Occasionally, the best way to judge the quality of a technology company isn't by its successes, but rather by its failures.
You see, the tech sector is littered with companies that fell short, largely because they refused to adapt when necessary (this is often referred to as "pivoting").
Myspace, one of the first social media platforms, had a chance to buy Facebook (META), but it refused. Today, Facebook is the world's largest social network with more than two billion users... and Myspace is no more.
In 1995, Alta Vista was an early search engine tool. Just a few years later, it was all but eliminated by the rise of Google (GOOGL).
That's why the pivot that one tech titan made after a recent failure is so important to keep in mind. The company I'm referring to recently said it plans to invest billions in a critical startup focused on artificial intelligence ("AI") and voice technology. This investment comes just two years after it closed a $16 billion merger with another voice-tech business.
Today, I'll show you why this company's moves could be great news for its bottom line, and for its investors.
All About OpenAI
I'll reveal the name of this company in a moment. But first, let me tell you about the startup that this company is so invested in.
It's called OpenAI, a research company devoted to creating what's known as general AI – artificial intelligence that isn't tied to one function but can learn anything that humans can.
OpenAI opened its doors in 2015 as a nonprofit, fueled by $1 billion in donations from some notable backers...
We're talking guys like Elon Musk, LinkedIn co-founder Reid Hoffman, PayPal (PYPL) co-founder Peter Thiel, and many more.
The startup quickly became a success by attracting some of the greatest AI developers in the world away from their jobs in Silicon Valley. And these efforts paid off handsomely when the company released its first AI service in just a year.
In 2019, OpenAI changed tactics, pivoting into for-profit status and accepting $1 billion in new investment capital to keep its research going. The results have been astounding.
Last November, OpenAI released its Chat Generative Pre-Trained Transformer "chatbot," a computer program designed to simulate conversation with humans. And this program took the world by storm...
In fact, you've probably seen its name in the headlines. It's referred to as ChatGPT.
A $29 Billion Juggernaut
Whether it's coming up with recipes based on a list of ingredients, producing movie scripts, or answering questions, chances are, ChatGPT is up to the task. (This program even managed to pass four law school exams at the University of Minnesota and a business school exam at Wharton!)
It's no wonder then that soon after the release of ChatGPT, OpenAI was valued at $29 billion.
The chatbot market itself is huge. Different companies use these bots to direct customer service requests, handle troubleshooting issues, and more. Even so, chatbots are just one part of the larger voice recognition market.
Grand View Research pegged the size of this market at more than $14 billion in 2021 and estimates it'll be worth about $56 billion by 2031.
It's this rapid growth that makes the failure of a specific piece of voice technology so baffling. I'm referring to Cortana, a competitor to arguably the most popular voice technology, Apple's (AAPL) "Siri"...
A piece of technology created by one of the world's biggest companies: Microsoft (Nasdaq: MSFT).
Microsoft Swings and Misses
Introduced in 2014, Cortana, a voice-based personal AI assistant, began rolling out to Microsoft's Windows phones and eventually to the Windows operating system on PCs and laptops.
Cortana was meant to do much the same thing that Siri does on Apple's iPhones and iPads – answer questions, set timers, make calendar appointments, and check the weather.
But Cortana never took off. It didn't work well enough to be a draw with users. And on PCs and laptops it often lagged. In 2020, Microsoft removed Cortana from its Xbox gaming consoles, where it had been most prominent.
That's why the news that Microsoft just made a huge investment in OpenAI is such a big deal.
A Key Pivot?
While we don't know the exact size of its investment, leaks suggest Microsoft and OpenAI were negotiating terms of up to $10 billion. Officially, all we know is that it's a deal for several billions of dollars over several years.
This comes after Microsoft's $1 billion investment in OpenAI back in 2019, which came with a stipulation that the AI startup would move its backed computer to Microsoft's Azure cloud network.
Two years later, Microsoft revealed the Azure OpenAI Service, a cloud-based system offering businesses OpenAI tools on the cloud.
This most recent investment makes the OpenAI and Microsoft partnership even stronger. It promises to fulfill the dream Microsoft had back in the Cortana days – integrating AI into all of Microsoft's apps and services, making them smarter and easier to use.
Just last year, Microsoft acquired Nuance Communications, the speech recognition and voice AI company that developed the language processing algorithms that powered Apple's Siri.
After that success, Nuance shifted to voice and image recognition in the health care, automotive, legal, and other fields. It's Nuance's voice recognition platform that powers the voice commands of more than 90 million cars, not to mention "smart" TVs, medical documentation software, legal dictation, and more.
Where Cortana Failed, OpenAI is Succeeding
With this latest investment and the acquisition of Nuance, Microsoft is set to finally become one of the biggest players in the AI space.
It's important to note that Microsoft's earnings in the most recent quarter were off. But that's largely due to a decline in Windows sales. Global sales of PCs have slumped amid a softening economy.
But Microsoft's far more important cloud division crushed it, with sales up 31% from the year-ago quarter.
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