Microsoft's landmark deal with OpenAI shows that ChatGPT is going to be the defining technology of 2023

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Generative AI like ChatGPT is set to be the defining technology of the year, experts say.Shutthiphong Chandaeng / Getty Images
  • Everyone from big tech companies to VC to casual investors want to get in on the ChatGPT hype.

  • It remains to be seen how generative AI will transform our lives, but the tech is here to stay.

  • Microsoft's deal with OpenAI is setting the pace, and everyone else will have to catch up.

ChatGPT has taken the tech world by storm in just a few short months.

The viral success of the chatbot, made by OpenAI, has caused a huge ripple across the tech industry. Venture capitalists are betting big on startups that are getting in on the craze, even as Google moves quickly to address the threat that ChatGPT poses to its core search business. In 2022, investors put at least $1.37 billion into generative AI startups, usually at the seed stage. That's almost as much as what was invested in the market in the previous five years combined, according to PitchBook.

But the surest sign yet that ChatGPT is setting the pace and defining the tech industry for at least the next year is OpenAI's blockbuster, $10 billion partnership with Microsoft to bring the AI into products like the Bing search engine and Microsoft Office. Indeed, Microsoft is wasting no time, already launching an OpenAI-powered chat transcription and task-suggestion service for its Microsoft Teams app.

"Microsoft is set to work alongside OpenAI to create a game-changing technology fully integrated into MSFT over the next decade," Wedbush analyst Dan Ives wrote in a note to clients. "Nadella is not going to repeat the same mistakes and we believe this strategic investment is a smart poker move in this AI arms race that is taking place globally."

Which is to say that while it remains to be seen how exactly this technology will transform our lives in the coming months, experts are convinced that ChatGPT and technology like it is here to stay — not some passing fad.

"We predict we're on the brink of the next platform shift: The knowledge and information economy will be defined by artificial intelligence," VCs at Bessemer Venture Partners wrote in a recent blog post.

Why this iteration of ChatGPT made generative AI so popular right now 

It's important to note that nothing about ChatGPT or generative AI is especially new or novel. As Facebook's lead AI scientist Yann LeCun noted recently, "It's nothing revolutionary, although that's the way it's perceived in the public. It's just that it's well put together, it's nicely done."

In other words, OpenAI's real innovation was taking AI technology that was already out there and making it something that was easy and accessible to anybody.

"The way they've created the user interface and the way that they've exposed the technology in such a useful way and allowing it to be casual or formal — there's a lot of engineering that they did that is really special that has allowed the technology to really shine," said Matt Mead, the CTO at tech modernization firm SPR.

As the underlying technology becomes more accessible to developers, we'll see a host of new tools come up that change the way we work, search for information, and interact with services like healthcare, the experts said. Combined with the increasing availability of computing power, and developments in AI itself, there's a new generation of startups just poised to be born.

"As we've been able to improve the architecture, prices of chips and compute are decreasing and getting more efficient over time, we're able to build models with much more data and there's a confluence of vectors of progress that's all happening at the same time," said Talia Goldberg, a partner at Bessemer Venture Partners.

Microsoft's partnership with OpenAI is just the beginning of what's possible with generative AI

Microsoft's partnership with OpenAI offers some hints about where the technology can go from here. For one, it is poised to disrupt is the search experience.

Right now when we search for information in Google we get multiple options back and can pick what we think is the most accurate. However, when you ask ChatGPT something, it comes back with a specific answer. Microsoft hasn't been able to break Google's lead in search, but with the AI technology its Bing search engine could actually compete.

It's something VCs are watching closely as they choose which companies to invest in, Goldberg said.

Microsoft is "positioned to try and deliver a really radically different and transformative search experience, and compete on a different vector now relative to Google," she said. "and then there's a host of other companies that we think are doing really interesting things."

Beyond search, Microsoft's plans around its investment in OpenAI has experts thinking about how they'll sell this tech beyond integrating the technology across its products like Excel, Azure, and its subsidiary GitHub's AI-powered Copilot programming assistant. Some analysts also see an opportunity to offer it as a cloud service that other companies can buy and use, similar to how cloud infrastructure services are sold.

That's one reason why there will be a lot more business uses for generative AI technology than consumer use cases in the near term, said Mark Shmulik, a Bernstein analyst.

For example, ChatGPT has the potential to disrupt the way people code and how engineering teams are run because it can take less engineers to write code. ChatGPT for example can generate the basic code that actual engineers use and customize to get to an end product, he said.

Another example could be an opportunity to use it in the advertising industry to bypass some of the work done by large expensive ad agencies, Shmulik said.

Ultimately, there's much more we're going to see with this technology, and Microsoft may have gotten ahead with its OpenAI partnership but many other players are catching up, experts said.

"Microsoft has been early and very public with their relationship with OpenAI," Goldberg said. "But they will certainly not be the only large player to be involved with the emerging startup ecosystem here."

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