By coming out & saying “I want people to know we made them dance” in this clip, Satya Nadella has officially announced the beginning of an AI war with Google, who in turn, has also accepted the challenge by launching its own version of ChatGPT called Bard (unfortunately, the launch was botched, wiping out ~$100Bn from its market cap in a day).
Btw, how awesome was this clip? Just the look in Satya’s eyes & the intent behind the statement fired me up, & I don’t even work at Microsoft.
The first battleground of this war is Search. And it’s expected to see classic “David vs Goliath” type asymmetric warfare (Google has 90%+ market share in Search, as opposed to single digit % for Bing). Goliath has everything to lose while David has relatively fewer resources (existing Search distribution in this case).
So, how would each of them be thinking about war strategy? There are clues in asymmetric military wars that have unfolded historically eg. the US in Vietnam.
David’s view (Microsoft):
David can’t beat Goliath in conventional warfare due to the sheer gap in resources. So, it doesn’t make sense for him to engage Goliath by following standard rules in the open. David’s best bet is to engage with Goliath unconventionally, perhaps playing by a new set of rules ‘cos that’s when existing resources will mean less.
Real-world examples of this include (many of these ideas are covered in Sun Tzu’s Art of War, & can be seen in historical military confrontations):
- Attack Goliath when he least expects it.
- Target areas where Goliath has more to lose than David (eg. a classic nuclear threat).
- Avoid a battleground that Goliath is familiar with. Take the battle to unfamiliar territories.
- Prefer guerrilla warfare over all-out confrontation.
- Use new modes of warfare wherein there is more parity with Goliath eg. economic warfare, communications warfare, strategic diplomacy etc.
- Engage in indirect conflict by leveraging third parties that have some edge over Goliath.
If one closely observes how Microsoft is approaching the AI war in Search, it’s using many of the above elements.
First, under Satya’s leadership, Microsoft made itself stronger as a software conglomerate (Teams winning over Slack, LinkedIn’s massive moat, Azure taking a significant lead over GCP etc.). This has brought it more parity with Google at a group level.
Second, while Microsoft has increasingly become an agile & aggressive war machine, Google’s unthreatened monopoly in Search has eroded both the rate of innovation & sense of urgency from its operating culture. In a way, Microsoft is attacking Google when it is at its weakest culturally, while itself being at its strongest in a decade.
Third, the rise of AI is fast changing the rules of the game and as OpenAI’s ChatGPT has shown, Search is likely to look very different in the future. This change is being organically driven by a technology inflection, making Google’s existing dominant position in Search potentially less meaningful going forward.
Fourth, Search is a battleground where Google has much more to lose than Microsoft – the classic Innovator’s Dilemma. Microsoft can afford to take bolder bets, while Google has to fend it off while also protecting its existing business.
Fifth & final, Microsoft is leveraging a third party (OpenAI) as a main actor in this war. Unencumbered, unpredictable, agile & brave – third parties like OpenAI are hard to figure out & gameplan against by large incumbents, similar to how large military machines often struggle against guerrilla warfare.
So, how can Goliath counter these tactics?
Goliath’s view (Google):
While David’s main aim is to use his “brain” & make the battle as unconventional as possible, it makes sense for Goliath to use his “brawn” & exploit David’s vulnerabilities, in particular the disparity of resources.
Some ways he can do this include:
- Attempt to drag the war back to familiar territory.
- Open multiple fronts against David so he is forced to spread his resources thin.
- Drag the war out for as long as possible, to drain David’s resources.
- Cut off any access points that David can use to replenish.
- David’s key strength is his morale so think of ways to destroy it.
- Focus on de-throning the general & the army will automatically collapse.
So, while Microsoft’s challenge appears stiff, Google can use many strategies to counter it.
First, Google shouldn’t be deterred by the first punch. It can strategically prepare itself for a long drawn-out war & leverage its Search distribution might to outlast the competitor.
Second, it can open up multiple fronts against Microsoft to distract it. Potential areas include Cloud, enterprise workflow (GSuite) etc.
Third, given AI is so early, there isn’t likely to be any first-mover advantage. As we speak, many high-quality teams are already working on OpenAI competitors, providing Google with a valuable opportunity to partner with them & make up for lost ground.
Fourth, one of Microsoft’s major strengths is its leader. Google should be open to making moves in the market that distracts Satya or puts him under pressure.
Fifth & final, Google should use this rare competitive pressure to revitalize its execution culture. Perhaps one of the founders returning to the helm is a possibility? If taken in the right spirit, this is a valuable opportunity for the company to reset itself for the next 2 decades.
These are just game-theory conjectures at this point. Given the resources at the disposal of both companies, this AI war in Search is likely to unfold over several years. We will see many of the above tactics get played out in each scene, which will be tremendous learning for lifelong students of strategy like myself.
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