Book The innovator’s dilemma: when new technologies cause great firms to fail Written by Clayton Christensen was chosen by economist As one of the six greatest business books ever written. It expanded on the concept of disruptive technologies, a term coined by Christensen himself, and how they can take down great established companies, not because management was doing the wrong thing, but because it was doing almost everything right. ! “The Reason [why great companies failed] It’s that good management was the root cause,” Christensen wrote. Reject disruptive technologies: listening to customers; carefully tracking competitors’ actions … These are the reasons great companies thrive when faced with disruptive technology change. faltered or failed.
If I were Sundar Pichai, I would be reading this book again. The generative AI tsunami, led by OpenAI’s ChatGPT, has rocked the boats of nearly every big tech company. However, it is Google that looks most vulnerable, for two reasons. One, its core search business is squarely in the cross-hairs. Two, the company holding the gun is not only OpenAI, but also Microsoft, which has partnered with OpenAI very effectively. Satya Nadella, its CEO, has gone hammer and tongs at Google, moving at the speed of light to integrate ChatGPT into Bing Search, Teams, Azure Cloud and all of its iconic 365 productivity software. Nadella has publicly declared that he wants Google to “dance, and let the world know we made them dance.”
Instead of dancing, the Google Generative AI appears to be more like a deer in the headlights, lethargic and frozen. It has countered ChatGPT by its own bard, but both the product and its reception have been underwhelming. The day of its flawed launch saw Google’s value plummet by a massive $100 billion. Pichai has acknowledged: “I think we took a souped-up Civic and put it in a race with more powerful cars.” Google has also half-heartedly integrated Bard into its flagship search engine and, like Microsoft, several web properties. It’s declared a ‘Code Red’, and founders Larry Page and Sergey Brin are back with rolls up their sleeves.
Ironically, it is Google that ‘invented’ the large language model (LLM) – before GPT, it had its own BERT, and before ChatGPT, there was LaMDA (now rebranded as Bard). Right after becoming CEO in 2016, Pichai declared Google an “AI First” company and said its impact would be greater than “lightning or fire”. Google is now caught in the classical innovator’s dilemma, as search’s ten-blue-link business model built on the world’s best information databases and infrastructure is threatened by a less monetizable chat interface resting on an entirely different architecture .
However, it would be foolish to underestimate Google, which dominates not only search, but the Internet as well. It can do a lot to counter the motion. The Bard, for one, will get much better, as it’s been upgraded to its more powerful PaLM LLM. Google has arguably two of the best AI teams in the world – DeepMind and Google Brain. Expect them to come up with even better generative AI models, and new business models to monetize them. It owns huge content properties with YouTube and Gmail, so it has the free content advantage. Google pays 21% of its search revenue to content sites NYT Or Quora on the web to feed content to its engine, and it can very easily increase this traffic acquisition cost (TAC) to edge out your competitors. Most searches happen on mobile devices, and Google has the dominant mobile operating system, Android, where Bing cannot venture. It also pays Apple a whopping $15 billion to make it the default on iOS. Its brand is the default pick for searches, and it will be very difficult for anyone to replicate. Nadella knows this, but his game is not to do the impossible and dethrone Google in search. Rather, to reduce Google’s margins in search through increasing TAC, paying Apple more, etc., so that it has less free cash flow for its other businesses, especially cloud. This quest is not a war; It’s a cloud war.
Pichai is optimistic about the whole deal, telling WSJ, “Throughout our history, there have been many areas where we have not been the first to market something. We didn’t develop the first search engine. We didn’t develop the first browser or the first email… There are times when being first makes a lot of sense. Sometimes it happens that it doesn’t matter.”
Let’s see if it matters this time.
Jaspreet Bindra is a technology expert, writer The Tech Whisperer, and is currently pursuing a Masters in AI and Ethics from Cambridge University.
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