What Google’s leaked memo says about the AI market

A quick opinion

Matt Gosden
3 min readMay 12, 2023

A memo from Google on where they are losing out in AI

This supposed leaked memo from the Google Brain AI team last week is very interesting for anyone trying to follow what may happen on the business and strategy side of AI.

In a nutshell it’s saying that Google and OpenAI are rapidly being beaten by the Open Source community on innovation and speed when it comes to building AI solutions, particularly image and language models. They are finding that they are unable to ‘build a moat around their business’ to protect the commercial value of their models. This is feels like it is a real memo and the content rings true. This memo is important because it hints at what is likely to happen in the market, and has implications for organisations that are looking to partner with firms to provide their AI solutions.

Who wins in this AI market?

The fact that open source is doing so well is fantastic in my view. I’m a huge fan of open source, and contribute to various projects myself as the quid pro quo for using free software and models. The big implication of open source being a strong force in the market is that it will have a huge deflationary impact on pricing for AI services (essentially API calls to these foundation AI models will become very cheap). This is good news for organisations and consumers as the running cost of using AI into your processes will be low. I believe this means there will be even more effort to automate processes and do so quickly.

Image source — https://lmsys.org/blog/2023-03-30-vicuna/

But this also calls into question the viability of many of the AI startups that are furiously working to build AI tech products to sell to organisations. Many are well funded, but how many of these organisations can really create a sustainable business when the pricing probably erodes in a matter of weeks? There is barely time to build the product, never mind sell it and get established in the market? Will these AI startup businesses be around long enough to give continuity to the organisations that they are looking to sign up?

As I think we already know from technology strategy 101, a business moat can be built on top of proprietary data or specialist content that can be kept closed. But technology businesses that have only a better methodology, tech stack, or nicer UI find that their benefits are typically very temporary.

What does this mean for organisations?

For organisations looking to partner with AI firms to build AI solutions in their business, I think this Google memo highlights the importance of finding a way to do what you can yourself internally using open-source solutions. And if you do need to use external products then be aware that they may need swapping out quicker than you think.