Google's Gemini Announcement & Big Tech's Sustaining Innovation

One of the key insights from Clayton Christensen’s The Innovator’s Dilemma is the concept of disruptive versus sustaining innovation.

Some disruptive innovations are easy to spot like cars disrupting the horse and buggy, digital cameras disrupting physical film, or streaming disrupting movie rental companies. However, the line between disruptive and sustaining innovations can be blurry as they’re playing out.

I like to frame it this way: If an innovation is truly disruptive, incumbents don’t stand a chance. Their business model isn’t compatible with the innovation, even if they see it coming a mile away.

So, is artificial intelligence — the talk of 2023 — a disruptive or sustaining innovation?

You may already know the answer.

Artificial Intelligence and the Battle of Big Tech

If artificial intelligence is a disruptive technology, it could upend the tech industry as we know it. Search, word processing, driving, image creation, ads, and even social media posts could be done by AI.

And in late 2022 and early 2023, it appeared a startup — OpenAI — may win the AI war. A disruptive innovation was upon us.

As the year went on and Big Tech started releasing what they were working on in the background, it became increasingly obvious that Big Tech would be sustained by AI and a seemingly disastrous product launch last week confirms that.

Google’s Gemini Stumble

On December 6, 2023, Google released its Gemini model along with the video below that shows both the power of the tool and its ability to switch between chat and image creation.

For a moment, it seemed like Gemini had caught Google up to OpenAI’s GPT-4. But we soon found out the video was sped up, prompts were much longer than indicated, and none of that was disclosed to viewers of this demo. It was an on-goal for Google that wasn’t necessary because it was already a win without the high production video.

Google showed with Gemini that it’s very much in the game with OpenAI, even if it’s a few months behind the curve. And even if Google has to brute force its way into relevance in AI, it has the capital, compute, and brain power to do so.

If Google can catch up to OpenAI, it looks like the AI battle will be between Alphabet, Microsoft/OpenAI, Meta, and NVIDIA. Not exactly a disruption of the status quo.

The AI startup ecosystem

Of course, there are billions of dollars flowing into AI startups. But what are they doing?

• Building SaaS businesses on top of OpenAI’s APIs, effectively wrapping the model to make it a bit more custom.

• Buying NVIDIA GPUs to serve other startups.

• Customizing models from OpenAI, Google, and Meta.

It’s no coincidence that all of these examples are building on top of the existing tech infrastructure and investment by big tech.

And that’s OK. One of my favorite products today is FinChat, the AI-powered finance tool. This is the kind of innovation that AI enables, but it’s a niche business built on top of big tech, not a disruption of big tech itself.

AI looks like it’s headed the way of the smiling curve with value accruing to the biggest players or the best niches.

As much as Gemini’s launch was a PR disaster, I’m already feeling a little better about Alphabet’s position in the Asymmetric Portfolio.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.