FYI - For Your Innovation: Ozempic, AI Wearables, Tesla Price Cuts | The Brainstorm EP 18

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Welcome to the brainstorm episode 18 here.

Today we're talking Osempic and other GLP ones.

Learn what that stands for.

We're going to be talking AI companions.

And then lastly, we'll touch on Tesla's recent price cuts.

Allie, thank you for joining us.

Maybe we just dive right in, GLP one.

What does that stand for?

Okay, you're probably never going to say the full word again, but for anyone that wants

to know, it stands for Glucogen-like peptide one receptor agonist.

And these have been in the media a ton.

These are the so-called weight loss drugs, typically known for diabetes, but have been

sort of, you know, everyone is talking about them for their weight loss properties.

So essentially it's a medication that basically stimulates the release of insulin.

That helps lower your blood sugar level.

And then it also makes the emptying of food from your stomach slower into your small intestine.

And what that does is it makes you feel fuller for longer and it makes you want to eat less.

We've also heard it helps with sort of curving your cravings too, like your sugar cravings

or things for unhealthy foods.

It also can help even with things like tobacco or anything that may cause you to become addicted.

So addictive behavior may also be helpful.

But what we're thinking of for GLP one, so there's a lot of research done on, you know,

how they fare and the different companies that are working on it, including like Novonortis

and Lilly, two of the biggest that are working on it currently in the space.

But what we're kind of focused on is like, how does this shift spend?

And we think that's a really important topic because if you can see the chart or if not,

health care spending is continuing to rise, which I don't think is surprising to anyone

to find out, but it's not necessarily leading to better health outcomes.

So if we look kind of in the 1980s, health care spend as a percent of GDP was around 8%.

But then if we look into 2030, our projection is that it can get as high as 20%, which is

obviously an increasingly high number.

And if we're going to spend that much, we at least want to see better health outcomes.

And we're seeing that, unfortunately, the United States is an outlier, meaning that

according to Dali, which looks at disability life years, so disability adjusted life year.

And if you look at that compared to health care spending as a percent of GDP, we can

see that the United States spends a lot of money on health care, but does not get particularly

good disability adjusted life years, meaning that our health outcomes are not good compared

to many other countries.

Conversely, the Republic of Korea actually spends less on health care and has better

health outcomes.

But in the United States, we spend about $4.3 trillion, and about 16% of that is spent

on health care therapeutics, so medications.

Other things that we spend on are indirect costs like you missed work or you're unable

to show up and be productive at work, or other direct costs like nursing hours or things

like driving to an appointment or going to a physician's office.

And so what ARC believes is that in the future, we're going to shift the bucket of spend increasingly

into therapeutics.

And what's interesting about GLP-1s is that they have already started to shift some of

the bucket of money.

So, for example, we're seeing bariatric surgeries.

People are spending a little bit less on that and more actually on the drugs.

We know that when Walmart reported, they talked about a decrease in their sales of food, but

an increase in their sales of prescriptions, so an overall benefit, but just interesting

to see the decreases and the increases in particular categories.

And so we think, yeah.

Sorry, I have one question just to help give some more context.

I think on Fridays, it may have been you or maybe someone else in the brainstorm.

This is being prescribed to how much of the US population today.

I thought it was, I think someone said nine or 10%.

And just hearing you speak about it, it does sound like this miracle weight loss drug.

What are some of the downsides?

Yeah, exactly.

So as with anything, there are downsides.

One it's relatively new.

We've known about it for a long time, but the mass amount of people taking it, we'll see.

There were reports in Europe about suicidal ideation.

It was very small study though.

And the other thing is that maybe people who were overweight had some suicidal ideation

based on other things that were going on with them.

We don't know, but that was a relatively small sample.

But there are things that can happen.

So one of the ones that I think we discussed on brainstorm was nausea.

So this can cause a lot of nausea, which can help you with curbing your appetite.

It can cause things like gastrointestinal symptoms like vomiting, diarrhea, you can get

abdominal pain, constipation, bloating, gas, all the good gastrointestinal stuff.

Also, just so everyone knows, there is an oral, but most of these are injections.

So you're injecting them into some area of fat, which means that you can get an injection issue.

So this is also self-injection.

So you're doing it to yourself at home once a week.

Most of them are once a week.

So you can get some type of injection site issue, whether that's redness or rash or anything like

that. Obviously, one of the symptoms is decreased appetite, but most people are very happy about

that one. You can get things like pancreatitis, which is like an inflammation of your pancreas.

You can get gallbladder problems, kidney problems, hypoglycemia, so your blood sugar can be very low.

Also, they've seen some connection in my studies with thyroid tumors.

And so you wouldn't get a thyroid tumor, but they have shown that there was increasing suspicion

that maybe there's some kind of association between GLP1 receptor agonist and maybe

certain types of thyroid tumors, maybe medullary thyroid cancer.

And so, yeah, there are definitely reports that we've seen, but with the amount of people taking it,

like you mentioned, 9% to 10%, there's not been a ton of reports. And so I think people

are continuing to take it. We also talked about the fact that it could be severely underreported,

because people that are taking it through insurance are probably the ones that we know of.

But there have been other people and clinics popping up everywhere that we've seen,

and I don't know whether those are being reported or not, because a lot of people are paying out of

pocket. And maybe just for context, like out of pocket, you could pay $500 to $1,000 and maybe up

a month for these drugs. Whereas if you had insurance, you'd probably be paying $25 to $30 a

month. So big difference. Yeah, got it. Thank you so much, Allie. Yeah. Thanks, guys. Thank you.

All right. Now we're switching gears to AI Companions, AI Hardware Proliferation.

We've got Andrew Kim joining us and Reggie James. Reggie is the founder and CEO of Eternal.

Reggie, maybe you want to give a quick, quick background, then,

Andrew, you can tee up the topic here. For sure. A quick background on Eternal or on

hardware and AI. On yourself, your background. Why you're an expert in this area? You've

thought about this. Yes, I've been thinking about hardware a lot. I went to Penn with Sam,

and I've been working on my company Eternal for, will be five years in November. We were primarily

in Spatial. So we've been on a long quest of kind of building out kind of

like non-gaming, like spatial apps, primarily in social and media. Right now, we kind of crack

something in like kind of spatial live streaming. So you can kind of think about the things Fortnite

has done with either Dragon Ball Z or Travis Scott as spatial live streaming. One utilizing kind of

an avatar that's on Rails, another one utilizing kind of screens within virtual spaces.

And so, yeah, our app Eternal is in the App Store. And we just think a lot about kind of like

spatial and our starting more experiments in AI and just smarter NPCs. I haven't really branded

the term just yet, but smarter NPCs that are a new form of interactive media. And then on hardware,

I've been just kind of hardware whispering to a lot of hardware startups

and helping consoles on brand and product and really believe we're in sort of a new hardware

era coming out of iPhone singularity and been writing a lot and putting together talks in

a conference very soon on new hardware with new hardware founders and getting everyone together

in space. Nice. Then Andrew, maybe we just dive right in. Why is it so hard to monetize

AI NPCs? Or just go right into the AI. Yeah, let's just talk about consumer AI applications

as a whole. So we've been doing a lot of work on AI companionship with the explosion in chatbots

that consumers have witnessed in the past year or so. And more specifically, and like listeners

will be able to see specific charts on this week's Sunday newsletter. We see a huge disparity between

the net direct monetization rates per engaged hour of consumer AI applications and comparable

mature digital entertainment platforms. For example, we estimate that character AI,

which we've talked about before, monetized at a rate of 0.002 cents per engaged hour this past

August, which is basically around 5% the rate of Roblox in 2022. And similarly, replica another

companion AI app monetized at a rate of 75 cents per engaged hour in 2022, or 22% the rate of only

fans. And we can attribute this monetization delta to a lot of reasons, right? One being the

markets super early, right? Many players are prioritizing user and engagement growth over

monetization. So we could see these rates reach parity simply as time progresses and the market

matures. We could also look at the human premium, right? But we could also argue that as large

language models become more and more performant, one day AI output across any medium would be

like indistinguishable from human creation. And that human premium probably would close and maybe

some sort of like vintage premium would exist, right? And we could also look at it from the

perspective of like pure tech deflation. And I think like ARC has been talking a lot about just

like all these different productivity case studies, like the GitHub co-pilot study, the

UC San Diego like patient response study, the HBS BCG study, or even the like the GPT4 results on

like all these exams itself. We've seen direct proof that AI is executing tasks at the level or

even better than that of an average human, right? At a fraction of the cost. So there's like a lot

of question, I think still in terms of like who eats that the bulk of that gap, right? Is it the

end consumer? Is it the application? Or is it the foundation models themselves? Like what gets

commoditized? What margins are hurt? I have no idea. We'll see. And just one last potential

reason that I think is worth discussing here and is like a great segue into like the hardware

multiplicity that Reggie talks about a lot. I think it's pretty compelling to consider like AI's

current lack of audiovisual immersion as a primary contributor to this monetization gap

in that consumers currently primarily interact with AI entertainment via text, right? With

pretty limited audiovisual features. And it's reminiscent of the non arcade video game market

of the mid 70s to early 80s in that in 1975, we estimate that nearly 60% of non arcade video games

were game releases in the year, sorry, were text based or spreadsheet video games, right? And

console games generated around $6 billion in revenue in today's terms in 1975,

which is like very, very tiny compared to approximately like 92 billion of as of last year.

And by 1996, text and spreadsheet games represented less than 1% of annual game releases.

So this shift from text based and spreadsheet games to more immersive 2D and by the 93D games

enabled video games to kind of tap the masses and grow to the size that it is today. And of

course, this shift was made possible by Morse law and other cost declines associated with,

you know, custom graphics chips, memory, et cetera. Right. And we're already seeing

movements towards more audiovisual immersion. I think Nick probably talked about it in last

week's brainstorm about, you know, Meta's AI avatars and the Meta Ray ban, smart classes,

right? And we saw all these AI wearables that were showcased last week, or was it two weeks ago

now, tab rewind pendant, the human humane AI pin. And yeah, as Reggie mentioned before, I think it

bears the question of like what happens to the mobile user interface, right? If we are actually

going through like this hardware paradigm shift and like how, what will AI applications look like?

As in will they reside within the application or will they be on the operating system layer?

Like a lot of so we interesting questions that we do have. We do have Reggie. So

let's open up maybe this question. And just after hearing what Andrew is talking about, Reggie,

I see you taking some notes. So I'm curious what your, what your thoughts are just, you know,

on the hardware side, because it does seem that, you know, as you move from text to audio to,

you know, maybe 3D spatial, maybe the mobile phone, the operating system iOS, Android, isn't

the right vector for this growth. Maybe we need more hardware. So what are your thoughts?

For sure. Well, yeah, so I think there's a couple of things there, right?

One exercise I used to like doing is kind of looking at what if Apple treated its microphone

the same way it treated its camera, right? Which is essentially to say like, you know,

this has progressed with like three, all kind of doing different things,

including front hole, you know, but the microphone is largely the same and Siri is,

unfortunately, largely the same. And it kind of just shows in part Western culture values,

right? Like we value the eye over the ear significantly. And so it's clear that they've

had their path. And one thing about hardware, unlike software is that when you make a decision

in hardware, you have to live with it for far longer of a maturity cycle than you do with

software, right? And so I think some of Apple's values just don't align with some of the

pieces of the three that you mentioned, right? The AI pin, Avi and Tab, and then, you know,

I don't really care about rewind, but, you know, the fast follow of rewind as a result of this,

right? And it's living off of a completely different kind of interaction vector, particularly

Avi, and I've chatted with Avi and kind of know a bit about that product. What's interesting,

though, is that Avi pairs with the phone, right? There's a tab app in which it's helping contextualize

and not just sort of get activated, like we typically deal with AI chat interfaces in which

it can't start anything. Avi's can start towards you, which I think changes the paradigm completely.

I think the other thing about that in terms of what happens with the iPhone is, I think the

iPhone continues to push more into entertainment space than broad-based application, you know,

the very classic launch of the iPhone is like, it's a phone, it's an internet communication

device, it's an iPod, and I think it's going to just ship more into entertainment, and this is

like the fun glass, and then I think the other devices are going to be opening some new vectors of

kind of a utilitarian landscape, right? Tab is really much about memory recall, and it's very

much a work device. I think the demos of humane also are quite, I mean, that's an anti,

at least visual media device, right? No kid is watching TikTok projected onto their hand,

so there are some real hard opinions there that are somewhat anti-consumer media,

at least from a visual perspective, which kind of dominates the social media sphere,

right, between Instagram, TikTok, YouTube. This is far more audio-based and, yeah, utility.

Yeah, it's interesting to hear, wait, just one point here, Sam, because I think what Reggie is

saying is extremely interesting, especially when you think about the evolution of how these AI

assistants will evolve. If you think about the chatbot today, I think largely what both you and

Andrew are noting is that the entertainment space is largely maybe untouched by this evolution of AI

for a portion of its growth. I think it'll disrupt entertainment in a larger form over time,

but I think when you embed an AI assistant or chatbot, where you can really start to have

a profound impact is at the consumer services level, and so I gave this example, I forget

who I was talking to, but I have six or seven different airline apps on my phone, and it makes

sense that if I have a wearing tab or one of these AI hardware devices, I can just speak into

or interact with that AI and it books out all of the services I need or is just intuitively

listening to my conversations and prompting me then to go and check Delta for flights,

and I think that's where it begins to obfuscate around the app layer versus the OS. I think it

sits into this intermediary position where it is both the application and the operating system

as one, and I think it disrupts services first and then entertainment in a broader sense later.

It's disrupting entertainment today, but I don't think it's going to really have a profound impact

on Instagram or TikTok for a few years. On the application piece, the main reason we want to

have some sort of smooth interfaces because we know our preferences most intimately,

so we want to be able to sort through that, but at the end of the day, that's just an API

surfacing that information and as long as my agent has some awareness of my preferences or can

surface two to three of my preferences, it takes a lot of that just sort of, okay, let me scroll,

okay, let me type in New York JFK to LAX. All that can just go into here are the three flights,

and it's going to know your preferences and then it'll just be like, do you want to buy

JFK to LAX at 6 a.m.? Yes, it moves really quickly, and then it becomes a question of like,

okay, well, what are the roles of any sort of aggregator, if my OS can be that aggregator,

so things like price line type businesses, expedia type businesses really, I think are the

things that really come into question in this environment. Totally agree. To what you're saying,

Reggie, I think this applies beyond just commerce, but software broadly and connectivity,

and I've said this before, but it's like, right now we take for granted, or we don't appreciate

how bad software is, right? It seems amazing because it never existed before, right? Amazon

one-click checkout, right? Like, wow, this is frictionless. This is amazing. Ecommerce is booming.

It's like, wow, the workday kind of extended because of mobile, and now you're always at your

job, and it's like, that's just the beginning. One-click checkout is still a pain because you

have to do this curation, right? Google flights, search through all of that. It still seems like

we're unconnected if you leave your phone at home or it's off for whatever reason,

and then we're going to enter this phase where curation is that next level of frictionless

software, and if you're wearing an AI wearable, your life becomes connected, and if you're

doing a job that's connected to the computer, it becomes even more 24 seven than you'd ever

have imagined. Andrew, I know you were trying to jump in. Sam, just to maybe coin a term here,

but I think what you and Reggie just surfaced for me is like, we're moving to one search checkout,

right? You just have this search brought to you, and it's just exactly what you want,

and you don't need to really do anything after that. So it compresses the funnel of search checkout,

shopping online into a kind of instantaneous transaction that you didn't really even think

you maybe wanted or needed, but when you see it in front of you, you're like, wow, that's exactly

what I was thinking I was going to do. I like it. I like it. One-click checkout after hours of

browsing Amazon reviews to single search checkout. Single search checkout.

I think what's interesting here, though, is that in order for like an OS level AI assistant to

be that personalized or be able to handle that kind of curation, I think what was kind of implied,

correct me if I'm wrong, with these new hardware, AI hardware is like the continuous listening and

ingestion portion, right? And my question is like, in terms of like consumer privacy, I feel like

the iPhone at launch wasn't really feared as a surveillance tool, and that association kind of

developed as the App Store ecosystem grew, and there were controversies around individual apps.

But I think like with these new AI hardware examples that we discussed, it seems like that kind

of quote unquote surveillance aspect is the initial value add. So I'm just wondering like,

does that pose a material obstacle to user adoption?

Yeah, I think it always does, particularly because I think part of the reason we didn't view the iPhone

as surveillance is because like surveillance capitalism hadn't even been written yet, right?

Like, I don't even think we had that language. And at the end of the day, there was, there's,

there still is like a deep trust around Apple as a brand, right? So I think the brand trust,

the brand storytelling is going to be a key differentiator in like what anyone is willing

to put on their body. And that that has nothing to do with form factor has nothing to do with

anything, you know, unless it's a giant fricking leaping thing, obviously that form factor would

get destroyed. Then, then I think, you know, there's so many ways for that data storage to happen.

And whether, you know, it's folks leveraging kind of like web three tech, whether it's a sense of

like, no, this data lives on my, you know, personal device and it's non networked and

the way that your hardware and software gets upgraded is just like hardcore like model upgrades

and not necessarily something that has to do with like the parent company cleaning through your data.

You know, I think we are going to have to unleash a new sense of when we update software,

what are we touching versus not touching, right? Because I think there's a sort of

cultural understanding right now that all of my apps, all the data of my apps live external to me.

And I think part of what's cool about new hardware, just as a category is we can

reset or present new values on how we think about personal data and how those companies

think about personal data and how to leverage personal data, ultimately for the benefit of

the end user, right? And that means that maybe the software that leverages that data is going

to change drastically. I think that's what like, you know, LLMs represent that crypto has represented

that for a while. Regi, I'm curious, I have one question for you. You know, in hearing you talk

about these new hardware devices and hearing the story about Avian tab and how it is integrated

into the iPhone, do you think that Apple has a chance to help create this new ecosystem or do

they just stand against, you know, the values of what this new evolution in hardware could be?

I think the change of the to the USB-C port at the end of the iPhone

is a deceptive way that they can support it tomorrow, you know? And I think like jailbreaking

is going to come back into style because of that within like a niche scene, right? But if they

recognize that like, okay, this is from all like, you know, early 2000s standards like a super computer

today, and how that can be leveraged, you know, they already have some soft ideas between like

even sharing power, right? It's kind of a, it's small, but it's a really sick just like

base concept of like, yeah, this thing is also a battery for your friend's device.

But I think Apple is just so, you know, they have to now be on the defensive when it comes

to privacy that I don't think they can take that sort of cultural stance. They can't like take a

any object and plug into this core object, right? Because then I think, you know,

the counter forces to that image, I think are too great for them, right? So it's going to have

to be more traditional and how they do it, which is like Bluetooth and things like that today.

But people are already doing USB-C things. I have friends doing it now.

So, receipt. And it's, you talk about form factor too, right? Whether or not Apple is actually to

execute, you know, everyone throws out AirPods, you throw a camera on them, or even, you know,

the Apple watch, if you want to talk about a innocuous way to record everything, it's like,

you wear a pendant around your neck, you wear a pin, you know, those are like classic, this person's

a spy. If you're, if you're just wearing, if you're just wearing a watch, that's a far more

innocuous form factor. Or at least a cooler spy. Yeah, exactly. So then I guess Andrew and Reggie

will answer simultaneously. I'll give you a countdown. What percent of the population will

be wearing, or will, you know, have a non-smartphone hardware device in 2030?

All right. You guys ready? Andrew? Three, two, one.

80%. Wow. Delayed and, and, and low. All right. Well, let's, let's just, let's, let's dig

into this a little and then, and then we can wrap it up. Why, why the huge discrepancy here?

I guess Andrew, we'll start with yours. Why, why 10?

Well, I'm just thinking about like how we moved from just mobile in the late, I guess early 80s

into the iPhone moment that took a while. So I was just thinking along those lines in terms of

like to get to smartphone adoption, but maybe I should backtrack and think about just mobile

adoption as a proxy. I don't know. I haven't really done the work here. You're kind of putting me

on the spot. That's why it's a brainstorm. Reggie, Reggie, 80%. That's, that's pretty full adoption.

So what, what are you thinking? Yeah, I just think our speed cycles are faster, you know,

to, to Andrew's point. Like I just think, did people think chat GBT would have like the adoption

curve it did? Like, I think we're just going faster and naturally, you know,

chat GBT and then two and then three, like those were quiet and then it was explosive, right?

But let's say this is not a good comparison, but I just think about companies that were quiet

and then huge adoptions like Roblox was quiet for like, you know, six years ish, then huge.

Chat GBT are open AI in general, quiet for like three years ish, four years ish, and then like

really pop in. And I think that's just going to keep compressing. I also think like,

Avi built this piece of hardware basically off of like, you know, Adderall and work ethic

from April to its first hundred units sold, you know, in like October 1st or end of September,

right? That is like the our ability to build first versions of things and really get that

feedback loop and on hardware is compressing, you know, it didn't take him a trip to Taiwan.

Other things will, a lot of things will humane, you know, I assume they're flying to Taiwan

nonstop, right? And so I'm not, I'm not saying that it's still not hard and insanely labor

intensive. I think the speed is genuinely faster. I think the hunger is really there. And

it's not the same switching costs as, let's say, Android, right? Like some of these devices will

be accessories and not full replacement tab is an accessory humane is trying to be a full

replacement, right? That's why they demoed a phone call. I think if you asked me for replacement

devices, I'd be like, you know, if you're just saying a hardware in general, that either it sits

on your desk or it sits on you or, you know, it's some companion device that that I could just see

is as significantly higher or faster. Amazing. Andrew and Reggie, I was thinking about mobile

replacement, maybe give me some credit on the low balling of the number.

No, I was, that's how I understood the question. That's fair. We'll see. Amazing.

Andrew and Reggie, thank you so much for joining. And I'm sure we'll have many more of these

conversations as the development does happen quite rapidly. Thanks for having me.

Awesome. Nick, now on to the last topic of the day. We've got Tesla cutting prices.

Slashing prices. Slashing. And that's what that's what I want to address. First,

I just want to put this in context and I'll pull up a chart here so everyone can see.

And really what you can see is that this is going just below where prices were

in the 2019 timeframe. And so you had this peak over COVID and that was a lot of supply chain

issues, commodities spiked. And now the prices are coming down. I actually think this is going to be

foreshadowing what will happen to other automakers. And then the other element I want to just flag

here quickly is that the Model Y and Model 3 are less expensive without subsidies than the average

new car in the United States. So average new car, 48,000. And the Model Y and Model 3 are below that.

And with batteries and electric vehicles, we are seeing cost declines. So for a long time,

it was, okay, when do we get to price parity? Last year we were at price parity, but then there

was a number of price fluctuations as macro environments changed. Now we're back below

price parity. And what I tweeted out was saying, life after price parity is fun. There's no reason

why batteries, which are the largest cost input into electric vehicles, should stop at price

parity. That would be quite the coincidence if that was it. And so what we should see and what

Wright's law suggests is we'll continue to see costs for electric vehicles decrease. And you'll

either have new models come out, costs will continue to come down, or kind of tying back

to the iPhone. You'll see that these existing models will sit in the same price segment,

but performance will continue to increase dramatically. And so I think this is really

exciting. I think there's a lot of noise out there talking about price cuts, should they be

advertising. I think it's worth taking a step back and seeing where this is in the context of

overall cost declines and where EV prices are going overall.

Yeah, I think I agree with you. I mean, you know my thoughts on the chart that you had around the

price cutting with Tesla, which I think is interesting because interest rates are much higher

today than they were three or four years ago. And so this is, I think, a move by Tesla to

stimulate demand. And I think Elon's even gone on record saying that they are happy to forego

revenue and profit today because they believe that the autonomous opportunity tomorrow is

much greater than the profits they get from just selling in a car today. So they just want to seed

the market with as many vehicles as they can. And I think you also have another chart which shows

that what a consumer would pay to finance a Tesla today versus I think in 2019, Sam,

is pretty much the same even though the interest rate environment has changed drastically.

Which I think is great for the consumer. Yeah, I'm glad you brought that up

because I was going to forget it otherwise. So interest auto loan just quickly pulled 2019.

It was like 4.7% in 2023. It's like 7.5%. So that's a 57% increase in the interest rate for

auto loans. And so you have the vehicle monthly vehicle price, assuming 20% down payment,

staying roughly identical between 2019 and today. So exactly what you're saying.

Obviously demand at a certain price is the way the real world works. And so Tesla is making sure

that consumers can still afford the vehicle despite this 57% increase in interest rates.

Thank you everyone for joining us this week. We will be back next week with more exciting topics.

Hope you enjoyed. Leave comments and questions and we'll try and address them.

All right. See everyone. All right. See everyone.

Machine-generated transcript that may contain inaccuracies.