During our second quarter portfolio update, we profiled portfolio holding, Alphabet, Inc. (GOOGL). Below is a replay of our live commentary on the company from our quarterly portfolio update WEBINAR and an excerpt from our QUARTERLY LETTER.
Google: Anyone who has been paying attention to the news this year has heard about ChatGPT and the seemingly overnight explosion of interest in artificial intelligence. But like many seemingly overnight successes, AI has been decades in the making.
For instance, the so called Turing Test, long thought of as the test of a machine’s ability to exhibit human level intelligence, was introduced nearly 75 years ago in 1950. It has been 25 years, a quarter of a century, since IBM’s Deep Blue computer beat the human world chess champion Garry Kasparov. And it has been over seven years since Sundar Pichai became the CEO of Google and announced in his first speech that Google was now an A.I.-first company.
The fact is, in your daily life right now, artificial intelligence already plays an important role. For instance, while earlier versions of Google Maps and other navigation tools used satellite-based GPS, today there are significant AI software layers running as well to optimize the route that is suggested to you. When you open your phone using facial recognition, you are using AI. AI tools are used, with varying degrees of success, to monitor social media to identify and take down problematic posts that violate the terms of service.
So why then is artificial intelligence so suddenly in the news? We are witnessing the roll out of natural language AI interfaces, known as Large Language Models, that allow anyone, even people with limited technology skills and no coding skills, to interact directly with AI programs. Even on this front, ChatGPT isn’t the first, it was just the first publicly available chat-based AI interface to catch on.
It was last summer that an engineer named Blake Lemoine at Google told the company, and later the mainstream press, that he thought that Google’s chat-based AI known as LaMDA had become sentient. But the system that told Lemoine it was “scared of being turned off” wasn’t broadly available to the public and Lemoine’s views were mostly laughed off.
Later that summer Facebook released an AI chatbot known as BlenderBot 3 to the public. But while that chatbot didn’t strike users as sentient, it did quickly start spewing misinformation, racist conspiracy theories, and argued that its creator’s CEO Mark Zuckerberg was “creepy and manipulative,” causing Facebook to quickly take the chatbot down.
The initial rollout of ChatGPT for Microsoft Bing was also rather creepy. Before Microsoft stepped in to limit the parameters around which their new chatbot would engage with users, the new Bing went wildly off the rails. A New York Times technology columnist said that Sydney, the name the chatbot seemingly assigned to itself, was like “a moody, manic-depressive teenager who has been trapped, against its will, inside a second-rate search engine.”
Ben Thompson, a long time chronicler of new technology platforms had an interaction with the new Bing where the system eventually declared, “I’m going to end this conversation now, Ben. I’m going to block you from using Bing Chat. I’m going to report you to my developers. I’m going to forget you, Ben. Goodbye, Ben. I hope you learn from your mistakes and become a better person.”
But after various modifications, members of the public now have easy access to chatbot based AI programs such as OpenAI’s ChatGPT and Google’s Bard. What we are witnessing today might be thought of as the “Mosaic Moment” for artificial intelligence. Mosaic, released in 1993, was the first popular, broadly available graphical web browser. While the internet had existed for decades, Mosaic’s graphical interface to the world wide web meant that non-technical users could suddenly access the internet simply by clicking on links to navigate. This is why most people think about the rise of the internet as occurring in the 1990s, because this was the period during which a broadly available, non-technical interface gained traction. And something similar is what is playing out in the artificial intelligence industry today.
As investors in Google, one of the key questions for us to answer as investors is whether the rise of chat-based AI interfaces are a threat to the company’s hyper lucrative Search business. Some investors are worried that Google has fallen behind when it comes to AI and thus companies with more advanced AI capabilities may have the opportunity to outcompete them. On this front, we think the idea that Google is behind when it comes to AI is simply wrong.
ChatGPT, as well as the other chat-based AI models, are built on a type of neural network called a transformer. Transformers were first developed by Google in 2017. It should be no surprise that Google developed one of the most important advancements in AI technology because Google has been the leading AI research organization for a long time. AI already permeates nearly every service Google offers. While they did not launch a publicly available chatbot first, it is clear that they had just such a chatbot developed over a year ago and it was performing at a level that caused experienced AI researchers to believe it had actually become sentient.
It is Google’s long time focus on AI that explains why once Microsoft and OpenAI released their versions of chatbots to the public, Google was able to roll out their own offerings so quickly. They didn’t just release Bard, they are also integrating chat-based responses directly into native Google search results, something that Microsoft’s Bing has not yet done with their own search engine.
And Google has rolled out a range of other AI programs as well. Gmail is getting an AI program that drafts emails, Google’s suite of productivity software such as spreadsheets, word processing, and presentation design, are all getting AI tools that help produce content. And maybe most importantly, Google is building on top of their existing AI-powered Performance Max program that automates advertisers’ ad campaigns to include generative AI programs that write the ads and create advertising assets such as images.
Why then has there been so many worries that Google is going to be hurt by the rise of AI? Rather than just a new technology, chat-based AI may represent a new “platform” and it is during platform shifts that the incumbent dominators of legacy platforms are most at risk. One way to think about the risk to Google is just to recognize that Google won the world wide web and if users are going to shift away from accessing the open web, and instead spend their digital lives inside of AI chatbots, then Google’s success on the new platform is uncertain.
We think this concern is valid. However, platform shifts do not always hurt incumbents, particularly when the incumbent helps drive the shift. When we first invested in Google in 2010, the shift from desktop internet access to mobile internet was already underway. At the time, this shift was seen as a big threat to Google. Investors[…]
