Howdy, Big Thinkers! It’s time once again to dive into Big Tech’s quarterly earnings and learn what they tell us about the state of digital. And the state of digital at the moment is all about artificial intelligence, generative AI, ChatGPT, large language models, and all that stuff.
Why does this shift matter for your business? How will these tools shape how you conduct your sales and marketing and customer experience in the next year or two? What’s working? And who might win down the line? That’s what this episode of Thinks Out Loud is all about.
Want to learn more? Then give a listen, review the transcript, and check out all of today’s show notes. Enjoy!
What Big Tech’s Earnings Tell Us About the State of Digital – Q1 2023 (Thinks Out Loud Episode 382) — Headlines and Show Notes
Show Notes and Links
- Apple reports second quarter results – Apple
- Apple Inc. (NASDAQ:AAPL) Q2 2023 Earnings Call Transcript – Insider Monkey
- AI Won’t Steal Your Job: Smart People Who Put AI to Work Will (Thinks Out Loud Episode 208)
- Alphabet Earnings Release PDF document
- Alphabet Inc. (NASDAQ:GOOG) Q1 2023 Earnings Call Transcript
- Google Devising Radical Search Changes to Beat Back AI Rivals – The New York Times
- By ditching Search, Samsung may make Google get its act together – SamMobile
- google.com Market Share, Revenue and Traffic Analytics | Similarweb
- bing.com Market Share, Revenue and Traffic Analytics | Similarweb
- openai.com Market Share, Revenue and Traffic Analytics | Similarweb
- FY23 Q3 – Press Releases – Investor Relations – Microsoft
- Microsoft SlidesFY23Q3.pptx
- Microsoft FinancialStatementFY23Q3.xlsx
- Microsoft Corporation (MSFT) Q3 2023 Earnings Call Transcript | Seeking Alpha
- Amazon Earnings Slides PDF document
- Amazon Earnings Release PDF document
- Amazon.com (AMZN) Q1 2023 Earnings Call Transcript | The Motley Fool
- Big Trends: The Early Innings of AI in Marketing (Thinks Out Loud Episode 374)
- Meta/Facebook Earnings PDF document
- Meta/Facebook Earnings Call Transcript – PDF document
- Meta/Facebook Earnings Presentation PDF document
- Meta/Facebook follow-up call Transcript PDF document
- Should Your Business Use ChatGPT? (Thinks Out Loud Episode 379)
- Generative AI and ChatGPT: What it means for tourism and hospitality | PhocusWire
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:
We have some free downloads for you to help you navigate the current situation, which you can find right here:
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- A Brief Introduction to Thinks Out Loud. As a bonus, we’ve also included this PDF document that highlights some of our core episodes to help you dig into what the show is about. We think it will help you capture the show’s essence while you’re working your way through the 300-plus episodes published so far. Download it here.
- Digital & E-commerce Maturity Matrix. As a bonus, here’s a PDF that can help you assess your company’s digital maturity. You can use this to better understand where your company excels and where its opportunities lie. And, of course, we’re here to help if you need it. The Digital & E-commerce Maturity Matrix rates your company’s effectiveness — Ad Hoc, Aware, Striving, Driving — in 6 key areas in digital today, including:
- Customer Focus
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Transcript: What Big Tech’s Earnings Tell Us About the State of Digital – Q1 2023[Transcript generated using AI tools. Please pardon any errors.]
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 382 of the Big Show, and I think we’ve got a really cool show for you. I think, you know, I do a recap of big techs quarterly earnings each quarter, the AGFAM — Apple, Google, Facebook, Amazon, and Microsoft — to get a sense of where the market is heading. So these were the results that were just released over the last couple of weeks by all the big tech folks. For some of them it was Q1 of 2023. Microsoft, their fiscal year is actually different, so it was their Q3 of fiscal 2023.
But the idea is, what did they just tell us here in, you know, April about what they did for the first three months of the calendar year? And there are a couple of big takeaways I want to get out of the way. Right up front. One, everyone made money. Their revenues were solid, their profits were up often because of layoffs and other cost cutting.
But their revenues were good. They did a good job. And the thing that was most prevalent in their earnings call was that AI was by far the biggest story across most of the big tech players. What’s also true is that what AI means for you and your business is still up in the air, despite all the hype and momentum, what AI will look like in the marketplace.
Is still very much to be determined. So I’m going to dive into these in some detail. I do want to remind you right up front, I always say this each time, this is not investment advice. You really shouldn’t take investment advice from me. This is just kind of what this might mean for your business more broadly.
So looking at Google, they made a ton of money. Their revenues were 69.79 billion. We can call that 70 billion for the quarter. Their ad revenue was 54.6 billion and 40 billion of that was from search and other alone. Now, 55 billion out of 70 billion is 78%, so ad revenue is 78% of their total revenue and the 40 billion that came from search and other is 73% of their ad revenue and 57% of total revenue all by itself.
Alphabet remains a one product company. Google, Alphabet is its parent company, is a one product company. That product is advertising, and I’m going to come back to this again and again and again throughout this episode. You know, their profits were great. They had 15 billion in profits in the quarter. Yes, they had a lot of layoffs.
But they also still have almost a hundred, one 91,000 employees, and they’re making huge chunk of that money from advertising. There’s no sign yet that they have any idea how to make significant money from their other products. And that may spell trouble for Google in the longer term. And given that Google plays a huge role in driving traffic to your business, in most cases, that may spell some trouble for you.
I’ve talked about this, you know, in the past, but it’s something you do want to watch. Google clearly wants to blunt the hype that exists around chat, G P T and Microsoft. They send the term AI no fewer than 52 times in their earnings call, plus plenty of other references to their specific AI technologies.
I think that was the most of any of the big tech firms. I did a rough count of all of them and 52 seems to be the high water Mark Sundar Pacha specifically tried to point out their c e o specifically tried to point out why they’re going to be fine. He said, I’ve compared it to the successful transition we made from desktop to mobile computing over a decade ago.
Essentially referring to AI opportunities for the business and its customers, they need to demonstrate that they can win in the marketplace. Microsoft has a lot of momentum here, which we will talk about in a moment, and that includes things like Samsung discussing that they might switch to Bing as the default search engine on its devices.
We know that Google pays Apple to be the default search engine on iOS, somewhere between nine and 15 billion a year. And if Samsung or Apple were to switch, that would be an enormous problem for Google, you know, in the near term, and definitely in the longer term. In fairness, Google has some great ideas and they tried to demonstrate that point throughout the call.
There was lots of discussion about AI innovations and how they have used AI to open up access to knowledge in powerful ways. I’m going to, you know, point out just a couple of quick poll quotes. Said, our investments and breakthroughs in AI over the last decade have positioned us well. He talked about how they’ve made good progress across areas of continuing to develop state-of-the-art line, large language models, and making significant improvements across Google’s products to be more helpful to our users, empowering developers, creators, and partners with our tools.
And enabling organizations of all sizes to utilize and benefit from our AI advances. He also said that you know, their Palm API alongside their new Maker Mark tool, maker Suite tool quote provides a simple way to access our large language models and begin building new generative AI applications quickly.
He also said we’ll be guided by data and years of experience about what people want and our high standards for quality, and we’ll test and iterate as we go because we know that billions of people trust Google to provide to the right information. They also broke it out in specific products. You know, core search, for example.
Again, this is a quote in targeting, we’ve updated search keyword relevance, using the latest large natural language AI from mum models to improve the relevance and performance of shown ads when there are multiple overlapping keywords eligible for an auction. In bidding, we improved our smart bidding models to bid more accurately based on differences in search add formats.
They talked about how this is driving, you know, 18% more conversions up five points in just 14 months, and they separately added. We are the only cloud provider to announce availability of NVIDIA’s new L four Tensor core G P U with the launch of our G two VMs, which are purpose-built for large inference AI workloads such as generative ai.
All of that sounds great, but they could be in real trouble if they can’t figure out how to make money. That could also spell trouble for your business as well. I had a recent episode about what happens to your search traffic if Google goes away, and I would strongly encourage you to give that a listen.
Independent of their earnings. By the way, Google announced yesterday a whole bunch of updates to bar, including some serious code debugging terms, and I’m going to come back to this in a minute, but there is a question of whether AI really exists at the moment for developers and programmers. Hang on to that thought though.
I also would be remiss if I didn’t point out that Google still gets 46 times more traffic than open ai. It got 84 billion visits in March versus 1.8 billion for open ai. That number is shrinking. It was 73 times more traffic in January, so it’s something I’m going to keep watching to see what happens. Also, keep in mind that open AI’s growth seems to be slowing down quickly.
Their traffic grew 12.5% between March and April, which is a big, you know, monthly lift. But it was 132% between February and March. So that’s a trend I’m going to be paying close attention to. OpenAI may not be the big threat to Google. The big threat to Google is probably Microsoft. So let’s take a look at their earnings for a second.
I want to start by saying that Satya Nadela, Microsoft c e o, loves to be quotable. He opened his remarks by saying The world’s most advanced AI models are coming together with the world’s most universal in most universal user interface, natural language to create a new era of computing. He’s basically saying, letting people talk like people is the new era of computing.
We’re heading towards, you know, the Star Trek computer in reality. And Microsoft made a ton of money. 53 billion in the quarter. That’s 7% growth, which is a huge number when you’re talking tens of billions of dollars. 37 billion in profit. Again, amazing. Now, one thing that I’ve noticed that’s super fun to me and super interesting is that Microsoft released all its investor relations material in the cloud on Word, Excel, PowerPoint, and things like that.
Live documents, not PDFs. Everyone else released on PDFs. Microsoft seems to be doing this to demonstrate that they are a cloud native company and a competitor to Google Docs, a real cloud-based alternative to Google Docs. I thought it was very smart. I thought it was very effective, and I think it highlights specifically something I’m going to talk about in a minute where AI might make the biggest difference.
It also highlights Google’s problem as a one product company. Google only makes real money on ads. Microsoft can make money with ads on LinkedIn and on Bing, or with its Office suite or with Cloud, or with its operating system, or with, well, you get the idea. They can make money a lot of different ways. By the way, just as a weird aside, both Google and Microsoft listed Mercedes-Benz as a customer in their comments to Wall Street.
I’m not entirely sure what to make of that. It could be that companies like Mercedes either are still figuring out which one is better, or it could be they don’t want to put all their eggs in one basket. I don’t really know what to make of that in big terms. I just thought it was interesting. In terms of Microsoft’s earnings calls, they said AI 46 times compared with Google’s 52, so a lot.
Basically, it’s obviously a hot topic for the big tech companies, not that you didn’t know that by this point. One thing that I did think was fun was due to its investment in OpenAI, Microsoft also got to use the terms OpenAI and ChatGPT, GPT-4 a lot. There were a couple dozen mentions across those terms.
As you might imagine, Google didn’t use those terms at all during their earnings call. Microsoft touted its wins with ai just as Google did. They said today, 76% of the Fortune 500 use GitHub to build, ship and maintain software. And with GitHub co-pilot, the first at scale AI developer tool, we are fundamentally transforming the productivity of every developer from novices to experts.
And they also said in three months since we made co-pilot for business broadly available, over 10,000 organizations have signed up. I want you to Pope, you know, park that in the back of your brain that people are using these tools today. And I’m going to come back to why that matters to you in a little bit.
I also thought it was interesting that they’re adding the co-pilot brand to almost all their other tech, including office technically called Microsoft 365 these days, to CRM to security. I’m kind of beating this to death at this point, but they clearly have more paths to money than Google does. For instance, Microsoft’s Azure Cloud business is almost four times larger than Google Cloud.
As I’d mentioned, I don’t necessarily care who wins in the marketplace. I care what happens if Google’s stumbles start to hurt your business.
I want to switch to Amazon now for a moment. All good news. I started doing these quarterly earnings call reviews. To pay attention to the world of e-commerce and advertising, and Amazon gives us a pretty good sense that e-commerce is doing fine. Up 10% year on year, there was big growth, about 23% in their ad business, and AWS was up 16%.
They also were talking a lot about ai, though only six mentions of AI in the earnings call. Andy Chassy, Amazon ceo said, AI is still in its early days. I’ve, I’ve actually talked about the fact that this is the early innings for AI and marketing, and you can check out that podcast as well. But there is an interesting battle going on here, and I want to bring this up because it came up with Microsoft.
It came up with Amazon, it came up with Google. Which is is AI for developers. Amazon is building lots of foundational tools into a w s to attract developers. Microsoft won in desktop operating systems when they were the big thing by attracting developers to that platform. And it looks like Microsoft and Amazon and Google are trying to win in ai.
By being the place where developers and startup founders choose to build their applications. If that’s the case, that’s not great news for Google. A w s is roughly three times the size of Google Cloud, and as I’ve already mentioned, Microsoft Azure is roughly four times the size of Google Cloud. So this is something very interesting and something we should watch as we go forward.
Quick note about Facebook. They’re shifting their focus a bit. They had 49 mentions of AI in their earnings call. Again, comparable with Google and Microsoft, and only 10 mentions of the metaverse. You may remember I’ve been somewhat bearish on the metaverse in the near term. They’re clearly tamping down discussion though to be fair, by no means abandoning the topic.
Mark Zuckerberg said quote, A key theme I want to discuss today is ai. I’ve emphasized for a number of these calls that there are two major technological waves driving our roadmap, a huge AI wave today, and a building metaverse wave for the future. In other words, he’s stating that they’re both important, at least in the longer term.
In fact, he said beyond ai, the other major technology wave we’re focused on is the metaverse. A narrative has developed that we are somehow moving away from focusing on the Metaverse vision. So I just want to say upfront that that’s not accurate. We’ve been focusing on both AI and the Metaverse for years now, and we will continue to focus on both.
Obviously he really needed to tell Wall Street about ai. He highlighted that more than 20% of content in your Facebook and Instagram feeds are recommended by ai. He added later that quote across Instagram, that’s about 40% of the content that you see and that quote, AI recommendations have driven a more than 24% increase in time spent on Instagram, and our AI work is also improving monetization.
One of the things that I thought was very interesting was that he mentioned he, mark Zuckerberg mentioned in the Q N A, that I think there’s a bunch of opportunities on the visual side to help CR advertisers create different creative. We don’t have the tools to do that over time. Eventually making it so we’ve always strived to just have an advertiser, just be able to tell us what their objective is, and then have us be able to do as much of the work as possible for them.
He said once you light up the ability for tens of millions of small businesses to have AI agents acting on their behalf, you’ll have way more businesses that can afford to have someone engaging in chat with customers. So I think that could be a pretty big opportunity too. The last thing I want to say about Facebook here was he said they’ve taken a very different approach.
He said, quote, our approach to AI and our infrastructure has always been fairly open. We open source many of our state-of-the-art models so people can experiment and build with them. He may be onto something here that’s very interesting. Open source AI could be a real game changer down the road. There was a memo purportedly written by a Google engineer that referred to the fact that Google has no moat, has no defensible position with ai, but neither does open ai.
And open source platforms could lead to lots of innovation among companies using ai, not from Google or Microsoft or Amazon, but open source tools, much like companies do with web servers and content management systems like WordPress or Droople. That’s definitely a trend I’m going to pay attention to as we go forward and may be worth you paying attention to as well.
Also in the spirit of completeness, I want to talk about Apple for a moment. There’s not much to see here. They made a lot of money. They only mentioned AI three times in their earnings call. Compared with dozens of references to the tech on Google and Microsoft and Amazon and Facebook. They’re making a bunch of their money in hardware.
They’re getting bigger in services. But clearly they’re not a player in the AI space at the moment. So what does this all mean? What is the recap here? Well, I want to start by saying I was bearish on metaverse and crypto. I remain bearish on metaverse and crypto, at least in the near term. I am much more bullish on artificial intelligence.
What’s also true is that most people maybe don’t want an artificial intelligence in their pockets, or more specifically, they don’t want to necessarily have to interact with the ai, you know, as an AI in and of itself. What they may want are good products. And I said, I’d come back to this about the big tech players focusing on developers.
That might be the right idea. Maybe the right idea isn’t to expose the AI to everyone, but to build it into the experience natively and naturally and invisibly. Make it something that the customer doesn’t even have to know is an ai, but the product just works. I mentioned a moment ago that Apple made a ton of money and they focus on products, and a big part of their appeal for years has been, they just work.
Maybe that’s what’s going on here, that Amazon and Google, Microsoft are going to compete for the developers who will create the software of the future. That quote unquote just works. I think that’s a big trend and something we’re going to be paying a lot of attention to in the coming month and years.
Another big takeaway is that you should be testing AI in your world. I had a podcast episode a few weeks back called Should Your Business Use Chat, G P T? Spoiler Alert, yes, but I would encourage you to begin testing. You should be focused on how you can use ai. To create better content and better experiences for your customers.
I, I love that. Microsoft refers to their AI embedded tools as co-pilot. Because it, at least at the moment, seems to be the best way to use these tools. It’s a collaborative partner. It’s a brainstorming tool. It’s an ideation tool. It can help you figure out how to create better products, better services, better content, better experiences that your customers will enjoy and appreciate and return to again and again.
That’s what your customers want. They want better content, better experiences, better products, better services. It’s what they expect, and it’s what the big tech companies, or at least the developers and the startups that are migrating to their platforms are delivering right now today. And fundamentally, that’s the single biggest takeaway from my perspective.
Giving customers what they want is always the intelligent move, and it doesn’t matter whether that intelligence is human or artificial. Taking care of your customers is always going to be the smart thing to do. 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 today’s episode, as well as an archive of all past episodes by going to tim peter.com/podcasts.
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Again, that’s podcast tim peter.com. Finally, I want to say one last time how much I appreciate you tuning into the show every single week. I wouldn’t do this show without you. I don’t do this to hear myself talk. I do this so that we can have a conversation and build this community. It means so much to me.
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