In June, prominent software companies such as Microsoft, Salesforce, and Adobe, known for their pioneering generative AI technologies, shared their strategies and prospects for monetizing this innovation.
Microsoft sees AI as its fastest-growing $10 billion business, with a key monetization plan centered around providing essential tools and services for AI application and service development. They aim to generate sales through new offerings like the "Azure Open AI API" and drive increased Azure usage through strategic partnerships.
Salesforce has introduced generative AI functions to eight major services and is implementing a monetization strategy focused on AI Cloud. This comprehensive package service integrates generative AI capabilities with key offerings such as Einstein, Data Cloud, Tableau, and Mulesoft. It supports the use of proprietary LLM developed by Salesforce, as well as LLM from other companies and customers. Adobe, on the other hand, witnessed an impressive 80-fold increase in image generation within two weeks of launching the beta service that added the AI service Firefly to Photoshop.
Anticipating synergy, Adobe is unveiling its corporate Firefly service and integrating it into the Express content production platform. This integration will seamlessly incorporate Firefly into Adobe's major applications. Meanwhile, ServiceNow has established the following strategy:
- General-purpose LLM will connect Open AI services to the Now Platform, delivering essential generative AI functionality.
- Specialized LLMs tailored for different fields will offer customized solutions by leveraging individual customer data and open-source LLMs.
These approaches are expected to enhance the value of ServiceNow's primary services in specialized LLM sectors. The monetization goal is to increase the average selling price (ASP) by strengthening the competitiveness of major services.
While specific generative AI monetization plans may vary among companies, the current stage goals are anticipated to be similar: increasing ASP by attracting new customers with generative AI capabilities, boosting usage among existing customers, and enhancing automation functions in key services through the adoption of new AI services.
Companies that have disclosed their monetization plans predict that the contribution of AI performance will gradually emerge from the fourth quarter of CY 2023, suggesting that the current sales guidance is relatively conservative.
Determining Success in the Generative AI Competition
The competition to introduce generative AI is set to intensify in the second half of this year. Several key factors will play a crucial role in determining victory or defeat in this AI competition, including:
- Possession of extensive and valuable datasets.
- Competitiveness of existing major services and diversification of product portfolios.
- Ensuring data security and addressing risk factors such as copyright issues.
- With their strong positions as leading platform operators in the service sector, Microsoft, Salesforce, Adobe, and ServiceNow are well-positioned to emerge as winners in the generative AI competition within their respective domains.
Key Points Revealed in Microsoft's AI Strategy Announcement
Microsoft recently held a Virtual AI Discussion, where they unveiled their strategy and outlook for AI development. Here are five important takeaways from this announcement:
Microsoft recognizes AI technology as the next-generation platform and is at the forefront of AI product development. They have made significant investments in OpenAI, believing that AI models will serve as future platforms and revolutionize software development. With AI technology as their focus, Microsoft has already developed AI products like Microsoft365 Copilot and Bing Chat, which are awaiting launch.
The AI business is projected to be the fastest-growing sector, with an estimated worth of $10 billion. Microsoft's current monetization strategy revolves around providing tools and services for AI application and service development. They anticipate synergies with their existing core services, such as Azure, through the sales of new services like Azure OpenAI API. The acquisition of new customers and increased usage of Azure will contribute to the growth of the AI business. Microsoft plans to incorporate AI capabilities into all their cloud solutions as an additional monetization avenue.
Personal data security and government regulations are crucial considerations in AI technology development. The rapid advancement of AI technology will have a significant impact and raise concerns regarding personal data security and regulatory compliance. Safeguarding customer data is a top priority, particularly when utilizing externally developed LLMs (language models). Microsoft emphasizes the importance of ensuring that customer information is not stored or utilized within LLMs.
Microsoft aims to secure permanent licensing for all OpenAI intellectual properties (IPs) developed through their partnership. They intend to retain rights to the IP even if the partnership comes to an end.
While investment in AI technology may increase capital expenditures and sales costs, Microsoft's dominant position in the AI market cycle is expected to yield a high return on invested capital (ROIC).
Adobe: Launch of Independent Generative AI Service Firefly
Given its primary focus on content production software, Adobe is one of the companies that has received notable user feedback since the introduction of generative AI services. In March, Adobe unveiled Firefly, an AI service that generates image files based on text instructions. Firefly is a standalone service that can operate independently and has also been integrated into Adobe's flagship software, including Photoshop. In a recent FY2Q23 earnings release, Adobe reported that more than 500 million images have been created since the beta release of Firefly. Furthermore, within just two weeks of adding Firefly to Photoshop, the beta service has generated 150 million images, surpassing initial expectations by 80 times.
ServiceNow/Divided Approach: General-Purpose LLM and Specialized LLM by Field
ServiceNow's generative AI strategy is divided into two approaches: general-purpose LLM and specialized LLM for specific fields. The general-purpose LLM involves connecting OpenAI LLM and Microsoft Azure Open AI services through the Now Platform to provide general generative AI services, such as answering questions, summarizing content, and creating content. This is achieved through a strategic partnership with Microsoft. In the long term, the goal is to allow customers to select and use their preferred model from their own LLM or external LLM.
On the other hand, for specialized LLM in each field, ServiceNow plans to offer customized solutions for different workflows, including IT Service Management (ITSM) and Customer Service Management (CSM), by utilizing customer-specific data based on open-source LLM. The specialized LLM approach is expected to enhance the value of ServiceNow's services in various sectors and present significant growth opportunities.
Balancing Price Increase and Potential Reduction in Usage
Investors have raised concerns about ServiceNow's AI monetization strategy, speculating that customers may reduce usage as workflow automation improves through generative AI functions, aiming for greater efficiency. However, ServiceNow predicts that even with the introduction of more automation features in the Professional version, there will be no significant reduction in usage. Furthermore, any potential reduction in usage will be greatly offset by the increase in perceived value resulting from improved service quality.
Potential for Growth through Additional AI Solutions
The addition of AI solutions to ServiceNow's IT workflow services, further enhancing automation capabilities, is expected to have a significant positive impact on service competitiveness. ServiceNow has already demonstrated the effectiveness of its monetization strategy by incorporating AI technology. Since the introduction of the Pro version with AI in ITSM workflows, the penetration of the Pro version has increased by 40%, and the average selling price (ASP) has risen by 25% compared to the traditional Basic version, contributing to accelerated sales growth. By extending AI solutions to other existing services such as CSM and Creator workflows, alongside ITSM, which is ServiceNow's core service, the company expects to unlock substantial growth potential by strengthening its service competitiveness.
In conclusion, Microsoft is strategically positioned to leverage AI technology, leading the market with innovative products and services. Their AI investment is projected to deliver substantial returns, although challenges related to data security and regulation must be addressed.
Source: Hana Securities
