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Big Tech Earnings and The State of Digital Q3 2023 (Thinks Out Loud Episode 390)

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What is the State of Digital as we head into the back half of 2023? Well, one signal comes from Big Tech’s earnings calls. What can we learn from what Google and Microsoft and Amazon and Facebook and Apple tell Wall Street? A lot, actually. And, in particular, Google and Microsoft highlighted some compelling trends we all want to watch as we gear up for the rest of the year.

What did Google and Microsoft tell us? What are the trends we all ought to watch? What is the "State of Digital" in Q3 2023? That’s what this episode of Thinks Out Loud is all about.

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

Big Tech Earnings and The State of Digital Q3 2023 (Thinks Out Loud Episode 390) Headlines and Show Notes

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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: 25m 52s

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Transcript: Big Tech Earnings and The State of Digital Q3 2023

 
Well hello again everyone 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 390 of The Big Show. And thank you so much for tuning in. I very, very much appreciate it. I think we have a really cool show for you today.

So as I like to do, I take a look each quarter at the earnings calls from the Big Tech players, from Apple and Google and Facebook and Amazon and Microsoft. Not to understand their stock, not to analyze, are they going to be worth more later, are they going to be worth less later?

Instead, what I’m curious about is they are Big Tech. They drive a huge share of the market for all of us. And the items that are priorities for them tell us a lot about the state of the market and tell us a lot about the state of digital. And so I use these as sort of a benchmark of where are we? What is the state of digital here in August of 2023?

What are the big themes and big topics that we ought to be paying attention to? Because Google and Facebook and Amazon and Microsoft and Apple are all paying attention to them. Now, I am going to do something a little different than I normally do. Normally, I go through each one and then kind of wrap it up in a bow at the end.

And today, I’m only really going to focus on Google and Microsoft. The others had some interesting tidbits, and I may do a follow up episode next week with a little bit more detail there about, you know, other trends. But I really want to focus on excuse me, Google and Microsoft because they had some really compelling points that we should be really, really conscious about.

The first of these is how much They both talked about artificial intelligence, they both talked about AI and large language models and machine learning and generative AI and all of these tools about which we have heard so much over the last couple of months, over the last, you know, nine months or so, nine, ten months.

What was really fascinating to me about it was that they talked very differently about how they’re going to monetize this, right? They’re talking to Wall Street analysts, and they’re trying to explain to Wall Street analysts why their stock price is going to be higher in the future. And obviously, their ability to make money off of artificial intelligence plays an enormous role in how much their stock is going to be worth in the future.

What was really interesting there, was that Microsoft does not have a great path to money from things like it’s being AI chat yet. It has a really great path to money through things like GitHub, Copilot, and Office 365, excuse me, Microsoft 365 Copilot, you know, building AI into the tools that people pay for, whether it’s GitHub, if you’re a developer, whether it is office suites and Windows and the like, if you’re Microsoft user. Google, by contrast, talked a lot about their ability to monetize traffic today. They also talked a lot about how strong they’ve been in artificial intelligence for years. One point I’ll make here is, this didn’t come up on the call per se, but ChatGPT stands, the "T" in ChatGPT stands for a transformer. And a transformer is a type of artificial intelligence tool, machine learning tool that was developed at Google. The idea of transformers is a Google idea. So, Google really leans in hard, "we get AI, we really get AI, we know a lot about this, we literally wrote the book on this."

What’s also true is, they kept their user stats and their monetization and other hard numbers very close to the vest when they talked about lots of growth and lots of opportunity and the like.

They really didn’t say much about how, what those numbers really meant. I’d love to see that change. I bet you would too. What’s very clear is that they think this is critical to their future success. I’m confident they’re seeing data that supports that finding. Just as they did with mobile and their heavy move towards retail a few years ago and tools that they’ve created over the years like in verticals like travel and insurance.

There was a key quote from Sundar Pichai where he said quote "Over time this will just be how search works." Something is telling him that’s true. And I’d bet it’s the roughly three and a half billion searches that they get every day that’s telling him that that’s how search will work.

That matters to Google because ad revenue and particularly ad revenue from search is still where they make their money. 78% of the company’s revenues were from advertising. And they’re still making most of that, 58% of all of their revenues came from search. The company’s CFO, Ruth Porat, who has just been promoted to president of the company, said "search remained the largest contributor to revenue growth." They get that search is where the game is at still.

Retail, by the way, drove was a big player in driving growth in the search revenues. And brand advertising on YouTube was also up. I bring that up because retailers are continuing to advertise. Other companies are continuing to advertise. And it sure doesn’t sound like we’re in as tough an economy as I think we all feared for, many of that for much of the last, you know, six months or something along those lines. Google’s not downsizing. They definitely said, you know, there are "actions they’ve taken to reduce the pace of headcount growth and moderate the pace of fit outs and ground up construction to reflect the slower expected pace of headcount growth."

Notice they said "pace of headcount growth." They didn’t say headcount growth would go down. They’re still adding people, just more slowly. At least in some areas. They’re also investing like mad in research and development. They absolutely recognize or are certainly acting like The fact that few companies maintain market leadership from one tech base to another, I’ll talk about this another time, but you all know that the people who won the last go round usually don’t win in the next go round, right?

IBM owned computing until Microsoft and to a lesser extent Apple beat them with PCs. Microsoft and Intel owned the desktop and Apple and Google came along and crushed them with mobile. NVIDIA beat Intel with GPUs, with Graphic Processing Units. So it’s unlikely that whoever owns AI, or if it ever happens, the Metaverse, are likely to be the people who currently win in search and social.

That could be wrong, but it’s not usually how it plays out. So Google clearly wants to buck that trend and is investing for the future. It also shows that they remain brittle. They still make all their money from advertising and the bulk of it from search, which really is the only product they’ve ever had that made money.

I should point out that Google made just about $75 billion in revenue last quarter, and a bit over $18 billion, $18.3 billion in profit last quarter. And 58% of that came from search. That’s where they make their money. By contrast, Microsoft made a lot of their money not from advertising. They make their money from selling Windows and selling cloud computing and selling Office in the cloud and selling tools for developers.

They make their money lots and lots and lots of different ways. In fact, the one place they didn’t make much money was in advertising they actually talked about it with slightly softer ad revenue than expected and that’s interesting to me in a way I’ll come back to in a moment. Just to wrap up some other numbers real quick LinkedIn’s revenues were 15 billion dollars for the last year.

That’s the first time they’ve crossed $15 billion. Just for contrast, Facebook had $32 billion in revenue this quarter across its array of social networks, right? Facebook and Instagram and folks like that. So, you know, LinkedIn is decidedly smaller. It’s also decidedly more narrow intentionally.

One slightly silly thing. Well, I shouldn’t say it’s silly. It’s completely fine. It’s silly that I love it so much, but I love when companies all mention the same customers. Google and Microsoft mentioned having same up some of the same customers for their various products. I actually think that that is brilliantly good news for the rest of us.

I think that’s an incredibly positive statement about the state of digital. The pie isn’t shrinking, it’s growing. It’s growing so much that customers are using all of these different tools. Google, Microsoft, and by extension, the rest of us aren’t fighting over a shrinking pie, the pie is growing. It does also mean that there are more strong, digitally native, digital first companies we have to compete against.

I mentioned this a few years back in an episode that said digital makes marketing easier for everyone, which makes marketing harder for everyone, right? There’s more competition, so you have to work harder to do well out there. That’s episode 213 if you want to check that out. The thing to be aware though is that the pie continues to grow.

If there was one big takeaway, and I’ll come to takeaways in a minute, but if there’s one big takeaway from all of these earnings calls, it’s It’s that business is good, right? People are doing fine. Big Tech is doing fine because their customers are looking for options. That means there’s opportunity for all of us.

Now let’s talk about what some of that means a little bit. There was a fascinating stat in Microsoft’s presentation. Satya Nadella said Bing users have "engaged in more than 1 billion chats and created more than 750 million images with Bing Image Creator" since late February when they launched Bing Chat, Bing Chat.

To put that in context, over the course of five months, the last five months, customers have used Bing Chat as many times as customers use Google Search every seven hours. Literally a billion chats is the equivalent of what Google gets in search volume in a seven hour period.

There are at least two sides to this. Maybe you can think of more. And if you do, send me an email or ping me on social media. Drop me a note on LinkedIn or on Twitter. I’d love to hear from you about this. But the two sides are that one, there’s huge upside growth potential here, right? If Bing Chat is only doing what Google does every seven hours, they’ve got a lot of runway to improve upon that, right?

Simply massive. The other thing that I think is really worth noting is that chat isn’t as common a user experience as a search is. Search is quick. Chat may never be as common a user experience as search is. I talked about this in our episode, Should Your Business Use ChatGPT in April, which I’ll link to in the show notes.

It turns out that Expedia’s, and this is a quote, "existing chatbot use is somewhere around one and a half percent of all the visits to their website. Or in other words, customers don’t use their chatbot about 98.5% of the time. In other other words, almost no one is using it." Now that could change over time.

We’re in the earliest days of this. But chat clearly isn’t as quick or easy and expecting that it may replace search may not turn out to be true. But it’s something we’re going to have to watch very closely. There are lots of potential uses for AI and chat is certainly one with a lot of runway, a lot of potential.

But I personally doubt it will replace search overall for most customers most of the time. We’ll see. I could be wrong. I will say that Google literally is betting their company on it. They’re thinking of AI and chat as part of search, as integrated into search. Rather than as a replacement for. They could be wrong.

Remember what I said a moment ago about it. It’s very rare that people who win in the last paradigm, win in the next paradigm. So they could totally be wrong. I just haven’t seen consumer behavior, customer behavior, human behavior, suggest that that’s going to happen yet. We’ll see. I’m going to be watching this super closely, and if it turns out I’m mistaken on this and I should be thinking about it differently, I will tell you that here immediately.

Okay?

Alright, so what are the big takeaways that I got from these two at a detailed level and everybody else at a high level? Well, one, the tech recession is over. Pretty much across the board, all of Big Tech — Apple, Google, Facebook, Amazon, Microsoft — they made bank, they made a lot of money. They all grew quarter over quarter.

They all pretty much grew either their revenues, their earnings, or both year on year, and usually by pretty good numbers. They’re going to be fine. Notice the layoffs and the tech layoffs that everybody talked about earlier in the year. Nobody’s talking about that any longer. And in fact, all that we heard people like Google especially say though Facebook to a lesser degree, is how they’re moderating the pace of growth.

Not that they’re not growing and not that they’re not going to grow their headcount. One of the reasons they’re going to grow and going to continue to grow It’s because artificial intelligence continues to grow. It continues to be where we’re headed next. I’ve seen no evidence that it is not the next big thing, and the thing we should all be prepping for.

At the same time, we’re all still learning about it. Even the big guys are. They’re still figuring out how to do what they do here. You know, one of the things Microsoft talked about was that they made slightly softer ad revenue than expected. Google, by contrast, talked about strong ad revenues. So, is Bing struggling to attract advertisers?

Or, is it that most of their growth has happened on things like Bing Chat, which uses AI, and they haven’t figured out how to monetize AI Chat? I suspect it’s the latter. I also think it’s something that I’m going to watch closely. I’m confident Microsoft will make money from AI. They’ve got GitHub Copilot, and integration into Office and have plenty of economic value.

They sell plenty of things that will make them money with AI connected to it. It also highlights what I’ve said a few times about being ready in case Google stumbles or potentially stop sending so much traffic via search. The risk to most companies is that if customers get their answers within the search engine, as opposed to clicking on links from the search engine, your traffic could suffer.

That might be fine for Google or Bing. It could be bad news for your business, though. Check out episode 372, "The End of Google," for more on this topic. The point isn’t that Google could fail, or Bing could fail. It’s that the traffic you get from them could decline. More likely, though? It speaks to the fact that their potential as a gatekeeper is getting stronger.

You’ve heard me say many times that "gatekeepers gonna gate." Their ability to answer questions directly means that they’re improving, they’re strengthening their role as gatekeepers. They potentially have more control over the connections between us and our customers, not less. I actually don’t think your traffic will fall in the long run.

And hang with me here for a second. It’s in Google’s best interest and Bing’s best interest and Facebook’s best interest and Amazon’s best interest to pass traffic to your business. Remember that part about the ad revenues? That’s where they make their money. They’re a two sided marketplace and you pay for that traffic.

What I think is far more likely is you might pay more. So that’s something that you’ve really got to watch closely. You’ve got to continue building your brand. Keep working on email. Keep working on organic social. Keep working on content to help you connect with customers on your own. AI can definitely be your friend here.

There’s a lot of opportunity for how you can use that, how you can add it to your team, as I have talked about, and test how you do this with your business to make it a tool that makes you more powerful and puts you in greater control of the conversation with your customers than the gatekeepers intend to be.

We’re still somewhat in the early days of AI and marketing business. There are lots of solid use cases out there. We’re also likely to be in a very different place 12 months from now than we are today. I will tell you, I’ve had multiple conversations this week alone with people saying, Can you show me real world examples of where people are using AI and marketing?

And I can point to some. I can absolutely tell you my clients are working on some. What’s also true is that it’s early days. There’s not 50 case studies you’re going to see out there or 500 case studies you’re going to see out there of people driving massive amounts of revenue because we’re all still learning, even Big Tech.

So, we know that the recession, the tech recession is over. We know that the economy looks like it’s going to be okay ish for a time. It may get soft, but it doesn’t look like it’s going to collapse any time soon. We know that AI continues to grow, and we know that the gatekeepers are going to try to leverage that to their advantage.

And so we know what we have to do is that we have to continue building our brands so that customers want to connect directly with us and bypass the gatekeepers altogether. And that doesn’t require artificial intelligence to figure out. That doesn’t tell us. That’s not something where we have to look at the state of digital right now.

That’s something where we have to think about the long term and say, how do we do that? Even just using our regular old intelligence.

Show Closing and Credits

Now, looking at the clock on the wall, we are out of time for this week. I want to remind you 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 390.

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Thinks Out Loud on Social Media

You can also find Thinks Out Loud on LinkedIn by going to linkedin.com/timpeterassociates. You can find me on Twitter using the Twitter handle @tcpeter. And as always, you can email me at podcast@timpeter.com. Again, that’s podcast@timpeter.com.

Show Outro

Finally, I know I say this every week, but I very much appreciate the fact that you listen. I would not do this show without you. No way, no how. It means so much to me that we can have a conversation and build this community together.

It means the world to me that you listen. It means the world to me that you comment. It means the world to me that you reach out to me on social. And I just love that we get to keep the dialogue going. So please, let’s keep the dialogue going. Keep your emails coming, keep pinging me on LinkedIn, keep pinging me on Twitter or X or whatever we’re calling it this week.

I love hearing from you. I love getting to chat with you about all of this every single week. With all of that said, I hope you have an amazing rest of your week. I hope that you have a wonderful weekend. 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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