The new frontrunners in the AI arms race [April 2023]
How incumbents and innovators are shaping the future
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ChatGPT has started an AI arms race, and there are two groups of winners emerging. First: incumbent platforms. Second: cutting-edge innovators.
The key thing they have in common is shipping great products with the latest models.
The incumbents
Despite the breathless talk that LLMs will disrupt everything, it's Big Tech that stands to benefit the most. The key reasons why:
They employ (or can hire) in-house teams to work on AI.
They have the resources to train and tune models.
They can collect tons of usage data and feedback.
That last point is actually the most important. As it turns out, usage data and feedback are invaluable for generative AI. The core machine learning models are powerful, but still have rough edges. Once you have a trained model - proprietary or not - getting feedback becomes your competitive advantage.
Take Github, for example. Github Copilot, a ChatGPT for programming, can autocomplete code as you're writing it. From the start it's a useful tool, but here are some metrics that Github can track:
Did the user accept the suggested code?
Did the user accept some of the suggested code? If so, which parts were edited?
Which suggested code is still present in the codebase after 5 minutes? After 5 days? After 5 months?
With millions of data points, Github can fine-tune Copilot faster than any startup. And as the product gets better, it gets more usage, which makes it even better. Incumbents that can get their AI act together have a massive advantage.
I say "incumbents," and not "FAANG," because this playbook works across many verticals. Intercom has millions of support agents to improve its customer service LLM. Canva has millions of designers to improve its image-generation. If CEOs of big platforms can develop a coherent AI strategy, they can build a flywheel to cement their advantage.
The cutting-edge innovators
Of course, "developing a coherent AI strategy" is much, much easier said than done. And big companies aren't exactly known for their agility.
This creates an opportunity for upstarts to establish a lead with cutting-edge tech. But even the best models still need to be turned into great products. Consider this: Google invented the modern LLM architecture, and had GPT-3 level technology years ago. But they never released it as a consumer product. Now, OpenAI appears to be outclassing the former "AI-first" tech giant.
Both OpenAI and Midjourney have seen massive adoption from polishing machine learning models. Midjourney, despite launching at a similar time or later than its competitors, has become much more popular. A few of the smart product decisions they've made:
Building a Discord app, lowering friction for millions of users (while also neatly sidestepping hosting costs).
Making users vote on an image to upscale, which bakes user feedback directly into the process.
Having good-looking default settings, instead of needing tons of prompt engineering.
OpenAI, to its credit, has built the fastest-growing consumer application in history. But ChatGPT is not without rivals (Google's Bard and Anthropic's Claude, to name two), and OpenAI wants to keep its lead. Partnering with Microsoft is one approach, but they're also trying to become an incumbent themselves.
Up until (very) recently, AI companies tended to share research notes in public. In fact, OpenAI was founded on the premise of sharing all their model data and code. Now though, OpenAI no longer believes in publicly sharing models - making it that much harder for competitors to catch up.
The company also made waves with ChatGPT plugins - the AI equivalent of the App Store. With plugins, OpenAI can add skills to ChatGPT, can keep users (and businesses) around for longer, and can access unique/internal data sets. The company is writing a real-time playbook for cutting-edge innovators to build on their success.
The ecosystem
If you look closely, there’s actually a third group poised to do well: the ecosystem.
AI, like any ecosystem, has room for smaller creatures to thrive while the big carnivores fight. The incumbents and innovators will take the lion’s share, but there will be many, many niches. Here are a few of them:
Open source developers. The recent history of tech has shown that there's a place for open source. Firefox and Linux, for example, have built successful alternatives to Big Tech’s mainstream products. And there will be value in companies building AI models that they can own and control. OpenAI has the best tech, but open source is quickly becoming “good enough.”
Infrastructure providers. Models still need resources to train and run, there's no getting around that. Platforms like Hugging Face and Replicate are becoming the AWS and Google Cloud of AI. And with the recent advancements in no-code tools, we’re quickly making “train your own model” a simple point-and-click task. As more companies build models in-house, this niche will get pretty big.
Domain experts. Hospitals and governments aren't going to be sending their data to OpenAI anytime soon. Companies bringing compliant AI to regulated spaces can create a lot of value. Likewise, there will be AI for incredibly specific use cases too small for existing incumbents.
Everybody else
Where does that leave the rest of us?
If you’re a consumer, get ready for a tidal wave of AI-powered apps. For now, we’re still playing with AI-assisted writing and AI-assisted drawing. But soon, we’ll be working with AI-assisted thinking and AI-assisted planning.
If you’re a business, things are going to get more competitive, especially knowledge work. Every CEO now needs an AI strategy - how to add it to their workflows, and how to adapt to a world where it is everywhere. What parts of your existing product can be improved by AI? Can you add services that used to be too expensive by leveraging AI?
To reuse a metaphor, we're in the middle of a Cambrian explosion of AI tools and startups. Most won’t survive long-term - they’ll become features of bigger products. But there’s still an enormous amount of opportunity in this brave new world, for those who can keep up.
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