What We Learned at Sun Valley

Got AI?

One theme on the minds of conference attendees revolved around artificial intelligence and how companies needed to reorient themselves around that field. Venture investor Marc Andreessen is scheduled to speak on the topic Friday with Y Combinator President Sam Altman (co-chair of the nonprofit AI research firm OpenAI) along with David Kenny from IBM/Watson and Reid Hoffman, chairman of LinkedIn. It promises to be a change of pace from last year’s discussion with Elon Musk, the CEO of Tesla and SpaceX, who said that intelligent machines could destroy humanity.

The fact that AI is top of mind reflects Google CEO Sundar Pichai’s argument over the past year that advances in artificial intelligence fields like machine learning are improving existing and soon-to-be launched internet-based services. Not to mention self-driving cars and other new fields. His push prompted companies like Apple and Microsoft to show that they aren’t miles behind. Now, some conference attendees said, most everyone else in tech needs to have a legitimate AI strategy if they don’t have one already.

For companies like Dropbox, the storage and collaboration service, the “temperature has been turned up” on the need to excel in machine learning, said CEO Drew Houston in an interview. He said things like Google’s “AlphaGo” program, which beat two champions of the strategy game “Go,” have increasingly caught his eye. Staffing up on machine learning practitioners is becoming more important. He added that it’s more likely that machine learning improvements—including through “deep learning” algorithms that can solve problems without much human supervision—will be “something you sprinkle on products to make them better as opposed to a new platform or product.” (Companies like Google are betting on both.)

For Dropbox, which ultimately hopes to solve “information overload” experienced by today’s white-collar workers, machine learning will make a big difference in helping to automate helpful notifications and prioritize messages, Mr. Houston said.

At Expedia, the travel-booking site, CEO Dara Khosrowshahi said in an interview that the rise of machine learning has required the company to hire several key statisticians and algorithm minders who are “like unicorns; they’re very hard to find.” With their help, the company has gone from having employees constantly tweak algorithms that power customers’ search queries on the sites to algorithms that can improve the search experience with little human intervention. In addition, Expedia is developing systems that can adjust search results automatically, based on seeing changes in the market from things like a terrorist attack. Eventually, Mr. Khosrowshahi expects to run many such systems on top of Amazon Web Services, which like Google will offer “machine learning as a service” for developers in a variety of ways.

Google says it will win the battle against AWS because of the AI features it will offer to its customers. That still seems like a stretch. But when it comes to image and voice recognition as well as natural language understanding, Google is viewed as the overall leader and then some, even if it hasn’t found all the right consumer products to capitalize on that.  

Said one conference attendee who works with several AI-related companies: “Google is ahead in many ways that aren’t apparent yet.”

YouTube, Soon with ESPN and a ‘Bundle’

Tidbits have dribbled out about YouTube’s planned TV network subscription offering, but we got new details. Most notable: Disney’s ABC and ESPN are firmly expected to be part of the subscription offering, along some other major broadcast networks, such as CBS, according to a person with knowledge of the product. This person said the product was expected to launch within six to nine months. In one scenario that was discussed, the bundle would include homegrown YouTube channels in areas like home improvement rather than licensing niche cable channels like HGTV. The subscription price is unclear.

One big issue: There are plenty of similar services, including from Dish Network, Sony (via PlayStation consoles) and soon Hulu. The hope, we must assume, is that YouTube’s offering will appeal to millennials who like YouTube and regular live TV, particularly sports.

A second problem: YouTube’s existing subscription service, YouTube Red, doesn’t appear to be a hit. Not surprising, given that many of YouTube’s one billion-plus visitors a month grew up not paying for anything on YouTube.

For YouTube CEO Susan Wojcicki, who must continue to increase the time people spend on her video site in order to generate more revenue, the subscription-TV bundle is just a “first step,” said one person who has spoken to her on the topic. But the Google unit’s margins are tiny—laughably so, compared to the rest of Google—so it’s tough to expect a Netflix-type investment in original content.

Wither Twitter?

The company and its user growth may be in a rut, but Twitter Executive Chairman Omid Kordestani was upbeat about its future. He was particularly buoyed by the recent appointment of former Facebook CTO Bret Taylor to the board, pointing out that Mr. Taylor’s product expertise is the kind of thinking that the company can use as it tries to improve the app. And his plan was more about expanding the number of core users than monetizing logged-out users—Twitter’s public-facing strategy a year ago.

As for the future ownership of the company, he said they’re focused more on continuing to work out the product than anything else. He, the board and the rest of the company would discuss any offers that came in. He compared Twitter and its declining stock to Amazon, which struggled during the dot-com bust and turned out OK.

Where’s Evan?

Evan Spiegel didn’t make it to Sun Valley this year— something of a surprise given that he was on an early copy of the guest list, we’re told. But perhaps the Snapchat CEO did the conference one better: His company managed to be a major topic of conversation without making an appearance. The tech faction in particular was chatting about it, with the group still impressed with Snapchat’s strong growth and user engagement. But despite the lofty valuation, there’s still skepticism about whether it can truly become the next great consumer app company. “If you think about it, it’s been awhile since a consumer app company broke out,” one attendee said.

Several traditional media company executives were asking about Evan because they’re wondering how big of a distributor Snapchat can be for their content, another attendee said.

Brexit, then Trump?

In one word, Brexit means “uncertainty,” said one prominent European attendee. It’s already held up several ongoing business deals involving companies with a U.K. presence, this person said.

Several attendees summed up Brexit’s impact on the business world this way: On its face, the U.K. vote to leave the EU is a “disaster” and “ridiculous” but “nobody knows what the f--k it will mean and nobody has any way to get clarity on how it will play out.”

“Google is ahead in many ways that aren’t apparent yet.”

However, the Brexit vote was an important signal to Allen & Co. attendees that “Trump could surprise us” by fomenting a “protest vote” against the status quo, and we “need to take him seriously,” said one conference goer.

Will the North Finally Eat the South?

The idea of a high-growth, cash-spewing Silicon Valley firm like Apple (the “north”) buying an aging, slow-growth Hollywood/Manhattan entertainment company like Time Warner or even Disney (the “south”) isn’t new.

And the recent report about Apple’s Eddy Cue floating a possible deal for Time Warner was true, even though it didn’t go anywhere. Still, multiple executives say there’s no question that the power in that relationship has shifted markedly to the monied part of California—the north.

That being said, other media executives have pointed out that Apple has been largely cut out from the streaming video boom after leading in music, and it fell behind in music too. With iPhone sales slowing, growth is lagging a bit anyway, so why not make a big move, like say, buying Disney. It might sound crazy, and would be a company-altering move. (Disney is worth $160 billion.) But as one tech executive put it—it’s two premium brands who are starting to see some growth problems in their most profitable areas.

Still, it was the potential sellers (traditional media company executives) who were most eager to talk up the deal possibilities. There isn’t much evidence that companies like Apple, Google, Facebook and Amazon are game to make a big move. “Data is king” right now, said one top tech executive. Not content.

Who Cares About Yahoo?

Yahoo CEO Marissa Mayer didn’t attend the conference this year, and her long-troubled company was on nobody’s mind.

One traditional media executive and one tech executive in attendance said they were disinterested in the potential sale and the likely highest bidder, Verizon. Adding one declining asset (Yahoo) after the other (AOL) didn’t seem like the best strategy for Verizon, one of them said. (See just how bad Yahoo’s daily-active-user declines are here.) For his part, Verizon CEO Lowell McAdam, flanked by Marni Walden, who leads Verizon’s digital media plans and is said by insiders to be a potential successor to him, said he can’t talk about his bid.

Tidbits:

“Do you take Apple Pay?”—Apple CEO Tim Cook as he was buying coffee at a quaint Austrian-inspired restaurant called “Konditorei.” The barista said no.

“Kevin Durant is helping me get over it.”—Apple executive Eddy Cue, a diehard Golden State Warriors fan, on the team’s crushing defeat in the NBA Finals followed by its subsequent signing of Oklahoma City Thunder superstar Kevin Durant.

Jeff Weiner, CEO of LinkedIn, spent much of the conference promoting (spinning) his $26 billion sale to Microsoft. It’s a deal that several prominent attendees said they were still scratching their heads about. Mr. Weiner told conference goers that he was excited about the move, which came after a precipitous decline in LinkedIn’s stock price, and stressed that it would remain independent and get good support from its new benefactor.

Doug McMillon, CEO of Walmart, talked up his company’s recently-revealed drones that take inventory in the retailer’s warehouses, a vast improvement over what was previously a task handled manually by workers. He said the company is working with drone hardware and software makers on a package delivery service. Given the recent FAA regulations prohibiting many potential forms of drone-based delivery, we probably won’t see the Walmart fleet for several years.

Several attendees talked up Dell CEO Michael Dell for his warm personality and deep involvement in his company’s business and its merger with data storage firm EMC. One conference attendee from a company that competes directly with EMC said if the acquisition is integrated correctly, EMC will remain a powerful force.

Alex Karp, CEO of uber-secretive Palantir, as well as fashion icon Diane von Furstenberg and John Elkann, chairman of Fiat Chrysler, all shared the same tai chi teacher, a man named Yang Yang from New York.

Producer Brian Grazer met with Rony Abovitz of AR firm Magic Leap, who seems to be courting Hollywood at the moment.

Almost every attendee we spoke to was impressed by Canadian Prime Minister Justin Trudeau, who spoke on Wednesday about his life and also about how globalization has been a good thing overall except that the wealth created hasn’t been evenly distributed. He reminds people of Barack Obama in 2008—full of optimism and positive ideas, said one attendee.

This year’s batch of “new breed” companies, startups selected by Allen & Co. to appear in front of attendees, was diverse: Ginkgo BioWorks, which “designs custom microbes”; Honor, an elder care firm; and Improbable, a VR software firm. The vast majority of new breed companies don’t become breakout hits, though Uber, Pinterest, Airbnb and Dropbox have occupied that slot in the past.

Speaking of designing custom microbes, there was also panel about biotech, an area where Silicon Valley VCs are investing in more.

(Many attendees spoke to us with the promise of anonymity because Allen & Co. asks that they don't speak about what goes on at the conference.)