Google vs. OpenAI

As the NY Times reported a couple of days ago, Google red-flagged ChatGPT and created a special AI unit to understand how to tackle that.

There are two threats right now when it comes to ChatGPT.

Indeed, many mostly look at the threat of the AI tool replacing most of Google’s features.

However, the first threat is about negative network effects!

For the last two decades, the improvements of Google have been quite linear, meaning the company had to figure out how to scale its technology to expand its index to the billion of pages of the web while making sure its ranking stayed relevant.

And yet, with the advent of ChatGPT, the risk is the mass of web pages on the web might grow exponentially, and this AI-generated wave is posing a real threat to Google’s ability to keep up.

I’ll explore this threat in the podcast episode at the end of the newsletter.

On the other hand, though, there is a positive side to ChatGPT.

The AI tool has shown such incredible capabilities that we know for sure that it might be able to supplant Google!

Back in June 2007, Steve Jobs announced the iPhone.

That was an incredible product.

Yet the real turning point came when in July 2008, on the same stage Steve Jobs announced the App Store!

That was the moment in which a business platform was created.

From the combination of the iPhone (hardware), iOS (operating system), and App Store (marketplace), we got the birth of a business platform that today is worth many trillion dollars!

Of course, there is much more to the story.

Apple’s ability to build this business platform was a combination of product and distribution (as I explained in the Apple business model analysis).

The business platform is one of the hardest types of businesses to build, and yet the most valuable, as it looks much more like an ecosystem than a company.

A business platform combines elements of closed/controlled touchpoints and open/distributed ones.

For years we’ve been looking at the next business platform, and yet that is come from an unexpected place: Artificial Intelligence!

Indeed, in the last five years, we’ve been looking at various major technologies that could shift the current paradigm. From voice search, blockchain, AR, and VR.

And yet, the business world is quite unpredictable.

2022 made one thing clear; it might turn out to be the year where AI becomes the next business platform. The way OpenAI released its latest products also shows us how things might evolve. Indeed, we might see the rise of three AI layers:

The foundational layer: might be comprised of general-purpose engines like GPT-3, DALL-E, StableDiffusion, and so on.

A middle layer: might be comprised of vertical engines (imagine here you find your AI lawyer, accountant, or HR assistant).

And the apps layer: which might see the rise of a plethora of smaller and much more specialized applications built on top of the middle layer.

For years neural networks got stuck!

Until 2012, Imagenet proved that they could work.

However, even there, pessimism around what neural networks could really achieve was dominant.

In 2018, OpenAI finally released GPT.

That was a turning point.

So much so that only a year later, OpenAI turned from a research lab into a for-profit organization, which partnered up with Microsoft.

Just a couple of weeks back, as OpenAI released ChatGPT, it left us speechless about its capabilities.

google-business-model
Google is a platform, and a tech media company running an attention-based business model. As of 2021, Alphabet’s Google generated over $257 billion in revenues. Over $209 billion (over 81% of the total revenues) came from Google Advertising products (Google Search, YouTube Ads, and Network Members sites). They were followed by over $28 billion in other revenues (comprising Google Play, Pixel phones, and YouTube Premium), and by Google Cloud, which generated over $19 billion in 2021.

Read Next: History of OpenAI, AI Business Models, AI Economy.

Related To Google

Google Business Model

google-business-model
Google is an attention merchant that – in 2022 – generated over $224 billion (almost 80% of revenues) from ads (Google Search, YouTube Ads, and Network sites), followed by Google Play, Pixel phones, YouTube Premium (a $29 billion segment), and Google Cloud ($26.2 billion).

Google Other Bets

google-other-bets
Of Google’s (Alphabet) over $282 billion revenue for 2022, Google also generated over a billion dollars from a group of startup bets, which Google considers potential moonshots (companies that might open up new industries). Those Google’s bets also generated a loss for the company of over $6 billion in the same year. In short, Google is using the money generated by search and betting it on other innovative industries. Of Google’s (Alphabet) over $282 billion revenue for 2022, Google also generated over a billion dollars from a group of startup bets, which Google considers potential moonshots (companies that might open up new industries). Those Google’s bets also generated a loss for the company of over $6 billion in the same year. In short, Google is using the money generated by search and betting it on other innovative industries. 

Google Cloud Business

google-cloud-business-model

How Big Is Google?

how-big-is-google
Google is an attention merchant that – in 2022 – generated $224 billion (almost 80% of its total revenues) from ads (Google Search, YouTube Ads, and Network sites), followed by Google Play, Pixel phones, YouTube Premium (a $29 billion segment), and Google Cloud ($26.3 billion).

Google Traffic Acquisition Costs

traffic-acquisition-cost
The traffic acquisition cost represents the expenses incurred by an internet company, like Google, to gain qualified traffic – on its pages – for monetization. Over the years, Google has been able to reduce its traffic acquisition costs and, in any case, to keep it stable. In 2022 Google spent 21.75% of its total advertising revenues (over $48 billion) to guarantee its traffic on several desktop and mobile devices across the web.

How Does Google Make Money

google-revenue-breakdown
Alphabet generated over $282B from Google search and others, $32.78 billion from the Network members (Adsense and AdMob), $29.2 billion from YouTube Ads, $26.28B from the Cloud, and $29 billion from other sources (Google Play, Hardware devices, and other services).

Google Organizational Structure

google-organizational-structure
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

YouTube Business Model

how-does-youtube-make-money
YouTube was acquired for almost $1.7 billion in 2006 by Google. It makes money through advertising and subscription revenues. YouTube advertising network is part of Google Ads, and it reported more than $29B in revenues by 2022. YouTube also makes money with its paid memberships and premium content.

Attention Merchants

advertising-business-model

Connected to OpenAI

OpenAI Business Model

how-does-openai-make-money
OpenAI has built the foundational layer of the AI industry. With large generative models like GPT-3 and DALL-E, OpenAI offers API access to businesses that want to develop applications on top of its foundational models while being able to plug these models into their products and customize these models with proprietary data and additional AI features. On the other hand, OpenAI also released ChatGPT, developing around a freemium model. Microsoft also commercializes opener products through its commercial partnership.

OpenAI/Microsoft

openai-microsoft
OpenAI and Microsoft partnered up from a commercial standpoint. The history of the partnership started in 2016 and consolidated in 2019, with Microsoft investing a billion dollars into the partnership. It’s now taking a leap forward, with Microsoft in talks to put $10 billion into this partnership. Microsoft, through OpenAI, is developing its Azure AI Supercomputer while enhancing its Azure Enterprise Platform and integrating OpenAI’s models into its business and consumer products (GitHub, Office, Bing).

Stability AI Business Model

how-does-stability-ai-make-money
Stability AI is the entity behind Stable Diffusion. Stability makes money from our AI products and from providing AI consulting services to businesses. Stability AI monetizes Stable Diffusion via DreamStudio’s APIs. While it also releases it open-source for anyone to download and use. Stability AI also makes money via enterprise services, where its core development team offers the chance to enterprise customers to service, scale, and customize Stable Diffusion or other large generative models to their needs.

Stability AI Ecosystem

stability-ai-ecosystem

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