Artificial intelligence will enable a world of abundance, zero-marginal-costs, and… lots of weird content
A picture is worth a thousand words, but what if a thousand words actually creates the picture? This is the central conceit behind DALL-E 2, a new artificial intelligence system launched by OpenAI this week that uses simple text prompts—like “cat jumping on a hippo”—to create photorealistic, AI-generated images.
The implications here are both vast and somewhat trippy, but my favorite take on the subject comes from Ben Thompson at Stratechery who makes a very smart connection between AI-generated artwork, online media, and zero marginal cost structures. He writes: “Imagine environments that are not drawn by artists but rather created by AI: this not only increases the possibilities, but crucially, decreases the costs.” He continues:
“Machine learning generated content is just the next step beyond TikTok: instead of pulling content from anywhere on the network, GPT and DALL-E and other similar models generate new content from content, at zero marginal cost. This is how the economics of the metaverse will ultimately make sense: virtual worlds needs virtual content created at virtually zero cost, fully customizable to the individual. Of course there are many other issues raised by DALL-E, many of them philosophical in nature; there has already been a lot of discussion of that over the last week, and there should be a lot more. Still, the economic implications matter as well, and after last week’s announcement the future of the Internet is closer, and weirder, than ever.”
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“Iterative innovation creates magic for customers”
Andy Jassy released his first shareholder letter as CEO of Amazon, which contains a handful of great insights. In particular, I liked his section towards the end where he lays out a few core principles around taking big bets, long-term innovation, and the key of focusing on customer value proposition. He writes:
“Albert Einstein is sometimes credited with describing compound interest as the eighth wonder of the world (‘He who understands it, earns it. He who doesn’t, pays it’). We think of iterative innovation in much the same way. Iterative innovation creates magic for customers. Constantly inventing and improving products for customers has a compounding effect on the customer experience, and in turn on a business’s prospects. Time is your friend when you are compounding gains. Amazon is a big company with some large businesses, but it’s still early days for us. We will continue to be insurgent—inventing in businesses that we’re in, in new businesses that we’ve yet to launch, and in new ideas that we haven’t even imagined yet. It remains Day 1.”
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What happens next?
This week, we published our Q1 2022 Investor Letter, which offers our perspective on the recent valuation reset. Gavin Baker, CIO of Boston-based Atreides Management, gave an interview this week with some of this own thoughts on this particular subject—and I highly recommend it. I’m a fan of Gavin’s thinking and I believe he articulates the current moment (and mood) quite well. “Here’s the big thing,” he says. “A lot of non-profitable tech companies with under $100 billion market capitalization just experienced a similar crash in valuations as we saw in the year 2000. But from a fundamental perspective, I don’t think the burst of the dotcom bubble has many parallels to what’s happening today.” He continues:
“At that time, after the bubble burst, the fundamentals of every tech company imploded, they missed their earnings numbers by thirty, forty or fifty percent. Many had significant year-over-year revenue declines, and then their stocks went down more… I do not believe that the fundamentals are going to crash in a similar way. In the year 2000, nobody knew which business models were going to work on the internet. The buildout in telecom equipment, data centers and software was not based on a consumption basis. It was built in anticipation of demand that took much longer than expected to materialize. In fact, we added so much telecom capacity that it took 15 years to absorb the amount of fiber and optical components we put in the ground. Every bank, every retailer and almost every other company was in a huge hurry to go online. They spent all this money to put up a website, but then they were like: ‘Wow! Why did I do that?’ Today, you don’t see that degree of overbuild or excess on the supply side, because it’s all sold on a consumption basis. I promise, if the big cloud hyperscalers stopped spending on CapEx, they would run out of capacity in twelve to eighteen months. It’s a very different environment.”
“It’s been clear for quite a while now that red America and blue America are becoming like two different countries claiming the same territory, with two different versions of the Constitution, economics, and American history. But Babel is not a story about tribalism; it’s a story about the fragmentation of everything. It’s about the shattering of all that had seemed solid, the scattering of people who had been a community. It’s a metaphor for what is happening not only between red and blue, but within the left and within the right, as well as within universities, companies, professional associations, museums, and even families.”
“Maintaining an edge in the investment management business is incredibly difficult. The potential for outsized financial rewards draws in innumerable participants and provides ample motivation for intense effort. Early signs of success are usually followed by a flood of capital that crowds out opportunities and drives up prices. Market environments change rapidly, making formerly useful strategies and techniques quickly obsolete. These forces make it very hard for anyone to generate compelling returns over long stretches of time.”
“So much of the Western world has now become a taxidermist’s dream of dead representations of living things. What percentage of our daily attention is now spent focused on a digital abstraction? Social media, streaming video, games, e-mail, chat applications. You can be a god-king of a lifeless metaverse. Or you can upload your consciousness into the cloud and ‘live’ forever.”
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