ChatGPT is unlikely to unseat Google search but its rise shows why it is so hard for successful incumbents to create disruptive innovation or innovation outside of their winning business. Because successful incumbents are good businesses and they make rational decisions. Success has a lot to lose and the innovator's dilemma is everywhere.
There has been a ton of discussions around Google alerting ‘code red’ on the launch of Open AI’s ChatGPT. Many people have been trying to say that finally there is a serious threat to the incredible dominance of Google’s search business. If ChatGPT can evolve and improve over the coming years, for which it has a lot of room, it can create real competitive threats to Google’s main business (search being over 80% of Google’s revenue).
It is hard and too early to draw a conclusion on these predictions and whether ChatGPT will eventually become any meaningful threat to Google’s dominance. But it is true that Open AI’s AI chatbot has shown the potential to such an extent that NYTimes called Open AI “an aggressive research lab”.
There are two interesting aspects to this discussion. The fascinating aspect is that many of the technologies that are behind ChatGPT have been created at Google and a few other AI research labs. For instance, GPT stands for “generative pre-trained transformer” and transformer is a large language model technology that was originally created at Google a few years back. In fact, Google has a ChatGPT equivalent or many people want to say an even more powerful alternative to ChatGPT called LaMDA.
Apparently, having all of these didn’t make any difference. It is ChatGPT that we’re talking about now. And Google is yet to make any meaningful move to counter the competitive threat from ChatGPT.
NYTimes published a fascinating article pointing to the challenges this poses for Google. From NYTimes:
“Google has spent several years working on chat bots and, like other big tech companies, has aggressively pursued artificial intelligence technology. Google has already built a chat bot that could rival ChatGPT. In fact, the technology at the heart of OpenAI’s chat bot was developed by researchers at Google.
Called LaMDA, or Language Model for Dialogue Applications, Google’s chat bot received enormous attention in the summer when a Google engineer, Blake Lemoine, claimed it was sentient. This was not true, but the technology showed how much chat bot technology had improved in recent months.
Google may be reluctant to deploy this new tech as a replacement for online search, however, because it is not suited to delivering digital ads, which accounted for more than 80 percent of the company’s revenue last year.”
This is in many ways akin to what late Harvard Professor Clayton Christensen called the Innovator's dilemma. Precisely because you are an excellent business, it is so hard for you to disrupt yourself or invest in something that can potentially bring lower revenue or can cannibalize your existing money-making business.
Launching a standalone ChatGPT alternative does not make sense for Google. It will be too costly. Google has to find a way to integrate similar technology into its existing technology stack without jeopardizing its search business.
That is, however, only part of the challenge. Challenges for Google also come from the fact that it is Google. While Open AI can afford to take risks when it comes to putting out an imperfect AI product, for Google doing the same can cause substantial public relations challenges. Because technologies like ChatGPT are sensitive. More so for a company like Google at a time when giant technology companies continue to come under constant scrutiny from both the public and regulators across the world. Agin from the NYTimes:
“Because these new chat bots learn their skills by analyzing huge amounts of data posted to the internet, they have a way of blending fiction with fact. They deliver information that can be biased against women and people of color. They can generate toxic language, including hate speech.
All of that could turn people against Google and damage the corporate brand it has spent decades building. As OpenAI has shown, newer companies may be more willing to take their chances with complaints in exchange for growth.”
….
“Google sees this as a struggle to deploy its advanced A.I. without harming users or society, according to a memo viewed by The Times. In one recent meeting, a manager acknowledged that smaller companies had fewer concerns about releasing these tools, but said Google must wade into the fray or the industry could move on without it, according to an audio recording of the meeting obtained by The Times.”
The status quo can be a serious burden when you are forced to maintain it. For a company like Open Al taking a reputational risk is far easier than for a company like Google. While it might seem inconsequential, this simple reality can make a huge difference at times like this.
Late Harvard Professor Clayton Christensen published Innovator’s Dilemma in 1997. The book is often called one of the most — if not the most — important books in business and innovation. In the book Christensen offers a compelling argument about why incumbents fail to innovate:
“The reason [for why great companies failed] is that good management itself was the root cause. Managers played the game the way it’s supposed to be played. The very decision-making and resource allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening to customers; tracking competitors actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technology change.
Successful companies want their resources to be focused on activities that address customers’ needs, that promise higher profits, that are technologically feasible, and that help them play in substantial markets. Yet, to expect the processes that accomplish those things also to do something like nurturing disruptive technologies – to focus resources on proposals that customers reject, that offer lower profit, that underperform existing technologies and can only be sold in insignificant markets– is akin to flapping one’s arms with wings strapped to them in an attempt to fly. Such expectations involve fighting some fundamental tendencies about the way successful organizations work and about how their performance is evaluated.”
It appears Google unfortunately finds itself in a similar position in the context of ChatGPT. Having said that, many technology insiders are rather bullish about Google and want to say that the narrative that ChatGPT will create a significant threat for Google is overblown.
They say that not only many of the technologies that power ChatGPT have been created at Google but also Google has been systematically deploying AI into its search engine for years now. Here is from Amjad Masad of Replit:
“Let's start with Google. So everyone is saying that ChatGPT is the first. So let me take a contrarian position on this. I actually think that Google has been training in the gym every day for the past 15 years, and this is their moment now. That doesn't mean that they're going to be able to capture it. But I don't think it's a foregone conclusion that they're going to blow it.
For instance, the transformer machine learning model that birthed this entire industry, so everything from Stable Diffusion to GPT is based on the transformer technology, was invented at Google in 2017. Google Search uses BERT, a transformer-based language engine going back to 2019. Google has been adopting this technology since the start.
But the thing is the economics at Google just doesn't make sense right now. What they're working on is they're making these technologies a lot cheaper. And it really needs to be a thousandfold cheaper for them to apply it on a massive scale. Again, that doesn't mean that they're going to win, but it also doesn't mean that they're going to lose.
I don't think that it's a foregone conclusion that Google's going to lose. They've built so much AI muscle. It really is their moment. And Sundar is like a smart guy. He knows that. And I think they have a really good chance to create another S curve in their growth story.”
I’m somewhat of this camp. While all businesses have vulnerabilities, I think it is simplistic to discount Google’s ability to respond to the threats like ChatGPT. While Google suffers from a good business trap and status burden, it has many tools and upsides to effectively compete with a player like ChatGPT. We’ll have to wait to see as the whole saga unfolds in the coming months and years.
While we’ll see how ChatGPT and Google saga unfold in the coming months and years, innovator’s dilemma is everywhere. I’m particularly interested in one perennial innovator’s dilemma among Dhaka’s telecom operators. Take, for instance, Grameenphone. The country’s largest telecom operator is also one of the most valuable companies in the country. It has been under regulatory pressure over the last couple of years for various reasons. But it has been a consistently excellent business for many years. It makes a ton of money.
Interestingly, despite its half-hearted attempts at various ventures over the years, the company failed to produce any meaningful success outside of its core business. GP should get credit for several efforts it has made over the years. Some notable recent initiatives include now defunct ecommerce marketplace Shoparu, and Kidorkar, and OTT platform Bioscope, which it still runs. GP has also experimented with several other initiatives in the past; apparently, most of them died.
I understand that there are nuances behind many of these failures that I’m probably missing. For instance, there may be regulatory challenges. It may so happen that GP didn’t want these businesses to succeed independently. Instead, it wanted to run these businesses to power its core business such as data. These are all possibilities.
All these reasons considered, I also think that in many instances GP has suffered from the innovator’s dilemma — its existing business is so good that it is hard for the company to invest in something less profitable or small in scope. Cash is a dangerous addiction. I wrote about GP and its digital strategy in the past. From Grameenphone’s Digital Strategy:
“For GP and similarly for all other operators, while it is tempting to do something radical in order to secure the future or to move forward, it is difficult to do something that may risk the current business model or that is not as profitable as current business at the start. Because it does not make sense from a business point of view neither does economics work. But, as I mentioned earlier, trying has its upsides.
It is hard to understand how GP looks at the digital products it is launching, whether as something that connects with a greater goal or just a bunch of scattered pieces given that often companies launch and kill products for no good reason, but if you look fast forward a couple of years, telecom operators are essentially doing something more than landlines and GP has a clear upside in that future.”
I wrote that piece in 2017. Apparently, I was wrong on many counts in that piece. But my skepticism regarding GP suffering from innovator’s dilemmas came true.
Interestingly, this has also been the case for other two telecom operators in the country as well — Banglalink and Robi. Both operators have also tried various experiments over the years. We have covered some of those experiments and most of them either failed or were eventually neglected.
One thing going for telecom operators in Bangladesh is that failing to innovate outside or within their core business has little consequences. Success in these new areas will definitely bring outsized rewards but failure is not consequential. There is no apparent competition where these companies face an immediate threat to their core business. Hence the motivation to break out of the innovator’s dilemma is naturally minimum.
Human motivation is primarily driven by pain. More than gaining something, we are more driven when there is something at stake. For telcos, maintaining the status quo is not costly for now but it can change in the coming years.
The interesting thing is that the innovator’s dilemma is everywhere. As Christensen alluded to the fact, upstarts come and disrupt large businesses precisely because large businesses are so successful and good at what they do that they find it unattractive and sometimes irrational to get into these evolving new spaces.
While I have used the example of the telecom sector in Bangladesh, examples of this reality are everywhere. If you pay close attention, you will see most companies wait too long on their good fortunes.
