ChatGPT hasn't made money for Microsoft yet, Google has chosen to do badly in AI?

Produced | Tiger Sniff Technology Group

Author | Qi Jian

Editor | Liao Ying

On July 26, Beijing time, Microsoft and Google released their financial reports (as of June 30). Microsoft released its fiscal year 2023 Q4 quarterly report and full-year financial report, and Google released its fiscal year 2023 Q2 quarterly report.

Microsoft's Q4 revenue in fiscal year 2023 increased by 8% year-on-year to US$56.2 billion, higher than market expectations of US$55.478 billion, but the growth rate was slower than the 12% growth rate in the same period last year. The revenue of the Intelligent Cloud segment was US$23.993 billion, a year-on-year increase of 15%. **Azure and other cloud service business revenue grew by 27% year-on-year after deducting exchange rate changes, which was slightly weak compared with the 31% growth rate in the previous quarter. **

The growth rate of Microsoft Cloud did not grow at a high speed under the blessing of AI, but slowed down slightly. Google's cloud business, another player in the AI boom race, is accelerating.

In fiscal year 2023, Q2 Google’s revenue was US$74.604 billion, a year-on-year increase of 7%. Among them, the cloud business revenue was 8.031 billion US dollars, an increase of about 28% year-on-year, which was the same as the growth rate of Q1, exceeding the 24.8% increase generally given by Wall Street analysts to 7.827 billion US dollars. And after making its first profit in the first quarter, its profit doubled to $395 million in the second quarter.

Interestingly, **Google has not combined the strong growth of its cloud business with the current hot topic AI. In the earnings report and in the earnings call, Google did not emphasize the impact of AI on Google Cloud and the search business. **

After the financial report was released, as of press time, Google rose 5.63% after hours, while Microsoft fell 3.19%.

AI effect weakened?

In the past six months, "OpenAI uses Azure's intelligent cloud service" has been considered the best advertisement for Azure. However, under the support of the AI big model in the past six months, the performance growth rate of Microsoft's intelligent cloud is not satisfactory. **

In Q4 of the 2023 fiscal year, the revenue of Microsoft's intelligent cloud business increased by 15% to US$3.2 billion. The growth rates of Q2 and Q3 in fiscal year 2023 are 18% and 16%, respectively, and the growth rate of Q4 in fiscal year 2022 is 20%.

Regarding the problem of slow growth, Microsoft CEO Satya Nadella said in the earnings call: "Affected by the epidemic, many cloud projects have been at a standstill in the past few quarters, and these projects are currently rushing."

Microsoft’s smart cloud business has such a large volume, the main reason for the slowdown in growth is of course directly related to the epidemic and economic recession, but from the side, under the advertising effect of OpenAI, the growth rate of Azure has not been significantly affected, or It also illustrates some of the difficulties ChatGPT has encountered in terms of landing and profitability.

**This problem can be seen from the decline in the popularity of ChatGPT's C-end. **

According to data from the Internet data company SimilarWeb, although the number of monthly active users of ChatGPT is growing rapidly, in the first half of 2023, the growth rate of the website's browsing will show a monthly decline. It was 131.6% in January, 62.5% in February, 55.8% in March, 12.6% in April, and 2.8% in May. It was the first time that the number of page views showed negative growth, with a drop of 9.7%. Browsing dwell time was shortened by 8.5%, and user churn rate increased to 20%.

ChatGPT website browsing growth trend in the first half of 2023｜Data source: SimilarWeb

Data from Sensor Tower, another research firm, shows that in June 2023, the downloads of ChatGPT and Bing App by US iPhone users will drop by 38% compared with May.

**The public is obviously tired of ChatGPT. **

However, although the traffic of ChatGPT has dropped significantly, top investors still seem to have confidence in landing products such as AI large language models and AI assistants. **

In mid-March, when Microsoft first announced Microsoft 365 Copilot, Microsoft shares rose 4%. After Copilot released pricing details on July 18, Microsoft shares rose about 4%. Recently, after Apple announced the development of a chatGPT-like dialogue AI product, its stock price also rose by 1%.

Microsoft 365 Copilot is undoubtedly Microsoft's most representative AI landing product at present. **Although its office commercial products and cloud service business volume is not too large at present, the AI empowerment effect is relatively straightforward for users. **

However, in the past three months, Microsoft 365 Copilot has not played a significant role in stimulating the willingness to pay of Microsoft office software users. **The Q4 quarterly report for fiscal year 2023 shows that the revenue of Microsoft Office business products and cloud services increased to US$1.2 billion, a year-on-year increase of 12%. Office 365 commercial revenue increased by 15%, Microsoft 365 consumer users increased by 12%, and the number of users increased to 67 million. The growth rate of various data did not increase significantly.

However, the financial report has a lag after all, and one of the reasons is that the products that have just announced their pricing did not reflect the positive impact in this quarter's financial report. Microsoft Chief Financial Officer Amy Hood said on the earnings call: "Current customers have a very good experience with Microsoft 365 Copilot, and they all hope to get the relevant trial version to get started as soon as possible."

Amy Hood also said that AI will have more positive impacts on Microsoft's businesses. Includes Security Products, Dynamics in the Productivity and Business Processes section. **And the entire intelligent cloud business, because Copilot is not just a tool, it also needs the support of the Azure platform to further improve and expand product capabilities. **

AI fork in the road

Compared with Microsoft, although the cloud business in Google's financial report has grown gratifyingly, Google does not seem to want to mention too much the combination of AI and cloud business. **

Google's research and development strength in AI has always been the top in the industry. After all, AlphaGo came from Google. However, in the upsurge of this wave of large language models, Google's actions are not so vigorous.

In terms of basic models, Google has been studying PaLM and LaMDA for many years, but they have not released them for a long time, resulting in the market being completely occupied by the first ChatGPT. In terms of AI Copilot, Google released a demonstration video on March 14, announcing that it will integrate AI functions into Docs and Gmail, saying that these products will open "a new era of AI and Google Workspace." Microsoft announced Microsoft 365 Copilot 3 days later than Google. But 4 months later, Copilot on Microsoft's side has announced the price of $30 per user per month for enterprise accounts, but there is almost no new news on Google Workspace.

At present, Google seems to be behind Microsoft in terms of general large language models.

In fact, the gap between **Google and Microsoft is only because the two companies have forked in the development of AI and chose different directions based on their own businesses. **

The basic business logic of Google and Microsoft is different from that of Microsoft. **The vast majority of Google's business revenue comes from advertising, while more than 40% of Microsoft's revenue comes from intelligent cloud business, and search and news advertising account for less than 10% of Microsoft's business. **

Microsoft has obvious ecological advantages and synergies in the field of cloud business. Before the beginning of the cloud era, Microsoft's influence in the field of office software far exceeded other competitors. With the transformation of traditional software to the cloud, Microsoft's SaaS service business based on Office 365 is becoming the driving force for the growth of Microsoft's cloud business.

IDC's "Global Public Cloud Service Semi-Annual Tracking Report" released on July 6 shows that the total revenue of the global public cloud service market will reach 545.8 billion US dollars in 2022, and SaaS (software as a service) is the most important source of public cloud service revenue. Accounting for more than 45% of total revenue in 2022.

In 2022, Microsoft's share of the global public cloud service SaaS market will be 16.4%, with revenue of 40.39 billion US dollars. Both revenue and market share are twice that of the second-ranked vendor, Salesforce. In 2022, Salesforce will have a global market share of 8.3% and a revenue of US$20.44 billion.

In terms of cloud services, Microsoft can provide customers with rich products from IaaS, PaaS to SaaS, and adopt similar data models to reduce compatibility problems and form a strong synergy effect. In contrast to Google, **Although the growth of Google Cloud this quarter is a highlight of the financial report, after all, Google Cloud's foundation is too weak. **

The IDC report shows that Google's cloud business has just surpassed Alibaba Cloud to become the third in the global market in the past year, and it did not turn around until last quarter. Its share in the global public cloud market is only 1/4 of that of Microsoft. In terms of SaaS, although Google ranks fifth in the world, its market share is less than 1/5 of Microsoft's.

In this regard, Google obviously knows well that the private cloud business has never been its own strong point, and it is not wise to blindly use its own "bad horse" to compete with other people's "good horses". Therefore, Google's AI strategy is to concentrate AI power in search and advertising applications. **

In this quarter’s earnings conference call, when Google’s three executives mentioned AI, they only briefly introduced AI’s support for cloud services, and more focused on the convenience that AI can provide to advertisers. Including precise advertising, advertising creativity, and rapid production of advertising, etc.

In the earnings call, Philipp Schindler, Google’s chief brand officer, said: “In advertising, we have a product called Performance Max or P Max for short. Advertisers can get new advertising ideas with a few simple clicks. In the future, AI and P Max There will be more bonding."

Google CEO Sundar Pichai said that AI will play a bigger role in the advertising business. "For many years, AI has been at the core of our advertising business, and today nearly 80% of advertisers have used at least one AI-driven product."