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2023 | YPO I Needed
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Índice

1. The Chatbot Search Wars Have Begun

(Wired, Febrero 2023)

2. Exploring opportunities in the generative

AI value chain (McKinsey, Abril 2023)

3. Generative AI Will Change Your Business.

Here’s How to Adapt. (HBR, Abril 2023)
The Chatbot
Search Wars
Have Begun
Wired, Febrero 2023
 Microsoft, Google, and China’s Baidu all
showed off ChatGPT-inspired technology
to reinvent web search this week.

THIS WEEK THE world's largest search companies leaped into a contest to
harness a powerful new breed of "generative AI" algorithms.

Most notably Microsoft announced that it is rewiring Bing, which lags

some way behind Google in terms of popularity, to use ChatGPT—the
insanely popular and often surprisingly capable chatbot made by the AI
startup OpenAI.

In case you’ve been living in outer space for the past few months, you'll
know that people are losing their minds over ChatGPT’s ability to answer
questions in strikingly coherent and seemingly insightful and creative
ways. Want to understand quantum computing? Need a recipe for
whatever’s in the fridge? Can’t be bothered to write that high school
essay? ChatGPT has your back.

The all-new Bing is similarly chatty. Demos that the company gave at its
headquarters in Redmond, and a quick test drive by WIRED’s Aarian
Marshall, who attended the event, show that it can e ortlessly generate
a vacation itinerary, summarize the key points of product reviews, and
answer tricky questions, like whether an item of furniture will t in a
particular car. It’s a long way from Microsoft’s hapless and hopeless
O ce assistant Clippy, which some readers may recall bothering them
every time they created a new document.
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 Not to be outdone by Bing’s AI reboot, Google said this week that it
would release a competitor to ChatGPT called Bard. (The name was
chosen to re ect the creative nature of the algorithm underneath, one
Googler tells me.) The company, like Microsoft, showed how the
underlying technology could answer some web searches and said it
would start making the AI behind the chatbot available to developers.
Google is apparently unsettled by the idea of being upstaged in search,
which provides the majority of parent Alphabet’s revenue. And its AI
researchers may be understandably a little mi ed since they actually
developed the machine learning algorithm at the heart of ChatGPT,
known as a transformer, as well as a key technique used to make AI
imagery, known as di usion modeling.

Last but by no means least in the new AI search wars is Baidu, China’s
biggest search company. It joined the fray by announcing another
ChatGPT competitor, Wenxin Yiyan (⽂⼼⼀⾔), or "Ernie Bot" in English.
Baidu says it will release the bot after completing internal testing this
March.

These new search bots are examples of generative AI, a trend fueled by
algorithms that can generate text, craft computer code, and dream up
images in response to a prompt. The tech industry might
be experiencing widespread layo s, but interest in generative AI is
booming, and VCs are imagining whole industries being rebuilt around
this new creative streak in AI.

Generative language tools like ChatGPT will surely change what it means
to search the web, shaking up an industry worth hundreds of billions of
dollars annually, by making it easier to dig up useful information and
advice. A web search may become less about clicking links and exploring
sites and more about leaning back and taking a chatbot’s word for it. Just
as importantly, the underlying language technology could transform
many other tasks too, perhaps leading to email programs that write
sales pitches or spreadsheets that dig up and summarize data for you.
To many users, ChatGPT also seems to signal a shift in AI’s ability to
understand and communicate with us.
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 But there is, of course, a catch.

While the text they sling at us can look human, AI models behind
ChatGPT and its new brethren do not work remotely like a human brain.
Their algorithms are narrowly designed to learn to predict what should
come after a prompt by feeding on statistical patterns in huge amounts
of text from the web and books. They have absolutely no understanding
of what they are saying or whether an answer might be incorrect,
inappropriate, biased, or representative of the real world. What’s more,
because these AI tools generate text purely based on patterns they’ve
previously seen, they are prone to “hallucinating” information. And, in
fact, ChatGPT gets some of its power from a technique that involves
humans giving feedback on questions—but that feedback optimizes for
answers that seem convincing, not ones that are accurate or true.
These issues may be a problem if you’re trying to use the technology to
make web search more useful. Microsoft has apparently xed some
common aws with ChatGPT in Bing (we tried tripping it up a few times),
but the real test will come when it’s made widely available. One Bard
response that Google has proudly shown o incorrectly claims that the
James Webb Space telescope was the rst to take a picture of a planet
beyond our solar system.

Oops.
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 Exploring
opportunities in
the generative
AI value chain
McKinsey, Abril 2023
Generative AI is giving rise to
an entire ecosystem, from
hardware providers to
application builders, that will
help bring its potential for
business to fruition.

Over the course of 2022 and early 2023, tech innovators

unleashed generative AI en masse, dazzling business
leaders, investors, and society at large with the
technology’s ability to create entirely new and seemingly
human-made text and images.
 The response was unprecedented.
In just ve days, one million users ocked to ChatGPT, OpenAI’s
generative AI language model that creates original content in response
to user prompts. It took Apple more than two months to reach the same
level of adoption for its iPhone. Facebook had to wait ten months and
Net ix more than three years to build the same user base.
And ChatGPT isn’t alone in the generative AI industry. Stability AI’s Stable
Di usion, which can generate images based on text descriptions,
garnered more than 30,000 stars on GitHub within 90 days of its release
—eight times faster than any previous package.1
This urry of excitement isn’t just organizations kicking the tires.
Generative AI use cases are already taking ight across industries.
Financial services giant Morgan Stanley is testing the technology to help
its nancial advisers better leverage insights from the rm’s more than
100,000 research reports.2 The government of Iceland has partnered
with OpenAI in its e orts to preserve the endangered Icelandic
language.3 Salesforce has integrated the technology into its popular
customer-relationship-management (CRM) platform.4
The breakneck pace at which generative AI technology is evolving and
new use cases are coming to market has left investors and business
leaders scrambling to understand the generative AI ecosystem. While
deep dives into CEO strategy and the potential economic value that the
technology could create globally across industries are forthcoming, here
we share a look at the generative AI value chain composition. Our aim is
to provide a foundational understanding that can serve as a starting
point for assessing investment opportunities in this fast-paced space.
Our assessments are based on primary and secondary research,
including more than 30 interviews with business founders, CEOs, chief
scientists, and business leaders working to commercialize the
technology; hundreds of market reports and articles; and proprietary
McKinsey research data.
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 A brief explanation of generative AI

To understand the generative AI value chain, it’s helpful to have a basic

knowledge of what generative AI is5 and how its capabilities di er from
the “traditional” AI technologies that companies use to, for example,
predict client churn, forecast product demand, and make next-best-
product recommendations.
A key di erence is its ability to create new content. This content can be
delivered in multiple modalities, including text (such as articles or
answers to questions), images that look like photos or paintings, videos,
and 3-D representations (such as scenes and landscapes for video
games).

Even in these early days of the technology’s development, generative AI

outputs have been jaw-droppingly impressive, winning digital-art awards
and scoring among or close to the top 10 percent of test takers in
numerous tests, including the US bar exam for lawyers and the math,
reading, and writing portions of the SATs, a college entrance exam used
in the United States.6
Most generative AI models produce content in one format, but
multimodal models that can, for example, create a slide or web page
with both text and graphics based on a user prompt are also emerging.
All of this is made possible by training neural networks (a type of deep
learning algorithm) on enormous volumes of data and applying
“attention mechanisms,” a technique that helps AI models understand
what to focus on. With these mechanisms, a generative AI system can
identify word patterns, relationships, and the context of a user’s prompt
(for instance, understanding that “blue” in the sentence “The cat sat on
the mat, which was blue” represents the color of the mat and not of the
cat). Traditional AI also might use neural networks and attention
mechanisms, but these models aren’t designed to create new content.
They can only describe, predict, or prescribe something based on
existing content.
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The value chain: Six links, but one
outshines them all
As the development and deployment of generative AI systems gets
under way, a new value chain is emerging to support the training and
use of this powerful technology. At a glance, one might think it’s quite
similar to a traditional AI value chain. After all, of the six top-level
categories—computer hardware, cloud platforms, foundation models,
model hubs and machine learning operations (MLOps), applications, and
services—only foundation models are a new addition (Exhibit 1).
Exhibit 1

However, a deeper look reveals some signi cant di erences in market

opportunities. To begin with, the underpinnings of generative AI systems
are appreciably more complex than most traditional AI systems.
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Accordingly, the time, cost, and expertise associated with delivering
them give rise to signi cant headwinds for new entrants and small
companies across much of the value chain. While pockets of value exist
throughout, our research suggests that many areas will continue to be
dominated by tech giants and incumbents for the foreseeable future.
The generative AI application market is the section of the value chain
expected to expand most rapidly and o er signi cant value-creation
opportunities to both incumbent tech companies and new market
entrants. Companies that use specialized or proprietary data to ne-
tune applications can achieve a signi cant competitive advantage over
those that don’t.

Would you like to learn more about

QuantumBlack, AI by McKinsey?
Computer hardware
Generative AI systems need knowledge—and lots of it—to create
content. OpenAI’s GPT-3, the generative AI model underpinning
ChatGPT, for example, was trained on about 45 terabytes of text data
(akin to nearly one million feet of bookshelf space).7
It’s not something traditional computer hardware can handle. These
types of workloads require large clusters of graphic processing units
(GPUs) or tensor processing units (TPUs) with specialized “accelerator”
chips capable of processing all that data across billions of parameters in
parallel.
Once training of this foundational generative AI model is completed,
businesses may also use such clusters to customize the models (a
process called “tuning”) and run these power-hungry models within their
applications. However, compared with the initial training, these latter
steps require much less computational power.
While there are a few smaller players in the mix, the design and
production of these specialized AI processors is concentrated. NVIDIA
and Google dominate the chip design market, and one player, Taiwan
Semiconductor Manufacturing Company Limited (TSMC), produces
almost all of the accelerator chips. New market entrants face high start-
up costs for research and development. Traditional hardware designers
must develop the specialized skills, knowledge, and computational
capabilities necessary to serve the generative AI market.
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 Cloud Platforms
GPUs and TPUs are expensive and scarce, making it di cult and not
cost-e ective for most businesses to acquire and maintain this vital
hardware platform on-premises. As a result, much of the work to build,
tune, and run large AI models occurs in the cloud. This enables
companies to easily access computational power and manage their
spend as needed.
Unsurprisingly, the major cloud providers have the most comprehensive
platforms for running generative AI workloads and preferential access to
the hardware and chips. Specialized cloud challengers could gain market
share, but not in the near future and not without support from a large
enterprise seeking to reduce its dependence on hyperscalers.

Foundation models
At the heart of generative AI are foundation models. These large deep
learning models are pretrained to create a particular type of content and
can be adapted to support a wide range of tasks. A foundation model is
like a Swiss Army knife—it can be used for multiple purposes. Once the
foundation model is developed, anyone can build an application on top
of it to leverage its content-creation capabilities. Consider OpenAI’s
GPT-3 and GPT-4, foundation models that can produce human-quality
text. They power dozens of applications, from the much-talked-about
chatbot ChatGPT to software-as-a-service (SaaS) content generators
Jasper and Copy.ai.
Foundation models are trained on massive data sets. This may include
public data scraped from Wikipedia, government sites, social media, and
books, as well as private data from large databases. OpenAI, for
example, partnered with Shutterstock to train its image model on
Shutterstock’s proprietary images.8
Developing foundation models requires deep expertise in several areas.
These include preparing the data, selecting the model architecture that
can create the targeted output, training the model, and then tuning the
model to improve output (which entails labeling the quality of the
model’s output and feeding it back into the model so it can learn).
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 Today, training foundation models in particular comes at a steep price,
given the repetitive nature of the process and the substantial
computational resources required to support it. In the beginning of the
training process, the model typically produces random results. To
improve its next output so it is more in line with what is expected, the
training algorithm adjusts the weights of the underlying neural network.
It may need to do this millions of times to get to the desired level of
accuracy. Currently, such training e orts can cost millions of dollars and
take months. Training OpenAI’s GPT-3, for example, is estimated to cost
$4 million to $12 million.9 As a result, the market is currently dominated
by a few tech giants and start-ups backed by signi cant investment
(Exhibit 2). However, there is work in progress toward making smaller
models that can deliver e ective results for some tasks and training that
is more e cient, which could eventually open the market to more
entrants. We already see that some start-ups have achieved certain
success in developing their own models—Cohere, Anthropic, and AI21,
among others, build and train their own large language models (LLMs).
Additionally, there is a scenario where most big companies would want
to have LLMs working in their environments—such as for a higher level
of data security and privacy, among other reasons—and some players
(such as Cohere) already o er this kind of service around LLMs.
Exhibit 2
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 It’s important to note that many questions have yet to be answered
regarding ownership and rights over the data used in the development
of this nascent technology—as well as over the outputs produced—
which may in uence how the technology evolves (see sidebar, “Three
issues shaping generative AI’s future”).

Model hubs and MLOps

To build applications on top of foundation models, businesses need two
things. The rst is a place to store and access the foundation model.
Second, they may need specialized MLOps tooling, technologies, and
practices for adapting a foundation model and deploying it within their
end-user applications. This includes, for example, capabilities to
incorporate and label additional training data or build the APIs that allow
applications to interact with it.
Model hubs provide these services. For closed-source models in which
the source code is not made available to the public, the developer of the
foundation model typically serves as a model hub. It will o er access to
the model via an API through a licensing agreement. Sometimes the
provider will also deliver MLOps capabilities so the model can be tuned
and deployed in di erent applications.
For open-source models, which provide code that anyone can freely use
and modify, independent model hubs are emerging to o er a spectrum
of services. Some may act only as model aggregators, providing AI teams
with access to di erent foundation models, including those customized
by other developers. AI teams can then download the models to their
servers and ne-tune and deploy them within their application. Others,
such as Hugging Face and Amazon Web Services, may provide access to
models and end-to-end MLOps capabilities, including the expertise to
tune the foundation model with proprietary data and deploy it within
their applications. This latter model lls a growing gap for companies
eager to leverage generative AI technology but lacking the in-house
talent and infrastructure to do so.
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 Applications
While one foundation model is capable of performing a wide variety of
tasks, the applications built on top of it are what enable a speci c task to
be completed—for example, helping a business’s customers with service
issues or drafting marketing emails (Exhibit 3). These applications may
be developed by a new market entrant seeking to deliver a novel
o ering, an existing solution provider working to add innovative
capabilities to its current o erings, or a business looking to build a
competitive advantage in its industry.
Exhibit 3
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 There are many ways that application providers can create value. At
least in the near term, we see one category of applications o ering the
greatest potential for value creation. And we expect applications
developed for certain industries and functions to provide more value in
the early days of generative AI.

Applications built from ne-tuned models

stand out
Broadly, we nd that generative AI applications fall into one of two
categories. The rst represents instances in which companies use
foundation models largely as is within the applications they build—with
some customizations. These could include creating a tailored user
interface or adding guidance and a search index for documents that help
the models better understand common customer prompts so they can
return a high-quality output.
The second category represents the most attractive part of the value
chain: applications that leverage ne-tuned foundation models—those
that have been fed additional relevant data or had their parameters
adjusted—to deliver outputs for a particular use case. While training
foundation models requires massive amounts of data, is extremely
expensive, and can take months, ne-tuning foundation models requires
less data, costs less, and can be completed in days, putting it within
reach of many companies.
Application builders may amass this data from in-depth knowledge of an
industry or customer needs. For example, consider Harvey, the
generative AI application created to answer legal questions. Harvey’s
developers fed legal data sets into OpenAI’s GPT-3 and tested di erent
prompts to enable the tuned model to generate legal documents that
were far better than those that the original foundation model could
create.
Organizations could also leverage proprietary data from daily business
operations. A software developer that has tuned a generative AI chatbot
speci cally for banks, for instance, might partner with its customers to
incorporate data from call-center chats, enabling them to continually
elevate the customer experience as their user base grows.
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Finally, companies may create proprietary data from feedback loops
driven by an end-user rating system, such as a star rating system or a
thumbs-up, thumbs-down rating system. OpenAI, for instance, uses the
latter approach to continuously train ChatGPT, and OpenAI reports that
this helps to improve the underlying model. As customers rank the
quality of the output they receive, that information is fed back into the
model, giving it more “data” to draw from when creating a new output—
which improves its subsequent response. As the outputs improve, more
customers are drawn to use the application and provide more feedback,
creating a virtuous cycle of improvement that can result in a signi cant
competitive advantage.
In all cases, application developers will need to keep an eye on
generative AI advances. The technology is moving at a rapid pace, and
tech giants continue to roll out new versions of foundation models with
even greater capabilities. OpenAI, for instance, reports that its recently
introduced GPT-4 o ers “broader general knowledge and problem-
solving abilities” for greater accuracy. Developers must be prepared to
assess the costs and bene ts of leveraging these advances within their
application.

Pinpointing the rst wave of application

impact by function and industry
While generative AI will likely a ect most business functions over the
longer term, our research suggests that information technology,
marketing and sales, customer service, and product development are
most ripe for the rst wave of applications.
• Information technology. Generative AI can help teams write code and
documentation. Already, automated coders on the market have
improved developer productivity by more than 50 percent, helping to
accelerate software development.10
• Marketing and sales. Teams can use generative AI applications to
create content for customer outreach. Within two years, 30 percent of
all outbound marketing messages are expected to be developed with
the assistance of generative AI systems.11
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 • Customer service. Natural-sounding, personalized chatbots and virtual
assistants can handle customer inquiries, recommend swift resolution,
and guide customers to the information they need. Companies such
as Salesforce, Dialpad, and Ada have already announced o erings in
this area.
• Product development. Companies can use generative AI to rapidly
prototype product designs. Life sciences companies, for instance, have
already started to explore the use of generative AI to help generate
sequences of amino acids and DNA nucleotides to shorten the drug
design phase from months to weeks.12

In the near term, some industries can leverage these applications to

greater e ect than others. The media and entertainment industry can
become more e cient by using generative AI to produce unique content
(for example, localizing movies without the need for hours of human
translation) and rapidly develop ideas for new content and visual e ects
for video games, music, movie story lines, and news articles. Banking,
consumer, telecommunications, life sciences, and technology companies
are expected to experience outsize operational e ciencies given their
considerable investments in IT, customer service, marketing and sales,
and product development.

Services
As with AI in general, dedicated generative AI services will certainly
emerge to help companies ll capability gaps as they race to build out
their experience and navigate the business opportunities and technical
complexities. Existing AI service providers are expected to evolve their
capabilities to serve the generative AI market. Niche players may also
enter the market with specialized knowledge for applying generative AI
within a speci c function (such as how to apply generative AI to
customer service work ows), industry (for instance, guiding
pharmaceutical companies on the use of generative AI for drug
discovery), or capability (such as how to build e ective feedback loops in
di erent contexts).
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 While generative AI technology and its supporting ecosystem are still
evolving, it is already quite clear that applications o er the most
signi cant value-creation opportunities. Those who can harness niche—
or, even better, proprietary—data in ne-tuning foundation models for
their applications can expect to achieve the greatest di erentiation and
competitive advantage. The race has already begun, as evidenced by the
steady stream of announcements from software providers—both
existing and new market entrants—bringing new solutions to market. In
the weeks and months ahead, we will further illuminate value-creation
prospects in particular industries and functions as well as the impact
generative AI could have on the global economy and the future of work.

ABOUT THE AUTHOR(S)

Tobias Härlin and Gardar Björnsson Rova are partners in McKinsey’s
Stockholm o ce, where Oleg Sokolov is an associate partner; Alex Singla
is a senior partner in the Chicago o ce; and Alex Sukharevsky is a senior
partner in the London o ce.
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Generative AI
Will Change
Your Business.
Here’s How to
Adapt.
HBR, Abril 2023
 Helping
people thrive.

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