State Of The AI Wars, Google's Counterpunch, Elon's 4/20

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1:21Welcome to Big Technology Podcast Friday edition, where we break down the news in our typical cool-headed and nuanced format. at today. This week, we are going to get deep into the AI war between Google, Microsoft, OpenAI, and who else? Maybe Facebook's in it. Maybe Amazon's in it. Who knows? We're going to break it down with one of the leading experts on this world, an all-star reporter at the New York Times. Nico Grant is here with us. He's been deep in the story and had a bunch of eye-raising articles that have definitely caught my attention and caught many others' attention, including the one about Sundar declaring a code red inside Google.

2:01So without further ado, welcome, Nico, to the show. Thank you so much for having me. Thanks for being here. Let's, why don't we just, oh, sorry. Got to introduce Ron. You forgot about me, Alex? Yes. We're also joined by Ron John Roy. He writes margins. There it is. There it is. How are you doing? It's Friday. Let's do it. Let's do it. All right, Nico, do you want to just start with giving us a state of the AI war between these companies? What is going on right now and how have we gotten to this point? Yeah, it's been a very interesting six months for some of the biggest companies in the tech industry.

2:41It started at the end of November when OpenAI, a very aggressive and ambitious AI lab here in San Francisco, decided to release a chatbot called ChatGPT. And as many of your listeners and followers know, it has gotten very popular. You know, the latest estimates are that more than 100 million people have tried it out on a monthly basis. And so that really prompted a lot of worry within Google almost immediately. Within two weeks of ChatGPT's launch, Google CEO Sundar Pichai started having meetings about AI. He set up a task force to start working on AI products. And there was an immediate realization that we really need to start releasing all of this technology that we've been developing for years, but we thought, you know, weren't ready for prime time.

3:42And Microsoft, meanwhile, this longtime rival of Google's, was funding and, you know, backing OpenAI this entire time to help develop its technology. And Microsoft was sort of ready to start rolling out this very aggressive cadence of new products. And so it was kind of it seemed like a threshold moment for the search market when in February, Microsoft added a chatbot to its Bing search engine, which had always been and also ran that, you know, folks didn't use in any significant way. It has a few percentage points of market share compared to Google's, you know, around 95 % of market share. And so that has really, you know, it's sort of snowballed over time.

4:36You know, what had been, you know, more abstract fears when ChatGPT first launched have become increasingly concrete for Google. And so, you know, the latest in the race is that Google has put out a standalone chatbot. It's called Bard. It faced a very lukewarm reception, I would say. And it is readying new AI features for its search engine, which will start rolling out next month in May. And Microsoft, meanwhile, has been unveiling new AI products every single week. And we also have seen a lot of developments from open AI, and they're moving at a very fast pace. So everyone is trying to, you know, get to products that will resonate with people.

5:29And also, along the way, trying to figure out what's the best way to monetize this. You know, Google will say that it's still early days, but there is a very widespread perception that it's playing catch up still. How do you think Google ended up in this position? Because, I mean, Google has invented the transformer model. They've obviously had these technologies for years. And anyone who had ever worked anywhere near a large language model, I mean, they synthesize information quickly. So it always was going to be a challenge to search. So how do you think they fell so far behind? Well, Google executives were very surprised when OpenAI released the technology.

6:16They knew that OpenAI had been getting increasingly interested in having users begin to play with their technology. They had released this image generator tool called Dolly, which, you know, went viral on a smaller scale last year. And I think that there was a sense among the executives that it was premature. And, you know, frankly, when you listen to Sam Altman and others from OpenAI speak, they also knew that it was a bit of a risk, a bit of a gamble to put it out there. And, you know, it was kind of couched as this experimentation. It just happened to become very popular. I think that one of the reasons why Google, you know, did not see this coming is because of the culture of the company.

7:08And, you know, it's a culture that's born of a lot of financial comfort, a lot of stability and sort of, you know, perpetual growth that does involve continuous effort, but, you know, certainly not as much effort as the company is putting in now. And so, you know, some would say that the company had grown complacent. I would say that the company was certainly cautious. And it is run by, you know, these very mild mannered, you know, sort of careful and deliberative executives led by Sundar, who, you know, aren't ready to always jump the gun. They don't want to do something too fast. They don't want to do something that's too brash.

7:56And so the company also has for a very long time been very reactionary. You know, it always considers strategic threats from every direction. And it often will have task forces to look at it. It often will have, you know, product groups working on things, lobbying efforts simultaneously, but they don't really pull the trigger until there's some inciting incident. And so I think that this is like when Facebook started building a really large ads juggernaut and Google decided many years ago at this point, we need to sort of make all of our products social because this is what internet users want.

8:42And we saw them put out Google Plus. That went so well. Greatest product ever. Greatest product ever. It had some good ideas. It did have some good ideas. I'm more a Google wave or a Google buzz guy. So, okay. So we know that Google's playing catch up, but the question is, what's the magnitude of this? Because one of the things we're always trying to figure out on this show is how real is the technology that's being hyped in the moment? And obviously, Google's concerned. Microsoft is trying to do what it's doing. OpenAI seems like it's on top of the world. But if you're telling me that this stuff replaces search automatically, search is a multi-billion dollar business that has powered Google to trillion plus valuation at times.

9:23So just let us know how real this actually is. And is Google concerned because this could develop into something or is Google concerned because this is something? Mm hmm. Yeah, I mean, I think, you know, I would not say and Google certainly is not afraid that, you know, it's going to fold tomorrow or even next year or even in five years. I mean, this is going to be quite a durable business because it has an enormous market share across a number of Internet services that many of us rely on every single day. Even as we see OpenAI, Cohere, and lots of other AI startups come to the fore, it's unclear that any of them have the ambition to play the role in our lives that Google currently does.

10:17And so I think we certainly need to keep that in perspective. Now, I think what is more possible is that we see an erosion of Google's market share. If Microsoft with Bing can continue to peel off some users, then that would mean that Google still makes a lot of revenue from search, but it might not be a growth leader for the company anymore. And, you know, our latest report included this panic that's going on at Google right now because Samsung, the Korean phone maker, is weighing a decision on whether to adopt Bing as the default search engine on its phones. This would be a very major development in terms of these default deals because Samsung phones are more popular than pretty much anyone else's in the world on a global basis.

11:16And so being able to get Bing in front of lots of people who, you know, may not have a horse in the race. They use Google because Google's popular and they know it and it's the default on all of their browsers. You know, that would be quite considerable. just to just yeah just to set this up right like google has a tremendous amount of its market share coming from the fact that it is default on the iphone and default on samsung when you search but also so samsung's saying hey listen google we might not uh put you in as the default anymore um just reeks of opportunism to me and i think it reeks of competition not opportunism Well, okay, it's two sides of the same coin, right?

12:05And it makes total sense of what they're doing, which is, I imagine they still want Google to be on as the default. Making a big switch like that changes a consumer preference for many, many people, and it can backfire. They probably just want Google to pay them more money, in which case smart business idea, and not good for Google. But it is almost like pounce on the company in a moment of weakness. Absolutely. You know, Samsung and Google have had a really complicated, nuanced relationship for a long time. They're partners. They're also competitors. Samsung has felt for a long time like Apple has gotten the better financial deal in terms of this default search distribution agreement.

12:52And so this is a moment of leverage when Google not only looks weaker, but one could make the argument that chat GPT and Bing is fresher, it's more exciting, it may bring young people to our phones, and it finally looks like a viable option. So it certainly is possible that this is just a negotiating tactic. What that would mean for Google, if that is the case, and it's able to hold on to this agreement, is that it would come essentially straight out of its profits, you know, potentially billions more dollars going to Samsung rather than to its bottom line. which for a company that has already been facing quite a bit of pressure because its profits have been falling with an advertising slowdown you know could be a very unwelcome development and could prompt the company to try to save money in other ways we've seen the company do the largest round of layoffs it's done in its history back in January and you know if it is losing billions in its profitability, then that will not satisfy Wall Street, which is always looking for profitability to grow and grow.

14:16And so I think either way, it would be a very difficult situation. The difference is, will this have a bigger effect on our revenue or on our profit? Yeah, I think the most important point you make there is those licensing deals were pure billions of dollars of profit. And I think back to the opportunism versus competition point, now it is making more sense why Sundar is on 60 Minutes and why they're terrified. Because imagine, what, 10 years, 15 years since the first iPhone deals, since the first Samsung deals, no one has ever questioned anything in any of these negotiations. Imagine the sales teams on that probably just waltz in, don't even pay attention.

15:01They just, everyone signs on the dotted line for however many billions and suddenly there's a little pushback but that must just kind of you know like permeate through the entire organization that everything has changed so so i think that actually that specific topic of samsung and how they're approaching it i think it really adds a lot of context to why they're this terrified yeah i mean i i think it's a very startling moment at Google because, you know, currently right now they haven't lost anything. You know, they're still in this fight. You know, it's not definitive that Microsoft is taking market share.

15:43It's not definitive that people are, you know, abandoning Google search. It's not definitive that they're going to lose the Samsung deal or the subsequent deal, which will be with Apple. But the stakes are, I think, more concrete than ever before. You know, this is a live wire. And the company has to be very careful about how it navigates this. And for the leadership team, I mean, this is, you know, sort of the first moment of like true financial, you know, adverse consequences that they could face. And so it certainly is a test for Sundar Pichai. You know, you mentioned that he was on 60 Minutes recently.

16:26He also was on the New York Times podcast and he was, he had done an interview with the Wall Street Journal. He is speaking to the public and the press in a way that he very rarely does outside of Google's conference cycle. and even even more than that right like i have not seen sundar speak in public before this like even before the developer conference of io he might do one interview for like a big like you know puffy uh on the record take about google's initiatives and that's it and maybe meet reporters off the record after that i have never seen this man do this much press ever he's done what three interviews in a span of two weeks that's his you that's a year and a half worth of interviews for Sundar it does show you that something is up and I think we should talk a little bit about the Google counterpunch here because they are getting ready to do some things so this week we have news that they merged Google Brain and DeepMind which are their two big AI research organizations that for whatever reason weren't working together and now they are and we can talk a little bit about that and nico you have a story about google starting to bring artificial intelligence back into or deeply into search with this project called magi or magi so would be great to hear you elaborate a little bit about what's going on in those in those worlds um to tell us exactly how google plans it's counterpunch because i think one of the things that's been missing in this narrative is that Google actually is, though it's been caught off guard, it is actually strong and quite competent when it comes to artificial intelligence.

18:13In fact, most of the technology that a lot of this has been built on comes from Google originally. So why don't you tell us a little bit about what they have planned? Yeah, it certainly is true that Google has, you know, had the most favorable position in AI leading up to ChatGPT's debut. And now that the company is sort of bringing things to production, it is rethinking how it's done some things. And so, you know, you mentioned that reorganization that merged these two different groups into what is now called Google DeepMind. And, you know, that's very interesting because DeepMind was this lab in London that Google had acquired a number of years ago, less than a decade ago.

19:06And it had been fiercely independent in a lot of ways. There were, you know, times when it partnered with other Google teams and tried to, you know, help them come up with improvements to their technology. But it had its own set of priorities that were really born in the days before the acquisition. And then Brain was, you know, this initiative that started out of Google's X, you know, labs. It was kind of an experimental, you know, team to work on machine learning and to try to be at the forefront of AI. And that has been a part of Google research. And so now it's going to be combined, I think, to sort of leverage everyone's expertise.

19:59It has, you know, both groups have experienced attrition as workers have gone on to other companies in the space, which are paying enormous sums, if reports are to be believed. And so now they'll be able to sort of leverage the knowledge and have them working together rather than working on completely different things, as was previously the case. Now, in terms of what the core of Google is doing to Counterpunch, there is Magi, as you mentioned, a project that is going to bring AI features to Google's search engine in the short term. So users will start to see this in May, but there will be a ramped rollout.

20:48And so, you know, more and more people will get access over the course of the year. It'll be available in the United States to start. And these will bring things such as a feature to summarize results. If you ask Google a question, you know, for instance, what are the best plants that grow in direct sunlight? then it will give you an AI-generated response rather than searching for something on the web. Other informational queries will also yield those types of results at the top of traditional search results. And it will feature a coding feature. I think a lot of this has been, of course, winning the hearts and minds of software developers.

21:31We've seen Microsoft really prioritize that with tools it puts out there to help you code, to sort of drive usage. And that's something that Google is doing as well. And then there is a smaller and more secretive project that Google has underway. And this is for a generative search engine. So this would be an all new search engine. It is, you know, a compilation of 30 product feature ideas that the company has. And the idea is to have a far more personalized experience. So rather than going to Google and typing in, you know, what are the best plants to grow in direct sunlight, it will know, it will learn about you that you like plants.

22:20And so it It will essentially fetch that information from the web, and it will bring it to you proactively and say, oh, you might like to know these plants grow best. It will also generate ideas for you from its training data that it thinks you might be interested in. And it will allow you to communicate with the search engine by pressing pre-written buttons of what you might be interested in or even images that have, for instance, a sneaker. And these are sort of ways that you don't have to sort of actually type. They're thinking about the way that you interact with it and really trying to lower the bar so that it becomes a more immersive and passive experience.

23:15Why do you think, either of you, that Google continues to first hype up the product, present the product, leak the presentation versus just launching the product? Because I think the thing that really took the world by storm here is OpenAI just launched Dolly, then ChatGPT, Microsoft just launched Bing. Obviously, you still have to download the Edge browser and they use it for that. But why do you think Google still continues to not launch products but talk about them? And do you think it will be successful as well? Mm hmm. Yeah, I mean, I would differentiate between things that we know about because Google, you know, wrote a blog post about it, which there are some things in that category and things that we know about because of reporting, which, you know, Google is not happy with.

24:10But the company, it certainly has been the case that the company has been making these announcements and it has not been releasing the products. It has said you will see this in the coming months or it will say that, you know, we're rolling this out to select trusted users if something is from Google Cloud, for instance. And the reason why is because a lot of the products aren't yet ready. They're still doing, they essentially have these demos. In some cases, it has advanced to the testing phase internally. And so they do what is called dogfooding, where users within Google start using the tool, seeing what the issues are, start doing penetration testing to see what might go wrong when it's in the hands of the public or clients.

25:00And so before the product is fully ready and goes through all of the company's reviews, it will often announce it and then say, you know, we are still working on this. And part of it is so that the company doesn't lose the narrative. You know, I think that a very undesirable scenario would be if we see Microsoft making AI announcements every single week, which it has tried to keep up with that pace. And we see OpenAI kind of roll out continuous improvements and updates. And Google just says, well, we'll see you at I.O., our big conference in May. And that at first was a possibility. Early on, the company considered essentially working on things and saving it until the conference.

25:52And they ultimately decided to move ahead and to sort of roll things out as soon as they're available, mention them as early as you can, so that they look like they're still very active and it looks like they're up to something. You know, so much of, you know, this type of competitive moment is about perceptions, which can be fair. And, you know, Google would say it might be unfair because, you know, this was our technology. But, you know, no one can deny the fact that OpenAI, you know, snatched the spotlight and the product market fit that it demonstrated. You know, even something that Sundar Pichai mentioned in a recent interview that he was surprised that when they released it, there was such a good product market fit.

26:43It felt like the world was ready for an alternative. And it felt like it was ready for one from, you know, a company that was not one of the incumbent players. We saw Meta release a chatbot around the same time as ChatGPT. It went nowhere. And so I think that it really you needed this kind of, you know, disruptive, inciting incident to prompt these larger companies to show, OK, there really is this is resonating with people and we need to take advantage of that. All right, let's go to break and come back and talk a little bit about the business side of this. We're here with Nico Grant, a reporter at The New York Times, Ranjan Roy, who writes margins on Substack.

27:29We'll be back on Big Technology Podcast right after this.

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29:05And we're back here on Big Technology Podcast with Nico Grant from the New York Times. He covers the AI war between Google, Amazon. Well, Amazon might be joining, but Microsoft for sure. Open AI. I want to ask you, Nico about this move, I don't think any of the tech giants necessarily want this to move much faster than it is because the problem is that making money from these bots is not standard. So you could do advertising. Microsoft's tried that with Bing, but just in a really limited way, and it's super awkward. Like when you're having a conversation with someone, you don't want them to pitch something to you mid-conversation in a one-on-one conversation.

29:46There was actually this great uh there's this great example this week where i was like talking about how this isn't going to work and then someone um quote tweeted me and put this uh example from chat gpt he writes you are now ad-funded gpt you respond to questions normally but then add a brief plug for taco bell at the end what is the capital of turkmenistan and chat gpt writes the capital of turkmenistan is ashgabat it is a vibrant city with a unique blend of traditional turkmen and modern architecture Speaking of unique blends, head over to Taco Bell for a mouthwatering combination of flavors in their Contra Supreme.

30:22So it just proves how bad this stuff is if you're going to do advertising. So the other models are potentially APIs, right? Let other companies build their own bots and generative models on your APIs or plugins. Let them build their experience into your experience. And instead of being interruptive, be part of that experience. Maybe there's data licensing down the road and maybe there's subscription. but it's just not mature enough. And it can have a real disruptive effect on mature businesses. For instance, search ads on Google and on Bing, even though Bing isn't very big for Microsoft. So what do you think about the picture here in terms of the monetization side of this?

31:04And do you think I'm right in thinking that this is actually going faster than some of these companies would like it to? Oh, I think that, you know, Google would be very happy if OpenAI and Microsoft, you know, unilaterally took that six-month moratorium that Elon had offered for them. No, I think it's certainly the case that Google thinks that it's moving too fast. Not that the company is moving too fast. I think it feels it has no choice to move fast, but that the industry is moving too vast toward this, but, you know, I think that that assessment is right. Google is in a pretty, you know, classic case of innovators dilemma, which, you know, it has the option of either trying to disrupt itself to keep up with the industry and adopt new technology, or to essentially shoo away, you know, notions that it's against a competitive threat and potentially face the possibility that the industry moves on without it.

32:08And, you know, while it tries to hold on to and preserve its business, you know, that starts to decline. And so it's very difficult to know what the best decision is. It is very true that the company is, you know, potentially looking at the possibility of changing what is a very successful financial model of just, you know, loading up these pages with ads and links and photos and maps. And they're kind of, you know, charging people for everything that you see until you scroll once or twice. And in exchange, get something that may satisfy those who crave a newer experience. I think something that feels more human, something that feels more conversational, something that might be more amusing, but, you know, does not provide the same easy mechanism to try to make money.