The rapid expansion of the generative AI landscape is a major theme for 2023. Despite their size and abundant resources, even big techs and cloud hyperscalers cannot control the entire generative AI ecosystem. These companies have in-house language models, but they are generally horizontal and ill-suited to perform well in more vertical, niche and specialized tasks. Startups such as Anthropic, Cohere, and Hugging Face are creating exciting opportunities to offer alternative platforms, and their emergence has caught the attention of Big Tech.
We believe that Big Tech’s rich deals and selective proximity to generative AI pioneering start-ups demonstrate the depth of their ambitions. With the AI war likely to intensify, this article explores how these relationships are critical to securing long-term product advantage and boosting top-line growth for Big Tech. increase.
important point
- Startups building on these models will generate substantial revenues on the underlying cloud services, so Big Tech expects to be able to popularize the base model at minimal cost and strengthen its market power. .
- Startups have ample opportunity to build specialized apps. Recent moves suggest Big Tech recognizes the potential for immense value in distributing top models of cloud franchises, and early partnerships with trailblazing startups could prove long-term. can be a performance differentiator.
- We believe Big Tech offers a viable channel for investors looking for exposure to promising generative AI startups. As they continue to invest and form cloud and distribution partnerships.
Microsoft bets big on OpenAI
In January 2023, OpenAI raised new funding at a valuation of $29 billion. That valuation made him not only the largest and most notable startup in the AI category, but also his sixth most valuable privately held company in the United States.1 The growth isn’t surprising, as the recent release of the company’s flagship product, ChatGPT, has effectively launched a generative AI arms race among the big tech giants. Just eight years after its inception, OpenAI expects him to generate $200 million in revenue in 2023.2 In 2024, the company expects revenue of $1 billion.3
OpenAI’s product suite includes GPT-4, DALL-E, Whisper, and InstructGPT in addition to ChatGPT. These products enable a variety of use cases such as language modeling, content and image generation, speech transcription, and embedded model development.Four User adoption is growing rapidly. Since its general availability in November 2022, ChatGPT has grown to over 500 million users worldwide. DALL-E has amassed over 3 million active developers since its release in early 2021.5,6
OpenAI’s hefty capital round this January included an investment from Microsoft, putting the tech giant at the forefront of the latest wave of large-scale language models (LLM) and generative AI. Microsoft, which first invested his nearly $1 billion in OpenAI in 2019, strengthened its relationship through his $10 billion investment and partnership in January, becoming OpenAI’s exclusive cloud provider.7,8 The partnership will provide a wide range of commercial and financial benefits for both companies.
As OpenAI’s exclusive cloud provider, Microsoft Azure powers all OpenAI workloads across research, product and API services, and integrates OpenAI’s products into its own consumer and enterprise platforms.9 This has the potential to leverage Microsoft’s distribution arm to quickly scale OpenAI to reach developers and enterprises looking to integrate generative AI into their services.
Microsoft will receive 75% of OpenAI’s profits until the investment is recouped, and then 49% of subsequent profits, up to certain caps. Microsoft is strengthening its own offerings such as Bing, GitHub Copilot, and Office, while differentiating Azure from cloud competitors as the leading global provider of AI cloud infrastructure.10,11 Microsoft’s Azure and other cloud services revenue is up 27% year-over-year (YoY) as of Q3 2023, and despite recent cloud-related headwinds, the deal with OpenAI has We expect that growth rate to increase significantly in the near future.12
Alphabet Complements Internal Efforts with Anthropic Partnership
Microsoft beat Alphabet at OpenAI, but Alphabet’s proven expertise and leadership in AI will likely minimize any negative impact. Alphabet’s internal efforts include successes like Bard, Google’s Language Model for Dialogue Applications (LaMDA)-based chatbot. In his April 2023, the company also introduced Magi, a project designed to improve the math, coding and logic capabilities of Google search via its in-house Pathways Language Model (PaLM) technology.13
In terms of partnerships, Alphabet chose to bet on Anthropic, founded in 2021 by former OpenAI researchers. The final valuation is $4.4 billion. Anthropic is the company behind Claude, his generator of ChatGPT-like text that was released in January.14
With the goal of creating more reliable, predictable, and controllable AI systems, Anthropic differentiates itself from its competitors by focusing on AI safety. Anthropic achieves bias reduction by utilizing a constructive AI learning model that combines reinforcement learning and supervised learning to align AI with human intent.15 The company plans to raise another $5 billion over the next two years to compete with competitors, expand into new industries and, most importantly, develop frontier models. Anthropic, tentatively dubbed Claude-Next, aims to be a new frontier model with ten times the capabilities of the current most powerful AI.16
In February, as part of its foray into generative AI, Google announced a $300 million investment in Anthropic, acquiring a 10% stake in the company. Similar to the agreement between OpenAI and Microsoft, Anthropic will purchase cloud computing resources in a preferred provider partnership with Google Cloud.17 In addition, Google Cloud will build large next-generation tensor processing unit (TPU) and graphics processing unit (GPU) clusters that Anthropic will use to train and deploy its own AI models.18
Amazon Adopts One Platform, Third-Party Partnership Route
In April 2023, Amazon Web Services (AWS), the world’s largest cloud computing provider, announced Bedrock. The platform enables companies to tap into generative AI via pre-trained models from third-party startups such as Stability AI, AI21 Labs, Anthropic, and Titan Foundation Models (FM), an in-house pre-trained model from AWS. You can build your own apps.19,20 Bedrock is focused only on enterprise clients, not consumers, thus providing AWS with a more defined offering.
The recent months of AWS collaborations with generative AI startups, including Hugging Face, could hint at the release of Bedrock. For example, Stability AI, creator of Stable Diffusion, an open-source image generator that rivals OpenAI’s Dall-E, has developed a number of technologies to enhance AI models for image, language, audio, video, and 3D content generation. He chose AWS as his preferred cloud provider. Via Bedrock, Stability AI will then leverage his broad AWS reach to make the open source model more accessible to a wider range of end users.twenty one
In anticipation of future growth likely related to its partnership with AWS, Stability AI has raised a new funding round at a valuation of $4 billion, quadrupling the company’s October 2022 valuation. reportedly pursued.twenty two This potential development not only highlights the synergies of partnering with the technology juggernaut, but also the enthusiasm of venture capital firms to invest in this burgeoning technology.
Meta and Apple choose to ride solo
Apple is no stranger to AI. The company made its first crucial bet on AI in 2010 when it acquired the team that designed Smart His Assistant Siri for around $200 million.twenty three Smartphone assistants struggle to live up to their promises, and some of Apple’s competitors in this space are doing well. However, I don’t think Apple is lagging behind in the generative AI race. Apple’s AI efforts are in-house, tested and refined on its own mobile his apps for photography, fitness and more, and the company’s localized neural networks are expected to offer advantages.
Meta Platforms also recently reaffirmed its commitment to generative AI in a company-wide memo, and it appears to be focusing on building tools in-house. The company recently formed an in-house generative AI team and rolled out several open source frameworks such as LLaMA, his own AI language model, and the Segment Anything Model (SAM). I hadn’t come across those items in my training.24, 25 Similarly, by the end of 2023, we plan to build generative AI tools that will enable businesses to create personalized ads for different target audiences. 26
Emergence of ‘Copilot’ App Benefits Big Tech Pockets
The emergence of copilots and enterprise apps could accelerate as venture capital continues to pour into promising start-ups that can streamline specific tasks. We also expect hyperscalers to generate significant revenue indirectly, as the underlying cloud service providers upon which these applications are built. For example, Jasper.ai built a product designed specifically for sales and marketing content generation. The company, which was last valued at $1.5 billion, has over 105,000 active customers and uses OpenAI’s GPT-3. 27,28 There are countless such examples across industries and functions.
And established tech giants will continue to acquire major start-ups to deliver new capabilities to billions of users or to integrate into existing enterprise and consumer applications. I hope. A recent example is Spotify’s acquisition of synthetic speech startup Sonantic in 2022. This allowed the company to release Generative AI DJ.29 Examples of the future might include an incumbent graphic designer buying a top image and video editing startup, or a social media company buying a major avatar-related business.
Bottom Line: Hyperscalers Are Positioned for the Future of Software
We expect the race for leadership in generative AI to continue and its adoption to grow by the day. To maintain cloud computing dominance and avoid disruption by top startups, big tech companies make their base models easily accessible and invest in startups that build apps specifically for their models. and partnered. For investors seeking exposure to leading privately-held generative AI companies, Big Tech provides the right exposure through partnerships and acquisitions. And given Big Tech’s long-term track record of successfully implementing and diffusing new technologies, exposure to generative AI through them may also be less risky.
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