The Future of Computing? Big Tech Earnings and the State of Digital Q3 2024 (Thinks Out Loud Episode 439)

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MidJourney generated image of a young woman wearing stylized smart glasses to illustrate the idea of AI-powered augmented reality as the future of computing

It’s time for Big Tech’s earnings once again. And, this time around there were some notable updates, particularly from Meta Platforms (i.e., Facebook) and Microsoft that hint at the future of computing — and, more importantly, the future of your customers’ digital experience.

Meta, in particular, shared a compelling vision of where they’re looking to go as a company, not only for the next few quarters, but for the decade ahead. I’m not convinced they’ll succeed. But I’m impressed by the clarity of vision Mark Zuckerberg and Susan Li expressed.

Microsoft, by contrast, has an entirely different approach to the market focused on enterprise vs. consumers. Two different visions, clearly expressed, and clearly focused on the future.

How will the future of computing shape your customers’ behaviors going forward? And, most importantly, what do these visions mean for your brand and business? That’s what this episode of Thinks Out Loud is all about.

Want to learn more? Here are the show notes for you.

The Future of Computing? Big Tech Earnings and the State of Digital Q3 2024 (Thinks Out Loud Episode 439) — Headlines and Show Notes

Show Notes and Links

You might also enjoy this webinar I recently participated in with Miles Partnership that looked at "The Power of Generative AI and ChatGPT: What It Means for Tourism & Hospitality" here:

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Transcript: The Future of Computing? Big Tech Earnings and the State of Digital Q3 2024

Welcome to Thinks Out Loud, your source for all the digital expertise your business needs. Well hello again everybody and welcome back to Thinks Out Loud, your source for all the digital expertise your business needs. My name is Tim Peter. This is episode 439 of the Big Show, and thank you so much for tuning in. I think we have a really cool episode for you this week.

As you know, every quarter I like to look at Big Tech’s earnings and try to understand what those earnings calls tell us about the state of digital. Where are we? And where does big tech see us going? And if you remember last quarter, it was kind of, not that much had changed. There wasn’t a lot to report in terms of, “Oh man, there’s something really, really cool coming down the road.” Or something that we really need to be aware of that will shape our customers experience and shape how we market to them.

And then this quarter happened.

And I want to be fair, there wasn’t anything where you went, “Oh my gosh, this was unbelievable.”

But Mark Zuckerberg and Facebook/Meta Platforms, a company that I probably give short shrift to far too often around here, really went into detail on something fascinating to me, where he talked about the company’s, and this is a quote, “long term vision around AI and the future of computing.”

Which, when, when one of the big tech leaders stands up and says, “this is the future of computing,” I think as marketers, it’s a good idea for us to sit up and take notice and say, “Wait a second. Is that something we should be paying attention to? Is that something that might change the way our customers interact with our brands and our businesses over time?”

So, while not much has changed in practice over the last quarter, Mark Zuckerberg and Meta CFO Susan Lee’s remarks painted a fascinating view of where they think we are, what the future will be, where they think the next computing platform will be.

And here’s the vision as I understand it. Zuckerberg and meta by extension believes we will live in a different world in the not too distant future. That world won’t be dominated by phones as it is today. Instead, it will be dominated by smart glasses providing us information visually and audibly. More through augmented reality than virtual reality. Screens you wear on your face or your wrist will replace the screens you carry in your pocket.

This is their vision. And you’ve heard me say, I’ve been not necessarily skeptical about augmented reality, but certainly skeptical around virtual reality. And the fact that I don’t think that that’s a real long term winner. At the same time, they’ve got a very clear vision here, and I think it’s really worth talking about.

So they, they’re talking about augmented reality. And that these augmented reality experiences will be powered, in large part, by artificial intelligence. They see that these experiences will also be mediated through AI agents. So, you know, you’ll be wearing a pair of smart glasses. You’ll be walking down the street. You’ll be looking around and be given information about, oh, here’s a store, here’s a restaurant you might like. And you can interact with that to say, “you know what, hey, agent, go ahead and make me a reservation at that restaurant for next week.” And it will just take care of it for you.

They also think that advertising will be a core component of the content and the agent experience consumers receive. So we’ve got, we’re wearing smart glasses or smart devices of some kind that provide us augmented reality experiences powered in large part by artificial intelligence mediated through AI agents with advertising at its core.

Now the reason I find this so fascinating is because Meta is positioning itself to provide the smart glasses. It already has a partnership with Ray-Ban today where those glasses exist. It will provide the content recommendations, if not the content itself. It will provide the ads. And it will provide the agents used by both consumers and the businesses they interact with.

And because gatekeeper’s gonna gate, Meta stands to monetize as many of these interactions as possible. They intend to monetize as many of these interactions as possible. They’ll be selling the physical devices, whether they’re smart glasses, or smart earbuds, or some other form. They’ll be selling the ads. They’ll be selling, or otherwise monetizing, the agents that businesses use to support customers. And they might be taking a share of apps or other upgrades customers use to personalize their devices and make them more useful in their lives.

Now, any of that could fail. Starting with, of course, we have no idea if consumers want to be walking around wearing smart devices that are either flashing things in front of their faces or talking to them in their ears all the time. What’s also true is this is a remarkably complete and compelling vision of the future.

It’s also a playbook we’ve seen before. Specifically from Apple with smartphones, and as my good friend Mike Moran pointed out to me when we were talking about this, with the iPod prior to that. I’m going to be honest. Up until this earnings call, I used to think that Zuckerberg’s metaverse obsession was solely a defensive play. As you are undoubtedly aware, when Apple launched App Tracking Transparency a few years back, it cost Facebook roughly $10 billion in revenue in just the first year.

It made sense to me that Zuckerberg would want to reduce his company’s dependency on other big tech companies’ platforms, primarily Apple. But certainly on Google with Android as well.

At the same time, what he’s now articulating is a much more robust business rationale beyond just a defensive posture. In fact, Meta’s remarks, Zuckerberg’s remarks, and Susan Li’s remarks illustrate perfectly why I do these recaps in the first place. They’re not just telling us what they think might happen, they’re telling us how much time and money and human capital they’re investing to make it happen. Mark Zuckerberg literally is betting his company on a future he wants to make happen.

They had over $24 billion in capital expenditures this year to date, which is up from $20 billion in the same period last year. Their average R&D spend over the last four quarters has been fully 27% of the company’s revenue. More than a quarter, more than one in four dollars. That’s incredible. And that’s why we pay attention, that’s why we should pay attention to what folks like Mark Zuckerberg, and Satya Nadella, and Sundar Pichai say about their businesses.

Before you think any of this sounds crazy, because it’s easy to look at this and go, “Well, yeah, cool idea, but it will never work.” It doesn’t have to work completely.

I mentioned that this is a similar playbook to what Apple did with the iPhone and the iPod. iOS runs on roughly one in six smartphones in the world. But Apple’s services division generated roughly $26 billion in revenue this past quarter and about $96 billion in Apple’s just ended fiscal year, and about $71 billion in revenue. Services were roughly 25% of Apple’s total revenues and roughly 39% of Apple’s earnings in the last year. Almost 40% of their earnings come from services.

Now let’s contrast that with Meta, with Facebook, right? Meta has made $156 billion in revenue in the last four quarters and $62.4 billion in profit. In other words, Apple’s services division alone has made 60% as much revenue and 114% as much profit as Meta/Facebook does in total.

Even if you subtract the roughly 20 billion Google pays Apple to be the default search on iOS. Apple is still making a third of Meta’s revenues and 80% of Meta’s profits just from services.

Moving in this direction would help Meta diversify away from advertising, which is a much more volatile business and frankly the biggest strategic threat they have if consumers stop using Instagram to the same level that they do or stop using Facebook to the same level that they do — which there’s some evidence of — they stand to lose a ton of money. But if they can get people using the next computing platform, even if it takes five years, they’ve set themselves up for long term success as a much more interesting and much more robust company.

Those all seem like compelling reasons for Meta to want to win in the next device category. To define the future of computing.

Again, there’s no guarantee that they’ll succeed. Overall adoption of devices like smart glasses and VR headsets is still pretty low. I’ll believe people will trade their handheld devices for wearable devices when I see numbers suggesting a bigger trend in that direction. I have never been overly blown away by the concept. Even as somebody who’s generally interested in the idea, I mean, I’d love to have a hands free device. I also don’t want to make the “focus group of one error” and confuse my interest with overall consumer interest. At the same time — and I realize I’m kind of tying myself in knots here — smartphones also didn’t go anywhere for a while. You know, until they did.

So when Mark Zuckerberg is talking about the future of computing, he may be on to something here. I don’t think it’s going to happen right away. I don’t think it’s going to happen tomorrow. But they are setting themselves up for success with a very clear vision that could change the way our customers interact with our brands and with our businesses over the long term.

Now as we think about the future of computing, as we think about the future of how that might affect customers, I wanted to point out one other bit from the earnings calls this time that I thought was really interesting. And this one’s, again, a little less fully baked than some other things we might talk about here.

There’s a reason I call the show Thinks Out Loud. It doesn’t mean Knows Out Loud. I’m not 100 percent sure. But I have often felt that Microsoft has one of the most compelling strategies around artificial intelligence and around the way they’re bringing their products to market. And in many ways they do. In many ways they are setting themselves up to be a pick and shovels company in an AI boom, in an AI gold rush, right? Very smart play.

They may not be a platform that consumers turn to very often, though. And one of the reasons is because they always fall back to wanting to be an infrastructure company.

And we’re seeing this a little bit, where their relationship with OpenAI may turn out to be a long term, not negative, but not the positive I once thought it was.

For a long time, I assumed that Microsoft outsourced the risk associated with AI while still being in a position to benefit from the upsides.

That might be wrong. Instead, it seems that OpenAI can break the deal if and when they develop AGI. As somebody I follow on Twitter said, what’s to prevent OpenAI from simply declaring that the next version of GPT, whether it’s called GPT 4 Ultra or GPT 5 or what have you, is AGI and just exiting the deal?

I mean, it would lead to lawsuits, but theoretically they could do it. There’s also plenty of smoke, if no fire yet, that suggests the relationship isn’t quite as sunshine and rainbows as it had been, say, a year ago. I’m going to link in the show notes to Ben Thompson’s outstanding Microsoft earnings recap, um, for more details on that topic.

The short story is Microsoft is already discussing incorporating Anthropic’s Claude, and Google’s Gemini into its existing platforms and products. They talked about this on the earnings call. Satya Nadella talked about giving their customers, who generally are enterprise customers, building artificial intelligence tools on things like Microsoft Azure Cloud Platform. Because they’re starting to realize, “hey, that’s what we do. We provide the foundation layer, and then let customers use whatever they want.” Whether it’s OpenAI, whether it’s ChatGPT, excuse me, GPT 4 or GPT 4o. Whether it’s Claude, whether it’s Gemini, they don’t really care as long as you’re using their platform.

I want to be really fair. I’m skeptical that AGI is on the immediate horizon. That is a pure gut feeling, and I could be super wrong about it. But there is some early data that seems to suggest that you can’t simply scale large language models to a full artificial general intelligence. I also have to be completely honest about this for people who listen to the show to get deep insights.

What artificial general intelligence, AGI, will look like and when it may arrive is way above my pay grade. I have a pretty good feel for consumer products. I spend my days thinking about how customers adopt and use technology products. When I say consumer products, I also mean B2B, how B2B customers think about products.

It does not necessarily make me terribly expert at identifying core foundational technological breakthroughs before they make it to customers. In fact, my gut instinct might be worse than others because it’s so far outside my day to day experience. In other words, I’m mostly guessing here when we talk about AGI, so take any guesstimates then for what they’re worth.

What I will say is you can see from Microsoft’s behaviors and how they’re thinking about artificial intelligence that they really do like being a picks and shovels company. They really do. Thrive in that world and they’re beginning to realize that being dependent upon solely open AI as their core AI offering probably doesn’t benefit them in the long run. That’s almost certainly why you’re seeing them make the shift and say, you know what, we’re going to stick, we’re going to skip back to the thing that we do best and do well always.

So, I do think it’s interesting to see these two very, very different visions of the future when we look at Facebook and when we look at Microsoft. Where Facebook is saying, “we want to define the future of computing. We want to define the future of how customers will interact with artificial intelligence in the long run. And of course, we want to monetize that every single step of the way.” And Microsoft is saying, “we want to be the foundation on which every enterprise in the world puts artificial intelligence to work, regardless of what that artificial intelligence is, regardless of which artificial intelligence tool they choose to use to drive the experiences that their customers are looking for.”

So, very, very, very different visions for the future of computing and for the future of where these companies are going.

Now, you’ll notice I haven’t really talked about the other big tech firms. I haven’t talked about, you know Amazon. I haven’t talked about Google. I haven’t talked about Apple. I will, possibly next week’s episode, certainly a couple weeks down the road for sure, because Google in particular I think is doing some fun stuff that we need to be aware, and I think we need to talk about some of their competition’s interesting stuff that we need to be aware.

The one thing I will say is that, as you might have mentioned, they all had amazing quarters, they all made a ton of money, they’re all talking about a whole host of cool things, and of course, we will dive into those in more detail as we go forward.

The big takeaway for this time, though, is both Microsoft and Facebook have provided two They have provided two different, compelling visions for the future of computing. They have provided two different, compelling visions for how customers are going to interact with artificial intelligence. And they’ve provided a roadmap that we can be thinking about in terms of saying, what do we want to do to engage with our customers as the computing world changes around us, as the way that they interact with us on digital channels will move around us.

It’s something we’re going to watch really closely, and I do encourage you to keep tuning in to learn more about how you can do that for your brand and business.

Show Wrap-Up and Credits

Now, looking at the clock on the wall, we are out of time for this week.

And I want to remind you again that you can find the show notes for this episode. As well as an archive of all past episodes by going to timpeter.com/podcast. Again, that’s timpeter.com/podcast. Just look for episode 439.

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Show Outro

Finally, and I know I say this a lot, I want you to know how thrilled I am that you keep listening to what we do here. It means so much to me. You are the reason we do this show. You’re the reason that Thinks Out Loud happens every single week.

So please, keep your messages coming on LinkedIn. Keep hitting me up on Twitter, sending things via email. I love getting a chance to talk with you, to hear what’s going on in your world, and to learn how we can do a better job building on the types of information and insights and content and community that work for you and work for your business.

So with all that said, I hope you have a fantastic rest of your day, I hope you have a wonderful week ahead, and I will look forward to speaking with you here on Thinks Out Loud next time. Until then, please be well, be safe, and as always, take care, everybody.

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