Endless Shrimp Jesus
This post is about a cynical analogy for understanding the generative AI boom. The analogy is not perfect! It minimizes the (real, even to skeptics) present utility of generative AI, and completely discounts the technology’s hypothesized future benefits. But, as I try to process what in the heck is happening in tech right now, this analogy has been helpful for me. Maybe it’ll help you, too.
Red Lobster just went bankrupt. A particularly funny (if ultimately small) part of Red Lobster’s financial decline was that, over the past year, the company lost tens of millions of dollars selling Endless Shrimp.
The Endless Shrimp promotion, which let patrons exchange $20 for (theoretically) infinite shrimp, has since come under scrutiny. Why would a failing business try to sell as many money-losing shrimp as possible? Perhaps as a loss leader, to get folks in the door, so that Red Lobster could try to make money off of them in other ways? That’s the boring explanation.
Here’s the exciting one: Endless Shrimp was launched last June because Red Lobster was, at that point, owned by its shrimp supplier (Thai Union). Thai Union saw the writing on the wall — Red Lobster was in a tailspin — and wanted to squeeze as much money as they could out of a bad investment. How? Get zombie-Red-Lobster to spend as many of its remaining dollars as possible on Thai Union’s shrimp.
I learned about all of this from Matt Levine. In a recent episode of the Money Stuff podcast, Matt drew on some analysis from Apoorv Agrawal to make an analogy.
The essential conflict of interest here – one company both owning and supplying another – is also pervasive in the AI industry. AI company valuations have been driven by enormous investments from cloud computing companies. Those deals give the AI companies tons of cash, which they turn around and hand right back to their investors in exchange for compute.
So in this analogy:
- OpenAI/Anthropic/Databricks = Red Lobster
- Microsoft/Amazon/NVIDIA = Thai Union
- GPUs = raw shrimp
- ✨ buttons = Endless Shrimp (eat up!)
Again, this is not a perfect analogy. I don’t think that Microsoft thinks OpenAI is a zombie – worth $0 – which they must extract as much value as possible from, before an inevitable bankruptcy; I think they think generative AI is going to unlock wildly valuable new ways of computing and that their investment in OpenAI is going to pay off big-time.
And yet, this idea does help me make sense of a couple of things.
First: how on earth AI companies are flying so high, when the rest of tech is struggling in a “high-interest-rate environment.” It’s not just that the folks who still have money to spare think AI is the next big thing. It’s also that it’s much easier to invest a couple billion in something when you know you’re going to get a bunch of it right back.
Second: the feeling I have, as a user of technology, that I am being offered more, and more, and more AI stuff (shrimp). Shrimp at all costs; shrimp beyond utility, or reason. Don’t these shrimp cost money? How can they afford all of these shrimp? No matter; cloud compute companies are slamming their collective feet on their own growth accelerators. The shrimp must flow.
Through this lens, the reason that generative AI is booming is not that it produces value for customers, but rather that it consumes a lot of what the folks with money to spare are selling. This is a cynical and incomplete model for what’s happening; it doesn’t explain everything. But it has helped me see some things that I was missing.