Eric Seufert on Apple's coming ad empire, Netflix's fast dilemma, and why OpenAI needs conversion optimization to reach $10B in ad revenue

Speaker 2: and now with AI agents. Who do we have next, Jordy? The souffinator. We got Eric Souffer, the founder of Mobile Dev Memo, live with us on TBPN, on YouTube, not on Netflix yet.

Speaker 1: Should we be considering switching teams? Eric, just just just for for what it's worth, every time you you you come on the show, I call John afterwards. I'm like, hey, Eric. Eric's Eric's in my Eric's in my top three all time guests on the It just fires us up to We love talking you. Talk with you every time. Good to see you. And it's great to see Yeah. Good to see you. So I I told my wife Mhmm. I'm going back on TVPN. Mhmm. And she said,

Speaker 11: is that the show with the two handsome hosts? Oh. I said I said, yeah. But when I'm on, there's there's three handsome men out of show. Yeah. That's right. And it was like that meme with Natalie Portman where she's looking at the guy and I was having to say, right? Right. There's like three handsome guys on the show. Right? Right. Right. I I think you're ready for Netflix. I think Netflix would be happy would be lucky to have you. But what would the

Speaker 2: what would the economic dynamic be? Because Netflix and YouTube are both going for exclusives now. What what what's actually playing out? How much are they at each other's throats? How much are they gonna converge in the way that like TikTok and Instagram and YouTube are all converging? Is there gonna be another convergence or is there or is there actually a stress point there where YouTube is trying to be both Instagram and Netflix and they maybe can't do both?

Speaker 11: Well, I mean, they are converting. So this is a really fascinating dynamic right now in streaming. I've been following it with a series called Netflix's YouTube opportunity for roughly a year, right? And so what I read about first was they brought miss Rachel on, right? And so what they did was they brought Ms. Rachel on, but they didn't give her They didn't buy new content, right? They just paid her to bring her existing content over. So you've got this proven base of content that has however many billions of views. I know my children probably account for some several billion, but you've got this proven case of You've got this proven base of content where there's essentially no risk. Like, you know there's an audience, you know it's popular and you pay some amount of money to bring over this existing content. So what's actually really great for the content creator too, because they don't have to produce anything new. They just have to chop They chopped up the existing content into like a season. So they packaged it like a season. And they also did that with Danny Goh and they also did that with Mark Rober. And so my point was, look, Netflix had been up, they've been executing tremendously well for the past several years. They had commanded extreme pricing power, right? The premium service is going at almost $30 a month in The United States now. The advertising tier price has been tracking with, I think is the ARPU differential to make it equivalent to the next highest tier. So they've been doing a good job of maintaining that pricing power. My sense is they did too good of a job, right? And so they made it really hard to compete in the space and that pushed everybody to the bottom. That made everyone take the exact opposite approach. Was like, okay, let's go fast. Let's go free ad supported television. Now Netflix has an even bigger problem on its hands, right? Because they may have reached a ceiling with what they can charge. Certainly premium, I don't know how much higher you can go than $30 There's not much. They probably extracted all of the net additional subs they can from password sharing crackdowns. Now they're faced with, okay, we just have to bring in a lot of live events and sports, things like the Beyonce Bowl and the January NFL games. It's really expensive, right? And so are you gonna compete on content or are you gonna go the opposite direction, race to the bottom and try to get UTC on there? And I think that's probably what they're trying to sort of thread that needle because if you listen to Netflix's leadership, they say, look, we can never go pure fast because that would have a deleterious effect on the brand. We're seen as a premium service. But how can you maintain that when you see Roku and Tubi joining forces, right? When you see all of the pressure that Amazon is putting on your business, because Amazon is the identity spine for advertising across all of Fast. All of Fast CTV is Amazon with these data deals, providing all the identity for the buying. And so I think they're facing like this opposite problem now where they had too much pricing power. They pushed everybody in the opposite direction to go fast. And now I think honestly, if you believe the reporting that the New York Times did that they're gonna be offering up these subscription bundles, how can you not go fast and do that? Are you gonna be willing to accept paying $30 a month for a premium Netflix tier, seeing content in your Netflix app on your TV, and having it say, and if you want this, you have to pay even more to subscribe to this other channel. I wouldn't. I think the only way they can do the bundling is that they adopt fast.

Speaker 2: That ARPU gap from the premium ad free tier to ad supported, it feels like are they is there a reason why the gap doesn't make up the full $30? Is there some economic reason, or did they just get stuck in this weird place? Because it feels like if they got even a little bit more juice out of the ad model, they could just offer a free ad supported tier, but maybe that would create more churn because mentally you're going from $30 to $10 is different than going from $30 to $0 But do you understand more of like what they're grappling with? Did they get unlucky or is there something about the the structure of Netflix that would would would really make it difficult for them to do just a fully free and ad supported tier?

Speaker 11: No. I think it's just a reservation they have. Maybe it's almost like a superstition. Right? Mean, keep in mind, they were saying for the longest time they would never do ads. Yeah. Know, Reed Hastings said like They always do. Yeah. They always do. They it, right? Until they change it. Like he, I mean, Reed Hastings said ads were like a blight. I said personalized advertising was a cancer. And so, mean, I they changed the tune. But I think he said just that, if I'm remembering the wording correctly. But the thing is like, I think so there's three tiers, right? It used to be basic, now it's standard with ad standard and then premium, right? And so the standard is what they have to make up their ARPU gap. With premium includes a lot of stuff. And so maybe you can make the case, right? For a high income household, it's worth paying for the higher streaming quality and the more devices that you can onboard. My sense is with standard though, that ARPU gap is just, just index it to the ads ARPU. But the thing is like, the question is like, just internally, what is the resistance to going fast? And my sense is it's that perceived quality that they would lose if they went fast. But I mean, what can the market moved in that direction. They pushed the market in that direction. And so I think they're gonna have to capitulate. Have you been surprised that

Speaker 2: that Amazon Prime Video hasn't seen more UGC? Because I was looking up randomly, what does it take to publish a film? And you can submit to Amazon Prime Video that goes through a review process, but the cost to submit is de minimis. And you can get a video product up there, but it hasn't actually seen a groundswell. And I'm wondering if that's because Amazon specifically has partnerships that scratch that itch.

Speaker 11: Yeah, I think that might be the case. I mean, keep it like, like I said, I mean, Amazon has all of these identity partnerships that essentially make it the data spine and the identity spine for fast, like broadly, right? And so if you think about it, I remember people saying, Oh, I bet Amazon's gonna buy Roku. And I remember thinking like, why would they? They've already got this identity partnership with Roku where they get access to the best impressions. If they bought it, they'd just be getting everything else they don't already buy. And so my sense was always that like, well, they're already picking over the stuff that they're not buying. Why would they wanna own it? And so my sense is, yeah, maybe it competes with the fast channels that they're partnered with, or maybe they have similarly some sort of perceived quality bar or hurdle. I think the UGC thing is a little bit of a distraction because I don't think Netflix is ever going pure UGC.

Speaker 2: Like they are very selectively curating the YouTube creators they bring over, but they brought over a lot and they went on a shopping spree this summer too. They brought a lot of stuff this summer now YouTube's pushing back. I saw some post about how the results of that of that shopping spree that Netflix went on with YouTube creators had a significant power law where there were some creators that were really performing well on Netflix. Is that because of the way the Netflix algorithm works? Is that true? Or do you think that there's, okay, if somebody is getting 1,000,000,000 views on YouTube, we can pull them over and get x views and there's some multiplier? Or is there something special about the way Netflix is actually rolling out these deals?

Speaker 11: Well, I think there's a couple of pieces there. I think like they've got YouTube certainly has like more Rex's adjacency. So they have more opportunities to push people into this content than Netflix does. Netflix has less stratified, less deep catalog, right, than than YouTube does. Yeah. So that's that's that's one piece. But then you do you just you do just see, like, even with miss Rachel, like, season two performed substantially worse than season one in terms of view hours per per minute of of of content. And so, you know, it's maybe it's just consumer preferences where they had other stuff to prioritize. I mean, Netflix has invested a lot into its own recommendation algorithm. And so it just depends on, like, what they they they feel the need to promote at any given point in time, and they they have to, you know, they they just have to exclude stuff that doesn't fit that purpose. Yeah. You have to imagine that someone like miss Rachel, if she's doing a deal with Netflix, she

Speaker 2: as part of the deal, it's not just gonna be money. It's gonna say, hey. Are you going to actually give us impressions so that we have the chance to be successful here and get real viewers that go into the rest of the funnel, show up to the live shows, buy the merch. Like, it's not enough for you just to pay and stuff us off in a corner. If we do this, we wanna do it right. I wonder I wonder if Netflix has an opportunity to just basically take all the best UGC from YouTube because I think YouTube has a massive AI. Yeah. That's that's seemingly what they're doing. But underappreciated

Speaker 1: maybe how big of like an AI, like AI is probably like seemingly a net good for YouTube right now because there's more You mean slot specific There's more content for all the long tail. Like something will happen and I'll get served a video and the voice sounds good now, maybe the script sounds okay, and then you realize like, okay, this channel was just created two months ago and it's not really. And YouTube has an incentive just constantly be serving new creators. In theory, Netflix and But human review I generally want to consume content from creators that have been are either new and extremely passionate and dedicated. I even saw a creator over the weekend that started years ago using AI voices and just stopped and said Interesting. That YouTube is so flooded with AI content now. He's just And he's not American, but he makes all of his English isn't his first language, so he has an accent. But it's appealing because you're like, okay, this guy's actually making this content, it's not just like fully generated, right? And so I think YouTube or Netflix's opportunity is to like try to carve out all, like actually have a filter again and like be a curator and take the best content that historically would have just been on YouTube and try to bring it over. Yeah, but it's still big.

Speaker 11: Well, but I mean, so YouTube absolutely does not want that to happen. Right? So I mean, keep in mind, like, the dominant platform for YouTube in The United States is the TV. Yeah. Yeah. Right? And so so they they are I've called it a CTV behemoth. That is their dominant platform by by Viewtime. And so they they compete directly with Netflix engagement. It's actually really problematic if Netflix is able to just poach their best creators, the top, like the sort of like the cream of the crop and then push them into Netflix then to justify the subscription price, right? So what they've done is they're now inking deals to keep people exclusive for a period of time. And they're also saying, look, we're gonna punish you if you move. We're gonna deprioritize you in our recommendation systems. We can't promote you if you're on Netflix because we wanna promote stuff that's exclusive to us. And you're not gonna share in brand revenue. So it's actually, what Netflix has done is they've forced YouTube to apply a lot of the curation pressure and incentives that YouTube always didn't wanna do. They always wanted to resist being that kind of channel. They said, look, this

Speaker 1: is just an open market. Like people compete and you get you get views if you outperform. But now they're having to sort of put their thumb on the scale in certain ways to keep the best creators. Mhmm. Yeah. Mask very much a mask off moment for the for the platform that wants to position itself as like, we're just this friendly platform for creators and we just wanna support creators. And they're like, if you even put one of your videos over here, you're not getting any more money and you're not getting any more views and we will end your career. Basically that's basically Be a shame if something happened to your audience. Yeah. Be a shame if if something were to happen to your reach. What is going on at Apple around services,

Speaker 2: ads? Give me a little bit of the history there. Apple's obviously had some some sharp words about advertising in the past, wound up building a great ad platform.

Speaker 1: So John sent me a screenshot. It looks like It's from MobileDevMemo. It's from MobileDevMemo. And the screenshot says the Schiller exit is a bit more notable. Apple's app marketplace is loved by many consumers but often criticized by developers and subjected to increasingly onerous regulations, but there's a bit more to the story. I'm told Ternus and Service Achieve, Eddie Q, wanna make even more money from the app store and figure out ways to raise margins and squeeze additional recurring revenue from the platform. Shiller, the other hand, seems to believe that such moves would only further irk developers and governments. And John said, first piece of good news from Apple under Ternus. Cupertino will finally be focused on App Store margin expansion. I've been pulling my hair about out about this for years. Feels good to be vindicated. Better late than never. So obviously joking. Yeah.

Speaker 11: That that quote's from Gurman. That I was Okay. Quoting Gurman. Got it. Yes. That was from Gurman's newsletter. Oh, my god. But, yeah, we got a new a new era. Right? Yeah. Shill it out apparently. I stepped away from the App Store. Eddie Q has taken over with Ternus. Yeah. And apparently, I wanna squeeze more money out of the App Store, which makes sense because it's under monetized. But why not ads? That is that It can't be anything but ads. Okay. No, it can't be anything but ads. What else could it be? I asked this question on Twitter yesterday. Yeah. What else could it be? Yeah. What could it possibly be besides ads? What other opportunities? Are they gonna increase the commission? Are you nuts? Yeah. No way. How do they increase the commission? The the the commission Wait. So you said it's under direction. You said it's under monetized, but you believe it's under monetized purely on the ad side. The commission side is people's totally at their limit. Totally. Yeah. Yeah. Commission can't go anywhere. Certainly, it's not gonna go up. They'd be lucky if they can maintain the commission. Yep. I mean, they're probably gonna have to you know, so basically, I I think what I think is gonna happen. So they replied with their in the Epic v Apple drama, which is interminable apparently, they made their latest proposal, which is that they'll apply a 15% commission on the link out. Right? So they're they're having so in if you remember, just go back a little bit, the Epic v Apple case, Epic essentially lost on every 10 of the 11 points. But what they did went on is that Apple does have to allow link out, right? So you're in the app, the developer can put a link in the app to a website that allows them to monetize there, right? So they have to be able to do that. Now what Apple responded with was saying, okay, yeah, but we're gonna apply a commission that when you add in the Stripe fee is essentially just as much as 30%. And also you have to do all this reporting. And also if you have someone clicking out and going to a website, they're probably not gonna be as likely to So why all these commissions, all these frictions that like, okay, there's never gonna get any traction. Now what they've proposed is like, okay, well accept a 15% commission on this, but you still have to go through all the reporting. That makes it interesting. Now we'll see if the judge accepts that, right? She might not, but like Epic was fighting this. They want zero commission on link out, but Epic wants zero commission on anything. But so like, if that happens and the commission drops even further, you're gonna push a lot more revenue outside of the app store onto the web, which actually a lot of it's already fled to the web. I mean, like go to any subscription app, go on the Facebook library, find your favorite subscription apps, Strava, whatever. Look up their ads and see where they link to. I guarantee you it's to the website. Almost every subscription app spends the vast majority of advertising on web destination ads. So they're sending you to the web, you register on the web and then you download the app, you log in. And so all of the monetization has happened on the web. There was never any monetization in the app in the first place. Games have started adopting that too. And so they've already lost a lot of this in app monetization to the web. The commission's already under a tremendous amount of pressure. And it's not, you've got the EU with the DMA. They seem to have come to a resolution there, although Epic also thinks that's not true. But you've got Japan, you've got Brazil. I mean, you're gonna see increasing cases where a government step in and say, have to offer alternative in app monetization and you have to offer alternative app stores. And so if you think about what does the app store have that can't really be taken away, that's probably under monetized, it's a lot of engagement. If I remember correctly, the last touch point where they released any data was 600,000,000, no, it was 900,000,000 weekly active users.

Speaker 2: Jack GPT reached parity with that at some point a couple, like roughly a year ago. 900,000,000 weekly active users. That's a lot of engagement. And what do you do when you have a lot of engagement, a lot of eyeballs, lot of attention? You monetize it with ads. I think they have no more opportunity to get Yeah. With the App Store, every time I search for something, I'm seeing a seemingly seeing a bunch of ads. Yeah. Because you way more. Like, imagine you go to a website, you go to an app in the App Store, you're browsing, you don't purchase the app, and then the next morning when your alarm clock goes off, instead notification. Of No. Just replace the alarm clock sound with an ad that says, please download this app or you're ready to go. Retarget me throughout the day.

Speaker 1: I open up the iMessage before I see a message from you, I see an ad. I was going with this is at what at what point does Apple, if they actually want to grow their ad business, not start to compete with an Applovin' and start offering, like bringing their bringing their ad network into the app Right?

Speaker 11: Well, I mean, they do essentially. I mean, they've got ads in the search results. Right? They just added a second slot, the second placement in the search results recently a couple months ago. You know, they've got like recommended

Speaker 1: apps where you can find the placement in an Epshort page. Could do like you have to pay to get organic results. Like you search and then it's just 10 ads. That's an And then unlock, unlock, unlock. Oh, premium tier. Unlock organic results. That's dollar 99¢ to see what you're actually searching for. No. But what what I was saying is like, know,

Speaker 11: like, basically, a user comes, they search for a game, let's say. No. Then they see an ad, but then they end up downloading a game. And then I'm saying, like, all the surface area that's potential like, the real opportunity is every time someone opens up that game, they're getting an Apple app. And No. I think they will. I think they should. I think they will. I think they will. I don't know what else they could do. I mean, think they're gonna do that. I think they're gonna have some sort of e comm ads offering. I mean, I predicted a year ago that they put ads in maps because it just made sense. They've got a lot of engagement there and they they just did that a couple weeks ago. But keep in mind, I wrote about this when they So they took their ads service down for a while. Usually they do that when they're making a change, right? Right before they did that, and that's when they implemented ads in maps, but they also, they created a whole new campaign optimization API to accommodate maps now and all the other placements that they have. So this unified campaign optimization API, right? Now that's extensible. You could extend that to anything, right? So they're already putting in place a scaffolding to support that, but they're also putting in place the policy scaffolding. So they also made all advertisers like sort of recertify their approval of Apple ads service agreement. And that gives them permission now to serve ads on websites and apps they don't own. And I think that was the big sort of signal here. Now they've done a lot of other things too. They rebranded SKAdNetwork to the ads attribution kit. They renamed the whole thing from Apple search ads to Apple ads. I mean, all of this sort of points towards a more generalized ads product. But I think opening up that services agreement to say we can place ads on third party properties probably does signal that they intend to do that. Yeah.

Speaker 2: Yeah. I mean, that seems like a huge way to grow services revenue. I I don't know if you have the exact size of the project. Ads come for everyone. What about Eventually. What about new Siri? I mean, looking at the Chattypity ads hitting a billion dollars, you've been very optimistic about the potential of ads in LLMs and that it's a logical end state. Do you think that they'll do Siri? What what else are you tracking in the development of AI and ads?

Speaker 11: Well, I mean, we've talked about chatbot ads. Sure. You know, I have a lot of thoughts on that. But I mean, I could just go back to Siri. Siri's tough because it's only voice. Right? And so I think you need There is an app where you can tap. That's true. So That's That's true. I think once you have the chatbot interface and then and they do have that. I think once you get a lot of usage there, ads become an opportunity. Sure. I just do think you need a visual component to make ads work. Yep. It's also why I just don't think ads to agents is ever gonna take off. That's why I think there's, like, a lot of incentive conflict there. Just don't think that you can show ads to agents because you wouldn't know who to trust. Who's getting paid in that case and who's paying, right? So there's like a lot of incentive conflicts there. But I also just think there's a visual component to ads that's necessary, right? Because that's what ad creative is. That's the principal way that you do messaging, that you do brand positioning, that you create affinity. And so I think if you're just doing voice, it's really tough. I think in the chatbot experience, can. My sense is how they wanna monetize AI generally on their hardware is through essentially a deal similar to what they struck with Google search, right? Like you have to pay to be the model that gets, by default, gets attached to these services. And I think that that could be very, very lucrative to them. And they've already sort of, again, they've already set up, they've already kind of created the environment for that to happen with this sort of the core AI framework, the access to the models going through private cloud compute. They've already created the conditions for that to Yeah. And I think

Speaker 2: think Demis at DeepMind was saying that, like, there won't be ads in Gemini or, like, the core Gemini models, but he's out. Over time, you could imagine that the ad gets baked into the actual Gemini response and then that is monetized on the GoogleDeepMind side, which then justifies the pool of capital that gets traded to Apple in exchange for that entry point. A lot of sense. What do you think OpenAI needs to do to get from one to 10,000,000,000 on the ads product? They have billion users. The technology does not seem that complicated to me. I know it's deeply complicated, but it feels like when you have the machine that can, you know, solve math and write endless code, like, just writing a matching algorithm, serving up the UI, like, that feels tractable. But is it is it a supply side thing? They need to get more small businesses like what Facebook did where, you know, Ridge Wallet and every small company and medium sized company is on there. Actually, do they need to go after e commerce gaming? Like, where do you see this going?

Speaker 11: Well, it's first of all, famous last words that it doesn't seem that complicated.

Speaker 2: Do we get to build? No. No. You're right. Because because you and Ben Thompson were talking about like, oh, they they they've said they're gonna do this and it still took months to actually get out.

Speaker 11: Well, yeah, but they're doing it. Right? I think they just need to keep doing what they're doing. I think the opportunity is vast and immense and I think they're executing at blistering pace. So they just opened up to more countries. Now there are more than 40 that they're available. And they just opened up to 31 more countries. This was like two weeks ago or a week ago. So this is like I mean, so they're expanding. I mean, it takes time. Look, I think what they will be I think you start to see the growth inflect when they integrate true conversion optimization. That means you're bidding a specific amount for a specific outcome. Like, you're still doing CPC optimized conversions. Sure. Once you are bidding against a specific outcome Mhmm. Then the growth inflects. And I think, you know, they'll be off to the races. That's the gap from one to 10. Yeah. And then 10 to a 100 is just continuing to onboard, you know, every SMB possible. Yeah. Where do you sit on Instinct and the personalized agents Yeah. So breaking news. So Meta just released an Instinct clone Yeah. Muse. Oh, really? Called Muse. Oh. And it's a new standalone app. It's not the Meta AI app. Okay. It's a new

Speaker 1: personal agent app that's in the App Store. Muse from Meta, it says your personal agent that takes things off your plate, approve what gets sent or spent, track ticket prices and book reservations, connect all your apps, get ideas for what your agent can take on Okay. Which I think is is smart because a lot of people just don't really fully understand what agents can can do yet. But, yeah, let's talk about Meta's current AI strategy in a moment. They're they're you know, have started a pricing war. It's unclear what how much the Meta AI app matters to the whole strategy. It's they're doing Muse now. They're doing coding. They're throwing a lot at the wall. But what's your view? I

Speaker 11: think I so I like to sort of just I think I just I'm just I'll hone in I'll hone in on a thing. They're they're yeah. They are throwing a ton of stuff at the wall. I'll hone in on the things that I think are like where there's there's there's like a a a a a true, like, thematic strategy. So a couple things. Right? Muse agent, interesting. Open Claw kind of thing. Like, we'll see instinct kind of thing. We'll see where that goes. Think there's gonna be a lot of those, and I think those get more and more domain specific over time. But, you know, we'll see that's interesting. It could get more consumer adoption on desktop. So we'll see. It's gonna be the standalone app. I was just reading Vaz's

Speaker 1: tweet about it before we hopped on. Yeah. And it's it's interesting to me that they own WhatsApp, which has billions of users, and they wouldn't just try to clone Instinct in WhatsApp and just, like, try to get, like, actual crazy adoption there versus

Speaker 2: launching a standalone app. Yeah. Like, should like button inside of WhatsApp as opposed to a separate app. This is always, like, can interact with it that way. You can interact with it from what's up. Totally. Totally. But the the friction of getting people to download a new app instead of It was always different when it was just like, if you open Instagram, you get stories now. Right. Like, there's no separate there's no step. It's coming to you whether you like it or not because we believe in stories, and we are going to get that to a billion MAO very quickly and they did.

Speaker 11: Yeah. I mean, to keep in mind that there's still a lot of reluctance to this on the consumer side and there's still a lot of mistrust from Meta on the consumer side. And so I think, you know, if you just integrated this as a forced download on WhatsApp, of chert. You might get a lot of telegram adopters.

Speaker 4: My sense though is like, if you look at a couple of different things, there's

Speaker 11: a thread that you can sort of parse. Like one is Meta AI, right? So, okay, here's an interesting enterprise use case. What if you had the GoToAI for managing all ad campaigns within your company? A 100%. GoToAI app for managing all campaigns within your company. Because I'll tell you how people do it now. They use Codecs. Codecs not purpose built for that. They use Clodecs. Clodecs not purpose built for that. Yep. Meta AI now does that. They've added that as a whole feature set. I think that gives you a strong indication of where they wanna go with this. Who knows ad campaign optimization better than Meta? Why do they not have the right to win that? So even if you just said, this only applies, the enterprise use case here only applies to optimizing Meta ads, that's still a massive opportunity for revenue. Totally. And that's just on

Speaker 1: a first order perspective, not even considering, well, that actually might result in more ads. Well, that's why I was somewhat excited about Manus. Because I was like, okay, they're buying this enterprise agent, they can point it at Meta ads, and if the agent is only good and it's actually not getting if Meta's saying, yes, we want to optimize ads with this product and we're fully endorsing this, we're supporting it, it's not computer use or any of these other things.

Speaker 11: Yeah, but I mean, yeah, was exciting, you know, got rolled back. But I mean, Meta AI now does it. Introduced that functionality to Meta AI. So now if a performance marketing team, you're saying, well, I need a tool to optimize my Meta campaigns. Which one am I gonna use? Am I gonna continue to use Codecs? Again, it's not built for Like, don't think that they've devoted resources to making that a primary use case for it. And so Meta AI has done that. If I, even if it was just for Meta, now imagine that it's the go to for all ads optimization. Okay, well now it's an even bigger commercial opportunity for them, an even bigger enterprise opportunity. And keep in mind, Meta launched the Robin Media Mix Model as an open source framework. So it's basically like a measurement apparatus that helps you do like probabilistic measurement across all of your campaigns that you're running like online, offline, whatever, out of home. The reason they did that, think was because they felt they're being under attributed. Right now, you had this sort of same mindset with the AI enablement layer, the tools that people were using to do the optimizations, this makes a ton of sense. This might end up with more revenue flowing to them because the optimization ends up preferencing them, not with the thumb on the scale, but just because it was actually under optimized before. So that might be a reason to do this. If you genuinely thought people were spending less than they should be to be optimizing their ad spend on your platform, then you would do this. And if that's the case, this could have like dramatic second order effects to you. So that's one thing. The other thing is business AI. And business AI, I think is like underappreciated. I've been following this for like quite a while. I had their VP of business on the podcasts maybe a year ago and we talked about this. But they launched a business AI, which basically was a chatbot that you integrate on your website. They said, okay, that's kind of boring, who cares? But what people were doing is they were clicking an ad, going to someone's website, and then they were using the chatbot to say like, what's the best selling product? And stuff like that. That has a lot of opportunity there. Like even if it's just surfacing basic data like that, there was no way for a lot of SMBs to do that. Now what they've done is they've introduced like an AI enabled pixel, which can automatically sort of tune itself, requires very little optimization from the advertiser side. Imagine all the other stuff they could do if they have access to your landing page. Imagine landing page optimization. Imagine personalization is all driven by meta's own systems. And the advertiser could say, Look, I'm an SMB. I don't have time to AB test, or I don't have the resources to do like constant AB testing, constant experimentation on my landing page to optimize conversion. I know if my conversion was better, I'd be able to spend more money on Meta and get more sales. So if Meta can offer that to me, I'm okay to surrender that capability to them. Imagine they penetrate even deeper into the customer experience on the website. Certain brands will say no way, but a lot of SMBs, which is that big bulk of their advertiser base will say, yes, please do anything you can do to optimize conversion for me because that's gonna result in more revenue for me, which I'm then gonna reinvest in more ad spend. So I think like Business AI is really, really valuable to them and they've integrated that deeply into WhatsApp. So that is going into the WhatsApp experience where people are able to communicate with businesses directly, get a chatbot, understand these things about the catalog, understand these things about the business and the core product offering. I think that stuff has a ton of potential. And I think that's probably undervalued if you look at Meta's AI initiatives. I think people focus too much probably on like the output of TBD. But like I think, and that's important too. I mean, look, the the the model that they just released is competitive. Like, no one people left them for dead six months ago, but now they're actually producing competitive models. I think that's important too. But if you think about the integrations in the surface area, they could just apply even commodity AI to, is there's a lot of value left to gain. Yeah. We never book in ourselves. No.

Speaker 1: No. No. Yeah. And and what you're saying We're looking at that. Me, it's like it would be I think it would be thrilling for shareholders if they saw MSL actually focused on applying AI in the business and not like, oh, coding's a hot category. We should we should introduce a coding tool. Oh, or let's let's try to ramp Yeah. Muse API revenue to to a $100,000,000,000, right, or or whatever these things are that they're trying to do. And so, yeah, it's like it's products, it's like net new products that are consumer products like Muse that I think are interesting and it makes sense that they'll take a crack at this category because it will probably be, you know, multi trillion dollar category. It's aligned to their existing business. And then and then some of these other things of like actually applying AI. Instead of personal super intelligence, it's small business super intelligence. That would be a huge opportunity. And small business owners, like, small business owners, I feel like, are people that generally they may have a little bit of a love hate relationship with with Meta, and that they're they're like, I I'm dependent on Meta. If I turn off Meta ads, my business, you know, revenue drops 50%. But at least they're like, I need Meta. Yeah. Like, they're dependent on it. Whereas average consumers, you look at the comments and people are like, okay, Meta's talking about privacy with their new agent. It's like nobody's buying the Meta and suddenly is privacy focused Yeah. Narrative,

Speaker 11: I mean, look, a lot the SMBs, they understand that they wouldn't exist before Meta. I mean, there's not a lot of animosity towards the company that provides your right to exist. It's like the oxygen that they rely on. I don't think there's a whole lot of hostility to that. I mean, what always bothers me about, you know, these discussions is like to just not recognize that D2C would not exist absent Meta. If if if if Meta's ads platform hadn't like evolved in the way it did, there would be no D2C category. Right? And so it's like, it's it's it's ridiculous to say first of all, I think one one let me know if you're we're up on time here, like That is shame. Like, a lot of people look at the index. So if you look at like the advertising and share of GDP, sits within like a narrow band, like over time, historically, going back hundreds of years. And people say, well, look, that proves that advertising is not driving the economy. It's almost like a drag you could say, because it's just this cost base. But like the thing is when an advertising format, when advertising enables new business, the fact that I'm still maintaining a share of my revenue as my ad spend, doesn't mean that that ad spend would exist or that my revenue would exist without the ad spend. And so if you create these new opportunities for commerce, like it doesn't matter that the share that you reinvest back in advertising stays the same. That's not an indication of the value of the economy. It's creating that chunk of the economy. And so I think that gets missed in these discussions. It actually impacts economic growth. It's endogenous there. And so it's an input to the economic growth. And so you can't say that the fact that it remains within this narrow band as a percentage is some way to evaluate its importance to the economy. And when you are creating new opportunities to transact that are entirely derived from advertising, then you are creating that section of that segment of the economy. Totally, Totally. Do you think that

Speaker 2: is the what is the state of affiliate marketing? Because when I think about a product like Instinct or this new meta product, an agent that will go and buy things, it feels like that would be easier to boot strap in theory than an advertising platform that you need, you need scale and a and a demand side or supply side for. And so, you could, in theory, when even on day one of instinct, I ask to go order a pair of shoes and it uses an Amazon affiliate link and they're making money. Is is that

Speaker 11: going to persist or is that like a dying a dying monetization path? Or is it just small? No. I mean, I think there's some upper limit now, but I think it's something that'll persist Mhmm. You know, indefinitely. I mean, look at, there's big companies that do essentially affiliate. Rakuten is one of them. It's a successful company. I think the thing though is like, is that subscale? Yeah, affiliate makes sense. But this is the argument I made when ChatGPT introduced Instant Checkout. Like that's not the optimal way to monetize that attention. The optimal way is to do conversion based, conversion optimized advertising because that introduces the auction mechanic. You actually deliver the value that a person's bidding. And then so the more value you give to people, the more they bid and the more revenue you make, right? You don't get that with affiliate. Affiliate tends to do the opposite. It tends to preference the lowest cost, but highest converting goods. And so it's kind of, you're promoting like the worst stuff, the cheapest stuff, right? The Shane stuff, the tamer stuff. And the thing is when you unlock sort of like the latent value with the auction mechanism and bidding, especially second price bidding, then you get growth with performance. Yeah. And so that's how you scale the platform. You onboard long tail SMB advertisers.

Speaker 2: Mhmm. Well, thank you so much, Jordan. Do have anything else? No. Always a pleasure. A good Always always a great time hanging out. Thank you so much for coming on the show. Great to see you. Have a great week. The third technology brother. And we'll see you soon.