Alexa + & GPT4.5 – Mad Scramble

Competition heats up even more.

• Amazon has finally announced the new version of Alexa but at the same time, OpenAI has released its new model GPT-4.5 to compete with the rapidly growing field of competitors which signals that the top of the market is close, if not already here.
• Amazon has launched Alexa Plus which promises to offer a “conversational experience” with the new chatbot but with almost all of the 600m deployed devices incapable of running even a small language model locally, there are going to be user experience issues.
• Amazon showed a series of use cases (just like OpenAI and Meta did) and the AI was very quick to respond giving the impression of speaking to a person.
• However, in all of these instances, the device that the demonstrator spoke to was hard-wired into the cloud to ensure that latency was as low as possible.
• The 600m devices that Amazon has deployed in the network will listen to the request and send it via WiFi and a fixed connection to a cloud connection miles away where the request will be processed and then returned to the device to deliver to the user.
• This means that the latency will be several seconds at best from request to answer which will kill the user experience as Amazon demonstrated it.
• This is why RFM Research has concluded that if agents are going to deliver a good user experience, a good portion of their intelligence needs to be implemented on the device itself.
• This configuration provides the best economics for the service provider and the best experience for the user and could be where the majority of inference ends up happening in my opinion.
• This is why I suspect that the next batch of Alexa devices that Amazon launches will have voice processing and at least some intelligence in the device itself.
• This is something that Google has done on smartphones for some time and its experience is all the better for it, especially when it comes to translation.
• This is one reason why I like the inference at the edge adjacency (see below).
• Meanwhile, keen to be seen to be maintaining its lead, OpenAI launched its latest model GPT-4.5 which is bigger than ever (i.e. >2tn parameters) and has been designed to be more personable and easier to use rather than being a math or coding whizz.
• OpenAI used the fact that GPT-4.5 is not a reasoning model to explain why it does not beat older models in benchmarks as it does marginally better in some and worse in others.
• The real reason I suspect is that scaling in terms of making models bigger with more data to get better performance has hit a wall as pumping in more resources demonstrably produces smaller and smaller improvements.
• GPT-4.5 does not use the latest inference tricks such as “thinking” for longer or generating multiple answers but instead is targeted at a general chatbot use case with a better user experience.
• The answers that it gives are not meaningfully better than GPT-4o but they are easier to read an understand.
• From the layman’s perspective, this will make some difference and is precisely what the new version of Amazon Alexa is targeting.
• From the consumer perspective, this is where the AI ecosystem war will be fought and with 600m devices already deployed globally, Amazon is not starting from scratch.
• This demonstrates that when it comes to generative AI, there is no moat other than the existing digital ecosystems which means that the real asset that OpenAI has is the ChatGPT user base and its global name recognition.
• That does not always translate into global dominance of a mature industry and given that alongside Amazon’s 600m, Google has 2bn+, Apple 1.4bn+, Tencent 1bn+, Meta 3bn+ and so on OpenAI has a mountain to climb.
• However, in the interim, I suspect that the real action will be in the enterprise where OpenAI’s early lead is much more of an advantage.
• However, there is still plenty of competition here also and OpenAI is competing against others whose models are just as good and, in some cases, (Meta, Mistral & DeepSeek) make them available for free.
• OpenAI has also yet to do anything about DeepSeek’s claims as the new model is bigger and consumed more resources than ever before both in terms of training and inference.
• OpenAI admits both in its commentary during the launch and in Sam Altman’s tweet on X which is why it is only going to Pro users ahead of getting more GPUs online to allow it to launch to Plus users next week.
• Hence, there is little sign of OpenAI becoming more efficient, especially with the possibility of SoftBank now bankrolling it to the tune of tens of billions meaning that it might get caught with its pants down when the correction comes.
• The net result is that these launches continue to show competition in this space heating up which means prices coming down or more stuff being made available for free (Microsoft most recently (see here)).
• This will eventually trigger a correction because the returns on investment will be much lower than promised given the price erosion.
• The only real winners here are the infrastructure vendors like Nvidia, Astera Labs, Supermicro and so on who will continue to benefit as competition heats up and generative AI vendors continue to invest to stay ahead.
• They are also where almost all of the money is going right now meaning that their valuations are much more reasonable than the likes of OpenAI, Mistral, Safe Superintelligence and so on.
• Other adjacencies such as inference at the edge and nuclear power will also continue to benefit, but given that these have one degree of separation from the generative AI craze they will see much slower but far more sustainable value appreciation over time.
• I very much prefer this to the rollercoaster that we see elsewhere and so I remain very happy to sit tight in those adjacencies.