Elon Musk’s AI Startup Is Valued at $50 Billion. How Does It Plan to Make Money?

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[00:00:33] Welcome to Tech News Briefing. It's Wednesday, December 4th. I'm Danny Lewis for The Wall Street Journal.

[00:00:40] When was the last time you reset your passwords? It turns out that changing them often may not make

[00:00:45] them more secure. We'll find out how new federal guidelines are targeting our bad password habits

[00:00:51] and what emojis have to do with it. And then, last year, Elon Musk jumped into the race to build an

[00:00:57] artificial intelligence chatbot with a new startup called XAI. He rapidly built the company from the

[00:01:03] ground up to compete with chat GPT maker OpenAI. Our reporter, Megan Bobrowski, breaks down Musk's

[00:01:09] efforts to turn XAI into a business that stands out in the highly competitive AI market.

[00:01:18] But first, there's nothing like sitting down at your computer or pulling out your phone to get a

[00:01:23] notification that it's time to change your passwords. They have to be complex, but easy to remember.

[00:01:29] Don't write it down, though. And figuring out which combination of special characters are allowed

[00:01:34] is such a great game. But new federal security guidelines proposed by the National Institute

[00:01:39] of Standards and Technology are taking a sharp aim at the terrible passwords we all create.

[00:01:44] The final version is expected next year, and they could make passwords more user-friendly

[00:01:49] without sacrificing security. Jackie Snow wrote about the new rules for The Wall Street Journal,

[00:01:54] and she joins us now. Jackie, what are some of the new rules around passwords that the

[00:01:58] National Institute of Standards is putting together?

[00:02:01] Yeah. So this is guidelines that they put out initially in 2017 and have been working on since

[00:02:07] then. And they're trying to get rid of a lot of bad practices that initially were believed to be

[00:02:13] good practices, like changing your password, adding in exclamation points. But we've discovered that

[00:02:18] people use those rules in ways that make it pretty easy to crack passwords. So they're undoing some of the

[00:02:25] rules that they had before, and also with new technology, allowing things that could help make

[00:02:30] our passwords more secure, which is allowing things like emojis and spaces and brackets.

[00:02:35] Wait, but I thought putting in like exclamation points and at symbols and, you know, a bunch of

[00:02:41] different numbers made my passwords better. Why is that not necessarily the case?

[00:02:46] Well, they can make your password better, but it has to be random. And unfortunately,

[00:02:50] the human mind is not really good at doing random things. So we like to put exclamation points at

[00:02:55] the end of our passwords. We put that symbol in where an A is going to be. And that is something

[00:03:01] that's very easy for password crackers to code into their tool and break your password really quickly.

[00:03:06] How will adding emojis to passwords make them more secure? I mean, doesn't that just add another

[00:03:11] layer of complication?

[00:03:12] It does for some people. But if you are using a password manager and you're not having to remember

[00:03:18] your login for Netflix, and there are now emojis in there, you are creating more opportunities for

[00:03:24] more characters, which increases the complexity of your password to make it harder to break. So yes,

[00:03:30] remembering like, oh, is it the cowboy emoji or is it the devil emoji? Like that's going to be tricky,

[00:03:36] but they have put into the guidelines that anyone who's following these guidelines should allow people

[00:03:40] to use password managers, which takes the difficulty of remembering the hundreds and hundreds of

[00:03:45] passwords that most people now have for their online lives much simpler.

[00:03:49] Who has to follow these rules? And you said they've been working on this for a few years now.

[00:03:54] When will they go into effect?

[00:03:56] Every federal government agency will have to follow these rules when they become

[00:03:59] official, which is supposed to happen at some point next year. But also contractors that are

[00:04:05] building tools for the federal government that have access to secure information, they'll have to

[00:04:10] use it. And then there's a lot of private industries, especially ones that have sensitive

[00:04:14] information like healthcare and finance that also usually have in their bylaws or their security

[00:04:21] teams, the fact that they will use these guidelines and they'll also have to update their systems to

[00:04:27] take into account these new rules.

[00:04:29] That was Jackie Snow, who wrote about this for the Wall Street Journal.

[00:04:33] Coming up, since Elon Musk started XAI, the artificial intelligence firm has raised over $10 billion.

[00:04:40] But it's facing one big question. How will it make money? That's after the break.

[00:04:56] Elon Musk spent the last year building his artificial intelligence startup XAI in a rush to compete with

[00:05:02] rivals like chat GPT developer OpenAI. Musk has poached talent from across the growing industry,

[00:05:08] pushed to build a massive new data center in Memphis, Tennessee in a matter of months,

[00:05:12] and raised at least $11 billion in the process. But now he has to turn XAI into a real business that

[00:05:19] stands on its own among his other companies and competes with other AI firms.

[00:05:25] WSJ tech reporter Megan Bobrowski has been covering this story. She joins us now.

[00:05:30] And before we get into it, we should quickly mention that News Corp, owner of the Wall Street Journal,

[00:05:35] has a content licensing partnership with OpenAI.

[00:05:37] Megan, XAI got a late start to the highly competitive AI market.

[00:05:42] What has the company been working on more recently?

[00:05:45] In the last few months, they've started sort of rolling out new products or getting ready to

[00:05:50] roll out new products. So last month, they launched what's called an API, which is basically this

[00:05:57] tool that lets businesses build on top of XAI software. And they're now getting ready to release

[00:06:06] a standalone consumer app. So currently, XAI's chatbot, which is called Grok,

[00:06:11] is only accessible via an X premium subscription, which limits, you know, how many people are

[00:06:18] accessing it. And so with this app, it's a way to get many more people to use their technology and to

[00:06:24] start really putting it in front of more and more people.

[00:06:27] And what does XAI offer that's different from OpenAI and Anthropic or even tech giants like

[00:06:34] meta platforms and Google?

[00:06:36] So in many ways, it's not all that different. All these companies are basically creating the same

[00:06:40] thing. They're creating AI technology that is being used to power chatbots. They're also selling

[00:06:46] the software to businesses so they can use it. So in terms of the products themselves, it's very

[00:06:52] similar to what the other companies are doing. But where Elon Musk is drawing a distinction is with

[00:07:00] the outputs that the chatbot will give you. So XAI's chatbot, Grok, Musk has said it is,

[00:07:08] quote, less woke. And so he has taken aim at Google and some of these other companies. And then also,

[00:07:15] he's just pitching like, we're just going to have the best technology possible because

[00:07:19] we're going to have all this data to train the models on.

[00:07:23] Megan, you report that most of XAI's revenue has come from Musk's own web of companies.

[00:07:28] How is XAI doing revenue-wise? And how does it compare to, say, OpenAI?

[00:07:33] XAI is on pace to pass $100 million in recurring revenue. To contrast that to OpenAI,

[00:07:43] OpenAI is expected to bring in $4 billion this year. So $100 million to $4 billion. Keep in mind,

[00:07:53] OpenAI has existed for several more years than XAI has. But it is fair to say that XAI is nowhere

[00:08:01] near OpenAI in terms of the revenue that they're bringing in.

[00:08:05] What about the chips that you need to do advanced AI development? The availability of the semiconductor

[00:08:12] chips you really need has been a big struggle for a lot of the industry. How has XAI handled that?

[00:08:18] So XAI has handled that in large part by Musk using his personal connections to get these chips.

[00:08:24] You know, he knows Jensen Huang, the CEO of NVIDIA, well. And he also knows the Oracle chairman,

[00:08:32] Larry Ellison. And so XAI originally was trying to build data center with Oracle and Oracle was

[00:08:40] getting them chips. After a certain point, Musk didn't think that Oracle was moving fast enough,

[00:08:47] and so decided that he was just going to build the data center himself in sort of classic Musk fashion.

[00:08:52] So he then starts demanding more chips from NVIDIA, and to the point where someone on the sales team

[00:09:00] had sent an email to others saying that Musk's demands for all these chips was actually putting

[00:09:05] a strain on their supply chain. We should note that an NVIDIA spokesman said the company has worked hard

[00:09:12] to meet the needs of all its customers. So Megan, of all these companies, though, Musk has really been

[00:09:18] fixated on running XAI as a rival to OpenAI. He was one of OpenAI's founders before he left the company

[00:09:24] after a power struggle in 2018. Musk also sued OpenAI this year for allegedly violating a contract

[00:09:30] to remain a nonprofit and for allegedly discouraging investors from giving money to XAI.

[00:09:36] How is that rivalry shaping Musk's new company?

[00:09:41] Yeah, so you certainly see this rivalry come into play. The head engineer at XAI, the person who's

[00:09:49] basically running the show over there, he had worked at OpenAI. XAI recently moved into OpenAI's old

[00:09:57] office. Again, the products are also very similar to OpenAI, right? You have a standalone chatbot,

[00:10:04] and you have an API, which is basically how you're going to make money selling your technology to

[00:10:09] businesses. So in those two respects, there's a lot of similarities there. He hosted this recruiting

[00:10:16] event, and he talked about how XAI were the good guys, and OpenAI were the bad guys, and that XAI was

[00:10:23] going to be the one that came in to create this technology responsibly.

[00:10:26] How has OpenAI responded?

[00:10:28] In terms of the lawsuit, OpenAI called it baseless and full of false accusations, and they're actually

[00:10:36] working with Oracle to build the data center that XAI was supposed to be building with Oracle.

[00:10:42] That was our reporter, Megan Bobrowski. And that's it for Tech News Briefing. Today's show was

[00:10:48] produced by Julie Chang with supervising producer Catherine Milsop. I'm Danny Lewis for The Wall

[00:10:54] Street Journal. We'll be back this afternoon with TMV Tech Minute. Thanks for listening.