Microsoft and Google, and innovation: compare and contrast
A comparison between Microsoft and Google’s quarterly results leaves few doubts as to which is benefiting most from the innovation of the moment, generative algorithms.
While Microsoft has increased its turnover 13% and profits by 27% year-on-year, consolidating the growth of its cloud computing business, Azure, thanks to features using generative algorithms, Google has been caught on the back foot, in purely reactive and defensive mood, and can only watch as Google Cloud fails to gain traction, contributing to lower earnings than the analysts expected and its share price to fall by almost 6%.
Quarterly results may be an imperfect yardstick, but they do indicate the market’s perception of what companies are doing with their business. Microsoft’s immediate reaction, taking advantage of the fact that it has had OpenAI living on its cloud for several years, closed a quick deal to incorporate products such as ChatGPT or Dall-E into the company’s product family, an approach that seems to have worked much better than Google’s efforts to demonstrate that it had the right technologies to be able to compete with it.
As I commented at the time, Google’s situation is a classic case of the innovator’s dilemma: while Microsoft, with a very low market share in products such as search, could take the risk of quickly incorporating generative features into Bing and not risk much if there were any problems; this same issue posed problems for Google that were very difficult to solve.
How do users react when a relatively small search engine like Bing hallucinates, compared to when Google gets it wrong? What risk does Google run if users, satisfied with a solution to their searches in the form of a well-written paragraph, stop clicking on its sponsored results, which account for 58% of the company’s revenue? And how to solve the problem of cost, which while it represents only a small increase in the bill for Microsoft, for Google it is on an altogether different scale?
In the end, the market’s perception is that Microsoft has been much more proactive in its reaction to innovation, even though Google has been talking for many years now about how AI will be a dimensional shift, how Google was the company that incorporated AI into all its products and services, or how Google’s products would outperform the competition because its AI would be smarter than theirs. In short, after leading the pack for years, Google now finds that it is no longer calling the shots: OpenAI seized the initiative with the launches of Dall-E and ChatGPT, and has not been able to capitalize on its advantage with more competitive products.
And now, the financial results, which are simply a translation of those ideas to the collective that is the market, corroborate those perceptions: Microsoft has indeed moved faster and has taken better advantage of its capabilities when it comes to incorporating generative algorithms into its products than Google, which had been supposedly working on it for years. Yesterday, I talked with people from Microsoft at a manufacturing conference in San Sebastian in which I was speaking, and the impression was the same: the company is not only providing businesses with “packaged” products that it makes no sense for someone else to try to develop, but also with the tools to develop their own generative algorithms by adding their own data and benefiting from their own experience.
In short, reactions to innovation and a fast-moving competitive landscape. And Microsoft, a company that once missed several of these innovation waves (the internet or the smartphone, for example), seems to have been much more alert this time around, showing more conviction about the value of generative AI, and to have been able to react much better and extract more value than others.
(En español, aquí)