Microsoft aims to win the AI app race with three big advantages

Microsoft is racing to extend its AI-powered app ecosystem: At Build yesterday, the company announced it is expanding its copilot applications and adopting the same standard for plugins (that interact with APIs from other software and services) as its partner OpenAI introduced for ChatGPT. This allows developers to build plugins that work across ChatGPT, Bing Chat, Dynamics 365 Copilot, Microsoft 365 Copilot and the new Windows Copilot.

But this is no easy win for Microsoft, say experts. After all, Google announced at I/O that Bard will soon be compatible with additional apps and services, both from Google — including Docs, Drive, Gmail and Maps — but from third-party partners like Adobe Firefly.

“Because we are talking about API’s and not hardware-dependent applications or apps, it is much harder to defend a position of hegemony,” Whit Andrews, vice president and distinguished analyst at Gartner Research, told VentureBeat. If someone else builds APIs that are just as good, “there’s not that big of a switching cost,” he said.

Microsoft is enjoying a head start

Andrews emphasized that Microsoft certainly has a head start and three key advantages.

First of all, Microsoft has an “extraordinary” first-mover advantage as OpenAI’s partner. “So the more they can establish familiarity and appeal, the more they can generate a defensible value,” he said.

In addition, without a moat, brand strength will also be an important driver, he explained. “With the intense value of Microsoft’s brand, that’s why things have to move so fast for Microsoft to have the best possible outcome.”

Finally, Microsoft, with its tremendous developer community, has the opportunity to grab market share and familiarity. “Microsoft attracts developers better than anybody else,” said Andrews. “So if you’re Microsoft, you lean on that this week [at Build]. Can you present your developers your faithful with the opportunities to participate in this extraordinary AI world that they will find attractive and familiar?” Microsoft needs to be synonymous in the developer’s mind with access to easy artificial intelligence-powered functionality, he added: “That means growth needs to be explosive — every developer in the Microsoft family needs to say to themselves, ‘I’ll start by looking there.’”

“An impressive, all-out assault” has limits

According to Matt Turck, a VC at FirstMark, Microsoft’s AI app ecosystem and plugin framework is an “impressive, all-out assault by Microsoft to be top of mind for developers around the world who want to build with AI.”

Microsoft is “certainly pushing hard to lead the space and reap ROI” on its multi-billion investment in OpenAI. However, Turck told VentureBeat it “remains to be seen whether the world is ready to live in a Microsoft-dominated AI world” and said he suspects there will be “stiff resistance,” particularly on the enterprise side — where many want to leverage open source and multi-agents for customization, and will also want to protect their data from going out to a cloud provider (in this case, Azure).

Andrews agreed that it’s too early to know whether Microsoft will prevail — or, if the AI app and plugin ecosystem will even flourish. “For lots of consumer users, ChatGPT is pretty amazing for what it does right now, and there might be problems with plugins that conflict with each other, things might begin to get a little challenging. The value of a plugin demands education, explanation and usage.”

Harder to implement effective controls and safeguards

Other experts point out that the growth of the app ecosystem will make it even harder to develop effective controls and safeguards in an era when AI regulation is becoming a top priority.

“The main concern in my mind is a distribution of accountability between the third parties and the entity that provides the source LLM,” Suresh Venkatasubramanian, professor of computer science at Brown University and former White House policy advisor, told VentureBeat in a message.

While he said there is also an opportunity if the companies proving the LLM service are willing and able to establish more controls, “I don’t see that happening any time soon. To me, this continues to reinforce the importance of guardrails ‘at the point of impact’ where people are affected.”