Wednesday, January 25, 2023
Microsoft’s $10 billion investment in OpenAI puts Amazon, Google and others on notice
Microsoft ( MSFT ) is pulling out all the stops to ensure it is the dominant force in AI among its Big Tech peers. The Redmond-based software giant’s $10 billion investment in ChatGPT developer OpenAI may be the case for just that.
The move, announced Monday by Microsoft and OpenAI, will allow Microsoft to host the GPT-3 service on which its generative artificial intelligence chatbot ChatGPT is based and other platforms across various cloud-based services. And that could spell trouble for rivals ranging from Amazon ( AMZN ) and Google ( GOOG , GOOGL ) to Salesforce ( CRM ).
“It tells you a lot that within a week of announcing some fairly significant layoffs, Microsoft is also announcing significant investments in OpenAI,” Gil Luria, technology strategist at DA Davidson, told Yahoo Finance. Microsoft last week laid off 10,000 workers across a number of departments.
“It tells you that they think this is where a lot of the future growth for Microsoft can come from, and that the technology that OpenAI is developing can lead to significant improvements in their broad product suite.”
Microsoft’s investments should help it make AI-powered improvements to its Azure platform, offer better features for various productivity and enterprise apps, and even make its search engine Bing a worthy competitor to market leader Google.
But GPT-3 isn’t flawless, and Microsoft’s rivals simply aren’t waiting for the Windows maker to turn to AI. They are investing in themselves in hopes of undercutting Microsoft.
OpenAI could give Microsoft an edge over the competition
OpenAI gained popularity in 2021 with the release of DALL-E AI-powered image creation software. The company introduced its second version last year. The platform creates images based on the instructions you set. For example, typing “Cat riding a dinosaur digital art” will create a digital art style image of a cat riding a dinosaur. They’re not perfect characters, but they get the point across.
Meanwhile, ChatGPT is a generative AI chatbot that can provide human-like responses to queries. Ask it a question like how far the moon is from Earth and it will tell you. Ask him to write a story about a maniacal barber who eats human hair, and you’ll get an incredibly weird story about it.
But OpenAI’s capabilities aren’t just about cats and hair-hungry stylists. Analysts say this could be a boon for Microsoft’s cloud, enterprise and search businesses.
“OpenAI tools can be integrated into various tools [Microsoft] platforms including Outlook and Office 365 productivity tools,” Wedbush analyst Dan Ives wrote in a research note.
“With ChapGPT, Azure cloud infrastructure can provide new services not yet seen in the Azure ecosystem, including digital assistants and AI-powered financial services to tap into a new customer base looking for alternative solutions to cloud products,” he added.
Such investments would give Microsoft a leg up on both cloud services leader Amazon, which has 34% of the global market, and Google, which has 11% of the market, according to Synergy Research Group. Microsoft has 21% of the market.
Both Amazon and Google offer their own AI capabilities as part of their cloud platforms, but OpenAI’s technologies are louder and could attract more customers to Microsoft’s services.
Ives predicts Microsoft could combine its OpenAI investments into various gaming initiatives, giving it a competitive advantage over the likes of Sony ( SONY ) and Nintendo ( NTODY ).
One of the biggest potential opportunities for Microsoft is using OpenAI technology to improve the Bing search engine. With just 3% of the global market share, Bing is a distant second to Google’s search engine, which has 92% of the market.
But Google Search answers questions in rigid, mechanical language. With capabilities favored by GPT-3, Bing can answer queries with more natural expressions and even allow users to track secondary questions and answers.
“As we begin to incorporate generative AI into search, it will significantly change the nature of competition in the search market and give Bing an opportunity to be competitive with Google search that it hasn’t really had in decades,” Luria said. “It’s a very significant opportunity where the search market will become a bouncing ball again.”
Microsoft’s advantage is anything but reassuring
However, there’s no guarantee that the billions Microsoft is pouring into OpenAI will sideline its rivals. ChatGPT, GPT-3, DALL-E and their ilk are impressive pieces of technology, but they’re not flawless.
The platform requires a large amount of data to learn how to respond to requests. ChatGPT, in particular, is an offline-only platform trained on data from 2021, meaning you won’t be able to do things like ask it on the air or who won the midterm elections.
While the software is impressive in how it responds more naturally than other platforms, it’s not always accurate. OpenAI says a lot when you sign up to use ChatGPT.
It will also be difficult for Microsoft to dislodge Google Search from its position as the world leader in terms of search market share. The company name is everywhere in an online search. Heck, it’s even used as a verb to search for information online.
“Google is part of the internet structure based on the number of users,” Gene Munster, managing partner at Deepwater Asset Management, said in a research note.
“I believe the company has four products with >1B monthly users, including Search, Chrome, Gmail and YouTube. Additionally, I believe they have two products with over 500 million monthly users, including Google Drive and Google Photos. User retention is a strong competitive advantage for Google, and that means GPT-3 should be 10x better than anything Google will announce.”
For Microsoft to win, it will have to continue working with OpenAI to develop tools that can put its competitors to shame. That could take months or years, depending on how quickly the duo can replicate OpenAI technologies with Microsoft services. But if it can do that, Amazon, Google and Salesforce could be in serious trouble.
By Daniel Hawley, technology editor at Yahoo Finance. Follow him @DanielHowley
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