Dear Reader,
Investors have been asking when AI will pay off. Now we know.
Google and Microsoft reported earnings yesterday. AI took center stage during both calls.
Both companies are infusing AI into nearly every service offered. But there’s one key difference.
Microsoft is charging for its AI.
Microsoft is rolling out its AI add-on to its Office365 suite of products like Word, Excel, and PowerPoint.
Known as Microsoft Copilot, it’s a $30 per user per month upgrade. Microsoft is starting off by targeting enterprise accounts.
365 Copilot uses ChatGPT to answer emails, summarize meetings and create PowerPoint presentations.
Adding Copilot raises the cost of the Office365 subscription by 83%.
The feature is currently being piloted by 600 enterprise customers, with a broader rollout expected soon.
According to CEO Satya Nadella, we’ll see a “real revenue signal from Copilot” in 2024.
At nearly twice the current cost of Office365, we’ll see just how much value customers put on having access to AI.
My expectation is that we’ll see a significant level of adoption. I could see 10% to 20% of Office365 enterprise users upgrading to Copilot by 2025.
Microsoft is a leader in monetizing AI. If its rollout of Copilot is as successful as I expect, other tech companies will be racing to do the same.
In contrast to Microsoft, Alphabet is taking an indirect approach to monetizing AI.
Google is rolling AI into nearly everything it does. Chief Business Officer Philipp Schindler said, “generative AI is supercharging new and existing ads products.”
Google’s CEO Sundar Pichai reinforced that statement saying, “I view the AI opportunity as expanding our total addressable market and allowing us to win new customers.”
Alphabet didn’t break out how much AI was increasing sales… or offer a timeline for when they would show the results.
That’s telling.
Alphabet sees AI as a fundamental next-step for its entire business. Staying ahead in AI will offer payoffs across the entire business.
Alphabet makes a majority of its money from serving up ads through its search engine.
One of the concerns when ChatGPT first gained mainstream attention last year was that it would kill off search revenue.
That couldn’t have been more wrong.
Alphabet is using AI to make its search engine even more powerful. Revenue increased for Google’s search engine by 5% to $42.6 billion. That beat out analyst expectations of $42.2 billion.
Soon, users can use natural language with an AI to find exactly the product they’re looking for. Through a series of prompts, users will be able to tell Google search exactly what kind of product or service they’re looking for. And the search will deliver extremely relevant ads.
That means companies will be paying more for ads that have a higher success rate of converting to a sale.
The big picture here is that the largest tech players are moving to monetize AI – whether that’s directly or indirectly.
Regardless of the approach, AI will drive higher revenue growth. That means we’ll continue to see investment and development into AI.
We’re only just starting to see how AI will pay off. Over the months and years ahead, we’ll see entirely new ways for tech companies to use AI in ways that provide value to people and enterprises.
Regards,
Colin Tedards
Editor, The Bleeding Edge
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
