#353: Microsoft Deploys Bing And OpenAI In A Strategic Move To Compete With Google, & More

The tech industry is abuzz with Microsoft’s upgrade to its Bing search engine, including an AI chat feature powered by OpenAI. While many analysts think the goal is to capture a meaningful share of the search market, we believe that Microsoft is aiming not only to lower Google’s search margins but also to dissuade Alphabet from running Google Cloud and other businesses at a loss.

The noise around Bing and AI could force Google to release an AI chat feature within search, potentially pressuring Google’s bottom line because the current inference costs for language models like GPT-3 are significantly higher than those for search. In addition, the monetization model for AI chat is unclear compared to the ad-based model that Google has mastered. Currently, Google processes ~8.5 billion searches per day in a highly profitable business model that funds unprofitable business lines like Cloud, which annualized at a ~$2 billion loss during the fourth quarter. By lowering Google’s search margins, Microsoft could put pressure on other Alphabet businesses, many of which compete with Microsoft.

Fortunately for Google, inference costs are declining ~70% at an annual rate. According to our research, inference costs should be de minims in a few years. That said, in the short term, Microsoft is likely to exploit its competitive advantage.

Last week, the U.S. Securities and Exchange Commission (SEC) charged Kraken for failing to register its “staking-as-a-service” product as a security, insisting that it did not provide proper disclosures and safeguards for individual investors. Kraken settled with the SEC by paying $30 million in penalties and shutting down its US staking service, leaving its international staking service intact.

Key industry players reacted strongly to the settlement. Earlier in the week, Coinbase CEO Brian Armstrong responded to “rumors that the SEC would like to get rid of crypto staking in the US for retail customers,” noting that “regulation by enforcement” does not work and has encouraged companies like FTX to operate offshore. SEC Commissioner Hester Peirce also issued a statement voicing her strong opposition to the SEC decision.

After the collapse of several crypto intermediaries last year, Kraken’s settlement highlights the SEC’s intent to pressure exchanges to comply with federal securities law. Industry backlash seems to be a call for Congress to introduce legislation that clarifies which digital asset characteristics are likely to trigger regulatory responses.

Notably, the SEC’s enforcement action against Kraken focused on exchange-intermediated staking services, not on individuals who directly participate in Proof-of-Stake* networks themselves. In our view, the move will impact exchanges that have made retail staking-as-a-service key to their business models, not the underlying blockchain protocols themselves. Indeed, the SEC could advance the decentralization of Proof-of-Stake (PoS) networks: the ban on staking-as-a-service in the US seems like a “China mining ban” moment for PoS networks, which could encourage self-custody, decentralization, and healthier network fundamentals over time.

That said, US exchanges providing more centralized and convenient services could suffer from regulatory arbitrage, losing business to foreign exchanges unencumbered by regulation on staking-as-a-service. While well-intentioned, US regulators could force individuals to look abroad for convenient staking-as-a-service solutions, putting them in harm’s way.

*In Proof-of-Stake networks, blockchain validators lock up tokens to participate in consensus (confirming new transactions on the network) and earn some crypto in exchange.

Roku and DoorDash have partnered to revolutionize the TV viewing experience by integrating food delivery into the Roku platform: with mobile devices, consumers can interact with TV ads that send them to the DoorDash app. The new click-to-offer experience gives consumers easy access to and exclusive offers from their favorite restaurants, which, in turn, can activate highly targeted shoppable ad campaigns. The integration empowers not only consumers with a seamless and convenient way to order food but also businesses with the ability to track and measure returns on investment.

Roku’s internal research has highlighted the potential for more interactive and relevant food advertising: ~33% of Roku users order take-out or food delivery on a weekly basis, and ~36% are interested in interactive offers like scannable QR codes or text messages. We believe that Roku/DoorDash offers one of the most intuitive use cases for bottom-funnel CTV (connected TV) advertising, giving the food services industry the opportunity to target high-intent customers through TV ads.

To test the new click-to-offer experience, look for Wendy’s TV ads offering eligible Roku users a $5 discount on purchases of $15 or more!