Much has been made about Microsoft’s introduction of Bing chat, powered by OpenAI’s Chat-GPT 4 technology. The prevailing narrative getting the most attention is whether Microsoft can take market share from Google in internet search. While this certainly is a question worth pondering considering the massive amount of advertising money involved (search brought in over $42 billion for Google parent Alphabet in the fourth quarter of 2022 alone), the impact of artificial intelligence might be much greater for Microsoft in other areas. I will argue that Microsoft’s bigger opportunity in AI lies not as much in search but in other areas of Microsoft’s business.

The problem with search

Microsoft faces two major challenges with regard to taking market share in internet search. First, Google has a massive lead. StatCounter’s data shows that Google had about 86% of the search market compared to Bing’s 8% market share in February 2023. In other words, Google had over ten times more searches than Bing. Considering that most people do not spend much time thinking about which search engine to use and considering that Google is synonymous with internet searching (“google” is considered to be a verb by Merriam-Webster), it is very difficult to get people to change their habit of relying on Google for internet searching.

Secondly, Alphabet is a fierce competitor with regards to AI. Yes, Microsoft beat Alphabet to the punch to having an advanced, modern, AI driven chat feature, and Microsoft should be given credit for that. However, that doesn’t mean that Alphabet is a slouch when it comes to AI. Far from it. Alphabet is one of the leaders in AI. Alphabet is working on their own conversational search feature called Bard. My guess is that, when released, Bard will have functionality on a level similar to Bing. Given the massive resources that Alphabet has at its disposal, I doubt that Microsoft will be able to sustain a significant lead in the generative AI capabilities of Bing as compared to Google. The competition between Microsoft and Alphabet should be good for consumers as it should lead to significant improvement in how we are able to discover information on the internet, but, due to the fierce competition of Alphabet, I believe it will be difficult for Microsoft’s Bing to gain significant market share from Google. I certainly don’t think it’s impossible, but, at the same time, I don’t foresee it as likely either.

Other Areas Where Microsoft Can Benefit From AI

Even if Microsoft fails to take market share from Google in search, AI should give Microsoft a substantial benefit in other areas of their business. Microsoft is already a massive leader in business productivity software, and incorporating AI into their products should allow Microsoft to solidify their lead. Alphabet has already announced that they will give users the ability to utilize AI to generate drafts in Google Workspace. On March 16, 2023, Microsoft will be hosting an event in which they are likely to show how AI will be incorporated into their own office productivity tools. Considering how popular Microsoft 365 (aka Microsoft Office) already is in the business world, adding generative AI functionality should allow Microsoft to keep the lead in business productivity software that they already have. Yes, Alphabet may be able to compete in generative AI, but who else will be able to? Generative AI functionality should further protect Microsoft from being disrupted by startups looking to break into the business productivity market and compete with Microsoft.

Regardless of what gets announced on March 16, the key is that we are only in the very beginning of AI. Whatever gets released this year will likely be significantly surpassed by what is available a few years from now. The need to continuously innovate and improve AI functionality will favor large corporations that have the resources necessary to develop and improve AI capabilities, companies like Microsoft and Alphabet.

Microsoft’s ability to deploy AI extends beyond search and business productivity software. Take Microsoft owned GitHub for example. GitHub recently released a feature called Copilot, which utilizes technology from OpenAI, which provides code suggestion, making it quicker to write code. GitHub’s competitors might struggle to compete with this feature. Take GitLab for example. GitLab does believe that AI is important and has a vision for how AI will be incorporated into their own product, but GitLab does not have the massive resources that Microsoft has. When it comes to incorporating AI capabilities, my guess is that Microsoft’s GitHub will be able to outcompete GitLab. I believe it unlikely that GitLab will be able to keep up with Microsoft in the pace of innovation in AI, meaning that Microsoft owned GitHub could have a very significant advantage over GitLab.

This type of dynamic could play out time and time again in various fields. Microsoft’s scale will allow it to implement, refine, and improve AI capabilities in their products at a pace many smaller competitors will struggle to match. Another example is how Microsoft is incorporating AI into Microsoft Teams, giving it the ability to take notes of a meeting. Will Microsoft Teams rival Zoom be able to effectively compete in AI functionality?

I think companies much smaller than Microsoft, such as Zoom and GitHub, will likely offer some degree of similar functionality in terms of AI as what Microsoft offers, but I think many of them will not be able to offer the same breadth and quality as Microsoft nor be able to keep up with the same pace of innovation. There will be exceptions to this, as some smaller companies will likely find a way to be more agile and compete effectively with Microsoft, but in general, as the age of AI advances, I think Microsoft has an opportunity, via implementing AI functionality into its products, to separate itself from many of the companies trying to compete with it.

Conclusion

While I am not fully convinced Microsoft is going to gain meaningful market share in internet search, I don’t think it has to in order to be a major beneficiary of AI. I believe Microsoft’s ability to incorporate AI into various aspects of its business will allow it to strengthen its position in many of the markets in which it competes. Furthermore, the massive resources Microsoft can dedicate to AI should allow it to innovate in AI functionality at a faster rate than many of its smaller competitors.

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