Wednesday 25 January 2023
Microsoft’s $10 billion investment in OpenAI draws attention from Amazon, Google and others
Microsoft (MSFT) is pulling out all the stops to ensure it is the dominant force in AI among its big-tech peers. And the Redmond-based software giant’s $10 billion investment in ChatGPT developer OpenAI could be key.
The move, announced by Microsoft and OpenAI on Monday, will allow Microsoft to leverage GPT-3, the service on which generative AI chatbot ChatGPT is based, and other platforms across its various cloud-based services. And that could mean trouble for competitors from Amazon (AMZN) and Google (GOOG, GOOGL) to Salesforce (CRM).
“It’s telling that Microsoft is also announcing a significant investment in OpenAI within a week of announcing fairly sizeable layoffs,” Gil Luria, technology strategist at DA Davidson, told Yahoo Finance. Microsoft laid off 10,000 employees across a variety of departments last week.
Microsoft CEO Satya Nadella is investing billions in AI technologies to put Microsoft ahead of competitors like Amazon, Google and Salesforce. (AP Photo/Elaine Thompson, file)
“It tells you that they believe that much of Microsoft’s future growth can come from there, and that the technology OpenAI is developing can bring significant improvements to a wide range of products for them.”
Microsoft’s investments should help the company build out AI-powered enhancements to its Azure platform, offer better features across its various productivity and enterprise programs, and could even make its search engine Bing a worthy competitor to market leader Google.
But GPT-3 isn’t without its flaws, and Microsoft’s competitors aren’t just waiting for the Windows maker to become an AI juggernaut. They make their own investments in hopes of cutting off Microsoft.
OpenAI could give Microsoft a competitive advantage
OpenAI gained popularity with the release of its AI-powered imaging software DALL-E in 2021. The company introduced a second version last year. The platform generates images based on the prompts you provide. For example, typing “A cat riding a dinosaur, digital art” creates a digital art-style image of a cat riding a dino. They’re not perfect pictures, but they get the point across.
The story goes on
An image generated by DALL-E 2 with the prompt “An image of a cat riding a digital dinosaur.” (Image: OpenAI)
ChatGPT, on the other hand, is a generative AI chatbot that can spit out human-like responses to prompts. Ask him a question about how far the moon is from earth and he will tell you. Ask it to write a story about a mad barber who eats human hair and you’ll get an incredibly bizarre story about it.
But OpenAI’s capabilities extend beyond just cats and hairy stylists. Analysts say it could be a boon for Microsoft’s cloud, enterprise and search companies.
“OpenAI tools can be integrated into different ones [Microsoft] Platforms like Outlook and Office 365 productivity tools,” wrote Wedbush analyst Dan Ives in a research note.
“With ChapGPT, the Azure cloud infrastructure can deliver new services never before seen in the Azure ecosystem, including digital assistants and AI-based financial services, to tap into a new customer base looking for alternative solutions to cloud products “, he added.
Those kinds of investments would help Microsoft tackle both Amazon, which is the leader in cloud services and owns 34% of the global market, according to Synergy Research Group, and Google, which owns 11% of the market. Microsoft holds 21% of the market.
Both Amazon and Google offer their own AI capabilities as part of their cloud platforms, but OpenAI’s technologies are much more vibrant and could attract more customers to Microsoft’s services.
A story generated by ChatGPT with the prompt “Tell me a story about a crazy barber who eats human hair.” (Image: OpenAI)
Ives predicts that Microsoft could also package its OpenAI investments into its various gaming initiatives, giving it a competitive edge over Sony (SONY) and Nintendo (NTODY).
One of the biggest potential opportunities for Microsoft is using OpenAI’s technology to improve its Bing search engine. With just 3% of the global market share, Bing is by far the second search engine from Google, owning 92% of the market.
But Google searches answer questions in stiff, mechanical language. With GPT-3-like capabilities, Bing would be able to answer queries with more natural phrasing and even allow users to follow up on secondary questions and answers.
“If we start to bring generative AI into search, it will fundamentally change the nature of the search market and give Bing a chance it really hasn’t had in decades to compete with Google search,” said Luria. “It’s a very big opportunity now that the search market is becoming a… bouncy ball again.”
Microsoft’s dominance is far from assured
However, there is no guarantee that the billions Microsoft is investing in OpenAI will crowd out its competitors. ChatGPT, GPT-3, DALL-E, and the like are impressive technologies, but they’re not foolproof.
The platform needs huge amounts of data to learn how to respond to requests. ChatGPT, in particular, is an offline-only platform that was trained on data from 2021, meaning you can’t ask them about the weather or even who won the midterm elections.
And while the software is impressive in how it responds more naturally than other platforms, it’s not always accurate. OpenAI says so when you sign up to use ChatGPT.
It will also be difficult for Microsoft to oust Google search from its position as the world leader in the search market. The company name is omnipresent in online searches. Hell, it’s even used as a verb to look up information online.
“Google is part of the structure of the internet based on the number of users,” Gene Munster, managing partner of Deepwater Asset Management, wrote in a research note.
“I believe the company has four products with >1 billion monthly users including Search, Chrome, Gmail and YouTube. Also, I believe they have two products with >500M monthly users including Google Drive and Google Photos. Retaining users is a strong competitive advantage for Google and means GPT-3 must be 10x better than anything Google will announce,” he said.
For Microsoft to prevail, it must continue to work with OpenAI to create tools that can outperform its competitors. That could take months or years, depending on how quickly the duo can iterate and couple OpenAI’s technologies with Microsoft’s services. But if it does, Amazon, Google, and Salesforce could be in serious trouble.
By Daniel Howley, technical writer at Yahoo Finance. follow him @DanielHowley
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