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Microsoft: The Return of the King

March 21, 2023

Author: CryptoSherry

Microsoft failed to capitalize on two major technological eras, the internet era and the mobile internet era. Over the past decade, Microsoft has consistently lagged behind its rivals, including Google and Amazon, in terms of market competition. However, over the past few months, Microsoft has made a significant comeback in the tech industry. The company has introduced ChatGPT that have helped it regain its status as a leader in the field. In the first quarter of fiscal year 2023, Microsoft's revenue was $45.3 billion, which are up compared to the previous year, according to microsoft.

OpenAI's Rough Cost and Potential Revenue

Dylan Patel published an article titled "Inference cost of search disruption - LLM cost analysis", which estimated that OpenAI's inference service cost around $694,000 per day (requiring 28,936 GPUs) for 13 million daily active users. Each search cost approximately 0.36 cents. If Google provided similar services, it would increase inference costs by $36 billion per year. It's unlikely that Google would invest that amount of money.

It is estimated that at least 10,000 GPUs were invested by Microsoft in OpenAI's computation for generating the ChatGPT language model, so without the original investment of billions of dollars, outsiders cannot compete directly with ChatGPT in terms of computing power. This does not include the cost of acquiring massive data for training, software engineering to adjust algorithm models, and so on.

OpenAI's revenue will mainly come from providing the ChatGPT API service to developers and businesses. Enterprise clients such as Snapchat, slack and Shopify have already integrated the service into their software. ChatGPT owner OpenAI projects $1 billion in revenue by 2024. With Microsoft's sales channels, the potential for revenue and profit is much greater, given its ownership of the largest developer community, GitHub, and Azure, which has a 23% market share in the US, second only to AWS.

OpenAI's primary objective is to lower prices to incentivize more developers to utilize its ecosystem while also sharing the cost of computing power. By doing so, OpenAI hopes to increase demand and user growth, which could potentially pave the way for an IPO in the near future.

The Impact of OpenAI’s IPO

OpenAI may go public in 2024 if there is strong market demand and investment banks are willing to project revenue exceeding $5 billion, which could support a market value of at least $100 billion. Successful public listing could yield returns of 50-100 times for venture capital firms and help raise funds for investing in AI.

Microsoft, a shareholder of OpenAI, has a profit-sharing agreement with OpenAI that is relatively complex. From the perspective of ChatGPT's issues, the two companies can be viewed holistically. Microsoft plans to integrate OpenAI's technology with other tools such as Bing, Edge browser, Office, Github, Azure, etc., in its ecosystem to expand its influence. While OpenAI's public listing could trigger a surge of investment and create a short-term demand in the AI industry, most investors are likely to lose money due to the narrow and short-lived competitive advantages, reliance on venture capital, and high PE ratios. A lower-than-expected growth rate can lead to a sharp drop in market value.

Investing in high-tech may not necessarily lead to wealth, and the probability of losing money is high. Comprehensive monopolies are necessary for generating wealth in high-tech, and the potential for power and monopoly must be considered in discussing high-tech.

Contribution to Microsoft and Challenger to Google

Azure Cloud reported $19.5 billion in revenue, a 30% YoY increase. ChatGPT's capabilities have shown potential in enhancing corporate users' efficiency, with OpenAI collaborating with Bain to improve Coca-Cola's marketing and operations efficiency. This trend is expected to grow.

Microsoft stands to benefit from ChatGPT's integration with its cloud computing services, leading to increased revenue and a competitive advantage over Google in terms of unit computing power cost, further expanding its market share. The productivity and business process segment, including Office suite, ERP, LinkedIn, and other services, is also poised to gain from ChatGPT's technology, increasing revenue and cost sharing.

ChatGPT is emerging as a formidable challenger to Google's dominant position in the online information and advertising market. The "search and click advertising" business model, which accounts for more than 80% of Google's revenue, is at risk of being directly disrupted by ChatGPT's capabilities. However, if Google responds by employing similar tactics to counter Microsoft's challenge, the added cost of computing power could significantly reduce profits. Additionally, as ChatGPT's features continue to advance, user behavior may shift away from the "search-first" approach, ultimately diminishing the search business model. Google is now facing a challenging predicament.

ChatGPT's potential to revolutionize the digital advertising landscape is garnering significant attention. Google may need to consider its strategic options to stay ahead of the competition or risk being overtaken.

Microsoft's ChatGPT, a language model, is driving the company's revenue and profits, marking a significant comeback for the tech giant. By investing in OpenAI, Microsoft has access to the necessary computing power and data to maintain its competitive edge in the industry. With its extensive developer community, Azure, and GitHub, Microsoft is well-positioned to benefit from ChatGPT's integration with its cloud computing services. This strategic move gives Microsoft an edge over Google in terms of computing power and cost-sharing, making ChatGPT a formidable challenger to Google's dominant position in the online information and advertising market. Thus, Microsoft's resurgence is evident, and it is poised to reclaim its throne as the king of the tech world.

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