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Marcus Johnson (00:00):

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(00:23):

Hey gang, it's Monday, August 11th. Minda, Jasmine and listeners, welcome to Behind the Numbers: an EMARKETER Video Podcast made possible by Awin. I'm Marcus, and joining me today we have two folks who both cover social media for us. We have our senior analyst based in New York, it's Minda Smiley.

Minda Smiley (00:38):

Hey, Marcus.

Marcus Johnson (00:39):

Hello there. And we have VP and principal analyst living in LA., it's Jasmine Enberg.

Jasmine Enberg (00:44):

Hey, Marcus. Hey, everyone.

Marcus Johnson (00:46):

Hello there. Today's fact. Pittsburgh, hello?

Minda Smiley (00:56):

Yes, I was hoping you didn't forget about this.

Marcus Johnson (00:59):

I was hoping that I got it right and you were actually from there. I thought you were.

Minda Smiley (01:02):

Yes.

Marcus Johnson (01:04):

So I normally have a fact about Finland because Jasmine makes me. She's from there.

Jasmine Enberg (01:08):

You haven't had one in a long time.

Marcus Johnson (01:12):

I ran out... Yes, I have. Yes, it's probably true, but I ran out of breath because I ran out. They're difficult. But Minda was like, "What the hell, Johnson? Can I get some love for Pittsburgh?" So here we go. Pittsburgh has how many bridges?

Minda Smiley (01:28):

I had a bad feeling it was going to be a bridge question and I'm not great at bridge trivia.

Marcus Johnson (01:35):

You're welcome.

Jasmine Enberg (01:35):

How did you know it was going to be a bridge question?

Minda Smiley (01:36):

Well, we're kind of the city of bridges. I don't know if we're actually known as that.

Marcus Johnson (01:40):

I didn't know this.

Minda Smiley (01:40):

But that's what we call ourselves.

Jasmine Enberg (01:45):

I had no idea.

Marcus Johnson (01:45):

Me neither.

Minda Smiley (01:45):

We have a lot of bridges, especially yellow ones. I don't know. I'm going to guess 70.

Marcus Johnson (01:54):

That's a reasonable guess, because for your city to have this many bridges boggles my mind, 446 bridges.

Minda Smiley (02:06):

So they're counting every single bridge.

Marcus Johnson (02:09):

All the bridges. More-

Minda Smiley (02:10):

Because there are some pretty iconic ones that you see them in pictures and there's these really small ones that I guess they're also counting in this tally.

Marcus Johnson (02:18):

They have to be.

Jasmine Enberg (02:18):

Are there a lot of rivers or lakes or why do you need so many bridges?

Minda Smiley (02:22):

Yeah, we actually have three rivers that converge, I believe, in the middle of the city. So yeah, there actually is a lot of water for it being a very landlocked city.

Marcus Johnson (02:33):

This is too many, though. You have more bridges than any other U.S.city.

Minda Smiley (02:39):

That's more than I would've even thought.

Marcus Johnson (02:42):

Well, you have even more than Venice, land of the canal.

Jasmine Enberg (02:46):

Wow.

Marcus Johnson (02:47):

Too many bridges, Pittsburgh. At this point, you should just combine them into one big super bridge, just a platform that covers all rivers.

Minda Smiley (02:55):

A lot of them are really old and kind of scary to be honest, but they're there.

Marcus Johnson (03:00):

Oh, okay. I was this close to coming to Pittsburgh. Not anymore.

Jasmine Enberg (03:03):

Now he's just redesigning the city.

Marcus Johnson (03:04):

Yeah, exactly. You're welcome Pittsburgh. Anyway. Today's real topic, is Meta poised to overtake the pack in the AI race?

(03:18):

Back in June, Mark Zuckerberg announced a new Superintelligence Labs unit at Meta to be led by former Scale AI, CEO, Alexander Wang as chief AI officer and former GitHub, CEO, Nat Friedman, who will lead the AI product side of things. As Meghan Bobrowsky of The Journal explains, the new unit brings together Meta's fundamental AI research team, the Llama models group, the AI products family, and the new lab focused on developing next-gen models. Minda, what do you make of Meta's Superintelligence Labs unit?

Minda Smiley (03:55):

I do have a lot of thoughts on it. I would say, generally, I'm somewhat skeptical of where they're going with this, and I have some skepticism for a few reasons. I think, on the one hand, there doesn't even seem to be a broad consensus in terms of what superintelligence is even among AI experts I think. As it stands now at least, I think it's still a pretty abstract concept. And so, to see Zuckerberg hang his hat on this is a little bit odd to me, especially considering that I would say Meta is a little bit behind in the AI race. They're not really considered a leader right now. And then, for them to come out with such a broad ambition around superintelligence did strike me as a bit odd. I won't say I'm surprised by it. He did something similar with the Metaverse. I feel like he likes to come out with a big vision, but this one I do have some skepticism around how it's going to play out. There's still a lot of questions.

Marcus Johnson (04:54):

The name maybe doesn't fit the goals, the objectives of Meta, at least at this stage, the five areas of AI the message said they're focusing on is advertising, social media content, online commerce, Meta AI assistant and devices and smart glasses. And Ms. Bobrowsky of the piece was saying that Mr. Zuckerberg had recently painted a vision of the future where people have AI friends, create ad concepts from scratch with AI and talk to AI business agents when they need to speak to a merchant. You don't need sentient AI to get to that, but maybe this is a name for the future, Jasmine.

Jasmine Enberg (05:34):

And I think recently the big takeaway for me in terms of Meta's superintelligence ambitions is it's very expensive. But I do think the good news is, based on Meta's earnings is that you can spend a lot of money on AI without a completely clear vision of what it's going to look like as long as your core business is doing well. And, of course, Meta's is. And that doesn't mean that Meta isn't going to get tough questions, particularly from investors, especially because the costs for superintelligence are going to continue to rise in 2026. I do think to Minda's point about there not necessarily being a why they're doing this and spending all this time and money and resources on it, Zuckerberg has started to try and lay out his vision a little bit. So just before earnings, he released a blog post and a video talking about what he's calling personal superintelligence.

(06:31):

And the distinction there is that he's setting it apart from some of what the other AI companies are doing, saying it's less focused on improving productivity and output and more focused on all of the things that that more free time can provide, like connections and creativity. And I think that kind of positioning makes a lot of sense given that Meta is, at its core, a social media platform and its original purpose, of course, was to connect people. And we are seeing that more people are turning to AI for personal reasons like therapy or companionship rather than work-related purposes. And speaking of the Metaverse, I think this is a really good example of how Meta, outside of advertising, really hasn't been able to position its other products to enterprises.

(07:23):

Obviously, a lot of companies are spending a ton of money. The race is on to AI, but the end goal is still undefined. And I am a little bit concerned about what... Or I would say a lot concerned actually about what this means for people in society more broadly, especially as it comes, as you pointed out Marcus, not too long after Zuckerberg was talking about AI friends and how we can start to fill the void that people feel for not having enough friends with AI chatbots that, not coincidentally, he is developing, right? But I think from a purely business perspective, this was a smart move and a good way to start to position superintelligence as something that's more about personal empowerment than productivity because connections and creativity is what Meta is good at.

Marcus Johnson (08:14):

This did feel like a bit of a rebrand because Meta does feel like it's behind in the AI race. The company released latest version of its Llama model earlier this year, not a ton of excitement around that. They delayed the launch of a bigger version of the model as well. We touched on the metaverse piece of this. How much of this announcement is trying to distract from the fact that they renamed themselves the Metaverse? It seems like a long time ago, it was four years ago, 2021. They lost $4.5 billion in Q2 alone, Reality Labs division, and they're on pace to lose over 16 billion for the year. Should we be ignoring that piece now even though the company renamed themselves after the metaverse?

Minda Smiley (08:56):

I don't necessarily think we should be ignoring it, but I think from at least a marketing and branding perspective of Meta as a company is really trying to position itself as a leader within AI. Yes, it still has its wearable division that Zuckerberg, he still talks about quite a bit and whatnot, but I do think they're clearly trying to come out and make sure they're seen as a leader in AI. But the Metaverse is still happening in the background from what I can tell, but just not to the extent it was maybe two, three years ago. Although yes, they have changed their name to Meta, so I don't think that'll be changing.

Jasmine Enberg (09:33):

And from the investor perspective, I think they're willing to look the other way with all the losses at Reality Labs because the core business is doing so well. And I think that's the key point here. If the core business starts to show signs of weakness, then they are likely going to be a lot less patient.

Minda Smiley (09:50):

And there is a through line. And I'm sure we'll talk about this, but a lot of why their ad business is doing so well right now is because of AI. So there's that clear through line that makes it easier for them to tell a story right now around superintelligence, what they're working toward, but also AI is very clearly having a major positive impact on their bottom line at the moment.

Marcus Johnson (10:09):

Really quickly before we get to the earnings piece, just in defense of their metaverse aspirations, Jonathan Vanian and Ashley Capoot of CNBC did point out that, although the Quest VR headsets haven't become a breakthrough hit, the Ray-Ban, Meta smart glasses are showing signs of success with sales more than tripling year over year in Q1 of this year. Again, not from the biggest base, but still positive signs there.

(10:36):

They are spending a lot more money on this AI race, $70 billion in capex expected for this year. But they are spending that much, the money going up is one thing, but the share of revenue, how much of the share of revenue are you spending on that? And that seems to be going up as well. It's not just the total dollars, but the amount that they are spending of the revenue, which, to Jasmine what you are saying, the shareholders are going to be keeping an eye on that number. But the ad business does look very, very healthy at the moment. I think we expect about 160 billion for the year, Meta's top line growth for Q2, 21% ad revenue grew in Q2 basically the same as last Q2 as well. So that is really good. Jasmine, what, to you, is the most noteworthy part of Meta's Q2 earnings?

Jasmine Enberg (11:31):

I mean the business is just on a tear, right? You already mentioned the 21% revenue growth. That is just enormous for the company the size of Meta, and I think it's a testament to its continued execution power and its ability to give advertisers what they want and need, especially in a very difficult business environment. I think one of the things that really stood out to me and that I've been paying attention to is, a lot of the generative AI tools for creative. And so they talked a little bit about this on the earnings call basically saying that, despite all of the concerns around handing over more control to Meta, especially in the creative process, Meta said that nearly two million advertisers are now using GenAI video generation tools. That's about 20% of Meta's entire advertiser base based on the latest available estimates.

(12:23):

I do think it was really telling that Zuckerberg was careful to say that these tools are the most valuable for small and medium-sized businesses and that agencies will continue to play an important role with big brands. This is something that Minda and I have been following really closely, given that the ad industry really went up in arms. Alarm bells were ringing after Zuckerberg came out in May saying that he was basically going to automate the entire ad process, which would be a redefinition of advertising. And Minda said this before, but underlying all of this growth that it's seeing in its business is AI. And so, Meta can clearly point to the technology and say, "Hey, look, it's already boosting engagement, it's boosting our revenues." And I think that also helps to make investors a lot more likely to think that Meta's bigger AI bets, whether that's superintelligence or something else, who knows at this point, will eventually pay off.

Marcus Johnson (13:23):

Minda, what about for you? What jumped out to you the most from their earnings?

Minda Smiley (13:26):

One thing that I find interesting as well, and Jasmine and I have talked about this is, we are seeing some saturation happening across the social landscape. But on Meta as well, we do expect time spent to start going down in the coming years. User growth is a little bit sluggish. Of course, it's a little bit better on Instagram compared to Facebook, but when you compare it to ad spend, ad spend is just really pacing way ahead. And I do think this AI boom is happening at an opportune time for Meta because they are hitting a lot of saturation points by many metrics. And these AI investments and their advertising business are really just helping it grow at a time when they really need it, in my opinion.

Marcus Johnson (14:08):

You mentioned that a company as big as Meta, and that's the thing that jumps out to me from their earnings this time round, that the number of people worldwide who use at least one Meta platform, they call it their daily family active people number, basically people who use either Facebook, Facebook Messenger, Instagram or WhatsApp every day has continued to grow and grow by just an astonishing amount. It's grown by half a billion people in the last two years. So put another way, five billion people around the world use the internet, of the eight billion on the planet. That means of the people who use the internet on the planet, 70% now use a Meta platform. The scale is just outrageous.

(14:52):

One of those platforms we mentioned is Instagram. Minda, you'd flagged a recent New York Times article from Callie Holtermann that grabs your attention titled Instagram Wants Gen Z, What Does Gen Z Want from Instagram? Noting that young people are using Instagram for everything, accept the app's original function. The piece notes that in multiple interviews with 15- to 26-year-olds, Gen Z people, they said that they used Instagram to keep in touch with friends, scope out crushes, build businesses, and pour over cooking videos. But out of all of its features, they seemed least interested in the polished public photo feed that had once been Instagram's marquee offering. Minda, what was the most interesting part of the article for you?

Minda Smiley (15:38):

The fact that Instagram is actively targeting Gen Z is interesting, but to me, the more interesting piece of this article is the fact that Gen Z is using Instagram quite a bit, maybe not in the way that older people are, but this generation clearly is interested in Instagram. I think there's sometimes this narrative that we always hear in the industry that, "Gen Z is on TikTok, they hate Instagram." I think it's so much more nuanced than that. There may be is some truth to that in terms of they may use TikTok a little bit more, they might find it more culturally relevant and all of that sort of stuff.

(16:09):

But I do think they are big Instagram users, but they just do use it in a different way. And looking at our own data, this is only for the U.S., by 2029, we expect there to be 60.5 million Gen Zers on Instagram and 51.7 million Gen Zers on TikTok. So that is a pretty big divide, and I just think it speaks to the fact that there is a big Gen Z audience on Instagram, although they are not using it in the way that older people are.

Jasmine Enberg (16:39):

There was something that stood out to me in the article too, and they had interviewed some Gen Zers talking about how it feels more comfortable to post on TikTok than it does on Instagram. And I think that's a common narrative and sentiment that we hear all the time. But I think the reality is that most people, young people in particular, don't really feel comfortable posting anywhere at this point. And so, there is this data from Pew Research Center, which is a couple years old now, but I think it is probably still relatively accurate that about 25% of TikTok users in the U.S. accounted for 98% of the content that was posted on the platform. So even there, what you're seeing is that most people are there to consume content. They're not necessarily posting. Maybe on Instagram, it's a little different. They may not be consuming content in the feed, they might be doing things like messaging, which we know is a huge activity on Instagram. But I think this is more of a common phenomenon across platforms, especially among young people who are very attuned and worried about perceptions online.

Minda Smiley (17:46):

And I do think, obviously TikTok is very popular among young people, but I think I totally agree with everything Jasmine is saying. And I do think one area where Instagram actually does have a lead over TikTok is messaging in these maybe smaller communities. DMing has really blown up on Instagram. And so, I think for a lot of young people especially, this is kind of an odd analogy, but I almost think having an Instagram account for them is having an email address. It's just a way for them to communicate with other people that it's just become the standard thing that you just have.

Jasmine Enberg (18:17):

And a search engine. Right? We talk a lot about this, but I know this from my own personal experience. I'm certainly not a Gen Z., but if I'm going to a new restaurant, I'm going to go on Instagram first and check out their profile and I want to see pictures of food and the location. And sometimes I'll go and look for business hours or a phone number, how to make a reservation. That generally is my first point of contact online when [inaudible 00:18:43] a place like that. So there's a lot of use cases for Instagram that's outside of posting on the feed.

Marcus Johnson (18:50):

Really quick, something that jumped out to me from the piece was basically asking how much of Instagram's recent success has been the product of others misfortune? Jennifer Grygiel, an associate professor of communications at Syracuse University who thinks that Instagram has benefited from its relative stability in a chaotic social media landscape. What with TikTok's future in the U.S. being uncertain and Elon Musk's takeover of Twitter plunging the platform into chaos, Ms. Grygiel thinks that Instagram may not electrify Gen Z, but it's become a weird default for better or worse. What do we think?

Jasmine Enberg (19:24):

I think that's certainly true, and I think we can go all the way back to thinking about how Instagram took stories from Snapchat and incorporated it into its service and ultimately made it a bigger and better service than Snapchat had, at least in terms of its ability to generate revenue and engagement for the company. And I think, when we saw this short shutdown of TikTok back in January, where a lot of people flocked to was Instagram, and so it maybe in some ways has become this safe space, at least in terms of knowing that it's not going anywhere anytime soon. The one thing that might throw a wrench in that though, of course, is Meta's antitrust trial because if the company ends up getting broken up, who knows what the future of Instagram looks like?

Marcus Johnson (20:14):

The last piece of the Meta puzzle we're going to be talking about today is the WhatsApp piece. There's a June article call from the Associated Press noting that WhatsApp said users will start seeing ads in parts of the app as owner, Meta Platforms, moves to cultivate a new revenue stream by tapping the billions of people that use the messaging service, as will be shown in the app's updates tab, not where your personal messages live and will be targeted to users based on age, location, language, channels you're following in the app, et cetera, but won't use personal messages, calls or groups you're a member of. Channels will also be able to charge users a monthly fee for subscriptions so they can get exclusive updates and business owners can pay to promote their channels' visibility to new users. And in updates, then there's channels and then there's business units paying for things. Jasmine, how big of a sleeping giant is WhatsApp and its ads potential?

Jasmine Enberg (21:09):

It's kind of unclear really. So Meta says 1.5 billion people use WhatsApp's updates tab daily, and that is an enormous scale, and that is certain to peak advertiser interest. But we don't know how many of those 1.5 billion are actually using Status, which is WhatsApp's version of stories where the ads are going to be displayed. And I'm an audience of one, but I am a very heavy WhatsApp user. I think I have posted a status maybe once and it was years ago, and every time I go onto my updates tab, the only person who's ever posted a status update is my niece. And so, I know for certain that it is popular in other parts of the world, but at least from my own experience, it seems like a relatively underused part of the app when compared to the core functionality, which, of course, is messaging.

(22:05):

And I think that also leads into the bigger issue with monetizing WhatsApp, which you alluded to. And one of the reasons that Meta has backtracked on plans to introduce ads into Status in the past and that is that there's a ton of privacy concerns with putting ads and messaging services and people just generally don't want advertisers to slide into their DMs. Because Status is separate from the personal messages, I think it makes it a safer space to introduce ads. But that means that the reach is probably going to be lower, the ads are less likely to be as performant, at least in the short term. So I think there's still a lot up in the air, but I think, given the careful rollout that we're seeing, as well as the limited areas in which ads and other monetization tactics are available really in WhatsApp, it's not going to be a big revenue driver for the company anytime soon.

Marcus Johnson (23:02):

Minda, they bought this company, Meta, Facebook, 10 years ago, and it seems like they want to do something with this service in terms of trying to make money from it. In the U.S. alone, WhatsApp is three-quarters the size of TikTok when it comes to users. So what do you make of the potential here for WhatsApp to make money from advertising?

Minda Smiley (23:26):

My personal thought on a lot of it is, I do think, as we were talking about earlier, messaging is just becoming a bigger part of the social experience. We're seeing it happen on Instagram quite a bit. So I think, in some ways, I think WhatsApp is kind of a Guinea pig right now for how to monetize messaging, and then whatever works, they will eventually try to port over to Instagram and maybe even Facebook. So we'll see.

Jasmine Enberg (23:49):

I think that's absolutely right. The time is right right now to start to monetize messaging and Meta has to do so carefully, but we're also seeing it start to look for other surfaces to monetize in other ways too. Threads got ads this year as well, so it's certainly looking to expand its surfaces and given the scale of WhatsApp, it's an app that it's basically just been sitting on and not monetizing. It's also a huge philosophical shift though for the company. I keep going back to this because the original founders of WhatsApp were very anti advertising, very anti monetization in general. So it just feels like a huge shift to now start introducing advertising, which I think, again, is another reason why they do need to tread carefully

Marcus Johnson (24:43):

And no rush here either. We mentioned that they grew ad revenue in the quarter by over 20%, and that's ad revenue that was $47 billion.

Jasmine Enberg (24:53):

And we should also mention actually that part of that is due to click to WhatsApp ads, which have proven very successful and popular too. I can't remember if they mentioned it in the most recent earnings, but they've certainly talked about it in the past. And those are ads that you see on Instagram and Facebook that then drive people to WhatsApp to message directly with a business. So again, along this theme of the time is right, we are seeing people get more comfortable talking with businesses. It just feels very different when you have an ad, for example, showing up in your inbox or between messages that are private between you and your friends or your family. And it can feel like an intrusion of privacy even if it isn't.

Marcus Johnson (25:35):

Well, that's why we leave the conversation today. Thank you so much to my guests. Thank you to Minda.

Minda Smiley (25:39):

Thank you.

Marcus Johnson (25:40):

And to Jasmine.

Jasmine Enberg (25:41):

Thanks for having me.

Marcus Johnson (25:43):

Of course, of course. Thanks to the whole editing crew and to everyone for listening to Behind the Numbers: EMARKETER video podcast made possible by Awin. Rob Rubin, we'll have the banking payment show for you tomorrow where he'll be discussing why financial media networks can't play the same game as other commerce media folks.