The AI War Between Microsoft And Google Will Be Expensive

It might not be exactly what it seems when it comes to Microsoft's latest front in its war against Google.

‍

Satya Maximus

‍

Fabius Maximus, the Roman dictator who ruled from 217 BC onwards, devised a novel strategy for the war with Carthage during that period. It was at this point that the Roman people were prepared to try something new since their opponent, Hannibal, had won a number of devastating battles.

‍

Fabius was aware of the fact that Hannibal liked to fight and that he had the military power to do so effectively. By studiously avoiding large confrontations with Carthage, Fabius avoided the threat of a direct confrontation with the city. Small attack units were sent by him in order to lure the Carthaginian troops into unfavorable positions so that he could then destroy their food supply or find other ways to prolong their march while causing havoc to them. That resulted in Hannibal's large army being drained of a lot more resources than Rome would have been able to provide.

‍

Microsoft Corp. and Google are fighting in a similar manner today, even though they didn't have chatbots in 217 BC.

‍

There has never been much competition between the two companies when it comes to the search war, but it has been a profitable one for both of them. Google generates $283 billion in revenue annually from advertisements, and most of that revenue comes from its web searches, which are comparatively inexpensive. Even though the market share of Bing is tiny, Microsoft managed to turn a profit from it more than seven years ago.

‍

The Google search engine owned by Alphabet Inc. would stand to lose a lot more if there were to be a fundamental change in the way people search for things on the internet. There is no guarantee that the shift will take place. The development of a competent, reliable chatbot is an expensive process. The ongoing expenses incurred by people interacting with the product could prove to be even more costly than the initial costs.

‍

In the generative artificial intelligence field, the computational demands are exorbitantly high. In an analysis of open-source software similar to what drives Bing's chatbot or Google Bard, a query costs 11¢, Georgia Tech professor Alan Ritter says.

‍

Google and Microsoft do not reveal exactly how much it costs them to do this. Ritter, who specializes in natural language processing, said the companies can optimize their own cloud infrastructures so that they can run their proprietary chatbots more efficiently since these are their own cloud infrastructures.

‍

A Microsoft ally and the man behind ChatGPT, Sam Altman, has said that it will probably cost only a few cents per chat, while Morgan Stanley estimated the cost of a ChatGPT query at a much more manageable two¢.  As Ritter points out, even that is a steep premium over what you would pay for a traditional web search, which you can do for a fraction of the cost.

‍

There is a possibility that a chatbot will become so accurate that Google or Microsoft will be able to justify a substantial increase in advertising rates if they become so accurate. There hasn't been anything like that happening.

‍

Suppose tomorrow, if all web searches were suddenly switched over to chatbot conversations, Bing's margins would suffer, but Alphabet's would take an absolute beating as well. It is important to realize that even in a scenario where Google appears to win, it in fact loses.

‍

The Fabian strategy plays a key role in this situation. There has been a battle between Microsoft's Bing and Google for more than a decade now, with paltry results. Now that Microsoft's chatbot is getting a lot of attention, Google is under pressure to match it - likely at a great cost to it - in order to compete.

‍

Despite this, there is still a waiting list for the Bing chatbot, and it's only available to a limited audience - there's still a waitlist - and in a limited way - on a search engine few people use, within a similarly unpopular Microsoft web browser, or as part of an update to Windows 11.

‍

There is a creative interpretation of this strategy that suggests that Microsoft is not trying to win the No. 1 position in search engines, but that it is attempting to reimagine aspects of search in a way that is less lucrative for everyone - effectively luring Google into little skirmishes it will not win. The question is whether or not Google engages with its users. While it has said it will release its own chatbot in the near future, it hasn't committed to integrating that bot into search results like Microsoft has.

‍

As it stands, Microsoft's Chief Executive Officer Satya Nadella sure seems to want Google to take the bait, though it is unclear whether that is the case. There's no doubt that they are the 800-pound gorilla," Nadella said in a recent interview with Trade Algo. It is my hope that, with our innovative ideas, people will want to come out and prove to themselves that they are capable of dancing. As a result, I want all people to know that they were made to dance by us."