What Declining Industry Can Afford to Alienate Half its Customers?

Some people believe the new trend of major U.S. newspapers declining to make endorsements in presidential races is an abdication of their “public interest” duties. But the simple matter is that news and information sources have shifted dramatically over the last several decades. 

So some might say that the huge decline in newspaper readership since 1996 simply suggests that people are getting their news and information elsewhere. That, in turn, has led to industry decline. 

If asked, consumers might well say they are as likely to get their news and information from podcasts as from newspapers. Twice as many are likely to say they get their news from television. Three times as many consumers might say they get their news and information from online news sites, while 2.5 times as many people might say they get their news from social media sites. 

Media Type	Percentage of Consumers
Online News Websites	36%
Social Media	30%
Television	25%
Print Newspapers	12%
Radio	8%
News Aggregators (e.g., Google News, Apple News)	18%
Podcasts	12%
Mobile Apps (News Apps)	15%

Where U.S. newspaper revenue was about $50 billion in 1996, it might be less than $14 billion in 2024. 

Year	Newspaper Revenue (in billions)
1996	$50.00
1997	$50.40
1998	$51.00
1999	$51.90
2000	$49.40
2001	$48.70
2002	$46.30
2003	$43.90
2004	$44.40
2005	$43.80
2006	$41.80
2007	$40.00
2008	$36.90
2009	$34.00
2010	$30.30
2011	$28.00
2012	$26.00
2013	$24.00
2014	$23.00
2015	$22.00
2016	$20.00
2017	$19.30
2018	$18.00
2019	$15.40
2020	$14.50
2021	$14.10
2022	$13.90
2023	$14.2 (estimate)

In other words, the U.S. newspaper business has shrunk nearly 75 percent since 1996. A declining industry can ill afford to alienate up to half its remaining customers. 

All that downsizing suggests a practical economic reality exists. Newspaper endorsements are inherently partisan, and therefore risk alienating up to half of readers. 

I know of few industries willing to deliberately antagonize up to half their potential customers, especially not industries that obviously are declining.

Generative AI Capex Seems an Order of Magnitude Higher than Cloud Computing Investment

For some hyperscale firms, the risk of investing in generative artificial intelligence, though real, is mitigated by the ability to grow revenues faster than the investments drag down earnings. In other words, the risk of over-investing in generative AI is lessened if firm revenue growth is high enough to support earnings growth despite the AI investments. 

Generally speaking, strong revenue growth might have to be stronger than seen in the third quarter 2024 reports, to mostly alleviate investor concern about AI capex. A reasonable person might doubt that most, if not all the firms, can do so on a consistent basis. 

And that means some volatility of share prices. 

Third quarter financial results from artificial intelligence investors Alphabet, Meta, Microsoft and Amazon predictably showed the perceived importance of AI capex on earnings. Such capex keeps growing, leading to concerns about monetization and pace of revenue growth.

The other issue is that the magnitude of spending compared to earlier product development seems to have increased by an order of magnitude for cloud computing, compared with earlier products, while another order of magnitude increase in investment seems to be happening with generative AI.

Technology/Product	Estimated Investment	Time Period
AI	$200 billion	2024 (projected)
Cloud Computing	$27 billion	2023
Smartphones	$1-2 billion	2007-2010
Social Media	$1 billion	2012
E-commerce	$300 million	Late 1990s
Search	$100-200 million	Early 2000s
PCs	$150-200 million	1970s-1980s
Tablets	$500 million - $1 billion	2009-2010

It might be a stretch to argue that revenues will increase by an order of magnitude for any of the investing firms, with one or two salient exceptions. As was the case for search, social media and e-commerce, the creation of huge new industries might support an order of magnitude increase in revenue.

And that is the prize. 

Most Generative AI Model Suppliers Will Lose

Third quarter financial results from artificial intelligence investors Alphabet, Meta, Microsoft and Amazon predictably showed the perceived importance of AI capex on earnings. Such capex keeps growing, leading to concerns about monetization and pace of revenue growth.

source: Sherwood 

But generative AI, the current focus of capex, might be--if not a full-blown general-purpose technology--the sort of digital product that creates a whole new--and big--industry. Think of the past pattern of new industries built on firms and products including operating systems, e-commerce, search, social media and online advertising in general, plus still-growing businesses such as ride-hailing and peer-to-peer lodging. 

if generative AI winds up being a “winner take all” business, as most other computing segments have been, there will be no prize for third best, and limited advantage for being second best. 

We have already seen that pattern in many other computing markets. The leader in search has 91 percent market share. The browser leader has 65 percent share. The mobile operating system leader has 72 percent share. The U.S. ride-hailing leader has 68 percent share. 

Market	Dominant Player	Market Share	Runner-up	Market Share
Search Engines	Google	91.9%	Bing	3.0%
Desktop Browsers	Chrome	65.72%	Safari	18.22%
Mobile Browsers	Chrome	66.17%	Safari	23.28%
E-commerce	Amazon	37.8% (US)	Walmart	6.3% (US)
Video Streaming	YouTube	2.5B users	Netflix	231M subscribers
Music Streaming	Spotify	31%	Apple Music	15%
Ride-hailing (US)	Uber	68%	Lyft	32%
Cloud Services	AWS	32%	Azure	22%
Mobile OS	Android	71.8%	iOS	27.6%

So, whether investors like it or not, would-be leaders of the generative AI ecosystem are pouring resources into the effort to lead the new market. And that investment intensity affects investor perceptions, even as the big firms continue to post revenue growth. 

Alphabet reported a robust 15-percent revenue growth; 35-percent cloud computing revenue growth; operating income up 34 percent but also AI-focused capital investment up 72 percent. 

“And as we think into 2025, we do see an increase in AI-focused capital investment coming in 2025,” said Alphabet CFO Anat Ashkenazi. 

So does Amazon, which expects capex to be about  $75 billion in 2024 and “more than that in 2025,” according to Amazon CEO Andy Jassy. “And the majority of it is for AWS and specifically, the increased bumps here are really driven by Generative AI.

“Our AI business is a multi-billion dollar business that's growing triple-digit percentages year-over-year and is growing three times faster at its stage of evolution than AWS did itself,” said Jassy.

Generative AI “is a really unusually large, maybe once-in-a-lifetime type of opportunity,” he said.

All that is fueling investment into generative AI, which based on recent computing product precedent, will produce  a “winner take all” market. 

Company	2024 Estimated AI Capex	2025 Estimated AI Capex
Microsoft	$80 billion	Significant increase
Amazon	$75 billion	Further increase
Alphabet	$52 billion	Increase expected
Meta	$38-40 billion	Significant growth

Microsoft and Meta Platforms both beat analyst expectations with their quarterly earnings reports, but also said more AI spending is coming, pushing down share prices for both firms. 

Microsoft CEO Satya Nadella noted continued capacity constraints at data centers amid surging demand, but also continues heavy spending  on cloud and AI to scale to alleviate capacity constraints. 

Meta CEO Mark Zuckerberg also forecast a "significant acceleration" in spending on AI-related infrastructure in 2025. Zuckerberg acknowledged that this may not be what investors want to hear in the near term, but insisted that the opportunities here "are really big."

GenAI is a big gamble. Based on history, we might suggest that all but one or two of these efforts will fail, and the list of serious contenders also includes OpenAI and others. Should that pattern hold, the top two companies might have 60 percent to 80 percent share of the total market. 

Market Position	Market Share	Profit Share
Leader	70-90%	80-90%
Runner-up	10-20%	5-15%
Others (3-10)	5-10%	0-5%