How the $10 Billion OpenAI investment is helpful to Microsoft? | Quarterly results | Pavan Sathiraju
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Microsoft announced its quarterly results reports for QQ3 2023 and I was very excited to know the impact of ChatGPT on Microsoft’s revenues. The first page highlighted the revenues for Microsoft Q3 2023 and they were $52.7 Billion. There are three streams from where revenues are coming. First is productivity and business processes. This includes Microsoft Dynamics, Microsoft Office licenses, Microsoft Cloud, and Azure. Out of these Cloud is the fastest growing division and it contributes $22.5 Billion with 18% growth. Cloud is one of the fastest-growing businesses in the industry. It is growing at the rate of 15% YoY.
The PC business is going down and all the other business revenues are also going down. While the cloud is becoming popular and driving great numbers. Azure is very well placed because of this. Azure is also growing in a very healthy space. In the cloud space, AWS has a 55% market share, Microsoft has a 22% market share, and then we have Google and Oracle. There’s not much difference between the services offered by all of these companies. But ChatGPT can be that changing feature. Microsoft has an exclusivity contract with ChatGPT. What service does ChatGPT bring to the table? Why did Microsoft invest 10 Billion in ChatGPT?
If you search anything on Google it’ll give you straightforward answers. But with ChatGPT you can add a lot more context to your quotations. Instead of asking, “What is the best programming language” you can ask, “I’m a 19-year-old with no background in tech. What is the best programming language for me?” When you get the answers to the second question it will give you a lot more confidence to learn the language suggested on the basis of your contextual situation. Now imagine if this context can be automated for all corporate employees. The entire context setting can be automated and the end result will be outstanding. This is what Microsoft is aiming for. The conversational AI will transform the whole cloud business for Microsoft. This conversational AI model is not offered by AWS or Google at all. This is why Microsoft invested $10 Billion in OpenAI and ChatGPT.
What’s happening with Google? Google search is something very different from ChatGPT because we don’t give google the context that we can give ChatGPT. ChatGPT is not going to be free forever. It will be an expensive tool priced at somewhere around $40-50 dollars per month. Google has a 95% market share and it will take a long time for Google to leave that market share. Therefore until ChatGPT becomes mainstream, Google can come up with something. With this, it’s obvious why Microsoft has invested in OpenAI, and in my opinion, it is a pretty rational investment.
Microsoft is also aiming to acquire Activision. Microsoft Activision deal may go through and it can prove to be a very helpful bet for Microsoft. If you look at the PC numbers are down by 35%. The Xbox revenues are down but they are better than PC numbers. And if we dig deeper then the content revenues are coming down while the subscription revenues are still increasing. With Activision's acquisition, Microsoft can also increase content revenues. This will increase the Game pass revenues as well. The gaming industry revenues are also increasing at a healthy 9%. In the cloud and gaming business, Microsoft has come up with great investments.
The PC market on the other hand is cyclical in nature because once we buy a PC we don’t change it for a few years at least. Since a lot of people bought PCs during the pandemic, the cycle for PC is still slow and it might pick up the pace later on. Hope you found this video helpful, please let me know what other topics you’d like me to cover.
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Chapters
0:00 - Intro
0:22 - Microsoft Q3 2023 Results analysis
1:02 - Could technology market
1:51 - Chat GPT Services
3:49 - What’s happening at Google?
4:55 - Microsoft Activison acquisition
5:51 - PC market crisis
6:26 - Outro