The Smartest Billion Ever Spent?


ChatGPT logo is seen on the smartphone and blurred US dollars on the background | Image by Ascannio, Shutterstock

ChatGPT, an Artificial Intelligence chatbot, has sparked both fear and excitement about the prospects of mainstream AI platforms increasing productivity but at the risk of replacing jobs.

One thing is sure, at the current moment, Microsoft’s $1 billion investment in OpenAI, the maker of ChatGPT, is sitting pretty as of now. 

Microsoft invested in OpenAI in 2019. Currently, OpenAI is considering a tender offer that would value the company at $29 billion. Business Insider calls it the “smartest $1 billion ever spent”. While at current levels, it is an impressive return for Microsoft and undoubtedly just the start for OpenAI, which scaled to a million users in just five days, faster than any company, it still has a long way to go to claim the title for best investment ever.

Facebook notably spent the same amount on Instagram; by 2018, it was valued at over $100 billion. Alphabet, Google’s parent company, paid $1.65 billion for Youtube in 2006, and one analyst has Youtube valued at $180 billion in 2022. 

When ChatGPT launched in November, it was met with near-universal hype and praise as the platform, although flawed, proved to be very intelligent, according to Business Insider. Now that the company looks to capitalize on that hype and raise money that would cement its valuation at close to $30 billion, the prospects of how Microsoft may use the platform could accelerate its growth.

The real kicker for ChatGPT is reports of Microsoft incorporating the platform into its Bing search engine. It could be the first real threat to Google’s search dominance in two decades, according to Business Insider. 

Last week, DA Davidson analyst Gil Luria wrote in an analyst note, “Microsoft deserves a premium valuation relative to the market” with its “investment in Open AI as a source of upside.”

“We believe Microsoft’s investment in OpenAI will translate to significant underappreciated upside.” 

One industry executive is not buying into the hype.

“ChatGPT, as currently conceived, is a parlor trick,” Bern Elliot, vice president at Gartner, a technological research and consulting firm, said. “It’s something that isn’t actually itself going to solve what people need, unless what they need is sort of a distraction.”

OpenAI said it expects to reach $1 billion in revenue by 2023, according to Reuters. DA Davidson expects revenues to increase sharply after OpenAI launches GPT 4, the next generation of its chatbot, later this year. 

Despite being the number two player in the industry, Bing, a long afterthought in the search engine world, has plenty of room to take market share from Google. Bing has roughly just north of 3% market share in search, compared to Google’s 92%. 

“Longer-term, we believe incorporating ChatGPT capabilities into Bing may provide Microsoft with a once-a-decade opportunity to unseat Google’s Search dominance,” Luria wrote. 

Microsoft does not own OpenAI outright, but its investment, as opposed to a buyout, gives it flexibility and room to experiment, said Business Insider.

While the sentiment on tech continues to deteriorate, AI is becoming the hot new space in the Venture Capital world, with VCs investing $1.37 billion in AI in 2022, according to Pitchbook. 

Pitchbook analyst Brendan Burke said in 2023, AI startups will stand out by applying imitation learning to AI foundation models as a way to train general artificial intelligence models to carry out specific tasks, according to Business Insider.

It is not all an upward trajectory for the AI industry, as it has been a buzzword for years but has yet to produce many tangible results, like the slow progress in self-driving cars. 

Burke said AI features such as imitation learning remain “unproven in a commercial context and may suffer from a lack of quality data on user task completion.” 

While the excitement surrounding ChatGPT may be propping up valuations, it is still in the very early innings for the product and the industry. One thing is clear: Microsoft is well ahead on its $1 billion investment at current valuations. 

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