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We had lots of news today, including Microsoft’s decision to start breaking out Azure numbers, and Broadcom projecting bonanza growth in its AI chip business in the next couple of years. Oh, and the Trump administration threw its weight behind OpenAI in its copyright lawsuit against The New York Times Co. We have more on all those below.
Meanwhile, you’ve heard of the world’s smallest violin. Google may now be playing the world’s smallest trumpet, having won a major victory in what’s arguably the least important antitrust case out there. That would be the ad tech antitrust lawsuit, the second of the two antitrust cases brought by the Justice Department against Google in recent years, and the second the government won—in theory. But as with the first case—over search—the outcome of this one has gone Google’s way. Its punishment for being a monopoly in both cases is so light as to be meaningless.
A year after the arguments over how to remedy Google’s ad tech monopoly—we’re talking about the Google ad tools used to sell ad space on independent websites—were heard in a Virginia court, Judge Leonie Brinkema issued a tantalizingly brief ruling on Wednesday. She rejected the government’s proposal for “structural remedies”—that is, forcing Google to divest its ad tech businesses—and accepted most of the proposed “behavioral remedies.” In other words, Google can keep its toys but will have to play nicer with others. Big whoop.
These toys aren’t worth much—and their value is degrading by the day. The proportion of ad dollars flowing to independent websites was never great (Google search and YouTube as well as Meta Platforms and Amazon swallow up most ad dollars, after all), and it is shrinking steadily. Some of that is due to AI changes Google made to its search engine, which have reduced the traffic going to websites. But some of it is also that ad money is shifting to video-streaming and mobile apps, two ad markets Google does not dominate. (We explained in this story that Google’s ad tech has fallen behind rivals in those markets.)
By the numbers, Google’s network ad revenue—which reflects the ad tech business—accounted for just 9% of its ad revenue in the second quarter (and that’s before Google forks over a majority share to the websites). In 2018, network ads accounted for 17% of total advertising. (Much of the evidence presented by the government stemmed from the 2010s, not the present day.)
We don’t know the reasons for Brinkema’s ruling, as the full text won’t be released for a couple of weeks, but during the trial last year, she asked whether forcing Google to divest its ad tech businesses could hurt independent websites. It’s a good bet Brinkema took that into account, just as the judge who heard the search antitrust case took into account AI’s impact in deciding how Google should change its ways. Google’s defense was, in fact, that the open web ad market was in decline. It seems the judge listened.
All this is a reminder of the flaws inherent to antitrust enforcement of the tech industry, given how quickly technology-driven markets evolve and how slowly antitrust cases take to wind through the courts.
Microsoft’s Idea of Transparency
Finally! Microsoft is overhauling how it reports its business segments and will start reporting revenue for its Azure cloud unit quarterly, the software giant said on Wednesday. That’s a big deal. Azure is core to Microsoft’s AI business, so we’ll finally get a better picture of how the company is benefiting from AI.
It also means we can compare the big three cloud firms, as both Amazon and Google were already reporting revenue for their cloud units. In the June quarter, for instance, we now know that Amazon Web Services generated $42 billion, Azure generated $29.4 billion and Google Cloud, $24.7 billion.
But hold the applause. Microsoft CEO Satya Nadella said the changes in segment reporting aimed to provide “increased transparency to investors.” Anytime a CEO says something about increasing transparency, you know things are about to become more opaque. In this case, the changes make it harder to figure out the profit margins on Microsoft’s individual segments.
That’s because Microsoft is collapsing three segments into two. It is putting into one segment both Azure and its Microsoft 365 cloud software businesses, which it previously reported in separate segments. We used to see operating margins for those separate segments—the one with Azure had an operating margin of 41% in the fourth quarter, while the one that included Microsoft 365 had a margin of 58%.
In the future, we’ll see revenue for individual units like Azure but not their operating income. That suggests we’re likely to see an operating profit that reflects both cloud and software, making it harder to figure out how the profits of both are separately changing.
That’s not ideal. Microsoft’s pitch, though, is that both the Microsoft 365 and Azure units are sharing AI chips and cloud computing capacity, and that argues in favor of treating them as one segment for reporting purposes. In other words, investors won’t have to worry about how Microsoft is dividing up the chips. Fair enough, we guess.
Trump Finds New Way to Attack the News Media
President Donald Trump’s attacks on the news media are legendary, including defamation lawsuits and calls for TV networks to lose their license over coverage he doesn’t like. But on Wednesday, the Trump administration came up with a new tactic to undermine the news industry.
The Justice Department on Wednesday filed a brief with the court hearing The New York Times Co.’s copyright infringement lawsuit against OpenAI, arguing that training AI models on copyrighted material—the core of the Times’ case—doesn’t violate copyright laws. The administration argued that if the Times prevailed, its approach to copyright could hurt the AI sector, which wouldn’t be good for the country.
“Rules of law that make it significantly more difficult to develop a robust AI industry in the United States therefore threaten national security and give a competitive advantage to foreign adversaries who are not so encumbered,” the government argued. We wouldn’t want “rules of law” to get in the way of anything!
In Other News
• Broadcom CEO Hock Tan projected that the AI chip designer would double AI revenue to $115 billion in 2027 and potentially double it again to $230 billion in 2028. He made the projections as Broadcom reported 86% higher revenue of $29.6 billion in the quarter ending Aug. 2, a sign that its business helping design AI chips for companies such as Google, Meta and OpenAI is continuing to explode (more here).
• Uber is laying off 10% of its workforce, or about 3,400 people, in an effort to streamline the organization by reducing management layers. In making the announcement, Uber CEO Dara Khosrowshahi told staffers that “the vast majority” of remote employees needed to move to an office, reducing the proportion of people who can work fully remotely to about 1%.
• Anthropic co-founder Tom Brown called on countries to build more data centers at the G20 Innovation Ministerial in North Carolina on Wednesday, arguing that adding more computing power would be the best way for governments to benefit from AI gains. He also praised President Trump’s “let data reign” post on Truth Social earlier this week.
• World Labs, a startup led by Stanford University Professor Fei-Fei Li, on Tuesday unveiled Atlas, a new world model that can generate and modify photorealistic, interactive virtual environments based on text, image and video prompts.
• The Supreme Court may wade into a battle between state lawmakers and prediction markets companies after New Jersey regulators filed a petition with the highest U.S. court to rule on whether sports bets offered by startups like Kalshi and Polymarket fall outside state gambling regulations.
• Anthony Armstrong, former chief financial officer at SpaceX’s xAI, is joining Coinbase’s board, Coinbase said.
• Nscale is telling prospective investors it has about $103 billion of total contracted revenue after clinching a $45 billion computing deal with Anthropic, ahead of an initial public offering for the neocloud that could take place as soon as this month, according to documents shared with investors and reviewed by The Information.
• Shares of Snowflake rose more than 20% late Wednesday after the database provider surpassed its earlier forecast for product revenue—its most closely watched sales metric—by more than $70 million for the second quarter ending July 31. More here.
• Meta Platforms announced Wednesday that it’s rolling out another AI model, Muse Spark 1.3. More here.
Today on The Information’s TITV
Check out today’s episode of TITV in which we discuss the security trade-offs OpenAI is making with its new model, Atlas.
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