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Building Plans for an Uncertain Future — Big Tech Earnings Q2 2024 (Thinks Out Loud Episode 431)

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Building Plans for an Uncertain Future — Big Tech Earnings Q2 2024 (Thinks Out Loud Episode 431)

Big Tech announced their earnings for Q2 2024 and, to be honest, not much has changed in terms of the big trends. Lots of talk about artificial intelligence. Lots of talk about cloud computing. Lots of talk about advertising.

You know what we didn’t hear lots of talk about? Customers changing their behaviors much.

What’s also true is that customers can change at any time. We saw it with mobile. We saw it with social. We saw it with the internet. Sometimes it’s like everyone wakes up on the same day and decides they want to work a whole new way.

As you start planning your budget and marketing plans for 2025, how can you plan for that reality? How can you build plans that work regardless of whether customers all jump at once… or if the status quo stands still? How can you set your business for success in an uncertain future? That’s what this episode of Thinks Out Loud is all about.

Want to learn more? Here are the show notes for you.

Building Plans for an Uncertain Future — Big Tech Earnings Q2 2024 (Thinks Out Loud Episode 431) — Headlines and Show Notes

Show Notes and Links

You might also enjoy this webinar I recently participated in with Miles Partnership that looked at "The Power of Generative AI and ChatGPT: What It Means for Tourism & Hospitality" here:

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Running time: 26m 49s

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Transcript: Building Plans for an Uncertain Future — Big Tech Earnings Q2 2024

  Welcome to Thinks Out Loud, your source for all the digital expertise your business needs. Well hello again everybody and welcome back to Thinks Out Loud, your source for all the digital expertise your business needs. My name is Tim Peter, this is episode 431 of the Big Show, and I think we have a really cool episode for you today.

It is, you know the beginning of Q3, well actually we’re about halfway through Q3 now, but this is the time each quarter when I review big tech’s earnings calls and kind of try to tease out big trends that we see. I do one of these recaps every quarter. You can find them on the podcast website at timpeter.

com slash podcast. And the reason that I do this is fairly simple. Big tech drives a lot of the change that we see in the marketplace, where they certainly try to anticipate that change and get in front of it. And I’m always looking to get a better understanding of the big trends about which we should be aware, based on what they’re telling us.

I mean, they just say this stuff out loud every quarter. What’s also true is, a quarter is not a huge amount of time. The trends don’t always change much quarter to quarter, and that’s kind of true this time around. Though, I’m going to come back to why it still matters to look at these a little bit later in the episode.

As you might imagine, though, the three big trends that came up again and again and again during the earning calls from Apple and Google and Facebook and Amazon and Microsoft were AI, you know, Artificial Intelligence, Artificial Intelligence, and more Artificial Intelligence. Businesses shifting to cloud computing in a big way, still seeing a lot of that activity happening.

And advertising growth remaining very strong, which obviously has some effects on your business because you’re probably buying some advertising. And if advertising growth is going well for big tech, it means you’re either paying more because they’re charging you more for the ads, or you’re paying more because there’s more competition and it’s a little harder to do.

Those trends aren’t necessarily all that interesting, at least in the sense that those were the big trends last quarter. And the quarter before that, and I think the quarter before that, right? So, it might seem like we’re not seeing lots of change. At the same time, there’s something I want you to be aware that we want to think about as we go forward.

First is that big tech is doing tremendous amounts of investment in where they think the market is going to go over the long term. They’re making lots of money based on those investments. We just haven’t yet seen a step change in terms of dramatically different customer products, customer experiences, and most importantly, customer behaviors.

Big Tech is offering enhancements. They’re using AI to make their products better, to make their advertising products better especially. We just haven’t yet seen, for instance, the AI killer app. I want to be fair, they’re all doing dramatically better in terms of their financials. Big Tech mostly has driven double digit increases in their revenues over the last year.

Their profits are up a lot too. And when you remember that these companies bring in tens or hundreds of billions of dollars each quarter in revenue, and between ten and twenty five billion each quarter in profits, that’s an amazing number. I would absolutely call that dramatic. Before I get to why this, you know, slow change matters to you, I want to talk a little bit about some of the changes we’re seeing in customer experiences and customer products.

Again, I don’t think most of these are dramatic, but I think they’re interesting to watch. So, let’s talk about AI for a moment. First, Sundar Pichai said on Google’s earnings calls that, this is a quote, all six of our products with more than 2 billion monthly users now use Gemini. Gemini being Google’s AI model.

So, two points about that. Clear example of where Google is using AI to make its products better. And putting its artificial intelligence in front of more people than just about anyone else. There’s another player here we’ll talk about in a moment. For all the well deserved talk about ChatGPT, it’s pretty clear that most people who are using AI are using AI from Google, with, again, one potential outlier we’ll talk about.

The second point I want to call out is, think about this quote, all six of our products with two billion monthly users? Holy crap, six products with two billion monthly users. That’s ridiculous. That’s just insane. We wonder why big tech is big tech. That’s the reason why they know much more about customers than anyone else because they see much more data about customers than anyone else.

I want to give credit where due. I said there’s one other potential product. Mark Zuckerberg, in their earnings call, in Meta, slash Facebook’s Durbing’s call claimed that Meta AI is quote on track to achieve our goal of being the most used AI assistant by the end of the year. So we can debate whether Google or Facebook has the most users and is popularizing AI among the most people.

But I think it’s pretty fair to say that they are absolutely right. Making AI a normal part of the customer experience for more people than anyone else. The other thing I want to talk about here for a moment is what I mean when I say we have not seen dramatically different products. And I’m going to build this off of a statement from Sundar Pichai.

He said that in a recent One of their recent product announcements, they showed new features, quote, coming soon to Gmail and to Google Photos. Soon you’ll be able to ask Photos questions like, What did I eat at that restaurant in Paris last year? Which, that’s a legitimately cool thing, truly. That’s really neat and something that I think we all look for sometimes where it’s like, man, I know I took a picture of something or I know I saw this somewhere, you know, it would be great.

I’ve been asking for years for not a search of my browser history or a search of my desktop. But rather, a search of all of the things I’ve touched, whether it’s on social networks, or email, or text messages, or photos, to say, I know I saw this somewhere. Just search through my corpus of information and find the thing that I was looking at the other day.

Which, who are we kidding? Sometimes the other day might have been, you know, a week ago. Sometimes the other day might have been days ago. Six months ago, right? We’re clearly moving towards a world where that’s becoming possible. And this very cool feature that Sundar Pichai talks about underscores that we’re still in the early days of AI adoption among consumers.

To Sundar Pichai’s point and Mark Zuckerberg’s point about how frequently these tools are used, I would argue most Customers don’t realize that you’re using it most of the time. It’s just sort of there in the background. We still don’t have the killer app that makes everyone start using AI all the time.

I’m not alone in saying that. Sundar Pichai answered a question, and I’m going to ask you to pardon the lengthy quote here, but this is all a quote. He said, Search, which is used at scale over many decades, we’ve been able to introduce AI in a way that’s additive and enhances the overall experience and is positively contributing there.

I think across our consumer products, we are seeing progress on the organic side. Obviously, monetization is something we will have to earn on top of it. He then went on to say, On the enterprise side, I think we are at a stage where there are definitely a lot of models. I think roughly the models are all kind of converging towards a sort of base capabilities.

But I think where the next wave is working is to build solutions on top of it. I think there are pockets, be it coding, be it in customer service, et cetera, where we are seeing some of those use cases, seeing traction, but I still think there’s hard work there to completely unlock those. That’s the guy who’s probably bringing AI to more people, saying there’s still hard work there to get more use cases.

And who knows, maybe we never will see it. Maybe it will simply be a series of enhanced features built into email and messaging and advertising and office suites and so on that simply make these tools work better. I also don’t expect that to be the case. Here’s why. If you think about mobile, just to pick one for instance that has upended our lives tremendously, mobile phones existed for years before the iPhone did.

And Friendster and MySpace were social apps that predated Facebook by a year or two. It was only when smartphones and social media came together, though, that that world exploded. Each one provided a reason for consumers to want the other, and it led to this mobile evolution that we’ve gone through over the last, you know, 15 years or so.

You could also add Google Maps, which came out nine years after MapQuest. But crushed the older apps because it was a better mobile experience. They understood this changed everything. And now it’s something we use every day that went on to enable things like DoorDash and Lyft and Uber that simply wouldn’t have made sense in a non mobile context.

So I think that AI will make experiences better in a ton of different apps. But I think its long term success is We’ll come from some other major use case that we just haven’t seen yet. There are two that I think are likely. One is, I should say three by the way. One is virtual reality, one is augmented reality, and one is self driving cars.

AI will make all those experiences better. Probably. Mark Zuckerberg made the same comment in his remarks, in his earnings call, noting that last quarter, this is a quote, I discussed how advances in AI have pulled in the timelines for some of our products. A few years ago, I would have predicted that holographic AR would be possible before smart AI, but it now looks like those technologies will actually be ready in the opposite order.

That’s, you know, something. He’s saying these two things are going to go hand in hand. And I’d bet a little bit that that’s probably right. I will be fair, not a lot, but certainly a little. I also think we’re still a few years away, probably three to five best case. And the numbers back this up. Facebook’s Reality Labs division, which makes the company’s Quest VR headsets, had revenue of 353 million last quarter.

That sounds like a good number. It’s also only about 1 percent of Facebook or Meta’s quarterly revenue. While that was happening, the division lost, brace yourself for this, 4. 5 billion dollars. I mean, that’s insane. Meta’s total earnings for the quarter were 13. 5 billion. If Reality Labs broke even, which it’s a long, long way from doing, the company’s profits would have been 33 percent higher.

That’s not even close to breaking even. What’s wilder is Susan Lee, who’s Meta’s Chief Financial Officer, said they’re doubling down on Reality Labs. She said this as an actual quote, quote, We continue to expect 2024 operating losses from reality labs to increase meaningfully year over year due to our ongoing product development efforts and investments to further scale our ecosystem.

Increase meaningfully? Is a remarkable statement when that division lost four and a half billion dollars in just the last quarter. Clearly, Mark Zuckerberg is willing to make a much larger bet than I am. In his defense, it seems to have paid off pretty well for him. And he owns enough voting stock to avoid shareholder revolts, at least for some time.

I think something’s gotta give there, though, in the long term. These things either have to pay off, or people are going to walk away from them. Now, I mentioned the other killer app for AI is self driving cars. And again, we see a similar model. Google talked about Waymo and the fact that it has made 2 million trips, and this is a quote, driven more than 20 million fully autonomous miles on public roads.

That, by the way, is really cool, and it might be a long term good thing for your business. Microsoft Because if people don’t have to focus on driving, they have more opportunity to engage with their content and experiences on mobile, which could then drive, no pun intended, more business for you in the long term.

It’s also not likely to happen overnight. You know, yes, as Sundar Pichai said, Waymo is, quote, delivering well over 50, 000 weekly paid public rides primarily in San Francisco and Phoenix. Let’s put that in context, though. Phoenix has a population of 1. 6 million people. San Francisco’s population is about 800, 000 people.

Those are just city limit numbers, by the way, not metro area, so that’s 2. 4 million folks. I looked at the data for Phoenix, just for Phoenix, because I’m nutty like that, and roughly 550, 000 people drive alone to work every day. If you assume a round trip for three days a week, that’s 3. 3 million rides. So Waymo, best case, is only 1.

5 percent of all rides, And it’s almost certainly a lot less than that, probably a third of that number. Again, to give credit where due, if you look at the data, taxi rides have risen dramatically since 2017 in Phoenix, and have now equaled roughly the same volume of rides as motorcycles. I’m going to assume the bulk of those taxi rides are Uber, with Waymo picking up the rest.

But that’s pretty great. That undoubtedly is good for people, good for people’s wallets, good for the economy, and good for safety. It’s also not a massive percentage of all the rides. There’s still, clearly, a long way to go here. The thing I want you to notice, though, is that big tech is investing in long term trends.

Augmented reality, virtual reality, self driving cars, artificial intelligence adoption in huge numbers. We’re not there yet. They do believe we’re going to get there. And I think they’re probably right because we saw this happen with mobile and the internet and with PCs before them. The pieces came together slowly, then everything changed at once.

If you think about iPhones and Facebook and Google Maps and how it all came together, it wasn’t an obvious thing till it was. Now, here’s why this matters to you, because we have to think about how we can plan for that reality. Many of the companies I work with are now in budget season. We’re looking at how and where we’re going to invest next year.

And the question comes up of how do you plan for something that isn’t changing that much quarter to quarter? But could change at any moment in a huge way. How do you actually build your plans and your budgets for next year knowing that that’s possible? Well, one of the things you can do is scenario planning.

And there’s a fairly simple process I’ve talked before on this show. First, we think about what do we know that’s going to happen? What are the things we take for granted? One that comes to mind all the time is, you know, there’s going to be a presidential election this year. There’s going to be a Super Bowl next February.

There’s going to be things that happen in your local market that are just going to happen. You know, some of the things that you then want to think about are what are the critical uncertainties about what’s likely to happen when those occur. So, who wins the election? Does the economy stay strong? Does it slow down?

Does it accelerate? Does Google win or lose the next stage of its antitrust case? And do consumers shift their behaviors away from traditional search and towards either ChatGPT or Bing or embedded AI like Gemini and Google Suite or Microsoft 365’s Copilot? What are the things that would dramatically alter what you do if any of those came to pass?

The next thing you do is look for the early warning signs. What are the early warning signs you want to be looking for? So, it could be things like the election results. It’s also more about just watching your website and your app’s traffic sources. And watching your company’s revenue sources. Carefully, it’s talking with consumers, talking with customers.

What are they telling you? And pay close attention to whether their actions or their words align. Are there differences there or are they saying and doing the same thing? I see this all the time right now where people complain about the economy while they’re also out shopping and buying and eating at restaurants and staying in hotels.

Something doesn’t jibe there. Something doesn’t line up. So which is going to give up first? Their behaviors? Were there vibes? Note, the point here isn’t to make a prediction. I’m literally just asking the questions and looking out for the changes there. Which then leads to the next step. How would you react to one of four different scenarios?

One is the worst case. What would you do if all of the bad things that could happen, happened? The next is, what would you do in the best case scenario? What if all the good things that could happen, happened? The next is the Goldilocks case, which is kind of the just right. It’s some good, some bad, and kind of the most likely.

And then the fourth scenario is the, you know, it’s not quite Goldilocks, but it’s not quite the worst case. It’s just a little bit worse than what you expected. Don’t worry about which of these is most likely. I mean, you can if you want, but it’s more important to plan for all of them. What would you do?

What would you change about where you’re putting your energy, your focus, your resources, your money? That’s how you build out your plans. The point isn’t to get it perfect, it’s to do the work of thinking through what you’d do if one of any number of various scenarios came to pass. You’re not trying to predict the future.

I don’t know too many people who have successfully predicted the future repeatedly. What I do know is that big tech is telling us what things could look like in time. We’re already seeing what some of those things could look like down the road, probably when we talk about AI or we talk about Google’s antitrust situation.

Your best strategy is to be ready to adapt if things change and when things change. It’s doing scenario planning, it’s banking on things like Core and Explore, which we’ve talked about in prior episodes and I’ll link to in the show notes. And then it’s building your plans and budgets for next year with those exercises in mind so that you’re set up for success regardless. We may not see any dramatic changes in the big trends big tech is talking about in the next quarter or the quarter after that or even the quarter after that. But being ready for whatever happens. This is a big trend we all want to get on board with, and it’s one that ensures you’re successful regardless of how the trends change over time.

And that to me feels like a big trend we can all take ownership of to set ourselves up for success.

Show Wrap-Up and Credits

Now, looking at the clock on the wall, we are out of time for this week.

And I want to remind you again that you can find the show notes for this episode. As well as an archive of all past episodes by going to timpeter.com/podcast. Again, that’s timpeter.com/podcast. Just look for episode 431.

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Show Outro

Finally, and I know I say this a lot, I want you to know how thrilled I am that you keep listening to what we do here. It means so much to me. You are the reason we do this show.

You’re the reason that Thinks Out Loud happens every single week. So please, keep your messages coming on LinkedIn. Keep hitting me up on Twitter, sending things via email. I love getting a chance to talk with you, to hear what’s going on in your world, and to learn how we can do a better job building on the types of information and insights and content and community that work for you and work for your business.

So with all that said, I hope you have a fantastic rest of your day, I hope you have a wonderful week ahead, and I will look forward to speaking with you here on Thinks Out Loud next time. Until then, please be well, be safe, and as always, take care, everybody.

Tim Peter is the founder and president of Tim Peter & Associates. You can learn more about our company's strategy and digital marketing consulting services here or about Tim here.

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