Still think there’s no ROI from AI? I’d like you to meet Prosus
A big rest-of-world internet player is making money – and thinks it will make vastly more money in future – from AI. It won’t show up in many ROI studies.
First, a disclaimer. I kinda used to work for Prosus. It was split out from Naspers while I was on the payroll of Media24, a wholly-owned Naspers subsidiary that runs News24.
In fact, I tried to jailbreak a predecessor of what Prosus now calls ToqanClaw, which was made available to us as a Slack integration way back when.
It was not impressive, that early Toqan. It was an opaque front-end to models that were not there yet. Fun to play with (and break), useful in very narrow cases, but a complete waste of time and money and effort.
But that, as they say, was then.
On Monday, Prosus published full-year numbers about which it talked only in between yammering on and on and on about ToqanClaw and its underlying large commerce model, or LCM. It declared itself an AI company building an AI future using AI apps with which it will make other AI apps in an AI lifestyle ecosystem with AI at the bottom, AI at the top, and AI at every level of the sandwich.
This, of course, was almost entirely ignored, because tech companies going on about AI has long not been news.
That would be fine, except that Prosus is a screaming counterexample to the argument that there is no decent return on investment (ROI) on AI, hence we are in a bubble that is going to end civilisation.
That was true of Prosus some years ago, and of many other companies too. It will, in a way, remain true of Prosus in the future.
Financial analysts, naturally, wanted some numbers about this AI thing, so they can plug that into their models. Those won’t be forthcoming, Diego Barreto, the CEO of South American Prosus unit iFood, told them.
[Jargon key: LCM is the Prosus model; SaaS is software-as-a-service; P&L is profit and loss.]
“The answer in the end is you will not see LCM as a specific line of revenue because it is not a SaaS business… You are going to see this inside each of the lines of the P&L of the companies.”
Oh, executives will talk about the ROI, count on it, and if you take the time to cut through the hype you will be able to detect it. But it will never be reported as a hard number that a research study can pick up. If you interview those executives for your study and ask them what their ROI looks like, they’ll say “great”. If you ask for a number, they’ll say they don’t have one. And when you put it in a table later, it will go in as “n/a” or “nil”, and you’ll get a conclusion that says “man, this AI thing, what a terrible waste”.
It’s really not, though, pinky-promise.
Skimming money the hard way
Fine, don’t take my word for it, but then you’ll need to get to grips with how Prosus makes its money.
Start with the fact that this isn’t some bit-player. Prosus isn’t a well-known name in large part because it does not play in the American market, and so gets ignored as rest-of-world companies are. It turned $9.7 billion last year, though, and in parts of Europe, India, and Latin America its operating brands are pretty well known: Just Eat, OLX, PayU, iFood, eMAG, Meesho, Despegar.
Much of its business is about selling stuff it doesn’t own. Prosus doesn’t make the food, it connects you to the restaurant and delivery person in a three-way hookup, and skims off the top.
This is complicated on the order of selling airplane seats, which is perhaps the most complicated endeavour ever undertaken by humanity, including going to the Moon and creating the legal system.
A lot of the time, Just Eat is selling you some food at a loss or taking a loss on an entire order, to get you to buy higher-margin stuff or stay away from the competition or to ensure delivery drivers have enough work to stay online for when the rush comes or whatever. Every pricing calculation is heinously complex, and in a way that is the entire business. If Uber Eats has the better pricing algorithms, it wins. Every cent Just Eat can strip away from the loss-leading side is pure profit.
AI is great at that kind of thing if you have enough data. Prosus has a great deal of data. It claims – and this passes the sniff test – to have distilled the data from a billion consumers into its LCM. Now it can use that to simulate what people will do, and it can run as many simulations as it is willing to pay compute for.
It’s a little scary if you are not yet reconciled to the fact that you are, statistically, utterly predictable. With fast enough inference, Prosus can in theory run some simulations between the time you hit the “order” button and before it quotes you a delivery price to figure out if your low blood sugar makes you a hardarse or an easy mark. More cheaply, it can figure out what kind of consumer basket you fall into (worker on a lunch break, single mom desperate for a treat, retiree with too much disposable income) and throw promotions at you accordingly.
How much money will that make Prosus? We don’t know. They don’t know. You’ll never be able to disentangle the Just Eat profit uplift from everything else that influences a business like that, from the competition to the weather.
We do know that Prosus is making money out of this in South America, and is now doing the same thing in Europe.
We also know that AI is a long, long lever, and that every 1% of profit a system such as the LCM earns is currently worth $100 million per year.
Let’s use that as the basis for some back-of-matchbox calculations. As an investor, I’d be comfortable with a 10% annualised return. If I thought Prosus could eke 1% out of AI, that translates into an investment of $1 billion.
It is spending way less than that, this company that won’t shut up about AI.
Bubbles are as much about sentiment – pre and post – as they are about the actual numbers. And there’s some weird stuff going on elsewhere. There will be failures, and corrections, and panics.
But AI is also making money for Prosus right now, and it’s not about to stop.