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(#47) Apple's secret behind its fantastic profit margins; Figma's strategy; OpenAI plays in Champions League, and Ferrari hybrid sales overtake traditional models
Netflix has 15 million subscribers with their ad-tier plan after one year.
Essay - The Magnificent 7: Navigating the extraordinary growth of titans
“In the modern digital era, where innovation meets capital, a group of titans have risen, asserting their dominance not just in their respective industries but in the global marketplace. 2023 was no ordinary year for the S&P 500, but amidst its constellation of companies, seven stars shone brighter than the rest. Apple, Microsoft, Amazon, Alphabet (the parent of Google), Nvidia, Tesla, and Meta – these are the Magnificent 7.” - Full Essay
On to the update:
Two main points:
1/ Apple’s Financial Year has ended with one surprise and three observations:
Productivity tools (Macs) are now equal to consumption devices (Ipads) and this trend will continue. It is clear that iPad’s software is limiting the device’s capabilities but nothing will change until next June, at least. LINK
On the Services part is worth mentioning which includes also the payment for Google which should be around $20 bn. The recent price increase led to a better profit margin
Talking of profit margins, here is their CFO - Luca Maestri.
“Products gross margin was 36.6%, up 120 basis points sequentially, also driven by leverage and mix, partially offset by foreign exchange. Services gross margin was 70.9%, up 40 basis points from last quarter due to a different mix.[...] And also, within a specific product category, a lot depends on the kind of models that we sell because they have different margin profiles. [...] And what that has accomplished is reduced the affordability threshold for our customers and therefore, they can, buy at the top of our product ranges. That has been a big factor in the reason for our margin expansion” - LINK
Translation: Apple is making a trade-off in offering the lowest price on low entries (iPhones with 128 GB storage, iPads with 64 GB storage, or Macs with 8GB of RAM), but it overprices every update to the maximum. Of course, most people buy upgraded products. Crazy, but it works.
2/ Apple’s double touch may hint a something new.
For those late in reading this newsletter is worth remembering that Apple’s strategy is NOT to be first with a product, but to wait and deliver a great product. The double tap was launched on the new Apple iWatch 9 but The Verge has a dedicated post on how this might play in the future with future gestures and the transition of these gestures to Vision Pro and other new products. Briefly, we are talking about a frictionless world. The Verge, Frictionless world.
The company is moving to the next level by organizing Developer’s Day and positioning itself like an established company, hence justifying its $86 billion valuation with $1bn in revenue. Crazy numbers! LINK
Here are the most important announcements:
1/ GPT-4V + TTS = AI Sports narrator
2/ Chat with the webcam using OpenAI’s vision APIs
3/ Doing low-fidelity mock-ups
4/ Works with PDFs…finally
5/ Combine web browsing with GPT
6/ [the most important] Building your specific GPT
…and more. LINK
Do yourself a favor and watch the entire presentation (‘45 min). LINK
P.S. It’s a disappointment that they did not release GPT 5, but only GPT 4 Turbo.
Briefly, Figma is renowned primarily for being a web-based vector graphics editor and prototyping tool. Its key features include integration with other tools and platforms, respectively community resources. BUT, in the end, the actual design happens in Adobe. So, unable to compete with Figma, Adobe proposed an acquisition of around $20 bn. The deal is still not finalized one year later and I am now starting to have doubts about it. It is easier for Figma to develop an Adobe competitor, than for Adobe to develop a Figma competitor, hence the acquisition. (ie. XD is a joke) LINK
One year into Netflix ads
I argued in March that Netflix can be free…with ads. LINK
Now, the company just ended their first year deploying the ad-tier and they reached 15 million users globally. Reminder: Netflix has 247m paying users.
So, this will happen: the prices for ad-free will remain the same or even decrease and the others will increase, and/or new plans will emerge? Why new plans? Well, customer segmentation. LINK
Chinese video games are becoming global players
No wonder that the only global apps came from China: TikTok, Shein, Temu, Lemon8. The same is true for games and is another proof that China is not only a manufacturing powerhouse, but also a software one too. Implications will be profound. LINK
Meta’s black hole
There are two labs to describe this black hole: Reality labs. Some people can’t get over that metaverse it’s now a word nobody wants to use in public and private.
“Finally, for Reality Labs, we expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts in augmented reality/virtual reality and our investments to further scale our ecosystem” - Meta’s report. Venture Beat, Earnings call
Chatbots have been found to exhibit hallucinations in their responses, with occurrences ranging from 3% to 27%. Vectara, a startup established by ex-Google staff, conducted research indicating this phenomenon's prevalence, as reported by the New York Times. Google’s Palm chat demonstrated a notably high hallucination rate at 27%. In comparison, Anthropic’s Claude 2 had an 8% rate, and OpenAI's technologies experienced a lower frequency of making up responses, at 3%. LINK
Google is experimenting with new generative AI features for YouTube. LINK
Interview with the OpenAI’s chief scientist - Ilya Sutskever. LINK
1/ Shift in focus to preventing rogue AI
2/ Belief in the possibility of conscious AI and AGI
3/ Impact and growth of AI technology
4/ AI Vision. He envisions a future where AI can solve major global challenges, like healthcare and climate change. Interestingly, he also speculates about a future where humans may choose to merge with AI, blending human and artificial intelligence.
Microsoft has a new AI study
1/ 71% of respondents say their companies are already using AI
2/ 92% of AI deployments are taking 12 months or less
3/ Organizations are realizing a return on their AI investments within 14 months
4/ For every $1 a company invests in AI, it is realizing an average return of $3.5X. LINK
There’s a new AI in town: Grok. Elon Musk unveiled its new AI that will reach X (ex-Twitter) premium users very soon. So. I guess all these companies deploying AI are climbing the same mountain but from different directions. LINK
The most impressive news from last week was that the US economy grew by 4,9% (LINK). This is surprising for many of us, taking into consideration the propaganda’s narrative, that is, that the USA is in decline and China is rising as a global power (LINK).
Unbelievable or not, the US GDP has the same weight in the global economy as in 1984, that is 25% (LINK)
1/ It's fascinating to see how resilient consumer spending has been, despite the challenges of rising interest rates.
2/ The growth data underscores the potential for continued economic strength, impacting long-term market trends and investment strategies.
3/ The US will continue to innovate to maintain this lead in 6 key areas: modular nuclear reactors, AI hardware, space & satellites, pharma, shale, and agriculture. (LINK)
4/ That is why, I don’t believe China will ever replace the USA as a global power, GDP and alike. (LINK)
India is the biggest market for WhatsApp, with over 500 million users. From here will probably come innovation. LINK
Inside Amazon’s strategy to redefine fast shipping, again. LINK
China is trying to ‘convince’ its youth to move to the countryside due to the lack of jobs in its cities. LINK
Om Malik has a compelling article arguing that the Social Internet is dead. I mostly agree with his take. LINK
The BCG M&A Report. LINK
Ferrari hybrid sales overtake traditional models. LINK
Amazon earned $1bn from a secret pricing algorithm says the FTC and now it might have some legal problems. LINK
LinkedIn hits 1 billion members and is now best positioned to make the next move: add AI features for job seekers. LINK
It’s good to be RyanAir. LINK
Why October and November are now tougher times for visiting Las Vegas. Hint! Formula 1. LINK
HBO boss admits using fake social media accounts to bash TV critics. LINK
Microsoft will have a new standard font across its apps: Aptos. LINK
How Telegram, a Russian messaging app, is being exploited by Hamas as a propaganda tool. LINK
A robot mimicking insect sound is saving the wineries. LINK
Why global olive oil prices are at their highest ever. LINK
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