Perhaps the best advice for most enterprises, at the moment, is to be cautious about investment in generative artificial intelligence and to avoid all investment in artificial general intelligence.
But despite analyst and investor worries, some firms must invest heavily, right now. If a firm hopes to be a leader in the generative AI model business, it has to invest heavily, right now. If a firm hopes to be a leader in the “generative AI as a service” business, it likewise has to invest heavily, right now.
For a few firms that hope to lead in the future AGI business, it has to invest heavily, right now. For all three types of efforts, “return on investment” in immediate financial results is not expected. Instead, the investments are strategic, aimed at creating leading positions in new businesses and markets.
Such strategic investments always are criticized, and yes, there is danger of overinvestment. Few recall it now, but Verizon faced huge skepticism about its at-scale shift to “fiber to home” for fixed network access.
As positive as Verizon leaders were about future new revenue streams and operating cost reductions, a few observers might have been privately willing to say that the real upside was simply “you get to keep your business.” In other words, Verizon and others viewed FTTH as the necessary precondition for remaining in business as leading connectivity service providers.
Financial analysts worried about FTTH for reasons similar to today’s concern about AI infrastructure investments: the potential revenue upside remains uncertain and the hit to earnings and profit margins is real.
From about 2005 to 2011, when Verizon put into place most of its FiOS FTTH network, it seems to have spent about $23 billion. But some might point out that Verizon's construction budgets showed no significant increase during the FiOS rollout period (2005-2011) compared to the previous years (2000-2004).
In fact, construction spending as a percentage of wireline revenues decreased from 22.2 percent in 2000-2004 to 19.7 percent in 2005-2011. So a significant portion of the build was financed from the existing capital budget, by shifting spending on the copper network to the new FTTH network.
That noted, capex did increase. By 2006, if the average capital expenditure to pass a home with fiber was $850, and Verizon is correct in estimating that its FiOS program cost about $23 billion, that also implies passing about 27 million homes. The cost to connect a customer might have ranged from $930 in 2006 to $650 by 2010.
Revenue upside appears to have been relatively modest initially, as gains provided by subscription TV and internet access revenues were balanced by losses of voice customers.
The bigger change was the rise of mobility as the source of a majority of Verizon’s revenues. In 2005 mobile services contributed more than 40 percent of total Verizon revenues. Today, mobility is the majority driver of Verizon revenue, and arguably the driver of total revenue growth and profits.
The point is that AI investments by some firms are strategic and existential, believed related to ultimate survival and growth, and less driven by expectations of immediate revenue growth, as was arguably true of FTTH investments by Verizon.
Some say Larry Page, Google cofounder, is now saying "I am willing to go bankrupt rather than lose this race." That’s an example of the view of AI as strategic, not tactical, for firms who believe they must become leaders in AI models and platforms.
Sundar Pichai, Alphabet/Google CEO has argued AI will be more important than fire or electricity or even the internet.
"I've always thought of A.I. as the most profound technology humanity is working on: more profound than fire or electricity or anything that we've done in the past,” Pichai has said. And most leaders of technology firms seem to agree.
Andy Jassy, Amazon CEO, likewise believes AI will "be in virtually every application that you touch and every business process that happens."
On the other hand, most end user firms will want to be more deliberate in their deployment of AI.
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