Hello, and welcome to a free preview of Sharp Tech. Hello, and welcome back to another episode of Sharp Tech. I'm Andrew Sharp, and on the other line, Ben Thompson. Ben, it's great to be back. How you doing? Oh, I think it's great to be you. It looks like you are in the location change, summer surroundings. you have a beach a picture of a beach with an umbrella over your shoulder just living life here working remotely for the next several weeks so yes life is good for me how was the fishing boat it was great no complaints happy to be back happy to be there I'm just a happy guy Andrew what can I say did the Starlink hold up for you while you were out there oh of course I actually have I have an addition to my tech stack abroad but I can save it I know that someone wants to castigate me for taking a star that's right so i think we have a bit of a bullet section today but i do have a new product recommendation that goes with the starlink which uh i will get to at the end okay well i look forward to that we will be returning to starlink discussion we do have a robust mullet section party in the back today for now we will begin i thought you wrote a fabulous article on tuesday just surveying well thank you the current state of meta generally and you used the words of a version of Mark Zuckerberg, who's a bit better at telling his company's story. So before we get to the substance, what prompted you to write that piece and approach it the way you did on Tuesday? I mean, there's been a meta piece to write for ages. It's like the regular meta check-in. And I have a very good track record of writing, actually, this company's fine. when they're at their bottom. I have found them very frustrating, Mark Zuckerberg specifically. And that frustration is a long running one. This isn't just a frustration over the past few weeks. This is a frustration literally over the last, like as long as I've been writing Stratechery. 10 years. Right. And I feel like it's been particularly bad in the last year, year and a half. But at the same time, I'm not a meta bear. Like I wrote a couple of years ago about how AI is all are going to be the biggest opportunity for meta of anyone. I still think that's the case, but there's a real juxtaposition. I don't know that I can fully come out with the everyone outside is stupid. Obviously, this is a great investment. I think it is, but there is a consistent pattern by the leadership that at some point had to be addressed. That's what I wanted to address. and it just suddenly occurred to me how to address it is what I want Mark Zuckerberg to say. Yeah. And what I want him to say is downstream of what I want him to believe. And I'm not sure he fully does. And that was what I was trying to sort of convey. He doesn't necessarily grok the ultimate upside and the clarity of the opportunity here. No, I think he does. I think he probably does. But to me, all the frustrations that I've had from the outside looking in with Mark Zuckerberg are all the exact same frustration repeated again and again. And that's what I sort of wanted to articulate, which is this this desire to be something that Facebook isn't. That's what it comes back to. well i mean there is there's an implicit criticism of zuckerberg's leadership in the format you adopted because you were basically doing his job for him at least as far as messaging is concerned but i also found the piece again like broadly positive on the state of meta that's good i conveyed how i felt like i'm positive i'm positive of their opportunity and it's not even fully like saying that what I'm frustrated with Mark Zuckerberg about is not sins of commission. There's lots of people that are mad about sins of commission. Things that he's done that they don't like. My problem is a sin of omission. In that I don't believe he has fully embraced what Meta is and because of that has not delivered the messaging that would give him the freedom to do what has to be done and by the way has led to some sins of commission uh spending tons of money on stuff that was the wrong direction there have been mistakes we're talking about do you want me to give the overall thesis or do you want you the real thesis or do you want to lead into it well i was actually going to go a different direction as far as the thesis is concerned because i'm curious like if you were trying to make an opposite argument that meta has misplayed the last two years what does that argument look like because there has been at least 12 maybe 24 months of just agita surrounding meta's efforts in ai whether they're spending way too much why they're spending on x and y and z and i'm curious whether there's any legitimacy to all of those concerns i don't know it hard to know what happening sort of internally to a company like llama 2 and llama 3 both seem to be quite solid for what they were Then something totally went off the rails with Llama 4 I believe a lot of the Mistral team was former Llama people so they lost a bunch of people at some point. I think Yen Lacoon is a legend in his field, was totally the wrong person for Meta, because Meta, the LM area, even if Lacoon is sort of a skeptic about how far that technology can go in terms of AGI, that doesn't matter for Meta. LLMs, as they exist, as they existed two years ago when I first wrote Meta's AI Abundance about this massive opportunity they had, were already good enough to realize massive opportunities on their side. They live in a probabilistic world. They have infinite ability to do things wrong. Just as an example of this, Meta's digital advertising, they serve trillions of ads a year, most of which don't work. Like, like, and so there, if, you know, there's the phrase with baseball players, if you only fail a third of the time, you're one of the greatest players or sorry, if you only succeed a third of the time, you're one of the greatest players. Yeah. Hall of Famer. Sure. If you're an ad service and your ads only succeed like 0.2% of the time, you're like the best ad platform on earth. Like, so, which is interesting. You have so much scope to like experiment and do stuff here. Like that's part, like, it's one of the things that makes it so intriguing and a very natural fit, I think, for this probabilistic world of LLMs for lots of different reasons. I got into a little bit more of my daily update on Wednesday as well. And so the overall structure of Meta, where they are, what they're doing, the fact that they are resolutely a consumer company and should not be a business, you know, a B2B company. But that, I think, gives them certain freedom of movement, gives them certain incentives that are actually positive, particularly relative to, say, an open AI. And so all these structural things are there. And so to that end, I have no problem with the investments they're doing. I don't have a problem with the CapEx. I don't have a problem with all the hiring that they did. It's existential for one. They're a digital company. Anyone who's purely digital has to be deep in AI. Number two, they have so many ways to use this. Like, that's the thing. Of course they should be building this. They can capitalize it. It's still not clear. It's getting pretty clear. But the Frontier Labs, are they going to earn a return? Meta has all the mechanisms to earn a return in place. They just need to build the engine here. And so why do investors not believe this? And I think that is ultimately because of Mark Zuckerberg because he doesn't fully believe it. He doesn't believe that he's created or hasn't fully embraced. this is the thesis we keep talking around it Facebook is the greatest ad company of all time in history and that's awesome and I think their ads are a societal good you don't have to be ashamed about it and there's a bit where Mark Zuckerberg just wants to build a platform he wants to be what Facebook isn't platforms and advertising are totally opposite because an advertiser you're featuring the advertiser a platform you're featuring third parties They don't go together. And so many mistakes they've made over the years are a refusal to accept the nature of what they are. This idea, you're going to build hardware, like with VR, when you're a company that serves everyone, you connect everyone. Limiting your service to hardware you sell by definition limits your market. Apple is not a company that serves everyone. They're not a social network company. They are, by virtue of their business model, are fundamentally constraining their market. That's the nature of hardware. Why is Facebook spending hundreds of billions of dollars building a hardware business? And they've been doing this since 2012. All of it, none of it makes sense. Yes, they're mad about Apple restricting their access. But at the end of the day, Apple delivered the entire world to them on a continuous basis on a platter. You know what? I've said Apple needs to be grateful to Facebook for building the app store. How about Mark Zuckerberg is grateful to Apple for building the smartphone? and creating his entire business. Like this solipsism here is also kind of irritating. So that's a mistake. There's a mistake. The whole TikTok thing, I wrote in 2015 or 2016, it's like Facebook is more than just connecting friends and family. It is entertainment. It is a thing people do when they don't have anything else to do. That's why it's so good at advertising because advertising is just more content. You're in a lean back mode. You're just absorbing information. Oh, sorry, an ad interrupted you from your very serious work of watching yet another Instagram reel. Like, honestly, the ads you look at are probably way more productive than half the crap you're watching anyway. It's a beautiful advertising environment. Why do you want to build something to help people do – well, we'll get to that later. But they didn't lean into it. TikTok came along and carved out – They did get there eventually. Yeah, because TikTok took huge – I wrote that article before TikTok ever existed. Like, I was spot on. The idea they needed to let go of we're a social network into leaning into we are an entertainment platform. Had they done that when I wrote that in 2015 or 2016, they would have seen the TikTok threat immediately instead of waiting until it carved out a huge chunk of TikTok built itself on Facebook. I was going to say a fun little twist with Facebook advertising So that a mistake And then we get to the AI thing We going to build AI right now is framed as productivity I love AI as productivity By the way I up to three vibe apps now It's fantastic. There's a gazillion use cases that are occurring to me that I can spin stuff up. Super great. I'm not the normal person, okay? Part of the reason it took me a while to figure out what to build is because I so heavily optimized my compute environment 15 years ago that like I watch other people use their computers and my skin just crawls. It's like, how do you live this way? Like, how are you so unoptimized? But like the most people are not me. They don't want to sit around and create a home inventory app or whatever the other apps that I'm working on, which I'll maybe talk about at some point. That's not they want to be entertained. They want to sit back. So why are you justifying your spend on all this sort of thing that we're going to build people assistance. We're going to help them be more productive. That's not what you do. What you do is you entertain people. You connect people. And by the way, in a world of AI, where you're increasingly isolated because you're just going back and forth with your chat bot, you have the most differentiated spot ever. You're so well positioned for the future. How can you not convince investors about this? Well, and this is where I'm sympathetic to the investors. Let me be clear, because I see Zuckerberg tweeting today, his first tweet since 2023, by the way, pretty remarkable. We're releasing Muse Spark 1.1, a strong agentic encoding model at a very low price. It's available through our new meta model API and in meta AI. I don't fully understand why they're doing that. No one cares. No, so okay. No, it makes a ton of sense to have a coding model. Like all the coding stuff goes into these models when you're doing your advertising things. Like their new image generation is super interesting. It basically is agentic at its core. It does reasoning. It has tool use. So like what's a challenge when you're trying to generate an image? You say, oh, make this image of Andrew Sharp. One of my favorites. You know, your favorite player now, Trey Young. I made an image. Give me Trae Young's hair. Looking like Trae Young. Right. Super complicated to pull out, to pull together. What if I would just type that? It would go out, search the web, find the different images, put them together. It iterates on it like reasoning. It's a really interesting model. You can see how this is amazing for advertising, for doing these generative ads. That makes a ton of sense. Part of that is coding. Coding, by the way, Facebook writes a lot of code. They are reportedly Anthropic's biggest customer. They shovel billions of dollars a year to Anthropic. That's something they should probably do themselves. It's a core part of their business going forward. So them building a coding model makes total sense. Framing yourself as a coding company is asinine. It's so dumb. That's what's confusing to me, yeah. It's just like the, it's maddening. It's a great point. The first time he decides to tweet is about a coding model. That's neat for your buddies in Silicon Valley. I'm sorry, Mark Zuckerberg. You're not a Y Combinator startup guy. You are the CEO of Meta. What you say matters. You deciding this is the one thing you're going to talk publicly about on X to your point for the first time in years just emphasizes my point. Your messaging, and again, I think this is rooted in a deep-seated, this isn't a mistake. This is a mindset. Mark Zuckerberg has never. He's always he's like the Sam Altman thing. We talk like vaguely. He wants to be great and wants to be revolutionary and doesn't treat the ad business as revolutionary. He's like vaguely embarrassed about it. Right. Yeah. Like Boz goes in and cleans everyone up and whips them into shape. Sheryl Sandberg gets on the earnings calls and talks about the beautiful like anecdotes of how advertisers are changing people's lives. Mark Zuckerberg wants to talk about anything else. And by the way, this is why Apple cleaned their clock in the debate about ATT. ATT was hilariously like one of the most egregious antitrust actions a company has ever taken. And they completely got away with it because who was speaking up for Facebook other than me? And yet, at the end of the day, despite the fact he can't talk about it, can't seem to bring himself to express it, they are still spending billions of dollars in the face of the market telling them not to that's his redeeming quality like he just and he vaguely goes in the right direction and he doesn't care what anyone says and it gets it done and so facebook is in i think a fine position i think it looks like their models are really good it looks like the last year of upheaval and pain has been worth it they are moving in the right direction and people will figure this out Their ad product's going to be amazing. Like, all this stuff I want to happen is going to happen. It just doesn't need to be this difficult. You don't need to go through this massive stock drawdown. You could be out there paying this image. You could avoid all the internal morale issues of people feeling like my stock's down. I'm doing all this work. It's so unfair. They measuring me every day every second This is the Mark Zuckerberg experience His redeeming quality is that he doggedly goes in the right direction no matter the barriers that are in front of him His weakness is that most of the barriers he put there himself. This could be much easier. And that's not always true. Honestly, when you look back at like Reality Labs, that was the wrong direction. They literally renamed the company after the metaverse. And that's now a giant flop that hangs over everything. And so it's tricky. I mean, this is probably a stupid normie question, but what else should they be doing with that money in order to satisfy investors? If you're like an investor with a pitchfork demanding that they do something different, what would that be? Investors want them to just sit there and like harvest all, like make all this money and I don't know, pay back a share buyback. Like they don't want them investing in AI. In a competition that they're not going to win with Anthropic and OpenAI on the frontier of AI. So here's an analogy. So I've talked to a lot of people that want to do what I do, that write about – want to write a blog or a newsletter or whatever it might be. And the mistake everyone makes is they want to do exactly what I do. They want to write about the big tech companies in their basement. And the problem is I got here first, and I'd like to think I'd do a decent job of it. So if you want to replicate stratechery, you're going to compete directly with stratechery, which is fine. I think that's a tougher road than it could be. It's harder today than it was 15 years ago. So you're diving into my pond. And this is a pretty big pond. I remember the big tech company. So you're diving into my very large lake. I drove past Lake Superior on this fishing trip. You're diving into Lake Superior. Good luck. You could be the biggest fish in Lake Superior. Go for it. or what you can do is instead of trying to be the biggest fish in a very large lake or the ocean, find your own pond. And that's just a much better sort of route for you to take. Be the sole person writing about this specific thing and then charge way more money than I do because there's a very narrow number of people that want it. But if they want it, they really want it. And you can charge them a lot of money. And they will pay for it. Yeah, there's lots of people that make very good money charging very high prices for very niche content. And it is absolutely a viable business model. The analogy here is Mark Zuckerberg is insistent on jumping in Anthropocon Open AI's lake. That's not a very fun lake to be in. You have an entire ocean. That's all you. And by the way, that ocean is the value of it is being enhanced by AI. It's being more attractive. The idea of, we just talked about it, connecting people, like entertaining people, getting out of the productivity obsession that is taking over everything. It should be durable and even more dominant in the years to come. They are already the biggest fish in the biggest lake that is becoming more attractive, and they keep trying to flop onto land and roll over to the other shark-infested lake. It's nuts. Yeah. I mean, it does not make a ton of sense to me. And we're only a year removed from them spending literally billions of dollars on various. That spending is fine. No, that spending is fine to be queer. Like all that. It's just that spending. And I think it's going to end up going into their lake there. I think they're going to be fine. Well, no, totally. They will end up in the right spot at the end of all this. But the theory and the messaging around the signings a year ago where we want to develop some of the leading models. We're going to develop your own personal super intelligence. Right, exactly. And here's the thing, by the way, they could eventually do that. Like, it might be the case they actually end up getting so much data about you. By the way, a great thing about being a consumer. I've been waiting. They absolutely could. The great thing about a consumer tech company is you basically get all the data. Like, you're not dealing with enterprises who are fighting with you about data retention agreements. It's just a fact you get all the data. Like, again, for better or worse, that's just the reality of the consumer in it. That's why Facebook succeeds because they collect so much data. So you're already in a great place in terms of doing that. And you could, in the long run, back into, oh, wow, turns out Facebook is a personal assistant for everyone. That is not the – you can't lay that out as the vision. You have a very tangible, very real way to apply this, which is advertising. And by the way, they're doing this. Their ads have gotten way better. And there's future technology on the horizon of using LLMs to instead of like sort of match ads, like predict the next ad. And then it's just there and like and predict your content. And it sort of gets all tied together. Lots of complexity that goes into it. But the line for them making way more money because of AI is very clear. And they're going to march down it. Just talk about it. Be happy about it. Embrace it. All right. And that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharptech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from CertEckery and the CertEckery Plus bundle. Check it out. And if you've got feedback, please email us at email at sharptech.fm. Thank you.
