The Rise of Generative AI and ChatGPT

By Rishi Jaluria and Brad Erickson
Published June 20, 2023 | 24 min listen

Hailed as the fourth key milestone in technological advancements, the arrival of ChatGPT could revolutionize the way we interact with machines. But what does such a monumental shift mean for the internet and software sectors? And society as a whole?

Key Points

  • ChatGPT combines the best of both worlds, powerful AI and a simple interface. Its ability to not only learn and analyze, but also create is part of what makes this generative AI tool so important. 
  • Microsoft has taken an early lead, having already integrated ChatGPT functionality into Bing. Meanwhile Google is developing their own language model. Who will come out on top in the battle of the tech incumbents?
  • Will generative AI provide software and internet companies with a tailwind? Who will be left behind?
  • Governments and regulators are exploring ethical and ESG concerns with pressing urgency, as the pace of innovation in the generative AI field continues to exceed expectations.

Disclosures and Disclaimers

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The importance of ChatGPT

Rishi Jaluria: The rise of generative AI and ChatGPT is a watershed moment. For the Internet it was Netscape. With the cloud it was both Salesforce and AWS. With mobility it was the release of Apple’s iPhone. And now with generative AI, it is ChatGPT. It is the fastest growing internet service in history. It took two months to hit 100 million users.

The reason we think it is so important is because AI prior to this was either really powerful but required data scientists and a lot of customization to use, or it was very simple consumer grade interfaces, like Apple Siri or Amazon's Alexa. With ChatGPT, you're combining the best of both worlds.

Tech companies that don't truly embrace generative AI will see their multiple compressed by 50% over the next five years. Every company needs to have a generative AI strategy, or they will get left behind.


A battle of tech titans

Brad Erickson: Anytime you have new, disruptive tech, you're always going to have some incumbent players who have the resources to invest – and theoretically can have a play on the new tech. And then of course, you'll have venture capitalists and a rash of startups also approaching the space very quickly.

In the case of language models, Google wrote the paper on the original Transformers, which is the T in ChatGPT. Amazon's been working on this for cloud applications longer than anybody. And then, of course, Microsoft hooked up with OpenAI, and they brought ChatGPT to market.

And so the question is, are those incumbents going to be able to maintain the moat, and maybe even expand? Or are some of the start up models going to use disruptive pricing to drive adoption? I think the way it plays out is very unclear. But you’re certainly going to see the incumbents apply very large dollars to this. 


How will generative AI impact software, search and the internet going forward?

Rishi Jaluria: I think with generative AI we will shift from the point and click interface that has dominated enterprise software for the past 30 years, into a chat first functionality, changing the way we interact with software. So we think this is generally going to benefit software across the board, especially market leaders.

This is going to be really additive to the cloud. You’ll have net new workloads being built on platforms like OpenAI. And this is coming at a very important point when investors are really worried about cloud saturation.

If we think about software a little bit more broadly, on the back end you can use generative AI to make your software development more efficient, come out with new features and iterate faster. Marketers can be significantly more effective in what they do. And then we are also starting to see software companies integrate generative AI into their solutions. 

Brad Erickson: For search it introduces a far more interactive capability. You can leverage this amazingly powerful tool that is effectively accessing the entire internet. The big question is whether Bing is going to be able to leverage a perception of an early lead to be able to drive share shifts. 

And so the single biggest existential question ultimately for Google is, are people going to be compelled to use Bing more because of ChatGPT and ultimately change their search habits given that Google has over 90% of the usage on search on a global basis


ESG and ethical considerations 

Rishi Jaluria: Now, if we think about potential risks, about the societal implications, as well as data, governments are going to get increasingly involved around regulation – scrutinizing how these systems can be used. Governments have to figure out how to tow the line properly and regulate without killing innovation.

Brad Erickson: It's pretty scary to me, that the creators, or people that have invested in the creation of this technology are already fully acknowledging that first, the innovation curve has probably gone far beyond what they expected, and second, they don't know where the end exists. They say that with a very ominous tone, meaning we don't know what harm this could drive in the world.

Rishi Jaluria: Honestly, this has huge implications, not just for software and the internet, but really for society as a whole. This is the first time that on a large scale, you have an industrial revolution that can replace white collar workers.

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