Sunday Reads #176: Blessed are the paranoid, for they shall win.
Lessons on fear, from the origin story of the most successful app ever.
Hey there!
First up, thanks to all of you who reached out over the last few weeks, asking why I haven't sent out a newsletter in a while 🙏.
Don't worry, I'm fine! (Although I'm down with a bothersome flu as we speak).
Just had a very busy few weeks, away from my reading and writing. Family and work stuff. But I’m so glad to be back!
… aaand I'm still talking about my favorite topic of the year, ChatGPT. But a different kind of story. A story of one particular day in mid-November.
1. Baby, we were born to run.
I've shared so many graphs of ChatGPT's breathtaking traction in the past. But it's been a while, so let me share one more.
Our minds just cannot compute a traction line that's gone vertical. Has any other technology ever expanded so fast? (No). Will any other technology ever expand this fast again? (Unlikely).
Words fail at describing this success. Any hyperbole is an understatement.
Which makes ChatGPT's origin story all the more surprising.
A story of how easily it might have... not happened at all.
Wake up on the wrong side of the bed... and you might change the world.
A New York Times article about ChatGPT starts as follows:
It's so fascinating! As Oliver Cameron says, were it not for one person at OpenAI waking up super paranoid, we might not be seized by AI mania today. We wouldn't be radically reinventing how we work. Google wouldn't be shitting bricks. etc.
Reminds me of Andy Grove's famous admonition:
"Only the paranoid survive".
As Grove says in his excellent book of the same name, Intel's leadership in semiconductors was anything but pre-ordained. The company had many near-death experiences. It only pulled through because it was ready to reinvent itself time and again. (sidenote: As I wrote earlier this year, Intel might not be paranoid anymore. With results to match, alas).
This notion - that a healthy dose of paranoia is essential to survival - is true in any competition. Whether between individuals, companies, or even countries.
One of the greatest stories of human technological innovation is:
The 1960s race to put a human on the moon.
Yuri Gagarin was the first human in space, in April 1961. And a shade over 8 years after that, Neil Armstrong took his first small step on the moon.
When Gagarin went into space, most of the technology to fly to the moon didn't even exist! The US hadn't even put a human in orbit. And yet, 8 years and 2 months later, Apollo 11 landed on the moon.
How did it happen so fast? Was the US just lucky to have the most brilliant scientists?
To paraphrase a popular saying: Paranoia is the father of invention. Especially if it reaches Cold War heights.
The US invested over 25 billion dollars in the Space Race (USD 200+ billion in today's dollars). A massive investment in innovation. They wouldn't dare spend a dollar less, because... well, what if the Soviet Union won the Space Race?
The US and the Soviet Union launched over 50 crewed spaceflights between them in that frantic decade. Always pushing the envelope, lest their adversary gets ahead.
A 1960s version of you might have asked, "Why should we go to the moon at all?"
…
"umm... I dunno. But what if our enemy gets there first and sets up a moon base?"
JFK was far more eloquent, of course.
We choose to go to the Moon. We choose to go to the Moon... We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard; because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win, and the others, too.
"We choose to go to the moon... not because it's easy, but because it's hard." That's a great business lesson right there: when someone's chasing you, run upstairs.
Only the paranoid survive.
And the complacent... die.
So what happens when you stop being paranoid? At some point, you're so far ahead your competitors can't catch you. Surely you can relax then?
Let's see what happens when you slow down and begin to bask in your dominance. We need look no further than the most successful company of the early 2000s.
In 2006, it was the name on everybody's lips. Today... well, you haven't thought about it for at least 10 years.
I'm speaking, of course, of Nokia.
As I said in last year's How Amazon, Zoom, and InMobi became antifragile (and how Nokia became fragile):
Nokia in the 20th century was the archetypal antifragile company. A small company in a small country (Finland population: 5.5 million) somehow became the market leader in mobile telephony. At its peak in 2007, Nokia had 49.4% share of the mobile phone market.
And a mere 5 years later, it was languishing at 3.1% and almost bankrupt.
It was in such a dismal state, that it felt like Microsoft had paid too much, when it acquired Nokia for USD 7Bn (down from its peak of USD 155 bn in 2007).
How does something like this even happen?!
The story of Nokia’s rise is the story of a company that innovated in new technologies.
Invested in digital data transmission tech in the ‘60s, because it seemed… interesting.
Got into a JV with a radio telephone supplier, without a clear market visible.
Invested in digital switches because that was a new technology in the ‘70s. And because Nokia didn’t have the funds to develop its own chips (like its bigger competitors like Ericsson did), it used an x86 microprocessor from some company named Intel in California.
End result - when different countries came together to formulate the GSM standards in the ‘80s, Nokia positioned itself center-stage to define those standards. And wrote its existing capabilities in!
After all that, winning was inevitable.
But then, over time, David became Goliath. The company stopped innovating. It was far more fun to just enjoy the market dominance it had built.
The company lost its muscle memory for innovation.
And with the sudden rise of iPhone and Android, the company found itself on a burning platform. But… the company had forgotten how to jump.
Here's the lesson: You can't set out to build a "stable" business. A "stable" business is not really a stable business. A small external shock, and down it goes. If you want to be resilient, you need to grow.
You can never engineer a business to be stable. It's either growing or it's dying. Those are your two options. Choose.
Now of course, reality is not so dramatic. You don't die the next moment, or the next day. But die, you will. Stasis is not stability. Stasis is death.
That's why Bezos says, "It's always Day 1." Because:
Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.
Just how paranoid can you get?
The story of OpenAI's paranoia doesn't end there.
Even after the release of ChatGPT, OpenAI isn't resting on its laurels. You could forgive the CEO Sam Altman for taking his foot off the pedal. He's just launched the most successful consumer app ever. Signed a landmark deal with Microsoft. Even made the mighty Google quake in its boots.
You could forgive OpenAI for carving itself a pricey pound of flesh. But no.
Max Woolf talks about OpenAI's API pricing in his article:
Everyone knew OpenAI would release an API for ChatGPT at some point. The APIs for GPT-3 alone enable the existence of companies such as Jasper and Copy.ai.
The real question was the price of the ChatGPT API.
For context, when GPT-3 went out of beta in 2021, it cost $0.06/1,000 tokens (a few paragraphs of text). An inflection point happened in August 2022, where OpenAI not only reduced the price to *1/3* ($0.02/1,000 tokens...), but soon after also introduced text-davinci-003 as the default GPT-3 endpoint: a finetuned GPT which can follow instructions very well.
I suspected that OpenAI would charge double for the ChatGPT API compared to the GPT-3 API given the amount of hype, as that’s typical price discrimination since everyone perceives ChatGPT to be much better and that they would not want to overshadow their existing GPT-3 products.
Instead, on March 1st, OpenAI set the price of the ChatGPT API to *1/10th* of the GPT-3 API, at $0.002/1,000 tokens.
Max is right. Standard pricing logic would suggest that OpenAI price up for the ChatGPT API. At least double the price. They'd find thousands of buyers at that price.
But OpenAI went the other way! It reduced the price of the ChatGPT API to 1/10th of the far inferior GPT-3.
OpenAI is throwing down the gauntlet. It's issuing a challenge to its competitors:
"So you think you can build as powerful an AI model as mine? Well, you're welcome to try. But... how would you then possibly beat me on price?"
Taking another leaf out of Bezos' book.
My profit is no one's opportunity but my own.
I used to love this quote, attributed to various athletes:
Every morning in Africa, a gazelle wakes up, it knows it must outrun the fastest lion or it will be killed.
Every morning in Africa, a lion wakes up. It knows it must run faster than the slowest gazelle, or it will starve.
It doesn't matter whether you're the lion or the gazelle - when the sun comes up, you'd better be running.
I guess that's the lesson for us entrepreneurs and business builders:
You better love running.
Because the day you stop running, you die.
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2. Golden Nugget of the week.
I love this. In so many ways, constraints can be good for you.
3. Will AI take your job?
Sure, AI can take away middle-manager jobs. But company leaders add tremendous val...
Got to be more paranoid.
4. This blew my mind.
A few weeks ago, Microsoft released a concept for a new "Office Copilot". It's stunning, and it will *absolutely* change the way we work.
That’s it for this week. Hope you enjoyed it.
As always, stay safe, healthy and sane, wherever you are.
I’ll see you next week.
Jitha
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Loved the piece, Jitha.
Interesting paths emerge with market leadership. You talk of one where leadership leads to hubris leads to complacency. Nokia and Kodak are poster children. Andy Grove cautions against that. But is there another path that's as common. When Jim Collins found some of the companies covered in Good to Great had spiralled into irreversible decline, he investigated them and came up with a theory that sometimes market leadership leads to hubris leads to the 'undiciplinsd pursuit of more'. Circuit City is one such example. More covered in the book How the Mighty Fall.
It's a fascinating insight. Overconfidence doesn't only lead to complacency. It also leads to taking big risks that you don't have a hedge for. For every Nokia there's a Circuit City.