Late last year, when OpenAI introduced ChatGPT, industry observers responded with both praise and worry. We heard how the technology can abolish computer programmers, teachers, financial traders and analysts, graphic designers, and artists. Fearing that AI will kill the college essay, universities rushed to revise curricula. Perhaps the most immediate impact, some said, was that ChatGPT could reinvent or even replace the traditional internet search engine. Search and the related ads bring in the vast majority of Google’s revenue. Will chatbots kill Google?
How Network Effects Make AI Smarter
More users means more data for algorithms to make better predictions.
March 14, 2023
Hiroshi Watanabe/Getty Images
Summary.
Network effects have dictated the success of technologies from the telephone to shopping platforms like Etsy, and AI tools such as ChatGPT are no exception. What is different, however, is how those network effects work. Data network effects are a new form. Like the more familiar direct and indirect network effects, the value of the technology increases as it gains users. Here, however, the value comes not from the number of peers (like with the telephone) or the presence of many buyers and sellers (as on platforms like Etsy), but from feedback that helps it make better predictions. More users mean more responses, which further prediction accuracy, creating a virtuous cycle. Companies need to consider three lessons: 1) feedback is crucial, 2) routinize meticulous gathering of information, and 3) consider the data you share, intentionally or not.