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Well, we certainly know that there is a lot of interest around AI both from the public and from companies. But what's
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interesting is about the three main programs that are out there and the design as to how they are supposed to be
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best effective. Pleasure to be joined by Stefano Pontoni, professor of marketing
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here at the Wharton School who joins us today from California on a foggy morning
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out in California. Stefano, great to talk to you today. How are you, sir? I'm great. Thanks, Dan.
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So, I mentioned we know that the companies are wide in terms of using it and varied in terms of how they're
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using and building AI. But there is also different kind of strategies that are really in play here for these platforms.
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Yeah, there's a lot of talk about about not just what kind of algorithms companies are building and the
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architecture that they're using and the data that they're using and all of that.
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There's also interesting conversation to be had about the business strategy that
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different companies, different AI labs are using. So, sure. There's three main ones that we know
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about ChatGPT that is the main one seemingly right now. It seems like that to degree ChatGPT
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is a case of first mover advantage, correct? Yes, so we have indeed three main US-based AI labs. The first one is
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OpenAI, like you said, the ChatGPT is a product that you know, basically made the generative
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AI revolution kick off in a way in a big way, you can say. And then you have Google which
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is a company that invented the transformer model that is powering all of these generative AI tools, the
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language-based ones. So, they are very much you know, at the forefront too with the
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chatbot Gemini and other tools that they're embedding in various products. And also Anthropic with its
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chatbot Claude has also been very, very prominent and very successful. On top of
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that, you have players in China, you have you know, other other players. But I think those
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three are indeed the main ones. Now, ChatGPT indeed was the first mover and that enabled them to build an enormous
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customer base. We're talking about over a billion people of active users. So,
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the massive use user base. But the other ones aren't kidding either. Should we expect that as more users join
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and try it each of these platforms that the level of usage for all three will somewhat level out or does the advantage
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that ChatGPT have already one that continues on for a longer period of time? Yeah, looking for the three main looking
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at the strategy of the three main labs in the US, there's actually a working paper that
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just came out by a team of academics including Daniel McCarthy who's a Wharton PhD student now professor in
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Maryland. They're looking at mobile app downloads and trying to explore the niches and spaces that these different
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companies are occupying. And what they find is that so far you've had a company
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releasing a model every few weeks, you know, doing very well out of that and then everybody's now excited about, you
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know, what Google is doing, what Anthropic is doing, what OpenAI is doing. But that doesn't seem to have
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come at the cost of the other companies. So far, leaps in forward in terms of AI
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capabilities have led to an expansion of the pie rather than then you know, direct
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you know, taking customers away from from other competitors. But we'll have to see as the market continues to mature
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and you know, we reach a point where almost everybody has these accounts, then it becomes a little bit
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of a matter of what kind of habits people are forming, how they're getting used to using this technology. And so
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Gemini is perceived to be something that will be used within kind of an ecosystem,
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correct? Yes, so if you look at the three the three main labs, Google is the only one
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that you can say is fully vertically integrated in so far as they deal with the you know,
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the model building parts, but they also are embedding AI into into everything they do and also they
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own the cloud infrastructure that you need in order to power those tools. Well, that is not the case or at least
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you know, OpenAI is trying to build it, but obviously it's a huge effort. And um
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in case the case of Gemini it's basically language models in general will be tools that are used in
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every Google product. They're used in Gmail, they're used in Google Maps,
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they're used everywhere. Gemini is the main chatbot product and so far you've
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seen Google using it more as a as a ChatGPT-like tool, more of a productivity getting stuff done, also
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images and other things. But they haven't so far embedded so much into their advertising which is kind of
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interesting considering that Google's business has been based on advertising.
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In contrast what Google has been doing is to build AI overviews at the top of search pages. And so they are looking at
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monetizing chatbot through advertising via the search portal which will change with time. We're not
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entirely sure how. But in contrast taking ChatGPT is not the only product that OpenAI has basically,
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at least the two you know, consumer products. So, they are will need to monetize their product directly, not as
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part of an ecosystem the way that Google is doing, but more as a standalone product. And for them therefore, it's
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very important to think about what is the revenue per user that you can build for that chatbot. So, they have a free
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plan which is what you know, large majority of people are using and that doesn't make them any money. Like they
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they are losing money on that free plan. And then you have the paid plan with different tiers and they're making money
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on that, but there aren't enough of those who convert from the free to the paid plan and therefore, they announced
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that they're going to be doing advertising on ChatGPT. And so that's that's an I you know, an example of how
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the strategy pursued by the three firms is getting them to make different decisions. And so Claude is viewed as a
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premium niche strategy, meaning what specifically? So, Claude has a much smaller number of users,
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much smaller compared to ChatGPT but also compared to Gemini. However, the revenue per user is
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extremely high and Dan McCarthy team estimates that the revenue per user for Claude is about 40 times higher than the
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revenue per user from Gemini for example. So, massive difference. And the reason for that is that they have
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pursued a more professional market, basically coding through Claude code and poor work and tools like that. And that
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obviously is a market that is willing to pay because it's so easy to justify
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spending money on the chatbot if you find it that it really helps you create code with much faster speed or much
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higher quality. So, in that sense indeed it's a niche strategy. Niche not to mean
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very small, we're still talking about many millions of users and huge revenues
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and growing fast. But a little bit less focus on the consumer. Although you can see that a
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little bit changing. So, Anthropic was doing for example, you know, advertising during the Super Bowl. I think it
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indicates a more of a mainstream mass strategy. So, do the strategies that these
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platforms have right now and these companies have for them give us an idea of how each one of these
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could potentially develop in the years ahead? Yeah, it's very interesting because
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the strategies are very different and yet it's not clear to me that one is right and one is wrong. I think
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probably there's going to be different ways of being successful and it seems to
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me that the strategies that the companies have used is a good fit for their companies. So, OpenAI is going to
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go for this mass market and try to build revenues out of the free users using advertising while at the same time
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they keep building at the high end for paid subscribers and for enterprise. You've got Gemini is going to be
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basically part of a ecosystem play by Google to leverage AI to build a strong customer value across a set of
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tools and platforms and monetize them through advertising along the way. And then you're going to have Anthropic
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continuing this more niche strategy and trying to basically nail the coding and professional market. All of them are
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being successful. All of them will continue likely to be successful, but in their own different way.
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Because there's enough of a marketplace for all three to kind of continue to
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develop in their own landscape. The I mean, the the market didn't exist three and a half years ago. So, it's
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still still still pretty fresh and there's still room to grow in many different ways. You can grow the number
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of users, you can grow the revenue per users, you can grow how much users are doing with their platforms. So, we
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expect that to continue evolving. And by the way, the fact that one has a say ChatGPT or Gemini subscription doesn't
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mean that we not also want to a closed subscription. This is not just a for some users will be a need one
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choose a one and go with that. But for many people they'll have more. I mean
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they're using all of them. I think many will do that too. So if we have if we can have five streaming
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services we can have at least one AI service, right? Right. I do that with my students. I ask them you know who has
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a Netflix subscription and everybody raise a hand. I ask him who has you know a Spotify or everybody has those
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subscriptions and I think we'll end up having many of these chat subscriptions
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too. Stefano, great to talk to you. Enjoy California. We'll see you back here in Philadelphia.
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Thanks, Dan. You got it. Stefano Petroni, marketing professor here at the Wharton School.