The race to build the best artificial intelligence (AI) models is definitely on, with current leader OpenAI making waves in late 2022, and up-and-coming competitors, Alphabet's (GOOG 0.76%)(GOOGL 0.33%) Gemini and AI start-up Anthropic, also building top-performing models with hundreds of billions of parameters.
However, investors shouldn't count out Meta Platforms (META +0.71%), which is taking the most unique and differentiated approach to building generative AI models.
Will this approach allow Meta to leap ahead of the industry? Or do the risks outweigh the benefits?
NASDAQ: META
Key Data Points
When competitors go closed, Meta goes open
Last week, Mark Zuckerberg and Meta celebrated the release of Meta's Llama 3.1 model, which features 405 billion parameters.
That's a massive model. Until now, Meta had only released 8 billion parameter and 70 billion parameter Llama models. But Llama 3.1 405B is Meta's first salvo in "frontier" models, pushing the boundaries of the planet's most advanced generative AI large language models (LLMs). According to Meta, the new model outdoes even the most advanced LLMs, such as ChatGPT 4-Omni and the Claude 3.5 Sonnet model from Anthropic, on many -- though not all -- parameters. Zuckerberg also claims inferencing the Llama 3.1 costs a mere 50% of the cost of running ChatGPT 4o.
Not only is Llama performing in line with or better than many of the best models on the market today, but it also has the distinction of being the only open-source frontier model.
Open-source advantages
Open-source software means the license holder allows the software's source code to be freely accessible and modified by outside parties. Outside developers can then make changes to the software, which allows them to improve functionality, fix bugs, or improve security.
By giving away the software code for free, developers have a chance to potentially improve the product quicker than a "closed" software system where only a company's employees have access to alter the code. As outside developers gravitate toward "free" open-source software rather than expensive proprietary software, the open-source model is best if one wants to scale up usage quickly. In addition to these general open-source advantages, Llama can run anywhere, so it doesn't force developers to send their private data to a closed model or specific cloud.
This is why Mark Zuckerberg thinks Meta AI will become the world's most-used AI assistant by the end of this year, overtaking OpenAI.
In his blog post accompanying the release, Mark Zuckerberg wrote that he sees the development of LLMs progressing similarly to the development of operating systems Linux and Unix back in the 1990s. Though closed-system Unix took an early lead, the advantages of Linux's open-source model eventually paved the way for it to become the standard operating system for cloud computing and mobile devices.
Zuckerberg also notes that Meta has benefited from open-source tools in the past, such as its development of open-source data center architecture and AI software like Pytorch, which Meta initially developed. Since Meta's core business comes from advertising, not monetizing software or data center architecture directly, the open sourcing didn't impede its ability to generate revenue and invest in research and development. Meanwhile, Meta eventually saved billions of dollars by allowing these tools to develop with the help of outside parties and then using them to run its core social media platforms.
The same holds true for Llama AI. Meta isn't a software provider or a public cloud provider, so it does not really depend on selling its model directly for revenue.
But Meta should profit from Llama...eventually
That is not to say Meta doesn't eventually envision seeing revenue from Llama. But it will likely do so by using the underlying model and building services on top of it. On the recent Q1 conference call with analysts, Zuckerberg hinted at building business messaging customer service AIs on WhatsApp, introducing ads into AI interactions in Meta AI, or perhaps charging for access to the largest AI workloads with more compute.
Other open-source software companies, such as Red Hat, have previously monetized AI models by selling customer service and consulting services. And WordPress has used a dual-license model to monetize its website-building software, offering large enterprises a "deluxe" paid version. So, there is precedent for profiting from open-source models.
Meta probably won't see any direct revenue from Llama in the near term, but over the next few years, the company should begin to deploy and benefit from ancillary services built on top of the underlying Llama model.
Is Meta Platforms about to win the AI wars? Image source: Getty Images.
The drawbacks
But there are also risks to open source -- especially in the context of AI. These risks have to do with privacy and security, elements for which Meta has been criticized in the past. Concerns over privacy and security are likely why talks with Apple (AAPL +0.73%) to get Llama on the new Apple Intelligence platform fell apart earlier this year. Apple, perhaps the most closed business model in tech, always puts a premium on privacy and security. Thus, the disagreement with Meta and exclusion from Apple Intelligence could be a red flag.
Specifically, there may be qualms about opening up the source code and model weights for all to see, as this could empower bad actors who wish to tweak the code for nefarious purposes. That risks intervention by government authorities, which may limit Llama's distribution to prevent it from getting into the hands of hostile governments, such as China, Russia, or Iran.
Zuckerberg's response is that these countries are good at espionage and will likely be able to access leading models anyway, even in a closed system. That essentially means fewer "good guys" will have access to top models (only a few large companies), which actually risks putting the U.S. at a disadvantage. Plus, Zuckerberg believes stifling open innovation risks the U.S. and its allies not having the best AI at all.
But that seems like a murky argument: Since these bad actors will get access to leading AI models anyway, should we just give them the code for free? It's unclear whether that argument will actually sway the U.S. government to go along with that line of thinking.
A big factor in the AI race
Meta's selection of open source for AI has the chance to make it the leading AI company in the world and, therefore, perhaps become the world's most valuable company one day. But the approach also risks government scrutiny and regulation, which threatens its ability to compete in the AI wars at all.
For Meta investors and AI tech investors, in general, the rollout of Llama 3.1 and the potential government reaction to it during an election year are key points to watch over the coming months.
