Why Microsoft Has Advantages in Monetizing AI (For Now)

It’s relatively easy to explain why Microsoft has benefitted “most” of U.S. app hyperscalers from its artificial intelligence monetization activities. Of the “Magnificent Seven” firms (Alphabet, Microsoft, Amazon, Apple, Nvidia, Meta, Tesla), Microsoft’s product line is easiest to adapt for subscription-based AI revenues. 

But watch for the other contestants to add subscription products as well. Google One, for example, has more than 100 million subscribers, and will be adding access to Gemini Advanced, based on the most-capable large language model yet fielded by Alphabet.

And subscriptions are easy to track and easy to quantify. Financial analysts like that. In comparison, advertising and e-commerce revenue streams are harder to quantify, with AI contributions only one of several key revenue drivers. 

AI recurring revenue from subscriptions provide predictable and recurring cash flow. And integrating with Microsoft’s large base of productivity products sold directly to businesses and consumers provides both “stickiness” and a large addressable market.

AI-driven advertising lift is often somewhat indirect, therefore harder to measure, and also is more volatile than subscriptions. Revenue growth hinges on overall advertising spend and digital advertising  trends as well as economic conditions. 

As for AI-assisted e-commerce, AI-powered recommendations and personalization can increase conversion rates and sales, but the impact is somewhat indirect, harder to measure and less predictable than subscription business models. 

Much the same applies for most AI implementations for most hardware and software, with the salient exception of Nvidia graphics processing units, which have been foundational for AI infrastructure operations. 

Though Nvidia and other merchant chip suppliers will benefit from classic “unit volume,” other providers creating their own AI processing or acceleration chips will not be able to easily quantify the impact on business operations from a revenue perspective, though some estimation of impact on operating or capital investment might ultimately be possible. 

The point is that Microsoft’s huge embedded base of retail productivity and consumer gaming products makes a subscription approach immediately appealing.