Google execs warn company’s reputation could suffer if it moves too fast on AI-chat technology
Google senior fellow Jeff Dean speaks at a 2017 event in China.
Source: Chris Wong | Google
Google employees are seeing all the buzz around ChatGPT, the artificial intelligence chatbot that was released to the public at the end of November and quickly turned into a Twitter sensation.
Some of them are wondering where Google is in the race to create sophisticated chatbots that can answer user queries. After all, Google’s prime business is web search, and the company has long touted itself as a pioneer in AI. Google’s conversation technology is called LaMDA, which stands for Language Model for Dialogue Applications.
At a recent all-hands meeting, employees raised concerns about the company’s competitive edge in AI, given the sudden popularity of ChatGPT, which was launched by OpenAI, a San Francisco-based startup that’s backed by Microsoft.
“Is this a missed opportunity for Google, considering we’ve had Lamda for a while?” read one top-rated question that came up at last week’s meeting.
Alphabet CEO Sundar Pichai and Jeff Dean, the long-time head of Google’s AI division, responded to the question by saying that the company has similar capabilities but that the cost if something goes wrong would be greater because people have to trust the answers they get from Google.
Billions of people across the globe use Google’s search engine, while ChatGPT just crossed 1 million users in early December.
“This really strikes a need that people seem to have but it’s also important to realize these models have certain type of issues,” Dean said.
A Google spokesperson didn’t immediately respond to a request for comment
Morgan Stanley published a report on the topic on Monday, looking at whether ChatGPT is a threat to Google. Brian Nowak, the bank’s lead analyst on Alphabet, wrote that the bearish case for Google is that language models could take market share “and disrupt Google’s position as the entry point for people on the Internet.”
However, Nowak said the firm is still confident in Google’s position because the company is continuing to improve search, while creating behavioral change is a huge hurdle for any new and competitive technology. Additionally, Google is “building similar natural language models such as LaMDA” and “we look for further products to come over time,” he wrote.
Sundar Pichai speaks onstage during the first day of Vox Media’s 2022 Code Conference in Beverly Hills, California.
Jerod Harris | Getty Images Entertainment | Getty Images
Pichai said at the meeting that the company has “a lot” planned in the space for 2023, and that “this is an area where we need to be bold and responsible so we have to balance that.”
In a tweet over the weekend, OpenAI CEO Sam Altman acknowledged that ChatGPT has limitations and users should be careful with how much they rely on the answers they’re getting.
“It’s a mistake to be relying on it for anything important right now,” Altman wrote. “It’s a preview of progress; we have lots of work to do on robustness and truthfulness.”
Google, which has a market cap of over $1.2 trillion, doesn’t have that luxury. Its technology has stayed largely in-house so far, Dean told employees, emphasizing that the company has much more “reputational risk” and is moving “more conservatively than a small startup.”
“We are absolutely looking to get these things out into real products and into things that are more prominently featuring the language model rather than under the covers, which is where we’ve been using them to date,” Dean said. “But, it’s super important we get this right.”
He went on to say “you can imagine for search-like applications, the factuality issues are really important and for other applications, bias and toxicity and safety issues are also paramount.”
Dean said the technology isn’t where it needs to be for a broad rollout and that current publicly-available models have issues.
The AI “can make stuff up,” Dean said. “If they’re not really sure about something, they’ll just tell you, you know elephants are the animals that lay the largest eggs or whatever,” he said with a laugh.
Regarding Google’s internal chat tools that have been available to employees, Dean said that during the pandemic “people would kind of chat with the system for a while and have these engaging conversations” at lunchtime.
Pichai said that 2023 will mark a “point of inflection” for the the way AI is used for conversations and in search.
“We can dramatically evolve as well as ship new stuff,” he said.
Taking Google ‘for granted’
Employees had other concerns about Google search.
The company is coming off its slowest period of growth since 2013, aside from one period during the pandemic. Search-related revenue only increased 4% from the prior year, a slower growth rate than the company’s overall ad business.
At the meeting, Pichai read the following question aloud: “With headlines like ‘Google search is dying,’ it’s not what it used to be, how concerning is this to you, Sundar? And what is the understanding of the common thread behind these concerns and what we can do about them?”
“I think it’s a good question — I’ve read all the articles,” Pichai said. “The progress has been great but it’s also true that people take everything we do for granted and you’re constantly looking ahead.”
Prabhakar Raghavan, a senior vice president who run’s Google’s Knowledge and Information organization, also responded. In July, Raghavan said publicly that Tiktok and Instagram have begun eating into Google’s share of the search market as younger consumers increasingly turn to search on visual platforms.
“There’s no denying, we have to step up and answer and model those queries,” Raghavan told employees. “Users’ expectations keep evolving — they’re asking us new things,” he said. “It does behoove us to step up and address the needs.”
Industry estimates still show that Google holds at least 90% of the search market, and the company remains under scrutiny by regulators. Executives have been more willing of late to talk publicly about Google’s competition in a market where it’s been accused of operating a monopoly.
Apple CEO Tim Cook (C) joins customers during Apple’s iPhone 16 launch in New York on September 20, 2024.
Timothy A. Clary | Afp | Getty Images
Apple’s second-largest division after the iPhone has turned into a $100 billion a year business that Wall Street loves.
In Apple’s earnings report on Thursday, the company said it reached just under $25 billion in services revenue, an all-time high for the category, and 12% growth on an annual basis.
“It’s an important milestone,” Apple CFO Luca Maestri said on a call with analysts. “We’ve got to a run rate of $100 billion. You look back just a few years ago and the the growth has been phenomenal.”
Apple first broke out its services revenue in the December quarter of 2014. At the time, it was $4.8 billion.
Apple’s services unit has become a critical part of Apple’s appeal to investors over the past decade. Its gross margin was 74% in the September quarter compared to Apple’s overall margin of 46.2%.
Services contains a wide range of different offerings. According to the company’s SEC filings, it includes advertising, search licensing revenue from Google, warranties called AppleCare, cloud subscription services such as iCloud, content subscriptions such as the company’s Apple TV+ service, and payments from Apple Pay and AppleCare.
On a January 2016 earnings call, when the reporting segment was relatively new, Apple CEO Tim Cook told investors to pay attention.
“I do think that the assets that we have in this area are huge, and I do think that it’s probably something that the investment community would want to and should focus more on,” Cook said.
Over the years, Apple has compared its services business to the size of Fortune 500 companies, which are ranked by sales, to give a sense of its scale. After Thursday, Apple’s services business alone, based on its most recent run rate, would land around 40th on the Fortune 500, topping Morgan Stanley and Johnson & Johnson.
Services appeals to investors because many of the subscriptions contained in it are billed on a recurring basis. That can be more reliably modeled than hardware sales, which will increase or decrease based on a given iPhone model’s demand.
“Yes, the the recurring portion is growing faster than the transactional one,” Maestri said on Thursday.
Apple’s fourth-quarter results beat Wall Street expectations for revenue and earnings on Thursday, but net income slumped after a one-time charge as part of a tax decision in Europe. The stock fell as much as 2% in extended trading.
Apple boasts to investors that its sales from Services will grow alongside its installed base. After someone buys an iPhone, they’re likely to sign up for Apple’s subscriptions, use Safari to search Google, or buy an extended warranty.
Apple also cites a “subscription” figure that includes both its first-party services, such as Apple TV+ subscriptions, and users who sign up to be billed by an App Store app on a recurring basis.
The company said the installed base and subscriptions hit all-time-highs, but didn’t give updated figures. Apple said it had 2.2 billion active devices in February, and in August said it had topped 1 billion paid subscriptions.
Still, Apple faces questions about how long its services business can continue growing at such a rapid rate. Between 2016 and 2021, the unit sported significantly higher growth, reaching 27.3% at the end of that stretch.
In fiscal 2023, services growth dropped to 9.1% for the year, before recovering to about 13% the next year. Apple told investors that it expected services growth in the December quarter to be about what it was in fiscal 2024.
Cook was asked on Thursday what Apple could do to make some of its services and its Apple One subscription bundle grow faster.
“There’s lots of customers to try to convince to take advantage of it,” Cook said. “We’re going to continue investing in the services and adding new features. Whether it’s News+ or Music or Arcade, that’s what we’re going to do.”
WATCH: Apple has a big leg up in AI
Amazon CEO, Andy Jassy speaking with CNBC’s Jim Cramer on Mad Money in Seattle, WA. on Dec. 6th, 2023.
CNBC
Amazon CEO Andy Jassy is trying to reassure investors who may be worried about the future payoff of the company’s massive investments in generative artificial intelligence.
On a conference call with analysts following the company’s third-quarter earnings report on Thursday, Jassy pointed to the success of Amazon’s cloud computing business, Amazon Web Services, which has become a crucial profit engine despite the extreme costs associated with building data centers.
“I think we’ve proven over time that we can drive enough operating income and free cash flow to make this a very successful return on invested capital business,” Jassy said. “We expect the same thing will happen here with generative AI.”
Amazon spent $22.6 billion on property and equipment during the quarter, up 81% from the year before. Jassy said Amazon plans to spend $75 billion on capex in 2024 and expects an even higher number in 2025.
The jump in spending is primarily being driven by generative AI investments, Jassy said. The company is rushing to invest in data centers, networking gear and hardware to meet vast demand for the technology, which has exploded in popularity since OpenAI released its ChatGPT assistant almost two years ago.
“It is a really unusually large, maybe once-in-a-lifetime type of opportunity,” Jassy said. “And I think our customers, the business and our shareholders will feel good about this long term that we’re aggressively pursuing it.”
AI spending was a big topic on tech earnings calls this week. Meta on Wednesday raised its capital expenditures guidance, and CEO Mark Zuckerberg said he was “quite happy” with the team’s execution. Meanwhile, Microsoft‘s investment in OpenAI weighed on its fiscal first-quarter earnings released on Wednesday, and the company said capital spending would continue to rise. A day earlier, Alphabet CFO Anat Ashkenazi warned the company expects capital spending to grow in 2025.
Amazon has said its cloud unit has picked up more business from companies that need infrastructure to deploy generative AI models. It’s also launched several AI products for enterprises, third-party sellers on its marketplace and advertisers in recent months. The company is expected to announce a souped-up version of its Alexa voice assistant that incorporates generative AI, something Jassy said will arrive “in the near future.”
Amazon hasn’t disclosed its revenue from generative AI, but Jassy said Thursday it’s become a “multi-billion-dollar revenue run rate” business within AWS that “continues to grow at a triple-digit year-over-year percentage.”
“It’s growing more than three times faster at this stage of its evolution as AWS itself grew, and we felt like AWS grew pretty quickly,” he added.
Matt Garman, CEO of Amazon Web Services, speaks during The Wall Street Journal’s Tech Live conference in Laguna Beach, California, on Oct. 21, 2024.
Frederic J. Brown | AFP | Getty Images
Amazon said revenue in its cloud unit increased 19% in the third quarter, just missing analyst estimates.
Revenue at Amazon Web Services totaled $27.45 billion, according to a statement Thursday, while Wall Street was expecting $27.52 billion, based on StreetAccount estimates. Year-over-year growth has accelerated for five consecutive quarters.
The artificial intelligence portion of AWS is in the billions of dollars in annualized revenue, more than doubling year over year, Amazon CEO Andy Jassy, who previously led AWS, said on a call with analysts.
“I believe we have more demand than we could fulfill if we had even more capacity today,” Jassy said. “I think pretty much everyone today has less capacity than they have demand for, and it’s really primarily chips that are the area where companies could use more supply.”
AWS leads the cloud infrastructure market over Google and Microsoft and is an important source of profit for Amazon.
On Tuesday, Google parent Alphabet said revenue from Google Cloud, which includes cloud applications as well as infrastructure, totaled $11.35 billion, up 35%. Microsoft said Wednesday that revenue from Azure and other cloud services grew 33%.
AWS recorded $10.45 billion in operating income, representing 60% of its parent’s profit. Analysts expected $9.15 billion.
The unit’s operating margin came in at 38%, the widest for AWS since at least 2014. Google Cloud reported an operating margin of 17%.
“We’re being very measured in our hiring,” Brian Olsavsky, Amazon’s finance chief, said on the call.
During the quarter, Oracle said it will bring database services to AWS.
“If this is successful, we would love to find more pieces of their application stack that could run well in AWS and help customers do that,” AWS CEO Matt Garman told CNBC in a September interview.
Also in the quarter, AWS announced plans to discontinue some services, including code-repository tool CodeCommit. Garman told TechCrunch that AWS “can’t invest in everything.”
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