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36Kr Holdings (Nasdaq: KRKR) has announced the integration of ChatGPT into its offerings in China. There are several layers of interest in this. 

The first and most obvious layer is that 36Kr holdings is in the business of the production and distribution of content. Money comes back as a result of the volume of content created and the number of viewers of that content. Obviously, a certain care has to be taken with the creation of content but more content does mean, ceteris paribus, more income coming back. The importance of this will be discussed a little later in this article.

The second layer is that, obviously and clearly, ChatGPT enables he creation of more and possibly even better content. At a significantly lower cost. That cost isn't nothing. Anyone who has bothered to test the issue will be able to tell you that it's not wholly as simple as it seems. Attention has to be paid to the initial setup. Asking the right question in the right way can and will produce good content. But it's also easy to produce mere drivel. This means that expert use of ChatGPT is going to be a significant advantage over and above just the general public trying it out. 

That is contrary to what some currently think it's not going to be a tool that creates a free for all online, There will very definitely still be a division into good and useful content produced by those who know what they're doing and that awful material which no one ever reads. Experts will gain a significant advantage ahead of the rest. 

So, folk who know what they're doing implementing ChatGPT could do very well. Further, there's that well known fact that the Chinese market is not noted for being small. So, that's a good piece of news just to start with.

However, there are two more payers to this as well. One of them being the results that 36Kr themselves say they are getting:
 

Meanwhile, ChatGPT's customized services will also enable 36Kr's platform to publish updates on designated topics, send intelligent commentary responses and interact with others via chats, meeting users' diverse needs in real time. So far, the user interaction rate on the 36Kr platform has improved by 90%, greatly enhancing user interaction and stickiness.

That's a significant increase in interactions right there. As we've already noted the marginal cost of more ChatGPT content is not nothing - there're those costs of deciding what to create, or checking what is created - but those content creation costs are still markedly lower than for creating content the old way. 

The effect of that is that gross margins on the new content should be high. And that leads us to the final layer of interest here. It's easy enough for people to claim an idea that's going to be wondrous. But what we're all interested in is profit, of course we are. That means that someone who is already covering their overheads costs is much, much, more interesting to us that someone who is not. As I've said before about KRKR here:

We do know that content provision can be highly profitable, the question of course is whether this specific instance of doing so is. At which point we can look at first quarter results just out. Revenues are up by 14% or so. Well that's nice but not exactly startling. It's also true that the increase in gross profit doesn't hugely excite, at 10%. But then comes the much more important point, that net income was $5.1 million as against a slightly larger loss in the same period a year back.

We get much the same news from the most recent results, net income was $0.7 million in Q3 2022. Yes, indeed, not a huge number but that's not the point I'm drawing attention to. Rather, gross margin covers overheads and fixed costs so an increase in either marginal revenue or that gross margin feeds directly through to that bottom line of net profit.

This could become very interesting.

Now, of course, we've a new technology being applied. As ever with new technologies there can be slips between those cups and lips and so on. So we are not about to say that of course this is going to work out superbly and all should fill their boots here. But it is an interesting story and there are those multiple levels.

Content providers obviously benefit from the lower costs of ChatGPT. But it's still an expert tool so those with significant experience are likely to deploy it better. Finally there're those financial issues. Someone who is already covering their costs will find the benefits of ChatGPT flowing direct through to the bottom line. 

As I say, it's an interesting story here.

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