Season 7, Episode 5: Ads in ChatGPT (with Rishabh Jain)

you know those channels your colleagues keep bragging about the ones getting all the credit yeah they might be doing squat attribution makes every channel look like a hero even when it's a zero incremental tells you who's actually doing the work it's like a lie detector for your marketing budget start using incremental today get your demo at incremental dot com that's i n c r m n t a l dot com mention that you came through the mobile dev memo podcast for a special 15% discount for the first six months the problem is that the distinction needs to be drawn in between the confidence of the economists and the correctness of their analysis welcome to the mobile dev memo podcast this is your host Eric super and i'm joined again by Bishop Jane Bishop welcome back thank you i'm always happy to be here so we're going to talk about ads in chat GPT that is the entirety of the topic set for this podcast episode and i wanted to have a dedicated episode for that topic because i think it's important and the first person i thought to invite onto the podcast to discuss that topic was you because you came up with the best answer of anyone for the question that i've been asking for the last year on the podcast when it came up which is when will chat GPT introduce ads and you said they will introduce ads before Fiji Seimos cliff is up which has happened that's exactly what happened so Fiji i think joined in May and we we're getting ads i guess in February or maybe even now i don't know but soon very soon and so you were right and that was a great answer and i think that touched on a lot of the motivations there too so it's first of all congrats on on on getting that prediction right and second like just give me your brain dump of how you responded to that news and in what you think about the proposition of ads and chat GPT i think i actually found my earliest tweet i like was curious what was the earliest thing i said publicly about ads and chat GPT and like i found this tweet that i had in 2022 that said like you know can't wait for the time when like i i got the format wrong but i said i can't wait for the time when like the new ad units come in chat GPT that are going to be natural language and so i like definitely got the format wrong whatever three and a half years ago three years ago but then when they hired Fiji Seimo it became very apparent to me that they understood the economics of the business they were building and the types of capabilities that they would need to develop underneath that and so i think that they are both economically rational and want to build the best product for consumers possible which is why they hire someone like her and i think that ads are the best way to do those two things like to get the best economics and to build the best consumer product because i think this is an area where you and i agree which is ads get you a more consumer aligned products than not ads and have less perversions than other economic models basically and my instinct when i saw the ad format was this is like not just similar to what you were just i mean basically they just took space on the screen and said like okay now this space on the screen is where we're gonna put sponsored things where you have to see what the final format looks like obviously so it could obviously this couldn't be you know possible to change but I think that the initial format of being called out in the separate section makes sense and I think that the initial way that they're rolling it out also kind of makes sense on like a cpm basis because today they don't know anything else which yeah we should dive into i don't want to like go too deep but my my initial reaction was like this makes sense this is great i was like genuinely happy and I genuinely have the most excitement that I have had in a very long time that like the American consumer is going to get surplus as a consequence of these decisions so yeah i want to talk about that i want to talk about the launch strategy let's put that aside for a second i want to talk about the benefit here to consumers right so you know predictably you got the what I think are mistaken the predictable hostile reactions right which are well here we go like they're gonna you know whatever just you name the kind of conspiratorial framing the word I'm anchoring on I don't want to say it because I don't like you know giving this word power or this phrase power but the inshitification argument is the one that was circulated kind of the most prominently which is like oh well that's the idea that's like it's these tech companies they give you something for free and then they continue to see degrade the experience because you're hooked and you are weak and you have no agency and you can't disengage yourself from the products which I just disagree with on a philosophical basis but you know that ignores the fact that in offering ads they're giving more capacity to the accounts that the ad supported users will will experience right I mean they're getting the access to the better models you're getting a better experience in exchange for these ads being placed in the product now you might argue in the medium term maybe that like it's a trade-off because I'm getting something but I'm giving something because oh this is an ad right that's distracting or you know it's something I don't care about or it's you know but we've seen with Instagram and Facebook and in YouTube and you know people can pick out very specific instances but in the main I think you can make the argument that like when these ad systems get really good when they have a lot of data to work from and the systems are sufficiently sophisticated they're showing you stuff that you're actually happy to be exposed to it because you buy it and it's stuff that you went up otherwise discovered I mean this happens to me all the time and so in that sense it's all upside right I mean if you get to the power of the Instagram ads engine it's all upside and people just ignore that and I think it's disingenuous to do that totally I mean my version of that same argument is I basically asked the question what products would get recommended if you did not have ads and like now let's go down that trajectory so like I think what becomes easy to understand is let's just pretend we have a system with no ads and like you're doing your searches and all that sort of stuff some amount of those searches are going to be commercial and they said very clearly that the ads are not associated with the query so and I understand that for the sake of the sort of thought exercise the only products you will ever discover if you did not have ads are the ones where when you are doing some sort of organic query of some variety the products that show up in the context of the conversation you are having because that is the organic thing that happens right and like you have to have a response that has products because so much of how you operate in life is like products that you have to purchase so it's like okay that's what's going to happen whose products are the ones who are going to show up the companies that have the ability to have the most amount of their content show up in the places that are trusted by the LLM's whatever that means I'm not I'm not trying to debate whether or not you can game the LLM like I'm actually saying like let's pretend you cannot game the LLM no matter what whatever the true trusted sources that's where it's gonna get it in that world there is a 0% chance that a new company who has just started will ever find that customer because there is no trusted data about that company because it's new by definition and what we are then saying is we prefer an internet where a new company will never have a chance to actually show up to a customer who could want their product and that to me is a squarely worse internet and like to me it is like that simple toy example is why I think that consumer surplus gets generated and why it's like an economic good a experience good that ads get created because you are giving an opportunity that previously did not exist and could not have existed if you did not have an app system and I think that that totally gets lost and I think we can like bookmark this to the 4% fee for shopping because I think that they are related but yeah I I don't agree at all that adds make products worse I think it makes the total experience better I think it is actually better for the consumer and I think that yes it also allows for the economic engine that allows for the product to continuously get better over time and so the best products are the ones that have the best economics because all of those profits get poured back into making the product better and so on and so forth so yeah I I have a really hard time interacting with the idea that the product degrades because of that's so you call that a toy example so first of all I wrote this piece a while back affiliate links personalized ads and chatbot revenue optimization I made the argument that just from an economic standpoint the affiliate model that chat gbt implemented with the instant checkout was just suboptimal relative to ads is like a really long piece right I made this argument but I invoke that idea that like you're just going to get existing stuff I mean it's you're not going to have an ability to explore exploit or I mean you you could but you might not do that and anyway it's probably gonna preference the stuff that's just like lower cost because that's gonna be correlated with the conversion rate right and so without the bid to mediate that you won't have any ability to sort of penetrate that dynamic with something that's new right that's how new products get discovered is with ads but it's not it's this is demonstrable this is this has been studied there's a paper that I cite from the from researchers they published it with the federal reserve with the Atlanta Fed and it's called the expansion of varieties in the new age of advertising and they find that growth and internet advertising spend coincides with an expansion of the availability of products to people like it because it just creates the opportunity to get new things in front of people that they can then buy and try right I agree with your affiliate take I I want to add one I mean I've read this piece and other people should read this piece and the one thing I would want to add to it is you can actually already see this in practice so when you look at editorials where there you have every confidence in the world that the editorial piece is not an advertising piece the consequence of those types of editorials where they're doing product reviews is that all of the links go to Amazon right right and so this is like not a mystery and so the thing that I would just add to like your case is that look you can like still not like ads that's totally fine but just go to any editorial and ask yourself why is it that I always get directed to Amazon it's because what they are doing is they're optimizing for the checkout and in optimizing for the checkout as you said it's price and then the other one is distribution and so it turns out that consumers have the highest trust in the cost and distribution with Amazon it also turns out that Amazon's affiliate model gives you credit for the entire cart not just the product that you came into purchase and so you end up with everybody biasing toward Amazon which I don't know if that's better than just having ads in the article and and the perversion to me is much worse because all you're doing is feeding basically one of the biggest companies on the planet right and so I I struggle a lot when but this like 4% affiliate fee people are saying like oh yeah that's better than ads I'm like I struggle with that like the current world of affiliate just pushes everything to Amazon like do you guys want everything to go to Amazon if that's what you want then okay then you know I'm here to like apply judgment to the fact that you want everything to go to Amazon but just understand that's the outcome well don't get me started that want to stay I want to stay on topic with Shatchy PTSD but let me just let me just make a couple points about why it's a sort of category error to look at the 4% and compare that to what you might be paying an ads as a percentage of college EMV right for that one product so here's why right so first of all when you get the affiliate link from Shatchy PT I mean that's not under your control so you can't control that that's not a lever that you can tune for growth that's just you know a decision that's made in by this mechanism that is is completely opaque to you right so that's not obviously not a method of growth right you can't rely on that you know it's not something that you can systematically influence which means it's not a strategy so that's one big flaw there whereas ads are you can influence it you can influence it by your bid and your budget like those are the ways you influence it you can control your growth in that way but putting that big flaw side that 4% is not a so first of all you can't talk about percentages when you're talking about customer acquisition that just doesn't make any sense right customer acquisition is set with the absolute dollar terms not a percentage right you can't think about giving yielding a percentage in exchange for customer acquisition that just that just breaks the economics first and foremost even if you can calculate your CAC as a percentage of the overall GMV that doesn't mean that that's the way you priced it right because you can't really price it in that way then put that aside that 4% is not 4-CAC it's for a one-off transaction you have no relationship with that user following a transaction if I pay for an ad and that person comes to my Shopify storefront I get their email address that is a relationship that I have I can remark it to them I can send them promotions discounts so whenever I spend on that initial touch point that can that sort of like is amortized across the lifetime the LTV of the user and that's how I think about it it's CAC to LTV it's not CAC to that singular first purchase or transaction and if that is okay that's a different story but that's not true for most products so there's just very fundamental differences here but I think and I know you said this I agree that 4% is gonna go to 0 I think this was just a means to to bootstrap the data that they need for doing advertising targeting and once they get there they probably won't need the affiliate model and it'll probably give way to advertising anyway because guess what what's going to happen in the affiliate scheme when you've got a bunch of products that you could theoretically reasonably fill in that spot how do you determine which one to show you use the bin so the affiliate model naturally is going to give way to the advertising model talk to me about that what what do you think is going to happen to this affiliate scheme the small product scheme the instant checkout when they get ads ramped okay I think there's lots of reasons why the checkout on in platform is like a red herring it is certainly for the data it is certainly for the data and I was at this agentech commerce dinner last night and someone was asking me about like what I thought about the like checkout within jet gpt and I asked them like well what do you think about the fact that tiktok shop has just said that merchants cannot fulfill their own orders that like tiktok has to fulfill it like what why do you think that happened and they were like yeah I don't know and are those connected I'm like yes it because it turns out ecommerce is like more complex than we give it credit for in this like type of transaction where you have like a store in platform especially when they're trying to take an affiliate fee and own the customer in that context and it is just an incredible amount of pain for the platform to hold but they will take that pain in order to actually understand the consumer behavioral data for what leads to a transaction but they don't want to deal with it because they now have to think about the fact that from the consumer's perspective said hey chaggpt i trust that you're going to make this transaction on my behalf and other now chaggpt is in the middle of this situation essentially we're even if they clarify things like the merchant of record is the brand and all the sort of stuff they're in the middle of this messy messy thing where they are relying on the merchant of the backend to fill fill that transaction and for the consumer to get it and all that sort of stuff it turns out it's a pain and the way we know it's a pain is meta stopped accepting payments on their platform and tiktok said we're going to fulfill it but we have to fulfill it because when you accept the payment from the consumer whether you like it or not you are somehow responsible for that consumer's experience whether you clarify you're not the merchant like you know all of these things are sort of in the details of what how the consumer has now shifted their expectations and we can just see it because tiktok has made an affirmative decision and then that affirmative decision by tiktok changes the economic model and so the all of these things are related they are not unrelated because when you do commerce on the internet the places that gather consumer attention are exceptionally gathering attention and merchants are merchants and you need to have the merchant be the merchant and you need to have the attention be the attention and so what's going to end up happening is yes you have this 4% fee I don't even know why it's four like it could have been three it could have been five it could like the number is certainly irrelevant in the grand scheme of things and then it's just going to dwindle to zero because they're not going to want to deal with that transaction responsibility they're going to want the merchant to be the merchant and they're going to find an elegant way to do the handshake to pass the person to the merchant site to complete the transactions though the merchant can then fulfill and the consumer knows that they are interacting with the merchant because that's how like the whole thing gets disentangled and I think that people I don't know why one would expect that just because there's a 4% fee that it is a model that will like grow over time when we have seen enough examples where the best model is to hand it over but like I can't tell concoct what's different this time if you're swimming in dashboards but still arguing about what actually drove installs this is for you branch is an AI powered mmp built for growth marketers who care about signal quality and outcomes not just reports you can quickly answer questions like how is my TikTok spend really performing or which partners are driving net new users and even launch campaigns that move users from offline to app without breaking attribution branch is AI proactively surfaces what's working flags issues early and takes care of the busy work like link creation and tagging so you can move faster and spend smarter learn more at branch dot IO that's branch dot IO I want to talk to you about that why do you think tiktok is leaning back into social commerce because they were pulling back they had rounds of layoffs on me Facebook you know abandon it completely why do you think tiktok's leaning back in I found that pretty odd I was on tpp and yesterday they asked me about this and I don't really have a good answer I mean I other than well they are what's the reasoning I don't really get it I think they want to compete on product search like the reason you start fulfilling products the way Amazon does is that you have an expectation that product search is going to originate on your site and it has actually less to do with the content feed and so and of course we don't have any of the like I don't have enough of the like private information held inside of tiktok to know how this is shifting but for example we chat their agentic systems in China they're already doing like closed loop transactions basically through an agent interface because the search is now natural language and so if they believe that they are going to capture enough audience where search intent within the context of tiktok is high enough and then they can fulfill against that then they can own the product search interface and I think that that that space is extremely highly contested and I think even Amazon is scared and the way that you can know Amazon is scared is because for the first time in their history Amazon allows link out directly to brands right and so we know that there is motion in the product search space and we know that there are multiple apps that are trying to compete for it and people are willing to give up on many other things in order to be the place where people prefer to do product searches and I think that that's fundamentally why you end up doing fulfillment too. Yeah so you got the there's the Amazon shop brand sites directly that's I wrote about that a while back yeah that's really fascinating because they're doing the link out so they're not selling on their site but it's part of the ads product and so it's yeah that's that great point about tiktok because I actually I did write about that a while back where tiktok the developments with shop were really more of an attack on Amazon's business because they were trying to drive a lot more discovery through there that's a great great point I don't remember that yesterday when they were asking me about it but yeah that's I think that's probably right. Okay I want to go back to to chat to pts though because I think this was like a watershed right moment I think it's a really important moment let's talk about the state of the product at launch so they said $60 well this has all been kind of leaked right so we can let's assume that this is right but you know this is coming kind of second hand $60 cpm less than a million dollar commitment essentially no measurement essentially no targeting. Talk to me about that what do you how do you think this is going to evolve what who do you think is the right advertiser base for that product you just kind of riff on the state of the initial product yeah I think so first of all I like to view this I always give the benefit of the doubt meaning if I was maximally intelligent why would this be the single best way to launch the ads product so like why is it that this would is better than like a bidding system of the gate for example right and the best explanation that I could come up with is they don't know yet how effective their targeting algorithms are going to be given that they are not giving any sort of like targeting capability to the merchant and so a different way of saying the same thing is Facebook today and Google today they came from a heritage of saying like put the pixel and we're giving you these targeting levers and slowly taking them away and open AI doesn't have any of that baggage so if Facebook could start a fresh today would they actually just have an interface where you actually can't you don't have at access to any of those levers and that's how is that actually better for them and so is this actually better for open AI where they are like intentionally giving you the minimal possible levers because they know something we don't and they actually have confidence in the capacity of their ad system to deliver extremely good matches between what the ad is and what the person is but they don't want to reveal any of that if that were true then the best way to launch the ad system is just to say hey guys we don't have anything yet it's a $60 CPM and we're going to launch it okay and you kind of like play dumb right as it were which by the way I'm not saying that they're doing I think they're playing very smart and so I think to assume that they don't have like sophisticated systems could be a mistake like we because we don't know and I also think that charging a CPM is very smart because by charging a CPM they're not devaluing any part of their future monetization structure because they're doing something that is so obviously not going to be the future of how this thing gets priced and so I actually think it's like the best way for them to get the direct data of how effective their systems are without making any promises whatsoever to the advertisers I actually think that likely who they are targeting is like all of the largest advertisers on beta and and TikTok because I think that what they're doing is again maximizing data and so like what you want is actually people who are in those DR type of systems or who are spending in DR systems even though this is a CPM model because what you're doing is trying to maximize signal basically and you don't need to maximize signal at the end transaction you can maximize signal within the context of your platform that's a great sort of analysis I just don't know how else they would start this I mean you've got you've got to start somewhere right I mean that what are you going to do like you have no conversion data to use and optimizing the campaigns right like you have nothing so just do exactly what Netflix did and Netflix did chart did this exact same thing they chart six LRcPMs and that right out of the game 60 LRcPM they had no targeting no measurement and they had to they had too much demand they had more demand than they had supplied no they had to return money to advertisers they couldn't spend it all so I mean they know it's going to be successful people are lining up to buy this you see a bunch of like you know kind of the DDC crowd saying the group would ever buy this well it's not you but that's not who is for like they needed to start somewhere and totally the real question is the rate of change how quickly does this evolve that's the quite that's what they will be evaluated by not the starting point starting points and be the same for everyone Facebook started the same way right it's not like they could have built some intermediate product they would have been making a lot of assumptions that might not hold up totally and all of their actions are consistent which I think is I think we're both agreeing is all of their actions are signal maximizing actions right and promise mitigating actions so it's like they're keeping maximum leverage for themselves and maximizing the signal that they can get which is why you do things like there's like 4% affiliate thing and get you get transaction data from there right you get all the signal on how people are interacting with your ads and how good the match is like you're just like maximizing your signal really fast you're trusting that AI is good at presumably I again I don't know you're trusting the AI is good enough that it's going to be able to react to those signals really fast and we're going to wake up in like four to five months and this thing's going to be awesome like it is going to be awesome at like matching the right add to the right person I made this comment on like how much revenue I think could come from it but I think like it is the million dollar thing is also I think it's a signal maximizing tactic which is like we want to make sure we get as much breadth of signal as possible so that we can train our systems appropriately we don't want to over index in one way or another right but we want to get enough signal and so it's like I think every move and every action should be viewed from the perspective of assuming these people are really smart and they're going to maximize the inputs to build the best possible system as fast as possible and then it kind of makes more sense yeah and I think that's a sort of logical flaw or just a process flaw that I'm seeing be committed it's the not assuming these people are really smart because they are and they all come from meta right and so like they know what to build it's not like they they have to envision some new paradigm here I mean they know exactly what to build I think people you know so let me just I'm gonna I'm gonna I'm about to I'm about to monologue here but let me let me correct myself from just a second to go so the shop ran sites directly that's actually not an ad place when I thought it was because it shows up in the search but that's not they don't charge for them you can just opt out if someone searched for something it doesn't exist on Amazon Amazon I'll just direct you to that brand's website they're not charging for that I thought they were but I just looked it up they're not so it's all it's called buy for me but yeah the shop ran sites directly that's not an ad unit that's just free that's a giveaway that I mean I it's in beta I think they probably will charge for that at some point but right now it's not anyway so that's Amazon just pushing people out like hey look if you came with the need we can't fulfill it it's better for us to be the person that routes you to that destination because then hey when you have another need you'll come back to Amazon instead of going to Google or whatever but okay so let me talk about the the team they've been there they've done that they built the tech they know what needs to be done they probably have a roadmap here but I think you know I got a lot of pitches for like middleware type ad network companies for like LLM right or sorry sorry I always say I may I make the mistake of saying LLM's when you are going to chat GPT you're not interfacing with LLM you're interfacing with the agent who will then go and query you know a model that's usually for the mega models that they're the mixture of experts and they do routing within them so it's not you know it's an LLM tube but it's a family when you interact with that agent there's no inherent necessity of like AI in the ads later right like you could have mad and we talked about this remember with the podcast we did with Mike and I said look trade desk could fill that inventory you could buy that inventory with trade desk there's nothing inherently like AI native about filling an ad placement you could do that with the existing pipes right I mean what you're building is like I mean I you know people talk about like you know the meta application of AI to to ads and two years ago I used to have a hill that I would die on which is like a really pedantic position to take which was I would say this was not AI like this is just plain vanilla ML like you know they're doing ML they're doing ML ads optimization why are people calling it AI well they're calling it AI because that's a great narrative for Wall Street but also I mean I guess you can make the case like they're building these really big models it sort of extends past what you consider to be like traditional vanilla ML whatever let's call it AI because that's more exciting but nonetheless when you're building you know just some tech to intermediate you know a buyer and a seller in an advertiser and a publisher that doesn't need to be any more sophisticated than what already exists right so like if you look at the playbook like the bassist sort of like MVP of this it's really you need an ads manager you need an ability to upload creative you need an ability to set you know much parameters on your ads that's you could get that done with enough people in six months where you've got this fully you know sort of like a self serve ads manager stood up and buying impressions against whatever you want right whatever targeting you want whatever they make available right where they could probably get more sophisticated is like parsing information out of the context of the chat I think that might be like a mistake I think if you go down that path you run into the conflict the sort of the treacherous conflict territory which I think you probably want to avoid I think it's better if you actually say look we're not going to let you target that because that might then create some tension it might still this doubt and the user that their best interest are being served by the core you know agent output but talk to me about that like how how could they handle targeting I mean you know you could imagine if they just replicate Facebook well they just say look you know we've got a capy we've got a pixel and that's what we use for targeting totally I mean I think that's going to be a big part of it I also think that the kind of product I think that they're going to build an interest graph because they're going to know enough about the different ways that you think and interact and need to like worry about things and but like the amount of things that chat you can see knows about me I mean it's not stored in memory this is a separate issue of like how they sort of memory versus how they'll take advantage of it in ads but the amount of things that it knows about me is astonishing it doesn't need the context of that chat to serve me relevant like it does not okay it knows that I'm a CEO of this company but a little like all this stuff it can serve me plenty of products without caring one ounce about what my interaction is like it is a non-issue and I think that that's just what they're going to do is they're going to be like hey I bet you this guy's going to keep buying jeans you know because he's a like brown tech guy in San Francisco that's all they wear so like so like let's get him some new jeans you know or and it's just going to be stuff like that and I'm never asking chat GPT about jeans right and so there will be no conflict at all and so it's like the beautiful thing about this is it knows so much that it can recommend useful products to me without worrying about the so like why bother with the conflict issue right like that's actually the core thing is like there's no upside the the other way of saying it's like oh it knows so much about what's happening in the chat it could serve you the perfect product it's like no it concern me the perfect product regardless of what's happening in the chat so I the upside is like diminimus if it exists at all and the downside is massive and so yeah I think they're like advertising principles are and they released whatever some set of principles and I think that they're like roughly guided again based on economic rationality of just like what's going to make a great experience here and they probably have enough confidence that their models are going to learn enough about what products are good and not good again because they're not charging CPC they're charging CPM guess what's going to happen in those first six months they're going to check what people click on and not they're not going to care about the click through rate because they're maximizing signal and so their system is going to get so good at learning oh it looks like he clicked here it didn't click here it clicked here and it's going to do this search in those first six months to understand where it's wrong about what products to show me and then after that they'll switch the economic model but right now they don't want an economic model that messes up their ability to learn how to build the best possible system yeah and I think they don't want to be serving niche products either because that's just that creates an incredible opportunity to misfire right I mean you want the big brands coming in because like think about the least controversial ad you could see it's for you know Colgate right I mean it's not you're not going to you're not going to offend someone or creep them out right with a deodorant ad but you would you know I don't know you can imagine the number of ways you might right mobile game developers no longer need to pay up to 30% in major app store fees with exo low web shop you can create a direct storefront cut fees down to as low as 5% and keep players engaged with bundles rewards and analytics start today at exola dot com that's x s o l l a dot com or use the link in the episode show notes okay let's say that you know what's today it's January 30th I bring you back January 30th 2027 and we're like wow what a blowout that was even bigger than we expected oh my god chat you know chat GPT did 10 billion in revenue last year I can't believe it or whatever some large number some seemingly improbable at that as of this moment number they did some incredible number of ad revenue for the year why what do they do right what did they get right to achieve that yeah I mean I think it's actually only the mundane things that get them to that blowout number meaning they have made it easy to onboard people and to enable them to put a budget in and to enable them to understand like not in the first six months but in the back half six months to enable them to understand some amount of effectiveness of that spend and the reason is this year the budgets of every like I was on Tuesday I was at this conference and I was asking this like head of marketing of this well-known brand what are your priorities for AI this year and he was like honestly it's two things and I'm going to take budget from other places to do it how much am I showing up in AI interactions and like what can I do to affect that and testing and spending as much as I can on chat GPT ads he like said it straight up okay straight up and the answer for everyone else is the same okay like he is not some special snowflake in his way of thinking he understands we're I mean like him and everyone else understands where the puck is going and so they're going to everybody's budget to spend into this especially this year is going to be extremely large because they can't afford to not understand and so then the only constraint is chat GPT able to absorb that but just like with Netflix the problem became that we're not able to absorb it and so that will be the only problem will be ability to onboard and ability to supply and that will be the only problem and those things are way harder than they sound so if they can get those things right we're going to wake up in a year yeah I mean I'll say something potentially too optimistic I think we could wake up in a year to a number closer to 20 at the run rate at the run rate wow okay run rate right okay yeah yeah so like so like the December spend is like 1.8 yeah I mean I don't think that's unrealistic to be honest I mean that's that requires everything to go right that requires exceptional execution exceptional unrelenting execution over the course of the year but I don't think that's not impossible right and I had written in my predictions for 2025 so I wrote them at the end of at the end of last year or at the end of the year before luscious that opening I would launch ads in 2025 and it would hit a half a billion run rate by the end of the year but I was you know I was running at the very end of the year so I kind of thought it would launch would be you know middle of the year so you know call that I don't know a billion run rate and that was like I thought I kind of a lowball number I think you know just and that was before you know they acquired Statsig those before you know Fiji Simo joined so I think you know given the density talent now from Meta I think they just know exactly what to do but I think if I would ask this sort of opposite question like we wake up and it's you know January 30th 27th look this was a dud I think the issue would be lack of focus because they do seem like a little bit of an undisciplined organization they throw a lot of the stuff they throw a lot of stuff at the wall they wanted to see what's going to work they've got kind of an endless appetite for investors for their equity so they feel like they could just you know endlessly try stuff and at some point they'll come up with the second revenue stream that matches what Chateau PT is doing with the subscriptions my sense is there maybe is a little bit more disciplined being applied now probably by the investors I was probably I feel like my hypothesis is that they were the ones who kind of force bringing in a CEO of applications I feel like Sam Altman probably wouldn't want to surrender that control you know of his own volition and but so I think if they could just stay focused stay disciplined and execute and not be distracted by a million other things yeah they could reach that blowout number where okay wow this was obvious but it what wasn't obvious was the scale of the opportunity which was far beyond you know what people expected yeah I mean I think that if they can't focus on this I just don't know what to say I have all the respect in the world for that organization right I didn't build chat I mean like we did not build open AI right so like all the respect in the world but in such an obvious net good and net benefit to them that to not have the right people focused on it would be astonishing yeah I mean I think the scale of this is such that it could have a perceptible material impact on the economy right I mean if you get this right and you inspire other people to do it and you prove the model in a sort of scalable way yeah this this is a massively you know a creative and this is an accelerant for economic growth right in the same way that just digital advertising is generally but if you get this right this use case and you create the blueprint for replicating it I do think it's a trajectory change for the impact of digital advertising on GDP growth right which I think is generally under appreciated you know because when people talk about the effect of advertising on on the economy they tend to look at like you know the percentage of advertising the so the percentage of GDP represented by advertising is like pretty stable over time it falls within like kind of a narrow ban like 1.5 to 2.5 percent but that ignores the fact that it's actually it caused GDP growth to accelerate right if you think about the acceleration effect of the internet broadly but digital advertising is a big part of the internet economy it is the internet economy well then that cause GDP growth through accelerator that was part of that acceleration so you can't just look at the overall percentage you have to look at the acceleration too and this could be another one of those inflection points so I I'm rooting for them I hope they get it right I hope they're given the latitude internally to do this the right way yeah I would provoke a step further like yes and I think like people forget that Shopify again Shopify exceptional organization and I assure you this is exactly tied to open AI ads what what most people don't appreciate about Shopify is the strategic thought of how that organization executes is like 150 out of 100 this is like strategy of the highest caliber and Toby Lucky decided hey I'm going to build a system that allows you to sell stuff online but I'm going to like constrain it a lot but guess what you're going to be able to stand something up and put ads on Facebook and sell shit extremely fast and it gave rise to a new type of merchant okay like that type of merchant didn't exist the only type of merchant that existed was retailers and so he had the foresight to realize a new type of merchant can now exist because of the way that you can acquire people online he is doing that again or he wants Shopify to be that again for LLM's and for AI and you can see that and like he is on podcast talking about it all the time and the executive changes that are happening in how the organization is being run if you talk to the large retailers and the merchants who they are selling to versus like not really spending much time with he I think he fully appreciates that commerce driven by consumer shift through AI is going to lead to the next set of new merchants and next set of new businesses that get launched online he wants Shopify to win that whether or not they win is not relevant to the point of open AI ads out comes but open AI ads out comes will deliver that level of like growth and just to like put numbers on the level of growth it basically the GMV that today powers Shopify like that is the right way to think about the impact not the amount that was spent on ads it's like yes you spend that amount of ads but look at the amount of stuff that got bought through those ads right and the I call it the money multiplier effect of performance advertising it's that gets recycled that gets recycled that's why people are underestimating the impact of Metta's investments here like it's okay 3% who cares 3% first of all 3% on that top line give me a break that's a lot but second that compounds I recover that 90 days and I reinvest I reinvest the larger amount so these compounds over time like that's what people don't get I know I'm super excited I think it's great I'm really happy they did this I appreciate that you know this was probably like a fraught decision internally I think it was good that they did it now it probably would have been better if they did it a year ago but you know I'm better late than never and I appreciate you coming on I'm pretty pretty short notice this was great this is a great conversation yeah totally hopefully we can get some more people excited about open AI ads so slowly but surely the right people are excited about it the hostile voices tend to get amplified the loudest and it's not always an easy position to take to embrace the advertising economy but it's I think it's the right decision and I think this is a really exciting development I think even given how much coverage it's got I think it's underappreciated the impact it's gonna have totally awesome man thank you again for having me really always a pleasure thank you so much