The Biggest Danger of AI May Be One That No One is Talking About (Premium)

Microsoft’s dueling announcements about the cost of AI to its customers can serve as a wake-up call for the true danger of this technology: it will only exacerbate one of the worst abuses of Big Tech by expanding and refining how it violates our privacy and tracks us online and then sells that information to advertisers.

A few recent events triggered this realization.

Last week, Microsoft confirmed what two sources had told me in confidence: Because AI is so expensive, it will charge Microsoft 365 commercial customers---that is, businesses---an additional $30 per user per month on top of existing monthly charges for access to the AI-powered Microsoft 365 Copilot. (And it’s worse than it sounds because only customers on the more expensive Microsoft 365 tiers will even be offered this upgrade.)

But Microsoft also confirmed to an enthusiast blog that its AI-powered and consumer-focused Bing chatbot “will remain free via Bing.com, Microsoft Edge side panel, Windows Copilot and other places.”

These two offerings seem at odds with each other. And given the stark reality of the economics of paid subscriptions vs. ad-supported services, this should raise some questions if not alarm bells. If it doesn’t, I can explain, using a well-worn but timely example.

The music streaming service Spotify has both paid subscribers and ad-supported users, and it just reported its most recent quarterly earnings. It now has 551 million total monthly users, of which 220 million of them are paid subscribers and 317 million are ad supported. But paid subscribers, which represent 40 percent of the user base, represent 88 percent (€2.8 billion) of the firm’s total revenues (€3.2 billion), while ad-supported subscribers, which represent 60 percent of the user base, only contributed 12 percent (€404 million) of the revenues. Long story short, paid subscribers bring in much more revenue than ad-supported revenues, even when it’s a small group of users.

Looking back at Microsoft and AI, it’s hard to come up with exact numbers when it comes to the relative user bases of Microsoft 365 commercial and Bing, of course. But it’s important to remember that Microsoft aspires to turn Bing into a Google-like ad-based powerhouse, and that its push to AI, damn the current costs, is all about chipping away at Google’s lead in this market. (That is, we as individuals think of this as “search engines,” but the business is really selling ads.)

We know that AI is expensive right now---each AI interaction costs an estimated 10 times that of a typical web search---and that AI providers like Microsoft and Google are doing everything they can---including designing and using their own custom-designed datacenter chipsets---to lower costs.

This won’t happen overnight, and so these companies are incurring huge quarterly costs related to AI until and unless some combination of workable business models and reduced operating costs arrives to save...