The Briefing: Meta Joins Subscription Rush
Source: The Information (The Briefing), Martin Peers
Photo: ChatGPT
When it comes to product names, companies tend to move in packs. In video streaming, almost every company included a plus sign in the name brands of their services (Disney+, Paramount+, Apple TV+—you get the picture). In tech, we’ve got Apple One, Google One and now Meta One (we used to have Amazon One, but that has been dropped). Does no one have any imagination?
Aside from Amazon One, which was a palm-reader system for retail stores, all the other Ones are subscription services for various add-on offerings from the tech firms. Some of these have been around for years—Google One and Apple One have long offered extra amounts of digital storage, along with other perks—but AI is making subscriptions a far more important business model than it has ever been for tech. Google has added extra use of its AI service to its Google One offering. Meta One—unveiled on Tuesday—also offers extra AI usage, as well as some additional tools for using Meta’s social media apps.
Can these subscriptions help offset the hundreds of billions tech companies are spending on AI? That’s very hard to say. Beyond entertainment, the big consumer tech firms haven’t typically put much effort into selling subscriptions—they make so much money from other things—and the bottom-line importance of subscriptions varies a lot. Apple, for instance, has a bunch of them, available individually or bundled together in the Apple One offering, that are part of its services segment (along with advertising and AppleCare). Services generated 28% of Apple’s revenue in the June quarter and likely more of its profits, as services’ gross margin is nearly twice that of hardware.
It’s a similar story at Snap, a small social media firm, which has a bunch of different subscriptions, including Snapchat+ and Lens+. Dollars flowing from those offerings enabled Snap to report 11% growth last year, even though advertising grew only 5.8%. Google’s results, though, tell a different story. Google CEO Sundar Pichai said in April that its users were then paying for 350 million subscriptions, mostly due to Google One and YouTube offerings. And yet subscription revenue was mixed in with other businesses in a line item producing $12.9 billion in the second quarter, just 11% of the total.
What complicates the picture further is that in AI, every company offers a free tier of service. And there are lots of AI options, including from Anthropic, OpenAI, Google, Meta and SpaceX’s Grok. If you don’t want to spend money, you can jump around. Of course, you get more value by sticking with one chatbot, which remembers your past queries, so habits will change. But as the news business has learned, persuading people to pay for your service isn’t easy.
The Wonder of Food Dealmaking
You have to hand it to Marc Lore—he’s good at raising money. The entrepreneur has raised some fresh cash for his Wonder restaurant- and food-delivery business by selling a campus dining service it inherited from a previous acquisition to DoorDash for $300 million in cash. At the same time, DoorDash is kicking in $125 million to expand Wonder’s recent Series D fundraising round, which had already raised $650 million.
This deal is remarkable in a number of respects. Wonder got the campus dining business when it bought Grubhub at the start of last year, for $650 million. So Wonder has got back nearly half what it paid for Grubhub through this deal. As Grubhub itself paid $150 million for the campus business back in 2018, Wonder seems to be doing well out of the acquisition.
Whether Wonder itself is making money is a whole different question. The fact that Lore keeps raising money suggests it’s not. Before today’s deal, Wonder had raised $3 billion, at a valuation most recently of $9.65 billion, according to PitchBook. Contrast that with DoorDash, which raised $2.5 billion before it went public in 2020 (and it had more than $1 billion in cash on its balance sheet at the time of its IPO). The biggest wonder about Lore’s company is how he manages to persuade more investors to put up more capital. (Lore also did well selling a controlling stake in the Minnesota Timberwolves just over a year after buying it.)
In Other News
• Elon Musk on Monday once again teased the potential of a merger between Tesla and SpaceX, saying it was a “great question” why Tesla and SpaceX were separate companies. “With all this collaboration, on so many levels, who can imagine what action one might take when there’s so much close collaboration in so many areas?” Musk added during a virtual appearance at the All-In Summit.
• Salesforce unveiled a new AI model, Koa, which it developed with Nvidia and is based on one of the chipmaker’s Nemotron open-source models.
• Chinese AI chip designer Shanghai Biren Technology is considering raising around $1 billion through a stock offering, Bloomberg reported on Tuesday.
• OpenAI is considering raising money at a $1.2 trillion valuation, the Financial Times reported.