Agents may cost marketplaces ad revenue but could lift total orders

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 31:40

   Muse and Instinct are no doubt the new kids on the block, but they've grown really quickly. Those, along with ChatGPT, are taking more and more of my queries away from traditional search. But it's really a dynamic time. And so if you are an existing consumer discovery platform and existing marketplace, you really need to be thinking about your chest moves right now. There's a couple questions I'd be asking.

2. 32:00

   First, how much incremental demand can I get from an AI agent? How many more orders can they bring me? And two, how much of my business, how much of my profit pool comes from owning the customer relationship and discovery? Last week, there was a lot of news where Amazon said, you know, no thank you to Muse, but Instacart said, yes, please. And if you think about Amazon, X, AWS, and Instacart, and look at their advertising revenue, it outpaces all of their operating profit.

3. 32:31

   And so advertising revenue, owning the customer relationship is incredibly important. But for Amazon, you know, how many incremental new orders or certainly customers am I going to get from connecting to Muse? Not that many. Whereas if you look at Instacart, online penetration of groceries, still relatively early, a lot more orders to go get. And so the optimistic possibility here is that there's going to be a lot more orders coming from these applications.

4. 33:04

   Historically, I've had to click all these different ways through to process an order. If I offload that to an agent, all of a sudden, there's no clicks and hopefully more GMV. The trip I once wanted to book but didn't gets booked. The order that we all wanted to place for dinner tonight happens. So I'm optimistic there's going to be a lot more GMV, and that'll make up for some of this lost advertising revenue.

5. 33:29

   Yeah, it's sort of this question, though, that's open of how does it get compensated for, right? Right. So to your point, you know, Amazon has an over 70 billion advertising business that's extremely high margin flow through that, you know, is totally predicated on the fact that consumers go to the website and click on the ads. And if they don't do that anymore, you know, what happens, you know, today, you know, Meta and Meta and Google famously advertise, you know, probably best out of any of the Internet platforms.

6. 34:01

   You know, they each make, call it 200 bucks plus per users in the U.S. and developed world. You know, in the case of Meta, it's sort of a, you know, it's an entertainment application. We'll see, you know, what happens with that. It's probably a little bit safer. In the case of Google, you know, it's funny, like the whole talk track around Google two years ago when all of this just happened was, oh my gosh, what's going to happen to Google's search business?

7. 34:26

   And it turns out it's been really resilient. Part of the reason it's been really resilient is because they're very high monetizing ad terms were somewhat safe because they were things like I need to buy insurance or, you know, find me a hotel in this city, you know, or things like that, that that you can very directly monetize. But that the AI was not yet capable of going to take action for on your behalf.

8. 34:53

   If that changes, that could be a very different dynamic. Yeah. The other thing, just to add, I think the narrative last week was a little bit like negative sum, where it was very negative, you know, like, look at these marketplaces that are going to be impacted. I do think, like, the positive sum view of this is, number one, maybe that $70 billion that's spent on advertising on Amazon just finds a different channel and, you know, goes elsewhere.

9. 35:14

   Maybe spent directly on the agents through a different form factor or just finds better ways to target people. And then two, I think, you know, with the lower friction, we might just see more consumption. Like, people might buy more. You know, and that's just like a positive flywheel that drives economic growth. And I think a little bit we're locked into this, oh, this is bad for profit pools, but actually might be just good.

10. 35:34

    Yeah, totally. Both could be true, by the way. Yeah. Yeah, that it could be bad for just- So it might be sort of profit pools, but it could be additive overall to the economy. Like, I think we all would be disappointed if we looked back three years from now and there's not a meaningful productivity improvement, actually, at the overall macroeconomic level, which would drive, you know, consumer spending higher in the case of advertising.

11. 35:54

    But it might just be that, you know, profit pools disappear from certain places and get reallocated. The immediate reaction has been net market cap positive across the ecosystem. The meta gains have far exceeded any of the losses from the marketplaces. Yeah, that's a great point.