By Thomas Höppner & Luke Streatfeild, Hausfeld
Having its first commercial breakthrough with ChatGPT, in 2023 artificial intelligence (AI) has rung in the fourth industrial revolution. This article outlines the technicalities and economics underlying generative AI, and what they mean for competition in digital markets and for antitrust and regulatory lawyers working in this field.
I. What does ChatGPT stand for?
ChatGPT is an AI chatbot. The tool interprets human queries or requests that can be formulated in natural sentences (prompts) and answers or fulfills them comprehensively in a natural language in real-time. Technically, such software solutions are referred to as Large Language Model (LLM). Trained by vast amounts of text to identify connections between words, LLMs aim at predicting the likelihood of a word occurring in a text, given the context of the surrounding words.
ChatGPT stands for “Conversational Generative Pre-Training Transformer”.
- Chat relates to the electronic conversation via text that the service enables.
- Generative refers to the system’s ability to not copy-paste content it was trained with but to generate new text (or other content such as images or videos) on patterns it has learned from its training data. Instead of selecting a pre-defined response (such as an indexed answer to a query), the model produces coherent text in response to a prompt in a new, unique, order.
- Pre-Trained refers to the fact that the model has already been trained on a large amount of data before it was fine-tuned for the specific task of answering in a human chat-like form. This allows faster and more precise results than starting from scratch each time a user enters a prompt.
- Transformer relates to the architecture used to train the model. A transformer is a new type of “neural network” that is used for machine learning. It allows for the processing of longer text than previous methods, thereby overcoming memory limitations of older LLMs.
ChatGPT was released by OpenAI, a US-based firm founded in 2015, inter alia by Elon Musk. Since 2019, OpenAI has cooperated closely with Microsoft. Among other support, Microsoft allowed OpenAI to use its vast cloud infrastructure for free and assisted in training its LLM (GPT).[1]
II. What led to the hype around ChatGPT?
Reaching 1 million users in just 5 days and 100 million users in 2 months, ChatGPT is the fastest-growing consumer application to date.[2] But it was not only its functionality that took people’s imagination by storm and shook up the AI sector, but also the burgeoning “arms race” between tech giants for AI superiority.
With one of the largest AI labs on earth[3] Google had been pioneering the AI scene for years. It was Google engineers that in 2017 published a paper on the “transformer-based” AI model that led to OpenAI’s breakthroughs.[4] Google first demonstrated its own LLM, called LaMDA, in May 2021.[5] Reportedly due to “reputational risk” from providing incorrect information, Google decided against launching the service, and[6] for similar reasons, in November 2022, Meta stopped a test of its LLM chatbot called Galactica AI. Users had criticized the model as generating incorrect or biased content that “sounded right and authoritative.”[7]
Such concerns, however, did not stop OpenAI/Microsoft from launching ChatGPT on November 30, 2022. Users detected fewer biases because the AI had been specifically trained to handle sensitive questions. Yet, the issue of factual errors in the answers remained, because while (all) LLMs “are excellent at predicting the next word in a sentence [..] they have no knowledge of what the sentence actually means.”[8] Despite ChatGPT’s so-called “hallucinations,” the linguistic quality of the chatbot stunned even experts.[9]OpenAI/Microsoft quickly marketed the technology as a potential “killer” of the incumbent search engine Google, and not without success. Only a few days after the launch, Google declared a “code red”, an immediate threat to its advertising business.[10] Ever since, the world has paid close attention to the impending search ‘battle royale’ between Microsoft and Google. And it was entertaining indeed. Google invited the press to join a live event on February 8th in Paris to present its own AI-chatbot for search, called Bard. To use the moment, Microsoft and Chinese search giant Baidu decided to announce the integration of a chatbots (called Bing AI and Ernie Bot) into their search engines one day earlier, on February 7th.[11] Countering this marketing move, Google’s CEO then pre-announced Bard on February 6th. Yet, once experts noted that both Bard got the facts wrong in its very first public demo in Paris, Google’s stock value fell by US $ 100 billion in one day.[12] The fact that Microsoft’s Bing AI had also provided erroneous answers in its first public presentation went by largely unnoticed.[13]
III. How does ChatGPT fit into the broader AI industry?
In the wake of the AI hype, many new products and services powered by AI were launched. The emphasis is on “powered.” AI is neither a product nor a stand-alone service, but a system provided dynamically by some (‘providers’) and placed into various operations by others (‘deployers’).[14] AI is a broad term that refers to any wide range of technology from simple algorithms that sort data, to more advanced systems that can mimic human-like thought processes. ChatGPT’s advances are linked to a new generation of AI systems, so-called large foundation models, of which LLMs are a sub-category. A foundation model is an advanced system of “deep” machine learning that is trained on broad data that can subsequently be fine-tuned to a wide range of downstream tasks. While such models had been around for a while, over the last few years improvements in computer hardware allowed the building of ever larger models, resulting in the current capabilities.
