This week, Amazon turns 30. What a ride it's been since the first book was delivered in 1994!

Its 30s look bright, but not without threats and challenges.

Opportunities

Ads

• Amazon’s advertising business is the third-largest in the world, behind Google and Meta. It represents only 8% of total revenue but is estimated to have gross margins of 40%, much higher than the slim margins of the retail business and even higher than AWS. It’s also the fastest growing segment.
• In January, Amazon Prime Video started showing ads to viewers in the US, UK, Canada, and Germany. It is estimated that only one in seven Prime users will upgrade to the more expensive ad-free tier.
  This leaves around 260 million Prime members as potential viewers of ads!
• To attract even more viewers, Amazon is signing multi-billion dollar deals with MrBeast, the NBA, and the NFL.

AWS (Amazon Web Services)

Since the Ai frenzy, it’s been a boom time for cloud computing. AWS's strength lies not only in its high-spending customer base but also in internal synergies. Thanks to AWS, Amazon can develop innovative Ai applications for its retail and ad business, giving it an even greater advantage over retail competitors.

Threats

Competition

Yes, even giants like Amazon have competition.

• Google, Meta, and more recently TikTok, are trying to break into the ecommerce business. The opportunity is huge, with one in five shoppers starting their purchase journey on social media, but only 7% completing it there. Statista estimates global social commerce to grow threefold from now to 2028!
• Walmart, the world’s largest retailer, is pushing its advertising business and exploring TV commerce with its recent acquisition of VIZIO.
• On the Ai front, Microsoft is clearly in the lead thanks to its partnership with OpenAI.

Regulatory Concerns

By bundling more services, Amazon might attract the attention of competition regulators.

Last year, America’s Federal Trade Commission (FTC) filed a lawsuit against it, although this had little impact on the share price or investor sentiment, for now.

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Looking forward to the next decade!

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Major record labels are suing Ai music companies Suno and Udio for copyright infringement.

Only last week, I posted a song on Linkedin I made with Suno, and in the comments, we were discussing this very topic. It was just a matter of time before lawsuits started.

It’s been a busy month for lawyers since also Perplexity, my favorite Ai search engine, was recently accused of “ripping off” others’ work without proper attribution or permission.

Nothing of this is new.

In the early 2000s, when music peer-to-peer sharing peaked, record labels sued everyone, from tech companies to end users. It seems it didn’t work out, and a new industry emerged: online music streaming.

I don't see how this time can be different.

At the end of the day, Ai doesn't do anything that a human couldn't also do.

To use Benedict Evans' words, Ai is just "infinite interns" at your disposal.

Even human musicians create music based on their experience and taste, developed after years of listening to and learning from others' music.

The new problem, though, is scale.

Thanks to Ai tools, it's now much easier and faster to create original music. This will inevitably have a significant impact on the music industry. But it's not about copyright; it's about the inflated music supply and competition. More songs on Spotify mean more people to share the revenue with.

Like everything else in the world of Ai, good quality work will remain and continue to be made by humans. However, low-quality work will easily be replaced.

I just read the news about a major label signing the "artist" behind "Looking for a Man in Finance." If signing viral 19-second sounds is labels' strategy for the future, then yes, I'm not surprised they're scared of Ai!

Sunday thoughts: what is “othering”?

Othering is when we identify other groups of people as not fitting in with our own group. It’s literally us and the “others”.

It's often used with a negative connotation of "us vs them". It can be about skin colour, nationality, gender orientation, religion, age, and more. For example, locals vs immigrants, white vs black, Christians vs Muslims, etc.

Although some forms of “othering” have always existed, for example the ones mentioned above, I now see there are newer, more subtle forms of “othering” that seriously concern me.

The conservative vs liberal debate is gaining momentum in Europe and the US reaching violent tipping points. This time it’s “us vs them” all within the “us”.

White American/European conservatives are violently infuriated against their liberal counterparts, and vice versa. What used to be just a political opinion is becoming a dangerous ideology that goes beyond the typical forms of "othering" described above.

A conservative American might get along with a conservative Eastern European, for example, although far in geography, culture and religion. Similarly, a young hard-right Gen Z will likely get along with a 90-year-old former fascist, despite having little else in common.

Both sides are going to extremes, claiming only they are right while everyone else is wrong. Social media is obviously a great catalyst for this.

I was reading some articles about this and how it impacts the world of work and business.

Customers, employees, and stakeholders are increasingly angry and expect companies to always take a side in political and social matters. It’s not possible to stay neutral or simply avoid the debate.

Disney faced trouble for staying silent regarding Florida’s “Don't Say Gay” bill in 2022. Coca-Cola and Delta Air Lines had similar problems for not promptly condemning Georgia's restrictive voting rights bills in 2021.

It’s not up to me to judge these companies’ actions, but one thing is certain: the debate is increasingly polarised, either-or, right or wrong, often reduced to a simple dichotomy instead of informed analysis. Also, the level of violence and outrage is rising.

How can companies, managers, and employees navigate all of this?
I wish I knew!

Sunday thoughts: are you an early bird or a night owl?

I certainly identify more with the latter category.

Today's work reality is that our days are often disrupted by short, yet frequent online calls and urgent requests from bosses, stakeholders and clients.
The only time to get actual work done is either early in the morning or late in the evening.

The issue is, to get work done before everyone else starts their day, typically around 8:30-9am, you'll need to wake up no later than 6am. However, you'll likely still need to remain online until at least 5pm. You’ll probably end up just working more hours.

To wake up that early, you need to be asleep by 10pm at the latest, which means you should be ready for bed by around 9.30pm. You’ll soon find out there’s not much time left after work!

Not to mention networking events or casual drinks with colleagues, which are very important for your career but often take place after 6pm.

Additionally, starting early might force you to hurry before the morning meetings kick in, keeping an eye on the clock in a race against time. This would certainly cause me anxiety!

Rather, I prefer to wait until everyone else leaves the office, allowing me to focus at my own pace, without needing to watch the clock. I feel relaxed and that's when I'm most creative. I've always found the best solutions to complex problems during these moments.

Also, if you start at 6am, you may end up working longer each day. However, if you start at a normal time, you have the choice to just occasionally stay late.

I recently discovered the Goldilocks principle.

This principle is derived from the children's tale "Goldilocks and the Three Bears". In the story, Goldilocks prefers porridge that is neither too hot nor too cold, but “just right”. This concept is even used in astronomy to describe Earth's ideal distance from the sun, which allows it to support life with its "just right" temperature.

This principle is also known as the "rule of three", where the third option is often the best. Think of SaaS pricing models for example, where out of three options, one is usually “recommended”.

So it's not about being an early bird or a night owl, but rather finding a balance in the middle, the third option.
I think we should stop celebrating the 5am club or be impressed by who stays in the office until midnight.

At the end of the day, ever wondered why most workplaces operate from 9 to 5?

What do Uber, Marriott, United Airlines, Chase and Walmart have in common? They're all launching the same new product: you! 😱

These companies use their customers' data to display personalised ads, essentially selling this information to advertisers.‍

Uber sells premium placements to restaurants advertising their menu on the Uber Eats app.‍

Marriott is planning to use its customers’ loyalty data to show personalised ads on its website and even on in-room TV screens.‍

United Airlines will do the same on in-flight seats screens.‍

Chase, the retail arm of JPMorgan, will leverage its customers’ spending behaviour to show personalised deals and discounts from third-party retailers and partners. Thanks to its credit cards, it can directly attribute a customer's purchase to a specific deal or ad. This is extremely valuable for advertisers, eager to prove their value to their bosses and shareholders. Commercial banks showing discounts and deals from retailers is nothing new. But the programmatic use of customers’ data is!‍

Walmart is building an enormous and extremely profitable ad business, catching up with its nemesis Amazon.

While advertising currently represents just roughly 0.5% of Walmart's revenue, it already accounts for 7.5% of its gross profit. It is estimated to contribute 13% of the profit by 2026. Unsurprisingly, selling ads has a much higher margin than physical products; especially when you already own the customers and the ad inventory!

The retail giant is building its ad business in three main areas:

1. Website and app.
   ‍Walmart displays ads from manufacturers and third-party sellers on its website and app. Purchases are directly tracked and easily attributed to ad clicks. The power of first-party environments!I
   n fact, Walmart appears to be doing a good job in delivering returns to advertisers. Typically, advertisers get about $6 in return for every ad dollar spent on Amazon or Instacart, compared to over $7 on Walmart ads.‍
2. Video and TV.
   In February 2024, Walmart acquired the TV manufacturer Vizio. The goal is to connect with potential customers on yet another device beyond desktops and smartphones. With the rise of “shoppable TV”, Walmart aims to own the full digital journey from discovery to purchase. It even coined the term “rom-commerce”! In the near future we’ll watch TV series stuffed with shoppable products and will buy directly from our remote.‍
3. Physical stores.
   Unlike Amazon, Walmart owns a billion square feet of physical retail space. This is the largest yet still relatively unexplored opportunity for advertising! In-store digital screens, audio announcements and product placements are excellent places to show ads. The challenge is ensuring a measurable return for advertisers. The solution appears to involve linking credit cards used for in-store purchases to users' online accounts, thereby merging the online and offline experiences.

With third-party cookies going away, the online advertising industry is re-shaping towards the use of first-party data. Retailers and consumer companies own a lot of first party data! Think of Chase with your credit card transaction history or Walmart with all your purchase preferences. It's only logical that they're now looking to monetise this data.

This new type of advertising is called retail media, when it involves retailers, or merchant media when it involves a broader range of businesses like the ones mentioned above.

Will the big tech companies lose relevance in the online ads market? Hard to tell, but one this is certain: this is the beginning of a whole new era in advertising!

Sunday thoughts 🤔

The demographic crisis is not as bad as it seems.

Hardly a day goes by without news about how the rich world is getting dangerously old. It is a fact. Fertility rate has fallen in almost every country of the OECD, dropping below 2.1 children per woman, the threshold to prevent a population from shrinking. Elon Musk even predicted the end of civilisation if the trend is not reversed.

The first good news is that this won’t happen since other countries are booming and the world’s total population has grown at a steady pace for at least the last 10 years.

The second good news is that the drop in fertility rate in the rich world and in the US in particular can be a good thing, at least for now.
Indeed, fertility is in serious decline only among <24 women.

In 1990 teenage pregnancies in the US accounted for one in eight births. By 2022 this had fallen to one in 25. In Britain and the EU they have fallen by 69% and 58% respectively. Meanwhile, fertility rate has increased among 30+ women. Teenage pregnancies often jeopardise a girl’s future, forcing her to drop out of school or settle in a low-skilled job just to make ends meet. They usually happen among the least educated women, who are usually the most financially vulnerable too. In turn, the kids’s future is also jeopardised.

Therefore, we should celebrate this data!

Problem is, 30+ women are still not having enough kids to cover for their younger counterparts.

But it might be too early to speak. The question is whether today’s teenagers who are not having babies now will eventually have some when they get older. Or maybe, they’re renouncing to pregnancy altogether?

Governments around the world are tackling the crisis with generous cash handouts and tax breaks for young families. However, as The Economist reports, this is not helping. For example, since year 2000 France has spent 3.5-4% of GDP a year on pro-natalist measures, the highest absolute amount in the OECD. Yet, in 2022 fewer babies were born than at any point since second world war. South Korea also spends billions yet its fertility rate keeps dropping.

This is likely because the handouts go to people who would have had kids anyway. On the other hand, financial incentives don't encourage teenagers to have kids when they don't want to. And this is good!

So we can only wait and see!

oh and there’s also something called immigration, which if well managed will solve all our problems :)

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Netflix doubled its number of ad-supported tier users in just three months!

The streaming giant revealed that it has amassed 40 million subscribers for its most affordable, ad-supported tier. This is almost twice the 23 million reported in January! 🚀

This once again demonstrates the importance of ads for the internet. People are indeed willing to see ads in exchange for a lower price when given the option.

Despite a late start in the advertising game, even acknowledged by CEO Reed Hastings, Netflix's ad business is now in full swing.

The streaming platform has now a total of 270 million subscribers, with 15% of them receiving ads. In comparison, Disney+ has 117.6 million subscribers, while Warner Bros. Discovery's streaming service has 99.6 million. Netflix is undoubtedly the king of streaming and was even dubbed the "gold standard" by its peers.

There’s more!

They announced plans to live stream two NFL games on Christmas day this year and to develop their own ad buying platform, ending their tech partnership with Microsoft. Ad inventory will be available either directly or through other programmatic platforms such as Google Display & Video 360.

Both are great news for advertisers!

A while back, I wrote about how user growth alone is not a strategy. It seems Netflix took note as they announced they will no longer share subscriber numbers. They claim it doesn't directly affect the company's bottom line. In fact, their business model has re-focused from mere user growth to a strong user monetisation through price differentiation and, indeed, advertising.

Once again, long live the ad-supported internet!

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Why are some companies more productive than others? It turns out, online advertising is among the top factors!

The National Bureau of Economic Research, an independent and nonpartisan research organisation, conducted a large-scale experiment on Meta Advertising last year. It involved 200,000 advertisers in the US running 700,000 campaigns.

Companies proficient in social ads tend to achieve a better return on ad spend and generate more revenue.

This leads to increased productivity for the business, which is typically measured as the revenue output divided by the number of hours worked or capital invested.

The experiment showed that:

• Overall, advertising significantly increased revenues.
  On average, each dollar spent on advertising generated $3.31 in revenue.
• Ad spending resulted in a 25% increase in the number of purchases, a 13% increase in the number of unique customers/purchasers, and a 73% increase in conversion events.
• Advertisers with more experience and those who frequently updated their campaigns achieved significantly higher returns.
• Historical ad spending was used as a proxy for experience. Advertisers with above-median historical ad spend generated over $3 for each dollar spent, compared to $1.50 for those below the median.
• Sophisticated advertisers achieved higher returns.
  They're defined as those using advanced data collection tools like Meta's Pixel and Conversions API.
• Experienced AND sophisticated advertisers are more likely to continue advertising, which in turn generates more revenue.
  Unsurprisingly, inexperienced advertisers tend to give up sooner, missing the opportunity to increase revenue over the medium to long term.

The better you are at online advertising, the more revenue you generate. This, in turn, allows for more advertising, which leads to even more revenue. It's a virtuous cycle! 🚀

Personally, I would add that companies can boost this virtuous cycle by investing in in-house resources as opposed to external agencies. I believe that in-house teams are more motivated to understand the context, learn from mistakes and improve their campaigns over time. But I’m happy to hear different opinions on this!

The study finally provides empirical evidence that experience, skills, and continuous learning in digital advertising do yield better returns!

ChatGPT-4o is very cool, but what do we need it for exactly?

Watching the latest OpenAI demos on ChatGPT-4o reminded me of an insightful essay by Benedict Evans.

He compares modern AI to the advent of personal computers in the 80s.

Computers were invented several years before but were not accessible to everyday people. This was not only due to the high cost, but also because it was unclear what everyday use they were designed for.

This changed when Dan Bricklin observed a professor using chalk to create a spreadsheet on a blackboard and realised that a software could accomplish the same task.

He developed VisiCalc, the predecessor of Excel, for the Apple II. When he demonstrated it to accountants, it blew their minds!

Although the Apple II was very expensive, $12k in today’s money, this specific use case was so strong that every accountant bought one. It could effectively save weeks of manual work.

ChatGPT, especially GPT-4o, can do a lot of things, almost anything really. But what can we use it for in practice?

The truth is that, apart from some experiments, we only use Ai for specific tasks. For instance, I used it to proofread the text of this post, create images for my blog, and analyse spreadsheets.

But contrary to what many demos suggest, I don't use AI for everyday tasks, like organising a vacation.

Benedict Evans suggests that we’ll embrace Ai as we embraced personal computers only when specialised apps will be built to solve specific problems. Like VisiCalc did for accountants.

Even today, laptops are nothing without the specialised apps that we run on them.

I would argue that OpenAi and others are already going in that direction, similar to Apple with proprietary apps like Safari for browsing or Garage Band for music. When you purchase a Mac, it already has native apps that can perform many of the tasks you would typically use a personal computer for.

Custom GPTs are the equivalent to native apps on a Mac. Indeed, I only started using ChatGPT regularly after custom GPTs were introduced.

Search is another strong everyday use case.

GPT-4o seems to be very good at it, but others like Perplexity are also gaining momentum.

The question is…

will OpenAI, or an equivalent, dominate the Ai app market, or will we see a rise of many small and large developers delivering their own solutions to specific problems, as happened with personal computers?

OpenAI is building a Preferred Publisher Program. It is a big deal!

Why?

It's now evident that OpenAi wants ChatGPT to become as integral to our daily lives as Google or Instagram.

But to achieve this, historical training data is not enough. It requires real-time data to ensure that responses are 100% accurate and useful in daily use contexts.

Where to get real time information?

OpenAI is initiating negotiations with top publishers and media companies to incorporate their content into ChatGPT. For instance, it recently secured a deal with the Financial Times.

In return for content, OpenAI will pay them either a fixed amount or a variable one depending on usage. More interestingly, it will also offer premium placements within the ChatGPT environment.

Placements will take the form of links or citations, with their prominence and look varying based on the agreement, I guess.

This is as if Google paid publishers to display their results!

While publishers did attempt to profit from Google, the model proved unsuccessful. Instead, the SEO industry was born!

I believe that also OpenAI will eventually stop paying for content. Instead, it will develop a system similar to SEO where the best publishers will gain more visibility on ChatGPT. Of course, this will work only when and if ChatGPT will finally be part of our daily lives like Google is.

This is exactly what OpenAi is aiming for.

It is especially clear if we look at the latest developments of GPT-4o, which acts as an everyday personal assistant. They even released a desktop app for Mac (not available for older models with Intel chips, like mine 😕 )

Ads are going to be the next step.

After securing partnerships with publishers, it will target advertisers. People will soon pay to be on ChatGPT!

OpenAI is growing up, from a tech darling to a real big tech!