Ben Thompson [Stratechery] - Page 2 of 4

January 31, 2023

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• Microsoft reported its slowest sales growth in more than six years last quarter, with revenue expanding 2% to $52.7 billion and net income falling 12% to $16.4 billion.
• Intelligent Cloud business, which includes Azure cloud-computing business, grew 18% to $21.51 billion, with Azure growing 31%.
• Microsoft’s commentary on the PC market was encouraging, with Windows OEM revenue expected to decline in the mid to high 30s, in line with the PC market, and usage intensity of Windows continuing to be higher than pre-pandemic with time spent per PC up nearly 10%.
• Azure growth moderated, particularly in December, and Microsoft expects Q3 growth to decelerate roughly 4 to 5 points in constant currency.
• Office 365 Commercial is seeing slowing seat growth, but is being offset by upselling current customers to the highest per-seat pricing plan (E5). E5 offers integrated and automated security, advanced compliance capabilities, audio conferencing and calling capabilities, and Power BI capabilities.

Published January 31, 2023
Visit Stratechery to read Ben Thompson’s original post Microsoft Earnings, Azure’s Slowdown, Office Strikes Back

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Intel Earnings, Intel’s Plunging Margin, The Dividend Question [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 30, 2023

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• Intel CEO Pat Gelsinger is leading the company through a multi-year turnaround, attempting to catch up to TSMC in terms of process and create a customer service organization from scratch.
• Intel’s current financial woes are the result of years of decisions and investments not made, leading to a mismatch between decisions and consequences.
• Intel is still paying a dividend despite its need for cash, likely due to its long history of dividend payments and the need to maintain investor support.
• Intel’s adjusted free cash flow was negative $4 billion, and the company is forecasting a gross margin of 34% for the next quarter.
• Intel is taking an especially large hit from losing market share to rivals, and is eliminating jobs and slowing spending on new plants in an effort to save as much as $10 billion.

Published January 30, 2023
Visit Stratechery to read Ben Thompson’s original post Intel Earnings, Intel’s Plunging Margin, The Dividend Question

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DOJ Sues Google, Google’s Advertising Aggregation, No Duty to Deal [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 25, 2023

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• The DOJ has filed a lawsuit against Google, alleging that the company has abused its role as one of the largest brokers, suppliers, and online auctioneers of ads placed on websites and mobile applications.
• The lawsuit seeks to unwind Google’s “anticompetitive acquisitions” and calls for the divestiture of its ad exchange.
• Google has used its market power to force more publishers and advertisers to use its products while disrupting their ability to use competing products effectively.
• Google’s power in digital advertising stems from a series of acquisitions, beginning with the company’s $3.1 billion purchase of DoubleClick in 2008.
• Google has capitalized on its well-known search engine to start a profitable search advertising business, Google Ads (formerly AdWords).
• Google Ads’ unique and sizeable advertiser demand is what makes Google’s ad exchange unavoidable for most website publishers.
• A 2014 Google experiment found that more than half of the impressions that publishers offered on its ad exchange would go unsold without the critical Google Ads’ demand.
• Google has effectively locked out meaningful competition in the digital advertising industry by leveraging its control of the “operating system” of advertising.
• Google has Aggregated the long tail of advertisers, and that long tail is so large that no publisher can do without them.
• Google has then levered access to those advertisers into control of the “operating system” of advertising, and with that control systemically favored itself.
• Google shifted money from advertisers to publishers by submitting two bids for ad slots from Google Ads, which systematically increased the winning price for an ad.
• Google’s defense is the “no duty to deal” argument, which is based on the Supreme Court case Verizon v. Trinko.
• The most likely outcome is that this case highlights exactly where current law is deficient in limiting big tech companies.

Published January 25, 2023
Visit Stratechery to read Ben Thompson’s original post DOJ Sues Google, Google’s Advertising Aggregation, No Duty to Deal

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Tech Layoffs, Big Tech’s Hiring Rates, Microsoft’s VR Layoffs [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 24, 2023

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• Tech layoffs are popularly thought to be due to over-hiring during the pandemic, but there is little evidence that tech companies over-hired based on past rates.
• Apple has been better positioned than many rivals to date due to slower hiring during the pandemic and a focus on hardware products.
• Amazon has seen the most dramatic increase in employee numbers over the last decade due to the build-out of its owned-and-operated logistics network.
• Microsoft’s recent layoffs are not an indication that the company is abandoning its metaverse strategy, but rather a shift away from hardware and towards being available on all platforms.

Published January 24, 2023
Visit Stratechery to read Ben Thompson’s original post Tech Layoffs, Big Tech’s Hiring Rates, Microsoft’s VR Layoffs

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Netflix’s New Chapter [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 23, 2023

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• Netflix was founded by Marc Randolph and funded by Reed Hastings, who eventually took over as CEO.
• In 2004, Blockbuster launched Blockbuster Online, which caused Netflix’s stock to plunge.
• Netflix waited out Blockbuster, knowing that the company was carrying $1 billion in debt and would eventually have to raise prices.
• Blockbuster responded by cutting prices and launching Total Access, which was a great bargain for customers.
• Netflix eventually offered to buy Blockbuster Online, but the offer was declined.
• In recent years, Netflix has faced competition from other streaming services, which has caused revenue growth to slow.
• Netflix believes that some of its competitors will seek to build sustainable, profitable businesses in streaming, and that its focus as a pure-play streaming business is an advantage.
• Netflix is now profitable and generating positive free cash flow, while its competitors are struggling to make money in streaming.
• Netflix has an advantage as a pure-play streaming business, and its aim is to be the first choice in entertainment.
• Netflix gets less leverage off of its international content than it once hoped for, and its old content holds less value than bulls once assumed.
• Reed Hastings stepped up to the CEO role and shifted the company’s culture away from Randolph’s family of creators to a top-down organization.
• Hastings excelled at execution, but the chief task for Netflix going forward is creativity and producing compelling content at scale.

Published January 23, 2023
Visit Stratechery to read Ben Thompson’s original post Netflix’s New Chapter

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Twitter Timelines, Azure and OpenAI, Apple and China [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 18, 2023

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• Twitter is enforcing its long-standing API rules, resulting in the shutdown of 3rd-party apps.
• Twitter revenue is reportedly down 40% year-over-year, and the company’s first interest payment is due at the end of the month.
• Microsoft is adding OpenAI’s viral AI bot ChatGPT to its Azure service, as part of its existing agreement with OpenAI.
• The Financial Times has a two-part series about Apple and China, discussing how Apple has been sending its top product designers and manufacturing design engineers to China, and how Apple is attempting to diversify its supply chain internationally while forging closer ties with mainland Chinese companies.
• India is not yet a viable alternative to China for Apple’s supply chain, as most operations are Final Assembly, Test and Pack (FATP) with components largely flown in from China.
• Taiwanese companies such as Pegatron and Foxconn are moving to India to assemble Apple products, but their suppliers are not.
• There is no existing supply chain in India, so they must import components from China.
• Some Chinese companies have been cleared to operate in India for Apple’s sake, potentially playing the same role as Taiwanese suppliers in China.

Published January 18, 2023
Visit Stratechery to read Ben Thompson’s original post Twitter Timelines, Azure and OpenAI, Apple and China

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TSMC Earnings, Geographic Flexibility, The 7nm Question [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 17, 2023

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• TSMC reported its first quarterly revenue miss in two years, signaling the global decline in electronics demand is starting to catch up with the chip giant.
• TSMC is taking share from Intel, and increasing its share within the foundry business.
• TSMC is a service business, not just a pure production business, and is looking to expand its global footprint to meet customer needs.
• TSMC is working to reduce costs by building up the semiconductor supply ecosystem in the US and Japan, with government support.
• TSMC is expanding its geographic reach, likely in response to customer demand for “Made in America” chips.
• TSMC’s pricing will reflect the value of geographic flexibility, and the company is confident that its 7nm process will remain a large and long-lasting node.
• The question remains as to whether specialty applications will backfill 7nm capacity, as the cost of the process is much higher and the benefits may not be as great for analog chips.
• TSMC is working closely with customers to develop specialty and differentiated technologies to drive additional wave of structural demand from consumer, RF, connectivity and other applications.

Published January 17, 2023.

Visit Stratechery to read Ben Thompson’s original post TSMC Earnings, Geographic Flexibility, The 7nm Question

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Twitter Kills Third-Party Clients, Twitter’s Tortured History With 3rd-Party Apps, The Twitter Files Business Model [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 16, 2023

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• Twitter’s decision to kick-off third party clients is classic Musk, signaling the company’s focus on its business model going forward.
• The outage was intentional, and speculation suggests it was to drive ad revenue.
• Twitter’s history with 3rd-party apps has been tumultuous, with the company needing to control the user experience to monetize via advertising.
• Bill Gross attempted to build a competing network of clients to monetize independently, leading to Twitter kicking off several of his clients.
• The 2012 decision to kill the 3rd party API made sense for Twitter to pursue its advertising business model.
• Twitter leadership has been historically weak and averse to conflict, leading to a situation where 3rd-party Twitter clients were allowed to exist and add up to 100,000 new users.
• Elon Musk’s decision to cut off 3rd-party clients was a business decision that should have been made a decade ago, but was executed in the worst way possible.
• The move may be a signal that Twitter Blue has already been deemed a failure.
• The Twitter Files reveal that Twitter was very much enmeshed with the federal government in terms of controlling speech on Twitter.
• Matt Taibbi was given access to the Twitter Files, but had to agree to certain conditions, such as publishing on Twitter and attributing the sources as “Sources at Twitter”.
• The decision to publish the Twitter Files on Twitter blunted their impact substantially, as Twitter’s power is in its orchestration of consent.
• The move may be an attempt to capture the value of content directly on Twitter, as the more essential Twitter is, the more advertisers will have no choice but to be on Twitter.

Published January 16, 2023. Visit Stratechery to read Ben Thompson’s original post [Twitter Kills Third-Party Clients, Twitter’s Tortured History With 3rd-Party Apps, The Twitter Files Business Model]

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Meta’s EU Fine; First-Party versus Third-Party Data, Redux; The EU’s First Party Imposition [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 11, 2023

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• Meta Platforms Inc. was fined €390 million ($414 million) by the European Union’s main privacy watchdog for the way users’ data is used for personalized ads on its Facebook and Instagram units.
• The Irish Data Protection Commission found that Meta’s terms of service requiring users to accept personalized ads when signing up to the social media services violated EU rules.
• The EU ruling is not about third-party data, but rather first-party data; Meta argued that using first-party user data for advertising is integral to the service, and thus they can make access to their services contingent upon agreeing to letting one’s data be used for advertising.
• The EU disagreed, finding that Meta was illegally “forcing” users to let their data be used for personalized advertising.
• Meta must now offer personalized social networking to users without tying that to offering personalized ads, which is likely to have a broad impact on companies that use first-party data for advertising.

Published January 11, 2023. Visit Stratechery to read Ben Thompson’s original post.

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More on Google and AI; OpenAI, Integration, and Microsoft [Ben Thompson, Stratechery]

By Spencer Chen

In Ben Thompson [Stratechery]

January 10, 2023

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• Google is the default in every browser and on every phone, and people have over two decades of habits of using Google for everything, making it difficult for competitors to gain traction.
• Google’s acquisition record is strong, and the company is well-placed to benefit from AI, with YouTube, Android, GCP, and DeepMind all being major assets.
• Microsoft is in talks to invest $10 billion into OpenAI, valuing the firm at $29 billion, and giving Microsoft a 49% stake.
• Microsoft’s investment is likely driven by its ability to offer attractive rates and monetize the output of OpenAI’s products, as well as its deep pockets and patience.

Published January 10, 2023. Visit Stratechery to read Ben Thompson’s original post.

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CategoryBen Thompson [Stratechery]

Microsoft Earnings, Azure’s Slowdown, Office Strikes Back [Ben Thompson, Stratechery]

Intel Earnings, Intel’s Plunging Margin, The Dividend Question [Ben Thompson, Stratechery]

DOJ Sues Google, Google’s Advertising Aggregation, No Duty to Deal [Ben Thompson, Stratechery]

Tech Layoffs, Big Tech’s Hiring Rates, Microsoft’s VR Layoffs [Ben Thompson, Stratechery]

Netflix’s New Chapter [Ben Thompson, Stratechery]

Twitter Timelines, Azure and OpenAI, Apple and China [Ben Thompson, Stratechery]

TSMC Earnings, Geographic Flexibility, The 7nm Question [Ben Thompson, Stratechery]

Twitter Kills Third-Party Clients, Twitter’s Tortured History With 3rd-Party Apps, The Twitter Files Business Model [Ben Thompson, Stratechery]

More on Google and AI; OpenAI, Integration, and Microsoft [Ben Thompson, Stratechery]

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