Close competition in the AI market may herald a future drop in price - as well as quality. (Photo: Unsplash)
This week Forbes magazine reported that ChatGPT's meteoric success has sparked a "war" in the market, with the most powerful players in the technology market racing to develop their own chatbot and innovative AI products.
In particular, Google failed miserably with the BARD chatbot, losing $10 billion in value.
Microsoft invested a similar amount when it bought shares in OpenAI, the company that gave birth to ChatGPT, to improve its web products: the Bing search engine and the Edge web browser.
Amazon also announced a partnership with Hugging Face, which is developing its own artificial intelligence bot.
The Chinese technology giant Baidu also announced plans to integrate its chatbot, Ernie, starting in March.
Other Chinese companies have also stated that they are working on their own chat, and we still don't know what other giants like Apple and Meta are planning for us.
It is important to emphasize that for consumers, this is definitely a positive competition.
If the estimates are that chatbots will replace search engines, then Google's absolute monopoly in the field is likely to be broken.
This means decentralization of power and control of information among a larger number of companies, although these are still the most powerful companies in the world.
Is competition good for competitors?
To understand whether competition is really good for business, we need to first define what good means.
Does good mean the final profit line of the business and nothing else, or is it the quality of the product or service that the company is able to provide?
Instead of deciding the question, you can check how the competition affects the company's profit line, and how it affects the quality of the product or service.
How Competition Affects the Profit Line
Naturally and obviously, competition negatively affects the profit line.
If more players in the market provide the product you sell, your profit line will decrease for several reasons:
Some customers will stop buying from you and will switch to buying from competitors.
You will be forced to lower prices to compete with the new players who have entered the market.
You will have to invest much more money and thought in campaigns and marketing moves (although there are also advantages to a "mature" market compared to a market that does not exist and needs to be built from scratch).
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Take for example the electric company which is currently a monopoly in the State of Israel.
If new players enter the market tomorrow morning, prices will drop and many consumers will abandon the services of the electric company in favor of the private market.
In order to fight back, the electric company will start advertising aggressively with more and more advertisements in which "socket and plug" will try to sell us the company's services in every possible media.
As competition leads to lower prices, a merger between companies, which is the complete opposite of competition, leads to higher prices.
Those who are skeptical about this are invited to look at the series of studies presented on the White House website.
For example, a study from the 1980s found that airline mergers resulted in price increases of 7.2 to 29.4 percent in markets where the merging airlines directly competed.
How competition affects the quality of the product or service
Most people would agree that competition improves product quality because it forces companies to work harder, to be in a constant learning process, and to find creative ways to improve.
To deal with the changing competition, companies perform a periodic SWOT analysis in which they assess the strengths, weaknesses, opportunities and threats they face and build their strategy accordingly.
For example, when the iconic cow chocolate returned to the shelves after a long period of recall, the competitor Milka came out with a congratulatory campaign that congratulated the red cow on its return to the market.
In addition, competition encourages companies to find their niche - the thing that makes their specific product or service unique in the market.
It could be anything from the outstanding security of Apple smartphones, to Asam's unique bamba nougat recipe.
However, there are cases in which the opposite is true, and the competition actually damages the quality of the product, or rather, the company's ability to develop a new product, which may be better.
Usually, to compete successfully, a company needs financial support for research and development (R&D).
If the company's pocket is not deep enough, it may be "drowned" by the competition without being able to improve or develop a better product.
And if we return to the hypothetical example of the electric company, as a result of the decrease in revenues due to competition, it is possible that energy efficiency projects and the development of advanced infrastructures will have to wait, which may make it difficult for the company to create a quality advantage.
On the other hand, new players who will join the game will have to demonstrate energetic innovation and also invest in infrastructure in order to enter the game at all.
In conclusion
The answer to the question of whether competition is good for business depends on the definition of "good".
If good means improving the quality of the product and service, then yes, in most cases.
If "good" means the bottom line, the bottom line is usually hurt by competition.
For sure, we as consumers are going to benefit from the raging competition between the technology giants.
The author is Attorney Reot Goldman, CEO of the Geometrics Group and an expert on innovation and technology, a member of the "Helsinki" committee at Blinson Hospital, and a board member of the Schneider Children's Hospital trustees association
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