparison of sees candies, creating the money to get into railroads, a much worse business on a relative basis. The margins and candies amazing. The margins and 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, OK, search is toast in the long run. Let's extract as much money out of this franchise as we can. Mm hmm. 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. Sure. They've searches basically a chat bot. It's kind of annoying to you fall into the chat bot flow. So obviously and simply now you have to work to get out of it. Mm hmm. 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 of Gemini. They have something in the workplace thing. The 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 we are disrupting ourselves, which you don't companies. This is why I find myself falling into like you admire the gumption. I do. Okay. I do. Everything about Google if they eyes felt incompetent except for search. It's like 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. And 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. And like they're, they feel more like any other company. They're a company that will live forever 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 it's the blob bet against them.
[01:12:27] Andrew Sharp: 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.
[01:12:37] Ben Thompson: I mean, the cloud, like 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. And the barriers to entry for future competitors are impossibly high. And by the way, new participant in the call, Thomas Kurian. Oh boy, that's right. Like 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 not whatever it might be. It's like, to me, it says like business is about trade-offs and Google their trade-off has been like, this is our priority. Yeah. And all the evidence points in that direction. And you know what? I admire a company making choices.
[01:13:19] Andrew Sharp: Fair enough. Well, OpenAI says the volume of searchlight 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. Isn't it? It was from a week ago.
[01:13:44] Ben Thompson: No, it's from July 23rd, 2026. Oh, okay.
[01:13:47] Andrew Sharp: Far.
[01:13:48] Ben Thompson: That was a big thing over the summer. People were pushing back on some of this stuff. How much is it true? How is it not? I don't, so I don't know to the degree that this tweet is true or not, but it's not implausible that Google is absolutely, if you think. If they see the writing on the wall and say, we're going to.
[01:14:08] Andrew Sharp: Get as much money out of it as you can. 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.
[01:14:26] Ben Thompson: Even if you're looking for a specific link where it used to be like, oh, you. That's when I use ChatGPT.
[01:14:31] Andrew Sharp: It's like, I know exactly what I need, but it's impossible on Google. Right.
[01:14:35] Ben Thompson: There's a while where it's 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. Yeah. Now it's like, can you give me the link about this thing? Like, boom, here you go. There it is. It's wild.
[01:14:45] Andrew Sharp: 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 top search term in Google. So this does not say anything about the Internet consumers 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. 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?
[01:15:40] Ben Thompson: I mean, you know, it's always funny. One of the I want to talk about the article you put on Sharp Text this week about X and X.
[01:15:52] Andrew Sharp: I personally, it was very painful for me to call it X at various points in that article. But here we are.
[01:15:58] Ben Thompson: You know, there was a 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 debated a lot. And we was like, this is like we're just going to say we're aligned with the U.S., with the federal government. If they see Saudi Arabia as an ally, fine. Then 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. Sure. At the end of the day, there are lots of trade offs with these things. And that's sort of like it's the U.S. It's the federal government's job to decide who our allies are right. Not me individually. 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.
[01:16:57] Andrew Sharp: This is like how Sam Henke had one outfit that he wore every day to remove that decisional anxiety. You can sort of remove the burden.
[01:17:05] Ben Thompson: I'm going to control what I can control and I'll just defer to the others.
[01:17:08] Andrew Sharp: Sure. So I guess we'll call it X, whatever.
[01:17:11] Ben Thompson: No, I would say let's violate this policy. Just call it Twitter. Okay, fair. The worst thing 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, Gulf of America, Gulf of Mexico. Or like Department of Defense versus Department of War. Like, can you change that via executive action or does that be like congressional action or whatever? Yeah. So in those, it's like you're more free to like choose. Other companies, like I feel Meta is just Meta. Yeah. Like, not that that's a good name, but they needed a new name because Facebook was a product and also a thing. Mm-hmm. But like Google, we don't call it alphabet. Sure. We do call it Google. Yeah. The thing about X and Twitter is just, Twitter is just such a good name. Yeah. Anyhow, digression.
[01:17:59] Andrew Sharp: Well, and it's, there's no alphabet. It's one product that's always been Twitter. So it is what it is. Uh, well, and on the Reddit front, well, 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. Uh, and now the article you wrote a couple of weeks ago, the end of the internet. So this is what, this is what I was. This is the other side of the coin. This is what I was circling towards.
[01:18:41] Ben Thompson: So you write this, you write this great article, uh, on X slash Twitter. Yeah. Which I gotta, there was a digression of the digression. Great. Just to trace where we were. 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. You, we should call it X cause it's different than what Twitter used to be. Whereas like, like dominated by for you. 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 it. And whereas the X algorithm has been very tuned to posts on X are what get pushed.
[01:19:24] Andrew Sharp: If you wrote every strategy update and article as a long tweet, you would get a hundred X the
[01:19:31] Ben Thompson: engagement, which is by the way, just a horrific user.
[01:19:37] Andrew Sharp: And there's lots of thoughtful stuff. So it's extra painful, but it is what it is. Yeah.
[01:19:42] Ben Thompson: Like the, whoever do what? Yes. Drives me nuts. Um, but it is what it is. What it is.
[01:19:48] Speaker ?: What it is. What it is. What it is. What it is.
[01:19:48] Ben Thompson: This is the rally with the algorithm, which is that is one relevant point to 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. Okay, great. I'm glad I'm part of your process. 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 time. The end of the internet. The end of the internet. Yeah. Which I actually think was fairly optimistic. The sort of the group chat era, you know, not defined by doing things at scale. Mm-hmm. Um, you know.
[01:20:24] Andrew Sharp: Didn't make it to our rundown.
[01:20:26] Ben Thompson: Didn't make it to our rundown.
[01:20:29] Andrew Sharp: I forget what crowded it out, but we had covered a lot of that on the previous episode that we recorded. We actually had. I did enjoy the article for the record to make you feel better two weeks later.
[01:20:41] Ben Thompson: So, um, so anyhow, to circle back to, thank you for bringing it up just now. Cause that's where I was going to go with the, uh, the Reddit.
[01:20:51] Andrew Sharp: Uh, and I don't recall that being addressed in there because a lot of that was about, uh, cybersecurity and sort of the erosion of trust that we've come to enjoy over the last 25 years.
[01:21:01] Ben Thompson: No, but part of it is also like the, the, the, everyone on the internet, when we talk about Google doubling down, extracting every last dime or moving people to this new paradigm, they're screwed. They're screwed. Right.
[01:21:14] Andrew Sharp: And, uh, you know, it's, 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, 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.
[01:21:34] Ben Thompson: Right now, when I, that was a provocative title. What I call it, the end of the internet. It's like the end of the internet as we know it. Yeah. Which is like one market and everything is about scale. And so much of the, what strikes me about this AI thing is AI is so empowering on like an individual level. 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. Why? 10 million other people. 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 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 strategy that is, you know, predicated on there being these big platforms, these free distribution to anyone, but it's its own little world. The analogy that I've talked about is like group chats. Like one of 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. So much better than the internet. Yeah. 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 on Google for the same reasons, very well in all the LLMs. Right. 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, but we will deliver 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. Right. And to some extent, I think the answer is no. Publishers problems are not Google ads. Have they acted somewhat in an abusive manner? Yes. Probably. But part of that is like it's that don't be evil ethos chipping away. You've got to hit a KPI. You've got to hit a bottom line. You're going to tighten the screws a little bit more. And why? They need you.
[01:24:07] Andrew Sharp: I guess that was going back an hour and 15 minutes. These are all multinational corporations that behave in sort of a sociopathic way.
[01:24:14] Ben Thompson: And it's 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, actually, we can't do that anymore.
[01:24:22] Andrew Sharp: Sorry, guys. It's been a good run. We're growing out AI mode, which kind of sucks, but it is what it is.
[01:24:28] Ben Thompson: And so, yeah. So for for a Reddit, for lots of companies, the they need to shrink down to what I talk about, like a strategy 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. Yeah. And whereas most sites, yeah, we'll have we'll show ads to people who aren't logged in to 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.
[01:25:16] Andrew Sharp: Yeah.
[01:25:16] Ben Thompson: Which means understand their customers better. Just if you're going to people evaluate, you're going to add a minimum have to log in so we can know who you are. If you have a logged in experience, you can build as much of a profile about someone.
[01:25:30] Andrew Sharp: So they'll do what they can, but it doesn't sound like the future is all that attractive.
[01:25:37] Ben Thompson: Well, they do still have the core user base who generates content for them for free. And Reddit still makes all this money from selling access to their data to LMs, which it's super valuable because it's continually fresh data. And remember, you go back to the general internet paradigm, right? 1% of people post, 9% of people respond, 90% just lurk. Yeah. At the end of the day, the people who generate all the value for Reddit are the people who post and respond. Mm-hmm. 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. Okay. 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.
[01:26:40] Andrew Sharp: Well, and is it a situation where because they're a public company now, they're beholden to growth statistics and engagement statistics?
[01:26:48] Ben 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. Yeah. And like, yeah, the stock took a hit because they have to fundamentally reorient the business and how they're measuring success. The orientation of the business is reorienting for them. And so it's acknowledging what's happening and what shift to what makes sense going forward.
[01:27:11] Andrew Sharp: Fair enough. All right. So we have about five minutes here. Do you want to talk about my article or AI Show and Tell or both?
[01:27:18] Ben Thompson: I already predicted AI Show and Tell is going to be higher up in the post. Well, we've gone long.
[01:27:23] Andrew Sharp: It was pretty high in the post. We went long on data centers. Let's do AI Show and Tell. We can 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 encapsulated so many recent experiences of mine. One, at work, I had a tiny software sized hole in my workflow. And 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. 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. 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. It's not like the public school system couldn't build something like this. 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 build 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? The big players like Google and Apple. The AI companies like OpenAI and Anthropic. The software stack builders like Vercel and Supabase. Or some new undeveloped part of the value chain. Any thoughts on that?
[01:29:39] Ben Thompson: Well, it reminds me of number one. There's like. The cool thing about when you're small scale. Is suddenly the urge and the payoff from acting altruistically returns. This is like a benefit of being small. 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 do sherry duties to not do the right thing. Right. And who can even define what the right thing is at the scale of billions and billions of users? Right. Mm hmm. But when this is part of the argument for more sort of local control, local government is like 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 going to buy 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. Yeah. This isn't a money making opportunity, but it is sort of like a status enhancing opportunity. Oh, you made that app. You know, 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 the sports columnist in every town of America. Yeah. Then you get to the Internet and there's like one sports columnist. His name is Bill Simmons. Right. Sure. Right. This the Internet at scale wipes out all these intervening layers.
[01:31:44] Andrew Sharp: And by the way, I'm kind of curious whether that same sort of trajectory and shape will exist in the new reality.
[01:31:51] Ben Thompson: Well, that's what's exciting. 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 is massive, but I have a group of friends. Oh, yeah, you have the same problem here. You use this. I made this up. You could share this sort of thing. And it may be at a very small scale. Like there is money making opportunities or it's part of a business that you build.
[01:32:21] Andrew Sharp: And but you definitely worry about security in that scenario. So who solve security?
[01:32:26] Ben Thompson: Well, all these things are to be solved. But I think just like the shape of things to 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. And it's like, that's so inefficient. It's like it's inefficient, but also. It's better because it's made expressly tuned to your needs. Sure. In a world of A.I. doing all the 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. Mm hmm. Right. Like the most utilitarian thing is to wear the exact Sam Hinkie, wear the same clothes every day. Why is there a fashion industry? Because because people are very inefficient about wearing clothes, right? You know what I mean? So so to what extent does this new creation of new desires, new markets, which the tech minds that so inefficient actually know 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 A.I. is it fits in this. Now, how is that all going to work? TBD for sure. All the A.I. companies are trying to build their own like you have cloud environments. You can host stuff. Yeah. Yeah. And part of that is walk people in. Part of it is just it's a problem to be solved. That's part of the stack.
[01:33:56] Andrew Sharp: Because 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. But like if my wife makes an app, I want her to be a clean app maker from what I hear. She is. She's referred to as the app queen at her consulting firm. If she makes something, I want it to be very easy for her to share it with me and secure.
[01:34:22] Ben Thompson: One interesting thing, as long as we're on the Google fanboy tour here. No, Google actually released this feature a couple of months ago. I never got a chance to write about it. It was actually a few weeks ago where they created a whole part of the Google Play Store where you could publish your own apps just for your friends and family. Okay. 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 developer account and people have to join and download. Like, whereas this is just part of the app Google Play Store. You can do it. 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 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. And that's great. Like there's big. That's exactly what we need. Well, then all this hosting stuff, right? I have my own hosting and like security and like it's all a right right now. It's fairly insane. But that's Jerry rigged. 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, 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 is an opportunity to do your job, you're in trouble. OK, the way they want AI is AI is an opportunity. Like what's my advice? I always give double down your strengths and do like the bare minimum to humiliate your weaknesses 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. 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. Mm hmm. And AI is actually the most useful for all your secondary things. OK. All the stuff you don't want to do. And and so, you know, I forgot how I got on that point. But yeah, I think the I'm super optimistic about this possibility. Oh, 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, there are 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. The dominant players are retrenched. Sure. Exactly. But when something's new, so 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. Yeah. The app store paradigm. The kind of complacent and sclerotic. Sure. Well, well, actually anything but complacent and sclerotic at their core business. OK. But incapable of doing anything else. Anything new. Right. Sure. So yeah, there's a lot.
[01:37:43] Andrew Sharp: Unbelievably optimized for their actual core business. Right.
[01:37:46] Ben Thompson: Yeah. So yeah. So this, I mean, this email is cool. I love the, I love the lunch menu thing.
[01:37:51] Andrew Sharp: And 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. And that's the sort of thing that 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. Right. Stuff like that.
[01:38:26] Ben Thompson: Well, I remember I had the local news business model I wrote about ages ago. 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 pinching printing presses and trying to, you know, running 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 sub stack was, was an amazing company to come along, make it super easy to get started. 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 were, they can operate with very low costs. And so if you're a writer and you make a hundred thousand dollars a year, you're making more than the median newspaper, like, uh, particularly today. And so, uh, AI has the potential to do that for so many more areas. Like, I don't know that I buy some of the, like, talk about one person company being a billion dollar. Maybe that's going to happen. What I do definitely buy is there being that many more opportunities for one person companies that are a hundred thousand dollar businesses. There you go. 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 trajectory did at the beginning. And then a sub stack will come along that answers this question. Oh, that's the platform that makes this easy. So it might be 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 trajectory would work. Yeah. Um, I myself thought about building a sub stack. Wasn't sure like how many, exactly how many writers are actually going to be able to make money. Turns out a lot, um, well, they, you know, they're there. 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 and make it all worthwhile. And you make, there's more experimentation, more possibilities. So yeah.
[01:41:07] Andrew Sharp: Well, I love the group chat era of social media. Pretty excited for the group chat era of, of apps. I thought that 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? Okay, fine. 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 going to take a little break and then get back to recording, but I will talk to you soon. Talk to you later.
[01:41:42] Speaker ?: you