The AI App Store Moment

In this podcast, Motley Fool contributors Travis Hoium, Lou Whiteman, and Rachel Warren discuss:

• ChatGPT gets apps.
• App opportunities.
• A trillion-dollar question for ChatGPT.

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Travis Hoium: Is artificial intelligence in need of an app store? Motley Fool Money starts now. Welcome to Motley Fool Money. I’m Travis Hoium. I’m joined by Lou Whiteman and Rachel Warren. We’ve got to get to the big news of the week. We’ve got a couple of days to process this, that is OpenAI introducing apps. They have tried some of these things before, plug-ins, custom GPTs to varying levels of success, but obviously they’re going in a different direction now. But this was I thought a really interesting announcement because the vision here is a lot bigger than just being an AI tool. It’s being the operating system of your life, if you will. There are companies involved who are willingly building apps, companies like Zillow, Expedia, Booking.com. Rachel, what are you taking away from this and what should investors know about OpenAI’s move into apps? It’s not quite an app store, but they are making apps.

Rachel Warren: Yeah, it’s interesting. I think you can see how a lot of the efforts that they have leveraged in the past maybe have led them to this point. I want to talk a little bit about how this app store works and why I also do think this could be really different from what we’ve seen in OpenAI in the past. Their app store, is this new platform, it’s integrated directly within ChatGPT, and it basically allows users to interact with third party apps using conversation natural language. For instance, you could ask ChatGPT to create a playlist with Spotify or find houses for sale with Zillow and then those apps are activated from directly within the ChatGPT conversation. Instead of having to leave the chat to use another service, those apps run directly in the thread. I think the idea is to simplify the user experience. At launch they’re partnering with some really big companies, with Spotify, Booking.com owned by Booking Holdings, Expedia, Zillow, Figma which is newly public, as well as private companies like Canva. I think it’s interesting to note, their past attempts like plugins that you alluded to. These had been limited text-based access. They were really rigid invite-only systems for developers. The chat interface was really cumbersome. Importantly, monetization wasn’t really a core feature there. Now, these new apps, I think, are very much designed to be a funnel toward monetization where OpenAI could make money from more of a revenue sharing model. It’s really interesting to see what they’re doing with this.

Travis Hoium: Lou, is this the way that we’re going to be using AI in the future? The vision here I think is, look on an iPhone or something or another smartphone. You’re going to download apps and then you’re going to actually interact with the app. You’re not really calling them from something like Siri, but this is taking that to the next level and going, hey, Zillow why don’t you just build for this AI chatbot and we’ll just call your information. Is that the way that we’re going to go in the future?

Lou Whiteman: Maybe. I will say this, if it works as good as the demo, it’s gold. But I’ve learned I think we’ve all learned not to just buy the demo. What I worry about here is there’s a garbage in garbage out problem, I think, because AI isn’t actually smart, it’s just trained on data. Just to pick on one, Zillow, their walkability score is the biggest, I shouldn’t call it garbage so I’ll just call it sub-par. [LAUGHTER] You can’t actually know whether or not a house, you can walk around it from the walkability score. In the example of give me a house that I can walk you to restaurants from, if it’s based on the Zillow walkability score, I think it’s going to be sub-human responses. I think there’s a trillion of these problems to be worked out. I think there’s all sorts of questions that we can get to later about Walled Gardens versus everybody there and how you make this work. To me, I want to get excited. It looks really good on paper, but I wonder if this is one of these things that’s always going to look better on paper than it is in real world execution.

Travis Hoium: According to some interviews by Sam Altman in the past couple of days, the vision here is bigger, and it will all make sense in a few months. Maybe we need to hold a little bit on what the full vision is. But I think what was interesting with these apps and one of the reasons that this is pertinent to us as investors, I think it’s from a disruption angle. If you think about the biggest disruptions are moving to a different technology paradigm, so the PC. You have opportunity and disruption, the Internet opportunity disruption, mobile devices, same thing. If ChatGPT becomes the way that we interact with technology, now you don’t have Zillow as an aggregator. You don’t have booking.com as an aggregator. You have ChatGPT in the power position. Altman even said, we could have just who had gone out and called all the information that Zillow was calling, but we wanted to work with these partners like he’s being some philanthropist with the technology. But this is, I think, a risk for a company is if you’re losing that direct customer relationship and you’re giving it to ChatGPT, is this a good thing, even if you’re partnering with the leading AI company today, Lou?

Lou Whiteman: There’s so much here, so much unpacked. For one, the big thing is, before we even get into the brands, it’s privacy. OpenAI has a ton of data. Can OpenAI just ring off my wanting to book a trip without telling every other partner they have? Hey, Lou is going to be in Toronto next week. Why don’t you sell him stuff, things like that. There’s all sorts of just on that layer. I like only Expedia knowing if I’m going to Toronto. But the bigger thing here, this whole idea of the OpenAI as the new Windows. Windows became Windows because it worked with everything. That was it, whatever you wanted to build, you could do. There’s a chicken and the egg problem here. You need customers, you need a ton of customers to attract every retailer to come on board or every website to come on board, but you need retailers to lure the customers. In theory, yes, there is a perfect world here where it’s just I go to my OpenAI, and that’s all I ever need. But how we get there is a bear.

Travis Hoium: Yeah, Rachel, this does seem like an area where it’s possible for disruption if this vision works. But it’s pretty unclear exactly how this is going to play out, given the massive size of this vision, not only from a technology standpoint but also from a financial standpoint.

Rachel Warren: Yeah, I want to stress that I think there’s room for multiple winners here. You know, I don’t think OpenAI comes in, and then that standard business model from some of these flagship players just goes out the window. As you noted, it’s very early days. We’re still waiting to see how exactly is OpenAI going to monetize this? Are consumers going to adopt this at a broad scale. But I do think it is interesting to look at the Bear thesis for a minute. Who could face disruption here if this type of platform ecosystem really takes off? Obviously the most significant disruption, which is what you alluded to, would be companies whose core business is providing a user interface for specific tasks. You could think about how Apple, Alphabet Google, Microsoft, which obviously control their respective ecosystems could face market threats. Of course, there’s other companies you think of the Adobes and sales forces of the world. They’re already experiencing some market skepticism amid the AI revolution. Then there’s the traditional search engine business, which of course is dominated by Google. Could that be disrupted? OpenAI’s approach has been to collapse the search to convert process. That could allow in this new app store, users to interact with services directly within ChatGPT. You could even think about how companies like Uber or DoorDash, who have really built their value on having users interact with their specific app to book a service could face some threats, but I don’t think the actual reality is going to be this bleak. Honestly, I think more likely than not, if this new use case for AI succeeds, we’ll probably see consumers adopt it as one other tool in their vast toolkit in the digital age. I don’t think strong companies with robust competitive advantages are going anywhere. If anything, maybe they can use this type of tool to play to their strengths if they execute it right.

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