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- Hacker News
- Basically all of Big Tech is betting it all on Red that this whole AI business pays off before they end up losing everything. And I get it, it would be unwise to stay behind and ignore what could very easily turn out to be humanity's greatest invention since pizza. But still, is there seriously no other way to go about it instead of collectively running head first, hands behind at a breakneck pace, while risking the complete collapse of ... well, everything? I suppose not, especially considering it's a technology with potentially massive military and social impact on a global scale, or even beyond that if we're being particularly delusional. Though one has to wonder who will end up paying the tab, and I think that we all know the answer to that.by dev0p
- I've been seeing quite a few companies juicing short term margins and quarter to quarter maxxing even more than before, one such example:
https://x.com/MaxAnderson/status/2080229375773941871 https://xcancel.com/MaxAnderson/status/2080229375773941871 --- As someone who has personally spent $500k / mo+ on Google Ads for years, I can tell you with certainty:
This revenue growth in Search is artificial & extremely unhealthy for Google’s business long term
Search volumes are declining as legacy search is being increasingly cannibalized by non-monetized LLM queries
Google’s response?
Manufacture revenue growth via short-sighted, highly extractive, customer-hostile tactics. I.e. charge advertisers more for lower quality clicks, including clicks they do not want and explicitly did not approve Google to charge them for
A few examples to illustrate:
For all of its history until recently, Google operated on a 2nd price auction model
I.e. if you bid $5 CPC and the next highest bidder bids $1 CPC, Google charged you $1.01 for the click (one penny more than the 2nd highest bidder) rather than the $5 you bid
This was a genius move by Google early on as it incentivizes advertisers to input their true maximum willingness to pay rather than trying to play the game of bidding low and constantly adjusting to try to stay just ahead of the next highest bidder while still not paying too much
However recently, Google silently deprecated the 2nd price auction and began charging advertisers as much as their bid and budget caps allow, regardless of what anyone else is bidding
It’s a short-sighted cash grab at the expense of the long term health of the advertiser ecosystem
Making thing worse, Google also recently nerfed keyword targeting precision
Google previously had precise keyword targeting settings that allowed advertisers pick individual search phrases to bid on, defined down to the character w/ exact match or phrase match targeting
This was one of the core features that made search advertising magic, enabling advertisers to run extremely precise campaigns based on exactly what their target customer typed
But now, even if you bid on a specific term or phrase using the strictest exact -match targeting settings, Google will show your ad across 1000’s of unrelated keywords, labeling them as as “exact match (close variant)”
The definition of “close variant” means whatever they want it to and changes constantly. The result is advertisers get billed for clicks that are totally irrelevant to their business and that their targeting settings explicitly forbid Google from targeting. Google does it anyway and there’s no ability to turn this off
So now exact match is broad match, and broad match is just meaningless spam
This is all very bad for advertisers, but for Google, it allows them to show your ad and bill you for clicks across 1000x more searches that were previously going unmonetized (mainly because they’re garbage queries no one wants)
This is how you grow revenue atop declining search volumes
Lastly, and perhaps most egregiously, Google quietly stopped respecting budget caps by a factor of 2x. For example campaigns we’ve been running for years with $1000 daily budget caps suddenly began spending $2000+ per day
And the extra spend is entirely on the garbage keywords Google arbitrarily throws in as “exact match (close variants)” which have no value to our business, but can’t be turned off
Google offers no refunds nor any recourse for overspend or spend on keywords you explicitly did not target
These are not the actions of a healthy business. These are the actions of company whose core business is in decline but desperately needs to pump quarterly earnings so Wall Street will continue to fund insane capex while hopefully looking through their rapidly deteriorating negative free cash flow
Google operated a benevolent monopoly for the better part of 25 yrs
Meaning the value Google captured from Search was but a small fraction of the value it created, and that spread produced a potential energy that justified expectations of high earnings growth far, far into the future
This is now no longer the case
At the alter of AI capex, Google is sacrificing the golden goose
by 650 - Curious how you are responding to this? Are there viable alternatives you are moving budget to or are you just hostage to their new tactics?by padjo
- > “exact match (close variant)”
I have to laugh to keep from crying.
by ambicapter - Thanks for this informative post. Many have been puzzled as to why Google keeps claiming search isn't affected by chat apps, when clearly it is.by khurs
- > Lastly, and perhaps most egregiously, Google quietly stopped respecting budget caps by a factor of 2x. For example campaigns we’ve been running for years with $1000 daily budget caps suddenly began spending $2000+ per day
When I worked on Google Ads (I left in 2020), I remember this one tripping a lot of people. As I remember it, the limit for a single day is indeed 2x daily budget, but over a month it will average to it. This is supposed to give more flexibility to the auto bidder.
by strongpigeon - Only google serves its own model - increasing its cloud revenue. The growth chart shows linear increase over time, indicating exponential growth if cloud revenue for google.by ghoshbishakh
- meta does too?by dominotw
- Meta, Microsoft, Amazon also serve their own models, though these models are not frontier models.by tristanj
- Why does it raise alarm? Pretty sure all this spending was planned.
- thats how i justify my vacation spendingby dominotw
- Serious investors look at balance sheets, less then what CEOs say. Elon Musk -- as an example-- says all kinds of things that don't really happen. Mark Zuckerberg is arguably less grandiose. When FB changed their name to Meta, said they were committed to the metaverse the stock didn't dump. When the really big investments in consumer VR hit Meta's balance sheet, there was a big drop.
Think of it as the difference between the waiter describing dishes with ingredients you don't really understand (or maybe even taste) vs presenting the bill for the meal.
- I'm pretty sure they didn't plan to just spend cash without any return. It raises an alarm because there is no end in sight for the money burningby gonzalohm
- Haven't they announced the spending like, years ago? Is the market deaf and blind now too?by seydor
- They raised their forecast a bit:
> The search giant now expects to spend between $195 billion and $205 billion in capital expenditures, its finance chief Anat Ashkenazi said on a conference call with analysts. The company said last quarter that it planned to spend between $180 billion and $190 billion this year.
by skybrian - These alarms have been going off for a long time now. Everyone is already in too deep to admit that there’s a problem.by paxys
- I see eventuality here as job cuts or salary cuts.
Don't think that day is far when "software people" are paid as if they were taxi drivers.
by ignoramous - What problem? What alarms?
I see everyone around me doing way more work, of way more depth, than they ever did before using AI models. I see my company and friends of mine all paying large sums of money to Anthropic, Google, OpenAI to use AI models, and do more work than we did before.
So Google is investing in infrastructure which is HIGHLY in demand, there is much more demand than supply, and then they are making money from this infrastructure...
That's a good thing for Google, and as an investor in Google, I am glad they are making these investments.
by saberience - The top will be when Jim Cramer loudly proclaims there is no problem at Oracle and gives a buy rating.by toomuchtodo
- Sergey Brin said he would rather Google go bankrupt instead of losing the AI race. That is where the bar was set.by sleepyguy
- What would be the best thing to do with ones investments considering these alarms?
Say you had some money in cash rn, what should one do? Wait for a crash and buy stuff up cheap? Put it in some safe category?
This stuff is stressing me out and I do believe it's gonna come crashing down sooner or later, but I don't know enough about investments to know how to best come out unscathed.
by vrganj - > Everyone is in too deep to now admit that there’s a problem
I'm not sure how to square this with the dramatic improvement in LLM capabilities in the last 8-9 months. If anything, it makes the earlier investments look prescient?
- Cannot hear what you’re saying with all those alarms blaring non stop since a year. Someone should do something about them, maybe turn them off, I don’t knowby dgellow
- The alarms in this case are that the profits and margins won’t be as high as we’ve come to expect from cloud companies.
Other than Oracle’s questionable spending spree, these big tech companies are still in very good financial positions. The enormous R&D and infrastructure spends are just feeling unusual to investors who got comparable with the unusually high margins and low costs for SaaS companies. Now they have to put a lot of that money back into the business like more normal companies.
by Aurornis - All these big tech companies are fighting over the basics eventually like power and transformers and don't like to do anything dirty that would hurt their ESG score like getting into any sort of industrial business. Thus, the default is all that stuff that heavily bottlenecks American AI gets done in China.
If you listen to Tesla's recent conference call they are going to making solar panels all the way back to making the silicon ingots and totally vertically integrate. Elon lamented on a previous call that nobody wants to get involved in these primary industries and he has to do it all himself unless he puts his whole supply chain in China. For example, Tesla recently opened a state of the art lithium refinery in Texas cause nobody outside of China does that anymore. He's opening a new fab, because everyone else is too hesitant to expand to meet the capacity he needs.
by narrator - They just raised $85 billion and they're sitting on a mountain of cash - if their spending didn't increase in this context, it'd be bad management. The real story here is that they have decided to spend that mountain of cash on AI CapEx.by Centigonal
- That $85 billion was bonds, and requires ongoing repayments of billions every year in interest payments
And then the $85bn to be repaid too.
by khurs - i dont understand the concern. they are putting up great financials. you have to invest ahead of the outcome. this is just classic quarterly public company earnings BS, where public markets dont reward innovation investment. they just want crank the handle financials.
The bigger issue is on the model front, can Google compete; Gemini doesnt seem to be able to compete on the heavy expert end; they are doing well on lighter faster models.
by gavin_gee - > you have to invest ahead of the outcome
> this is just classic quarterly public company earnings BS, where public markets dont reward innovation investment
Genuine question; but aren't these treating stocks as speculative and on vibes? One can say that these comments could be true for the first signs of cracking of dot com bubble. Sure, Web eventually succeeded but many tech giants from dot com era (AOL/Yahoo and so many more) eventually went to dust for spending too much time on the innovative bandwagon.
During the Dot-com bubble really tried to give this example but IIRC there were companies like pets.com who lost 2$ for every 1$ of sale so how a company treats its financials do matter a lot.
The market doesn't seem to reward innovation sometimes because there have been times the first persons to innovative have actually really failed to capitalize on that innovation and many extremely innovative businesses like Airlines (We can literally fly speak of innovation!) have been terrible businesses investment-wise generally speaking.
- I've given up on Gemini. It sounds smart but most of what it tells me ends up being wrong or misleading. I might actually hand $20/mo to OpenAI. It's been far more helpful with the random collection of legal and health problems I've thrown at it. My recent comment history is going to make me come across like a shill for them but, holy crap, GPT has been doing amazing things for me at work as well.
I don't get it either... Google has so much talent yet they just can't seem to get it right.
by 01100011