Welcome to The Upgrade

Welcome to my weekly newsletter, which focuses on the intersection of AI, media, and storytelling. A special welcome to my new readers from Oracle, Oliver Wyman, UCLA, and many other top organizations — you’re in good company!

In today’s issue:

• The Week’s Top AI Stories 📰

• 🎙️The Big Interview: Entrepreneur Salvador Klein on Google’s generative AI-powered search: “It’s the biggest news story in internet history”

• 🎧 The Upgrade Podcast has launched! 🚀

• 🎓 MindStudio No-code AI Dev Course Next Month!⚡️

The Week’s Top AI Stories

Top AI Headlines

• Apple Is in Talks to Let Google Gemini Power iPhone AI Features — Bloomberg

• Apple Quietly Buys AI Startup, Adds Execs to AI Division — PCMag

• Nvidia unveils flagship AI chip, the B200, aiming to extend dominance — Reuters

• Homeland Security is testing AI to help with immigration, trafficking investigations, and disaster relief — The Verge

• In One Key A.I. Metric, China Pulls Ahead of the U.S.: Talent — The New York Times

• He predicted the ’08 crash. Now he’s betting AI will turbocharge the US economy — CNN

Regulation & Policy

• Tennessee just became the first state to protect musicians and other artists against AI — The AP

• The U.N. Gets the World to Agree on AI Safety — Foreign Policy

• House bill would require labeling of AI-generated content — Marketplace

Ethics & Safety

• Photography Is No Longer Evidence of Anything — WIRED

• The Terrifying A.I. Scam That Uses Your Loved One’s Voice — The Atlantic

• Nearly 4,000 celebrities found to be victims of deepfake pornography — The Guardian

Legal & Copyright

• Here’s Proof You Can Train an AI Model Without Slurping Copyrighted Content — WIRED

• Generative AI could leave users holding the bag for copyright violations — The Conversation

• Now it's NVIDIA being sued over AI copyright infringement — Engadget

AI in the Workplace

• OpenAI Courts Hollywood in Meetings With Film Studios, Directors — Bloomberg

• Intel’s chief people officer: Humans need to be at the center of AI — Fast Company

• How AI Owns Higher Education. Now What? — Forbes

🎧 Announcing The Upgrade Podcast! ⚡️

Episode 1: Legitimate Cofounders, Caoimhe & Gerard Donnelly

Listen: Apple Podcasts, Spotify, Amazon Music

💡The Big Interview: Investor Salvador Klein

Salvador Klein is a post-exit founder, angel investor, and advisor to many early-stage ventures. Sal writes a business and entrepreneurship-focused newsletter called The Three Strikes Theory.

Note: This interview has been edited for clarity and brevity

Peter: Tell me a bit about your journey as an entrepreneur. I know you’re a former founder involved in many startups. Tell me your backstory.

Sal: In a nutshell, I started with nothing in a single-parent family on welfare in Canada. So I've always had not much to lose and everything to gain, which is a very good position for a founder to be in, I suppose. Thinking differently and exploring ideas was always very stimulating to me.

I worked in corporate for a while in media and online market research and saw what happened to the media industry when the internet hit. About 15 years ago, I started my own media agency, which had ups and downs. When it had downs, I remortgaged my place in Bondi beach Australia twice to save it. And when I had ups, it afforded me the ability to invest two and a half million bucks into startups—which you can see on my LinkedIn profile. Six years ago, I handed over the operations of my agency to employee number three, who's still with the company. Since then, I've been helping founders by putting my time and money behind people and projects I’m excited about. It was not a deliberate strategy. It was relationships and the people I came across who I liked: their ideas, the ventures they were building that were trying to do some good in the world.

Peter: How did the Three Strikes Theory come about?

Sal: In my professional journey, it's become apparent to me that any company, large or small, is only ever three strikes of good luck away from great success or three strikes of bad luck away from complete disaster. I've seen it with my own eyes in companies, large and small, that I have had direct involvement or relationships with. And that’s why I decided to write this stuff down on a Substack called the three strikes theory to share it. Because I think it’s the single most important business insight I have ever had, and it's a learning worth sharing.

Peter: I love that framework because it is so practical. Can you walk us through an example of what those three strikes could look like?

Sal: The first case study on my Substack is about a startup with three strikes of bad luck that led to disaster. The first case study is a startup in a regulated industry, which means they had a higher barrier to entry because they had to comply with many regulations. From day one, they had some operating cash flow, which negated their need for external investor capital. They got a long way without raising much money and were in revenue growth.

The first strike of bad luck was a Black Swan event: the Russian invasion of Ukraine, which was very hard to predict. Their development team was based in Ukraine. So, of course, that was very disruptive to the timelines. It put them 18 months behind schedule on the first revenues for their B2B product line. Then, about a year later, the second and third strikes happened, but they both happened in the same month. The second strike was increased compliance costs because their revenue hit a certain number. Their monthly compliance costs quadrupled. In the same month, they lost the single largest subcontractor.

So, in the same 30-day period, their costs went up, and their revenues came down. They were 18 months behind schedule for new revenues from their B2B offering. That combination of factors spooked them.

Peter: I'm starting to sweat and get an anxiety attack just listening to this. Three strikes of convergent bad luck, many of them unforeseen. Did this startup survive? Is there a silver lining?

Sal: It did survive, but in a greatly diminished state after a restructure. That added about two to three years to the founder’s journey, which was never the plan. I think that's probably what hurts founders the most. It's not the fact that this happens—all businesses go through ups and downs—but the fact that your journey is just extended by three years to get to the same place you were three months ago. That's what hurts founders and what they struggle with.

Peter: What are some common negative strikes in media businesses these days?

Sal: Google’s search generative experience (SGE) is probably the biggest news story of internet history and, so far, has gone almost unreported. It represents a major first strike for most online businesses, which have likely not even considered its impact yet. Google filed a public patent. They even got a video about it on YouTube. It’s being tested, and we know it’s coming. Here’s what it looks like…

Yesterday’s search: Someone goes to Google, types in a query, and Google's algorithm gives them a list of websites they can click on to find the answer to that query, with some ads at the top.

Tomorrow’s search: Through search generative experience, the same person goes to the same Google with the same query. But Google has copied the entire internet, runs it through their AI and republishes the right article right then and there with some paid ads around the top, instead of giving you a list of organically ranked websites to go and find your answers. So Google becomes a publisher of the answers for you.

Interestingly, it's not the same answer for everybody. It's based on what Google knows about you. So if I go and search for something and you go and search for something, Peter, you and I are going to get differently published answers from Google.

Just imagine for a second that you're an online comparison website that relies 100% on direct and organic traffic and doesn't buy any traffic from Google at all. Imagine if that disappears overnight—you're close to disaster. That search-generative experience is definitely a potential strike of bad luck for every business on the planet, and everyone needs to know about it for that reason.

Peter: That's a big deal—a strike and a half. And why hasn't it made more headlines?

Sal: Perhaps because the first industry that's going to be affected the most by it is the news industry. And the news industry is in a frenemy situation with Google and Meta. They're scared of losing all their traffic, which they need. But their job is to report the news, which they should do. It should be on the front page of every newspaper and every website all over the world: "Google's trying to steal your internet."

The security concerns around having one algorithm determine the answer for me without my consent are just how the tool has evolved. It should be front-page news, and all internet citizens should be aware of it.

The challenge is that the Google business model of search generative experience does remove friction from the process. Today, I've got to search for something, then there's a list, and I've got to do all the searching and clicking around the list, comparing and then decide what the right answer is for me. Google just tells me what the right answer is for me now. That's removed a lot of friction. But that might be a wolf in sheep's clothing.

Peter: It seems like a decision that was clearly made because they're on the defensive, right? Some of these other generative AI, like ChatGPT, famously serve up answers in a personalized way to user queries on their interfaces. So Google has been pressured into cannibalizing its own business model. Google results have gotten bad in traditional searches for a number of reasons, too. They're obviously trying to wring out every drip of ad money they can. Now I see almost half or more of the first page results on a traditional search being sponsored spots: five, six, sometimes seven. It's comical.

But there's also this fundamental challenge of how Google monetizes this. Considering it from their perspective, they're essentially being forced by the competition to become a publishing intermediary and serve up individualized answers directly to users. Putting aside that this is obviously not a good thing for publishers, what are their options?

Sal: Well, I'm not a strategist for Google, so I don't have the answer directly to that. But, what their options are is to uphold a free and open internet. They don't make any money from SEO, or from their provision of SEO. But that is their business model. Their business model is as follows: we scrape the internet, our algorithm essentially ranks all these websites and content, and then we match the most relevant to the queries. That’s it. That's what they've promised us and delivered for the last 20 years.

So they can continue to do that. They've made plenty of money off the back of that business model, which is free for websites to get SEO traffic and free for us to go and search and find a list of websites. They can uphold that business model while delivering less friction in the search experience by giving us, as users, options for a new experience of how to access content. But they have to be mindful that they're killing a lot of businesses who rely on them.

We've seen this playbook before from Big Tech. We saw it with Facebook when they launched likes and company pages and then the ability to buy and promote likes. Brands were spending money to buy followers to their Facebook pages because it was their community. But then what happened was the Facebook algorithm literally changed to say, and I quote, "You should assume an organic reach of zero when you post on your own company Facebook page," because they want you to pay to promote your post to your own audience that you paid to build. We've seen this exact playbook before from Big Tech with Meta. And now we're seeing it with Google…

🎓MindStudio AI Course Next Month! 💻

Ready to learn the fastest way to build no-code AI-powered apps? The Upgrade is partnering with MindStudio to lead its developer certification course. ⚡️

The next cohort starts on Saturday, April 13th, at 10 am ET / 7 pm PT. There are six spots left, so don’t wait!

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Don’t be shy—hit reply if you have thoughts or feedback. I’d love to connect with you!

Until next week,

Peter

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