Comment by screye | Hacker News Reader

Comment by screye | Hacker News Reader

I believe the doom-n-gloom around all of tech is rather overblown.

There are sectors of tech that will absolutely struggle. Gig-economy companies won't ever meet their valuation. Negative PE ratio startups are realizing that hyper-scaling is not as infinite as they believed, and that means their earnings might never catch up to their price. Social media companies are finally facing stiff non-American competition (Tiktok). Lastly, it is nice to see the crypto scams be snuffed out. But, people have been calling all 4 of these out since before Covid.

Now, the biggest movers in tech seem to be in a healthy position. AMZN*, MSFT, AAPL and GOOG sit comfortably at the same average PE ratio as the S&P500. Those are value stock numbers for companies that are all leading innovation while having solid unit economics. They are front runners in areas that are their biggest risks (AI, Silicon) and their current offerings are essential tools to everyone globally. AFAIK, the adoption rates for cloud compute and mobile-silicon devices is only going to go up from here.

[AMZN] - AMZN does the weird profit-reinvesting thing, so they report lower margins on the highest revenue across tech. Thus the lower PE ratio. See it as you wish.

Overly rosy take on big tech. I’ll use Google as example. Their execs are in full panic right now over OpenGPT.

What was last major innovation at Google.. chrome? 20% of company drives profits while 80% is a decorated R&D lab chock full of benefits, upset about cutbacks in their free oatmilk lattes, even though they’re not coming to office anyway.

these guys will double their attrition targets if not have full blown layoffs. ads drives their profits, but search has been in decline for years now.

google right now is a bloated bureaucratic whale that needs to hit the gym and get in shape. Step 1 is to get off the damn couch.

You underestimate the staying power of monopolies.

No, but i think you do have a point. Googles board and company execs had convinced themselves they’re an untouchable money printing machine. This year, they’ve been violently woken up.

They have tens of thousands of top engineers, billions in the bank, half a dozen products used by over a billion people and their main product is ads for people who use the internet. Companies always face existential threats but as far as moats go, Google has one a mile wide. Their downfall will be slow and obvious and even after their decline in cultural relevance they’ll still churn out billions of dollars a year.

Like AOL and MySpace?

No, like Exxon and IBM.

Why are they in a panic over ChatGpt? Don't they have similar research and tech around these AI systems?

80% of their revenue comes from ads, which is google search. Chatgpt and any other startup who invests in something like chatgpt can upend googles core business model.

and no, google doesn’t have anything significant in this space. “Innovation” behind search was to slowly increase no. if paid ads in your results, driven by need to increase revenue and keep the rest of the 80% of biz afloat.

> and no, google doesn’t have anything significant in this space

LAMBDA and PaLM are literally the answer to Chat-GPT. Google is their closest competitor.

I do agree that they will lose their moat, and soon Google search will just be another tool among many.

And Google developed LaMDA model (superior to chatGPT) a lot of time before OpenAI, additionally without their research into transformers and publishing results, OpenAI would probably not even have ChatGPT now/yet.

Something I find very curious - Google are doing the same kind of research and are in many ways futher along. They have thier own models like T5 that supposedly perform better. Are their exec unaware of their own strengths?

For that matter, wasn't Google collecting masses of GIS data and doing intense self driving car research? Where is that product?

Serious q - do google have so much money that they are doing tons of research and then just forgetting to make a product out of it?

> For that matter, wasn't Google collecting masses of GIS data and doing intense self driving car research? Where is that product?

https://waymo.com/

Research does not need to lead to a product to be profitable. Another strategy is to patent all of your work, then steal the profits from anyone that attempts to enter that market.

> Why are they in a panic over ChatGpt?

The NYTimes and the rest of the media misread between the lines on this story.

Google aren't worried about competition. They are worried about losing the war with SEO.

ChatGPT showed them a glimpse of the SEO endgame. It upsets the balance between search ranking/boosting and SEO. Whatever adaptations they put into their boosting algo, GPT-style AI can eventually learn. Once learned, it can be subverted.

Fundamentally search boosting is at a disadvantage, because SEO has (blackbox) access to the boosting algo by feeding content to the crawlers and running searches. However the booster doesn't have access to the SEO algo; in fact it doesn't even know (beyond a guess) how many discrete SEO algos it is fighting, or which sites are optimized by which algos. So there is great asymmetry there.

That is why the fire alarm was pulled.

> What was last major innovation at Google.. chrome? 20% of company drives profits while 80% is a decorated R&D lab chock full of benefits, upset about cutbacks in their free oatmilk lattes, even though they’re not coming to office anyway.

This has been a major part of the FAANG strategy: crush competition by giving people who might work for or become potential competitors an offer they can't refuse. 80% of the company ostensibly produces minimal value, but the real reason you're giving them huge compensation and oat milk lattes is to make sure they don't work for, or found, a Google competitor at some point in the future.

This has led to a perpetual feedback loop: FAANG company gives their engineers big stock grants, which ensures no competition in their markets, which increases the value of their stock due to no competition, which allows them to hire more engineers with big stock grants, etc...

We're suddenly entering an era where FAANG stocks aren't continually moving upward. This is largely unprecedented territory; these companies have never experienced an extended downturn since this became the industry hiring strategy.

If the recession continues through 2023, I would not be surprised to see these companies abandon this strategy and only retain necessary talent. Would not be surprised to see 50%, even 75% staff cuts at Goog and Meta specifically.

I wonder, once talent hoarding ends, if we’re going to see a bunch of new companies hit the scene in 5 years?

Depends on how well those laid off have saved.

What is ChatGPT’s actual competitive advantage over search? It can’t tell you the second largest country in South America correctly, it’s an extremely cool demo but I can’t think of anything it could replace Google for. The underlying technology is extremely powerful, but it’s been powering Google for years

First try:

The second largest country in South America is Argentina. It has a land area of about 2.8 million square kilometers (1.1 million square miles). Argentina is located in the southern part of South America and is bordered by Chile to the west, Bolivia and Paraguay to the north, Brazil to the northeast, Uruguay and the South Atlantic Ocean to the east, and the Drake Passage to the south. The country has a diverse landscape, ranging from the Andes mountain range in the west to the Pampas grasslands in the center, and the subtropical rainforests in the northeast. The capital of Argentina is Buenos Aires, which is known for its rich cultural heritage, vibrant nightlife, and tango music and dance.

By population it’s Colombia, by land it’s Peru

From google, the total area of South American countries:

1. Brazil: 3,287,957 sq miles

2. Argentina: 1,073,518 sq miles

3. Peru: 496,225 sq miles

Lol. The irony is delicious. Largest is size, populous is population.

"On two occasions I have been asked, 'Pray, Mr. Babbage, if you put into the machine wrong figures, will the right answers come out?' I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a question." "

How did you manage to get this wrong?

I asked it: "What is ChatGPT’s actual competitive advantage over search?

ChatGPT is a variant of the GPT (Generative Pre-training Transformer) language model that has been specifically designed to generate human-like text in a chatbot-like fashion. One of the main advantages of ChatGPT is its ability to generate natural and coherent responses to user inputs in real-time. This makes it well-suited for use in chatbots and other interactive applications where users expect a quick and personalized response.

In contrast, search engines like Google rely on pre-existing content and do not generate responses in real-time. While search engines can be very useful for finding information that already exists on the internet, they are not designed to generate original responses to user queries.

Overall, ChatGPT's main advantage is its ability to generate human-like text in real-time, which makes it well-suited for use in interactive applications such as chatbots."

There are many Google searches that are low effort queries for advice. ChatGPT can provide realistic answers to those in a way Google never could. I've received compelling advice on how to have a telephone conversation with an awkward relative and how to handle a complaint in customer service. Each response seems genuine and well thought out. In contrast Google might spit out a few lines extracted from a possibly relevant website but then I'd have to trawl through a million ads and back story to know if it actually was relevant. Even if the chat bot returned an irrelevant response I could clarify my question and it would remember the context.

How do you know Google execs are in full panic over OpenGPT?

someone on the internet said they were :D (there was some article on HN the other day. Personally I suspect this is just standard over exaggeration by reporters dependent on page views)

> What was last major innovation at Google.. chrome? 20% of company drives profits while 80% is a decorated R&D lab chock full of benefits, upset about cutbacks in their free oatmilk lattes, even though they're not coming to office anyway.

Transformers were invented at Google, which is the underlying tech on which GPT is built. I would say that counts as innovation.

See: https://en.m.wikipedia.org/wiki/Transformer_(machine_learnin...

This misses the point.

Google has done interesting stuff. Ideas, research papers, R&D in AI, Glass, Stadia, leading in all kinds of niches… Google Docs with real time collab editing for example. I’m not arguing against that, and to respond on that thread is a straw man.

But they can experiment all day and come up with all kinds of cool stuff but at end of day you need to monetize and make money. Not grow endless headcount, not build more and more empires of a professional managerial class who care little about actual value and more about their fiefdoms and promotions.

To make money, Google depends entirely on X and unless they quickly course correct, they risk massive disruption to their biz.

Google lost their way. The culture stagnated into one of corporate bureaucracy, red tape, and employees feeling persecuted because the contractor responsible for chocolate crepes on Thursday didn’t show up one week.

They have to start getting in shape. There’s no way around it. Yeah they’ve entrenched themselves but unless they change it will be a slow painful decline. Focus on a few things and do them extremely well instead of 50 different things that ultimately go nowhere. And figure out how to get off the ads lifeline

After july, the vast majority of new reqs are going to GCP and Android, two places that aren’t ads that have pretty strong revenues. I think the G has finally decided to put more wood behind fewer arrows.

> What was last major innovation at Google.. chrome?

There’s alphago and alpha star etc. What about Waymo (splitting the company into pieces doesn’t make it a different company)? Since chrome they have made a lot of hardware too. Not to mention the dead attempts at innovation which didn’t pan out like stadia

From the way people talk on this forum about economic conditions in this country you'd imagine the unemployment rate is 10%, nobody is hiring, and the market is down 50%.

The media consumed by the typical member of this audience would lead you to believe that. For some reason, everyone is trying to organize a recession.

The recession talk is delusional. Every economic metric but inflation is in good shape. These people don't know what they're talking about.

Inflation means interest rates will be up, which is bad news for silicon valley and profitless startups in particular. The economy might be ok (very debatable) but if interest rates stay high and the VCs pump and dump of unprofitable unicorns on the public markets has ended...

Yes, it's not great for lots of business models. But the dotcom boom happened when the effective federal funds rate was much higher than it is now.

I think (and perhaps I'm very wrong!) we'll settle back into a 2018, 2017 tech industry minus companies like OpenDoor rather than a early 2021 euphoria

If they are forward looking statements they are correct to be worried. A significant correction seems to be in our near term future.

The trend being lessening inflation over the last 6 months and a resilient labor market?

You forgot the biggest one.

Advertising revenue. That’s what Facebook and Google were supported by.

And it has been a zero sum game in a race to the bottom for years. They just didn’t diversify much, same as Russia or Venezuela with their oil economies.

Most companies built around zero-sum games are eventually going to stop growing as you run out of other people’s money. But that’s OK — they are already HUGE!

The real problem is the public stock market (also a zero-sum game, mostly) creating a bubble and pushing them to extract rents from their ecosystem harder and harder. It’s fine to raise money in order to grow, but investors end up reselling shares for more and more money and represent a class of people who extract rents from a multi sided market.

(By contrast, true utility tokens pegged to the dollar that can be sold to actual customers and are a way to raise money that is more economically sustainable and doesn’t create speculative bubbles.)

Search ads and social ads are two different games I would say.

And google didn't fail to diversify for a lack of trying !!! It's just that ads continued growing faster than anything else could catch up.

Either way, it’s a zero sum game. The productive sectors of society (businesses with goods and services) spend on advertising to attract customers away from each other. The majority who don’t have massive budgets for optimizing soon realize the ROI is negative on ad spend, and stop. Same as traders who get liquidated after trying futures.

There's a general fear that customers eventually will realize that the Google / FB ad dollars aren't actually creating new business. These gatekeepers - the Googles/Apples/FBs/etc - can predict where consumers are about to go[1], but the total numbers don't go up.

It's sort of like the difference between coupons in the local paper, versus coupons that your ad man hands out next to the front door of your business. Everyone who gets a coupon was coming here anyway.

The dark side of this is how your business can suddenly disappear from view if you stop buying into the Web-Ad-Hive-Mind. That's way worse than the coupon guy hanging outside the front door - that's more like someone in fake construction vests putting up cones around your parking lot.

[1] Giving them something that looks like magic powers to individual businesses, particularly those that aren't particularly computer savvy. "Holy smokes!! 95% of the people who Google reaches went to my pizza place! They must be soooooo good at convincing people my pizza's the best!"

> The dark side of this is how your business can suddenly disappear from view if you stop buying into the Web-Ad-Hive-Mind. That's way worse than the coupon guy hanging outside the front door - that's more like someone in fake construction vests putting up cones around your parking lot.

Soooo… ads provide substantial value to businesses?

In the same way a protection racket provides substantial value to them as well. But only if the platforms mess with their rankings on organic listings and ratings depending on how they pay for ads.

Yelp likes to do that, for instance. Alternatives to ads include:

Referrals / word of mouth

Organic rankings

In a way, ads are similar to speculators pumping a token they think will eventually justify the hype by recouping the speculative spend. There are diminishing returns the bigger the ad spend gets.

The only difference is that there is no secondary market to keep reselling ads and scalping them higher — or is there? But there is certainly the element of a large supply of greater fools to try out ad spend on various speculative ventures.

I agree that those companies are in “a healthy position”, but there are massive risks to their operations:

AMZN: IIRC, AWS is the majority of their profit. This is web infrastructure; all the negative PE ratio startups and gig economy companies going under will hurt AWS. They have similar risks to GOOG (see below).

MSFT: Does anyone have a clue how MSFT is making money? The last few Windows updates have been free, and I would guess they are buttressed by Office 365. How they convince IT departments to adopt this buggy, slow, expensive software, is beyond my comprehension. What’s the sales pitch? “Hey, have you ever wished you could pay every month for Office? It will have similar functionality to Office from 20 years ago, and you can pay us every single month!”

On second thought, their Azure services probably have similar profitability and risks to AWS; maybe that’s what is keeping them afloat.

AAPL: At least Apple produced physical products, but we have seen their products, e.g the iPhone 14, hurt by supply chain issues and lower demand in the face of a recision and high inflation. They’re not innovating; the iPhone 14 was mocked for being the same as the previous model. If frugal consumers go by the wayside, who is driving profits? The (now-laid-off) tech employees who make enough to afford their luxury products? Maybe some, but less than at present.

Apple has made efforts to grow their SaaS revenue the last few years and that is prone to risks from lower consumer demand. A budget-minded consumer will not be paying for all the Apple services when they are hurt by layoffs.

GOOG: Ah, my favorite. Let’s set aside the legion of small companies they bought to fuel growth and decrease competition, e.g. Nest, Fitbit, Waze, YouTube, etc. Corporate Alphabet is producing the majority of profit by ad revenue. What happens when demand for advertising decreases due to lower consumer demand? They’re also trying to enter the cloud space, but are far behind AWS and Azure.

There are also broad risks facing tech company. The main ones which come to mind are data privacy and other regulations, anti-trust actions.

If future events do not favor big tech, those companies could have a long way to fall.

As far as I know for Microsoft, a large chunk of their revenue comes from the licensing for Visual Studio, the Azure service and the fees required for certification, and surprisingly the Xbox division. Corporate entities buying licenses for Visual Studio would likely be tens of thousands of dollars each since the Enterprise level license starts a little under two grand. And Xbox with it's recent push into mobile style games likely makes Microsoft unimaginable amounts of money. Roblox in 2021 is estimated to have made $1.9b based on it's microtransaction model, and Microsoft gets a cut of that. The FIFA games generate an average of $1.5b every year. With the recent acquisition of Activision-Blizzard and thus mobile giants like King Games, it's likely that Microsoft could rake in $30b a year from the Xbox division, an increase of seven or eight billion. And with the autonomy model of the owner, publisher, developer ladder Microsoft likely has to do little to no investment as the parent company in order to receive that income.

As for iPhone not innovating - people keep repeating that phrase since iPhone 3GS.

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