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Tackling the AI Market: Google vs. Microsoft's Profitable Paths in Generative AI Services

AI Apr 27, 2024

Monetizing Generative AI: A Two-Pronged Approach of Google and Microsoft

The tech giants Google and Microsoft, headed by Sundar Pichai and Satya Nadella respectively, seem to have a different trajectory towards monetizing generative AI. Both firms recently witnessed soaring stock prices post impressive quarterly sales and profits, which surpassed expectations. Further, Alphabet, Google’s parent company, is reinforcing its position with additional shares buyback and plans for its maiden dividends. Nevertheless, the approaches adopted by these giants for capitalizing on generative AI differ significantly if one looks under the hood.

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The Microsoft Story

Microsoft seems to be forging ahead in the war of generative AI. During a recent financial analysts’ call, Nadella revealed that Microsoft's generative AI tool, GitHub Copilot, currently serves 1.8 million users as against 1.3 million customers in the previous quarter. Furthermore, 60% of the Fortune 500 companies have adopted Copilot for Microsoft Office 365, and 65% are leveraging Microsoft's Azure Cloud service to run generative AI software powered by ChatGPT-maker OpenAI. Clearly, Azure has established itself as the go-to platform for AI projects.

The $13 billion investment in OpenAI has undeniably played a key role in attracting these customers. The rise in AI services demand has also contributed to a 7% annual rise in cloud services revenue - Microsoft's leading unit. Microsoft's total sales jumped 17% to close to $62 billion. Furthermore, Microsoft has succeeded in expanding its cloud market share, resulting in an 80% surge in $100 million cloud deals during the quarter, while $10 million deals doubled.

The Google Tale

Sundar Pichai, during a separate analysts conference, disclosed that over 1 million developers are currently using Google Cloud's generative AI tools. Additionally, 60% of the generative AI startups backed by investors are customers of Google Cloud. Generative AI is also enhancing Google’s advertising clients’ ad campaigns.

However, Pichai has not revealed the number of signups for Gemini Advanced, Google’s advanced AI chatbot subscription plan priced at $20 per month launched in February. While Google’s core search business utilizes generative AI to provide direct responses to seekers, there might be a decrease in ad-showing opportunities if users spend less time making refined searches.

Despite concerns, Pichai sounds optimistic about managing the monetary transition. He said, "I am comfortable and confident that we'll be able to manage the monetization transition here as well. It will play out over time.”

Alphabet's total sales climbed 15% to nearly $81 billion. Alphabet and Microsoft invested approximately the same amount - about $12 billion - in infrastructure like servers and data centers last quarter. Still, the current indicators hint that Microsoft is ahead in terms of returns.

High Expectations for Future Growth

Stockholders seem to be patient with both companies as of now. By the end of Thursday, Microsoft stock had risen 35% over the past year, and Alphabet had risen 51%. Both are at or close to record highs. However, if Copilot continues to attract more customers and Gemini and Google search do not show clearer growth prospects, the trends may soon diverge.

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Suiradybedam Tobami

Software Automation Engineer