When AI is the dominating tech platform in three years, we will look back on three days as the genesis of the movement: the launch of ChatGPT in November 2022, the Microsoft event yesterday, and the Google event today.
Yesterday, Microsoft announced an upgraded version of Bing that integrates OpenAI's ChatGPT service and a new version of Edge that has ChatGPT and this upgraded Bing built right into its fabric. Google today demoed largely similar things, although they named their AI Bard, which gives them a few extra style points (nobody holds a candle though to Ernie Bot, who I will lay my life down for).
Here are my main thoughts on what has played out in the last 48 hours...
There's been a lot of commentary on how OpenAI and ChatGPT caught Google "standing still." That is correct, but only insomuch as I think Google did that on purpose. I would bet a lifetime's worth of Google Ads credits that Google has had this AI-powered chatbot and query answering technology for quite awhile and has just been sitting on it because every day that passes where this technology isn't commercialized is a day that they didn't have to worry about disrupting their highly lucrative ad-based search business. Google was tactically on pause, waiting for someone to move first. I think they probably played this right.
That being said, I suspect Google is currently behind OpenAI and Microsoft in this race. For starters, their presentation demos weren't really as impressive as those that Microsoft showed (though maybe part of that was because Google's presenter had the charisma of a Taco Bell dollar-menu taquito). But also Google made a comment about how they will initially be deploying a "lightweight version" of their AI system LaMDA so they can deploy it to more users without incurring the significant computing costs of the full version. Maybe this is partially true, but I wouldn't be surprised if they're just giving themselves an out whenever the memes start popping up about how much better ChatGPT is.
In both the Microsoft and the Google presentations, they highlighted how even when AI is deployed to directly answer a user's query in their search tools, they will still be driving tremendous traffic to third-party websites by giving users links to "dive deeper," similar to how search works today. I just don't see this being true. If users are able to ask an AI chatbot a question and get a really solid answer at the top of the page, they're not going to want to dig deeper the high majority of the time, and if those users aren't getting a really solid answer, then the product sucks and will fail anyways. Research has shown that already about two-thirds of Google searches end without the user clicking into another webpage, mainly as a result of Google's existing "featured snippets" and "People also ask" sections. The better your AI gets, the less traffic you're generating for other sites, and therefore the less advertising revenue you're making. I expect search ad revenue to decline steeply as these products continue to improve. The company who wins this battle might be the one who has the least to lose by cutting back on that third-party website traffic flow, and that's Microsoft given how minuscule search currently is in their business model.
To compensate for this loss in ad revenue, I bet Google and Microsoft both launch paid subscription versions of their search services within the next three years. They will need to find a way to compensate content creators for using their data to generate AI query answers, and the simplest way to do this is to effectively turn into a much less hype version of Spotify: charge a monthly fee, and pay a portion of that monthly fee to the content creators (i.e. news outlets and other third-party websites) that give value to your service.
I think Microsoft is poised for an amazing renaissance with this jump into AI. The ChatGPT brand they're working with is very hot right now. Market share for their Edge browser is slowly climbing. The Bing brand sucks but hey it's still a name we are all familiar with, and that's worth an awful lot. Microsoft is as big of an existential threat to Google right now as Google was to Microsoft in the mid-2000s. Game on.
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