Microsoft’s big investment in ChatGPT should shake the competition

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 this is the dominant force in AI among its Big Tech peers. And the Redmond-based software giant’s $10 billion investment in developer ChatGPT OpenAI could be the key to making it happen.

The move, announced Monday by Microsoft and OpenAI, will allow Microsoft to deploy GPT-3, the service on which the generative AI chatbot ChatGPT is based, and other platforms on its various cloud-based services. And it could cause problems for competitors ranging from Amazon (AMZN) and Google (GOOG, GOOGL) to Salesforce (CRM).

“It tells you a lot that a week after announcing some pretty significant layoffs, Microsoft is also announcing a substantial investment in OpenAI,” Gil Luria, technology strategist at DA Davidson, told Yahoo Finance. Microsoft laid off 10,000 employees last week across a slew of departments.

FILE - In this Wednesday, Nov. 30, 2016, file photo, Microsoft CEO Satya Nadella listens to a question during Microsoft's annual shareholder meeting in Bellevue, Washington.  Nadella wrote an autobiography recounting his efforts to transform the tech company with a focus on empathy and changing his corporate culture.  The book, “Hit Refresh,”  also reveals some personal challenges, such as his risky decision to change his green card to a temporary work visa in the 1990s so his wife could join him in the United States.  (AP Photo/Elaine Thompson, File)

Microsoft CEO Satya Nadella is investing billions in artificial intelligence technologies to put Microsoft ahead of rivals including Amazon, Google and Salesforce. (AP Photo/Elaine Thompson, File)

“It tells you that’s where they think a lot of Microsoft’s future growth can come from, and that OpenAI-developed technology can bring meaningful improvements to a wide range of products for them.”

Microsoft’s investments should help it make AI-powered improvements to its Azure platform, provide better features for its various productivity and enterprise programs, and could even make its Bing search engine a worthy competitor to market leader Google.

But GPT-3 isn’t without its flaws, and Microsoft’s rivals aren’t just waiting for the Windows maker to become an AI juggernaut. They make their own investments hoping to cut Microsoft.

OpenAI could give Microsoft the edge over the competition

OpenAI gained popularity with the release of its DALL-E AI powered image generation software in 2021. The company introduced a second version last year. The platform generates images based on the prompts you specify. For example, typing “A cat riding a dinosaur digital art” will create an image of a cat riding a dino in digital art style. They’re not perfect images, but they get the message across.

An image generated by DALL-E 2 using the prompt

An image generated by DALL-E 2 using the prompt “A picture of a cat riding a dinosaur digital art.” (Picture: OpenAI)

ChatGPT, on the other hand, is a generative AI chatbot that can spit out human responses to prompts. Ask him a question like how far is the moon from Earth and he’ll tell you. Ask him to write a story about a maniacal barber who eats human hair, and you’ll get an incredibly bizarre story about it.

But OpenAI’s capabilities aren’t limited to hair-hungry cats and stylists. Analysts say it could be a boon to Microsoft’s cloud, enterprise and search businesses.

“OpenAI tools can be integrated into various [Microsoft] platforms, including Outlook and Office 365 productivity tools,” Wedbush analyst Dan Ives wrote in a research note.

“With ChapGPT, Azure cloud infrastructure can deliver new services never before seen in the Azure ecosystem, including AI-powered digital assistants and financial services to tap into a new customer base looking for alternative solutions for cloud products. “, he added.

These types of investments would help Microsoft take on both Amazon, which is the leader in cloud services and has 34% of the global market, according to Synergy Research Group, and Google, which has 11% of the market. Microsoft holds 21% of the market.

Amazon and Google both offer their own AI capabilities as part of their cloud platforms, but OpenAI technologies are much more popular and could attract more customers to Microsoft’s services.

A story generated by ChatGPT using the prompt

A story generated by ChatGPT using the prompt “Tell me the story of a maniacal barber who eats human hair”. (Picture: OpenAI)

Microsoft, Ives predicts, could also integrate its OpenAI investments into its various gaming initiatives, giving it a competitive advantage over Sony (SONY) and Nintendo (NTODY).

One of the biggest potential opportunities for Microsoft is to use OpenAI’s technology to improve its Bing search engine. With only 3% global market share, Bing is far behind Google’s search engine, which holds 92% of the market.

But Google Search answers questions in rigid, mechanical language. With GPT-3-like capabilities, Bing would be able to answer queries with more natural wording and even allow users to follow along with secondary questions and answers.

“When we start integrating generative AI into search, it will dramatically change the nature of competition in the search market and give Bing an opportunity it really hasn’t had in decades to compete. with Google search,” Luria said. “It’s a very big opportunity now that the search market is going to be a… jumping ball again.”

Microsoft’s dominance is anything but assured

That said, there’s no guarantee that the billions Microsoft is pouring into OpenAI will ward off its rivals. ChatGPT, GPT-3, DALL-E and their ilk are impressive technologies, but they are not infallible.

The platform requires huge amounts of data to learn how to answer queries. ChatGPT, in particular, is an offline-only platform that was trained on 2021 data, which means you can’t do things like ask it for 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 the same when you sign up to use ChatGPT.

It will also be difficult for Microsoft to dislodge Google Search from its position as the world’s leading search market share. The company name is ubiquitous in online searches. Heck, it’s even used as a verb to search for information online.

“Google is part of the fabric of the internet based on the number of users,” Gene Munster, managing partner of Deepwater Asset Management, wrote in a research note.

“I think the company has four products with over 1 billion monthly users, including Search, Chrome, Gmail, and YouTube. Additionally, I think they have two products with over 500 million monthly users, including Google Drive and Google Photos. User retention is a powerful competitive advantage for Google, and that means GPT-3 must be 10 times better than anything Google will announce,” he said.

For Microsoft to win, it’s going to have to keep working with OpenAI to develop tools that can put competitors to shame. It could take months or years, depending on how quickly the duo can iterate and combine OpenAI’s technologies with Microsoft’s services. But if it can succeed, Amazon, Google and Salesforce could be in serious trouble.

Through Daniel Howley, technical writer at Yahoo Finance. follow him @DanielHowley

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