Has Microsoft Jumped Ahead Of Google In AI Powered Search? (NASDAQ:GOOG)

This week saw dueling presentations from Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG) on their work in using conversational AIs in search. Microsoft went first on Tuesday with a very polished presentation launching new AI powered versions of its browser, Edge, and its search engine, Bing. Google followed the day after with what seemed a hastily thrown together presentation of an AI work in progress dubbed Bard. But the race for AI powered search is just getting started, with the ultimate objective to build “AI copilots” as essential and ubiquitous as smartphones.

Microsoft appears to get the jump on Google in AI assisted search

Microsoft’s presentation certainly leaves viewers with the impression that it is much further along in integrating the technology from partner Open AI into Edge and Bing. Open AI has produced the famous ChatGPT, which has gained notoriety by writing term papers for students. Microsoft claims that the technology used in its new browser and search engine use more advanced technology based on ChatGPT.

Bing has a new Chat tab powered by the technology. Microsoft estimates that about half of search queries are not processed successfully because the user made the query too long and complex. The Chat function brings up the AI to deal with these cases. An example was shown of the Chat feature handling a query about whether an Ikea furniture item would fit into the user’s car. In the example conventional search results are on the left and the Chat AI response is on the right:

Microsoft goes even further by making the AI available from within the browser as a “Copilot”, ready to answer complex queries about web content. The Copilot pops up in a separate pane to answer a question about Gap in the example below:

And just as ChatGPT can be used to write term papers, Copilot can be used to write on almost any topic. Here, Copilot is being used to compose a LinkedIn post:

In an accompanying Blog post, Microsoft stated that Bing is in limited preview starting February 7 and that Microsoft plans to scale the preview to millions in the coming weeks.

Google unveils Bard, a ChatGPT-like AI

Google’s competitor to Copilot is Bard, but Google had little to say about it, didn’t offer a timeline for when it would be available:

Bard uses technology similar to ChatGPT, which it calls LaMDA, or Language Model for Dialogue Applications. Google gave an example of using Bard to answer a general question about buying a new car:

Google is also building generative AI systems to provide suggestions when there is no one right answer (NORA). An example was given of a question about stargazing:

But most of the presentation consisted of piecemeal examples of AI applications in areas such as Google Translate and Maps.

Both companies see AI as the new computing frontier, but can AI take over search?

So, are we approaching a time when we just ask an AI a question rather than using a search engine? Not exactly. Although Microsoft was anxious to claim that the all-new Bing and Edge were “AI-powered”, search is still done the traditional way, using algorithms (not AIs) to search websites that have been pre-scanned or “crawled” by search bots, which are actually very dumb bots.

ChatGPT and LaMDA represent probably the most advanced form of AI we can build today. They are part of a class of AIs known as Transformers:

Google invented the Transformer and it has since found a wide array of applications outside of language processing. Without getting bogged down in the technical details, the key takeaway is that Transformers are much easier to train and require much less data.

But even with that, you couldn’t replace a search engine with a Transformer-based AI with current technology. The AI would have to be trained with all the knowledge on the Web, obviously an impossible task.

The next best thing seems to be to use the AI to filter search results, and perhaps initiate search queries based on conversational inputs. In effect, the AI isn’t replacing the search engine but serving as an intermediary between it and the user.

But from the user’s standpoint, the AIs like Bard or Copilot will be synonymous with search.

Investor takeaways: AI copilots as the next killer app

Google and Microsoft aren’t investing in AIs just to make search better, although it will certainly do that. They see such digital assistants having very broad applicability, including helping in the creative process for visual arts, music and literature. And copilots are already being used to help software engineers write code. In the future, AI copilots may help solve engineering problems or even engage in basic scientific research.

And these AIs will generally be hosted in the cloud, not on local computers or smartphones. So the AIs become a way to generate even more demand for cloud services, which will either be paid for directly by cloud users on a subscription basis or supported through advertising.

Since both Google and Microsoft have important device platforms with billions of users, the AI assistants will be used to “enhance” the user experience and make the devices and their respective operating systems easier to use. Thus AI assistants become part of the larger competition among the platform companies to attract and retain users.

As a Microsoft investor, I’m pleased with what the company had to show this week. Microsoft has needed a way to make Bing more competitive with Google, and I think they’ve found the right way to do that. But I recognize that the competition in AI assistants is just getting started. I remain long Microsoft and rate it a Buy.