Artificial intelligence in general and ChatGPT of OpenAI in particular is likely to go down as one of the big technological breakthroughs of 2022 along with fusion energy. It will take a long while for us to fully appreciate the gamut of applications for artificial intelligence and machine learning as well as the economic implications. Australian universities returning to pen and paper exams as students are caught using AI to write essays – see here, is one unintended consequence. But on a serious note, here’s Ben Thompson of the highly regarded technology blogsite – Stratechery, taking a stab at what it means for the world’s biggest tech companies – Amazon, Apple, Meta, Google and Microsoft – who wins and who doesn’t based on their business models and their current capabilities in AI. Ben reckons AI could be epoch defining for tech, business and the world at large, much like PCs, Internet, Mobile and Cloud. For the tech savvy, the whole blog is worth a read as he makes nuanced arguments requiring a deeper understanding in technology. For the rest of us uninitiated, the key implications are as follows:
Ben reckons Microsoft will be the biggest winner of the lot:
“…Like AWS it has a cloud service that sells GPU; it is also the exclusive cloud provider for OpenAI. Yes, that is incredibly expensive, but given that OpenAI appears to have the inside track to being the AI epoch’s addition to this list of top tech companies, that means that Microsoft is investing in the infrastructure of that epoch.
Bing, meanwhile, is like the Mac on the eve of the iPhone: yes it contributes a fair bit of revenue, but a fraction of the dominant player, and a relatively immaterial amount in the context of Microsoft as a whole. If incorporating ChatGPT-like results into Bing risks the business model for the opportunity to gain massive market share, that is a bet well worth making.
The latest report from The Information, meanwhile, is that GPT is eventually coming to Microsoft’s productivity apps. The trick will be to imitate the success of AI-coding tool GitHub Copilot (which is built on GPT), which figured out how to be a help instead of a nuisance (i.e. don’t be Clippy!).
What is important is that adding on new functionality — perhaps for a fee — fits perfectly with Microsoft’s subscription business model. It is notable that the company once thought of as a poster child for victims of disruption will, in the full recounting, not just be born of disruption, but be well-placed to reach greater heights because of it.”
Last week’s reports suggest Microsoft will likely end up owning 49% in OpenAI valuing it at $29bn.
On the other hand, on Google, Ben reckons its virtual monopoly in ‘search’ maybe a thing of the past: “Google’s primary business model innovation has been to cram ever more ads into Search, a particularly effective tactic on mobile. And, to be fair, the sort of searches where Google makes the most money — travel, insurance, etc. — may not be well-suited for chat interfaces anyways.
That, though, ought only increase the concern for Google’s management that generative AI may, in the specific context of search, represent a disruptive innovation instead of a sustaining one. Disruptive innovation is, at least in the beginning, not as good as what already exists; that’s why it is easily dismissed by managers who can avoid thinking about the business model challenges by (correctly!) telling themselves that their current product is better. The problem, of course, is that the disruptive product gets better, even as the incumbent’s product becomes ever more bloated and hard to use — and that certainly sounds a lot like Google Search’s current trajectory.”
However, he is quick to acknowledge that we still haven’t seen Google’s own AI capabilities which have been under development for long. Furthermore, other businesses of Google such as Youtube and its cloud services will be beneficiaries of this breakthrough in AI.
He discusses implications for Apple, Amazon, Meta and Nvidia but ends up with one undisputed winner – TSMC, the Taiwanese Semiconductor foundry which will likely make majority of the chips on which AI will run for the foreseeable future.
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
