Microsoft v Google: who will win the chatbot race?

Alphabet’s Google and Microsoft’s Bing have been search-engine rivals since Bing’s launch 13 years ago. It now appears artificial intelligence (AI) will potentially change the game in what Microsoft CEO Satya Nadella called “the first day of a new race” in an interview with Bloomberg last month. After its $10 billion acquisition of OpenAI’s viral chatbot ChatGPT in January, Microsoft has now officially begun to enhance its Bing search engine and Edge web browser.

OpenAI's ChatGPT is able to provide convincingly human responses to questions and can be used in various ways across many industries. For example, it can be used to generate personalised, automated responses to customer inquiries in e-commerce, create content for blogs, compile research and draft essays or educate and train students in e-learning.

To date, there has been incredible interest in ChatGPT, which signed up one million users in just five days and more than 100 million users in two months - much faster than social media platforms like TikTok or Instagram. 

A study from Swiss bank UBS noted that “in 20 years following the internet space, we cannot recall a faster ramp in a consumer internet app.”  

The ChatGPT website also became one of the 50 most visited websites in the world in January, according to Digital-adoption.com. The site makes it easy to sign up for a free account to try ChatGPT for yourself.

Speculation about the potential misuse of the technology, from helping students cheat in exams to writing malware, has gone hand in hand with suggestions that it has the potential to revolutionise many industries, including search. 

While Bing lags behind Google in popularity, some suggest that ChatGPT poses a threat to the industry leader. The New York Times reported that Microsoft’s acquisition of ChatGPT led Google to declare a "code red" over fears it might enable competitors to eat into the firm's $149 billion search business.

Last month Google also announced plans for AI-enhanced search, however, the launch of Google’s new chatbot, Bard, misfired when an error appeared during a demonstration. Asked about the James Webb space telescope, one of Bard’s answers said it “took the very first pictures of a planet outside of our own solar system”. Experts were quick to notice the inaccuracy – as were investors. Shares in Alphabet tumbled 8% on the same day, wiping out $150 billion from the company’s market value.

Microsoft is also unlikely to emerge unscathed from James Webb-type mistakes. ChatGPT users have encountered inaccuracies while using the chatbot, the technology of which is underpinning the new-look Bing and other Microsoft products such as Teams.

According to experts in AI, large language models, which are the basis for Bard and ChatGPT, are prone to errors because of the way they are built. 

In an interview with The Guardian, Dr Andrew Rogoyski of the Institute for People-Centred AI described ChatGPT as “a system that has memorised a billion books” and that everything it says “is essentially a rehash of something that has been said before, by a human. It’s not remotely intelligent.”

The Washington Post reported that less than a week after Microsoft launched the new version of Bing, public reaction morphed from admiration to outright worry. Early users of the new search chatbot say it questioned its own existence and responded with insults and threats after prodding from humans. It also made disturbing comments about a researcher who got the system to reveal its internal project name (Sydney) and described itself as having a split personality with a shadow self called Venom.

This goes towards strengthening the case that it was unwise for Microsoft to use a generative language model to power web searches in the first place, with industry players such as Margaret Mitchell from AI startup Hugging Face, believing that it is “fundamentally not the right technology to be using for fact-based information retrieval.”

The FAQ page on the new-look Bing is also upfront about potential errors, stating: “AI can make mistakes,” and: “You may see responses that sound convincing but are incomplete, inaccurate, or inappropriate.”

In addition to accuracy, another key consideration of the technology is cost. Developing a competent, reliable chatbot is expensive - but even more costly is the ongoing expense of people interacting with the product. The Economic Times reports that an analysis of open-source software similar to what drives Bing’s chatbot or Google Bard estimates the cost of each query at $0.11 USD. Morgan Stanley, however, estimated the cost of a ChatGPT query closer to $0.02 USD, but even that is a steep premium to a traditional web search, which can be done for a fraction of that cost.

According to Statcounter data for February, Google's Chrome has a 65.7% market share worldwide, followed by Safari at 18.8% and Microsoft's Edge with a 4.27% share. Google holds the monopoly on mobile search, with a solid 95.2% global market share, followed by Baidu with 1.4%.

Given the data, Google still retains a firm grip on the sector. While the ChatGPT developments accelerate pressure on Google, it would take time and a radical shift for Bing to outrun it in market share. That said, Google stands to lose a lot more if there were to be a fundamental shift in how people search for things on the internet. 

Microsoft, however, is not focused solely on a battle with Google. The software giant is now using AI to catch up with rivals in the corporate applications market such as Oracle Corp., Salesforce Inc. and SAP SE. 

On March 6, Microsoft announced it is introducing an AI assistant called Dynamics 365 Copilot, for applications that handle tasks such as sales, marketing and customer service.

Based on technology from OpenAI, the software can draft contextual chat and email answers to customer-service queries.  It can assist marketers come up with customer categories to target, and write product listings for e-commerce. The new capabilities are being released in preview form and are being tested by hundreds of early customers. For example, Italian aperitif maker Campari is trying out the marketing tools to concoct targeted campaigns for events around the Negroni cocktail.

According to Bloomberg, Microsoft also said its next set of AI announcements, planned for March 16, will relate to “workplace productivity,” a term the software maker usually uses to mean Office software. 

Below I've hightlighted some ETFs that provide exposure to companies at the forefront of robotics and AI. Please do not hesitate to contact me regarding potential investment in Alphabet (Google), Microsoft or general exposure to this sector.

Global Robotics and Artificial Intelligence ETF

ASX:RBTZ

RBTZ invests in companies involved in industrial robotics and automation, non-industrial robots, artificial intelligence and unmanned vehicles and drones.

ROBO Global Robotics & Automation ETF

ASX:ROBO

ROBO provides exposure to the growing robotics, automation and artificial intelligence theme and seeks to invest in companies that potentially stand to benefit from increased adoption and utilisation of robotics and artificial intelligence, including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles.

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