Elon Musk’s AI Startup Is Valued at $50 Billion. How Does It Plan to Make Money?
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Welcome to Tech News Briefing. It's Wednesday, December 4th. I'm Danny Lewis for The Wall Street Journal. When was the last time you reset your passwords? It turns out that changing them often may not make them more secure. We'll find out how new federal guidelines are targeting our bad password habits and what emojis have to do with it. And then, last year, Elon Musk jumped into the race to build an artificial intelligence chatbot with a new startup called XAI.

He rapidly built the company from the ground up to compete with chat GPT maker OpenAI. Our reporter, Megan Bobrowski, breaks down Musk's efforts to turn XAI into a business that stands out in the highly competitive AI market.

But first, there's nothing like sitting down at your computer or pulling out your phone to get a notification that it's time to change your passwords. They have to be complex, but easy to remember. Don't write it down, though. And figuring out which combination of special characters are allowed is such a great game. But new federal security guidelines proposed by the National Institute of Standards and Technology are taking a sharp aim at the terrible passwords we all create.

The final version is expected next year, and they could make passwords more user-friendly without sacrificing security. Jackie Snow wrote about the new rules for The Wall Street Journal, and she joins us now. Jackie, what are some of the new rules around passwords that the National Institute of Standards is putting together? Yeah, so this is guidelines that they put out initially in 2017 and have been working on since then. And they're trying to get rid of a lot of bad practices that...

Initially, we're believed to be good practices like changing your password, adding in exclamation points, but we've discovered that people...

use those rules in ways that make it pretty easy to crack passwords. So they're undoing some of the rules that they had before and also with new technology allowing things that could help make our passwords more secure, which is allowing things like emojis and spaces and brackets. Wait, but I thought putting in like exclamation points and at symbols and, you know, a bunch of different numbers made my passwords better.

Why is that not necessarily the case? Well, they can make your password better, but it has to be random. And unfortunately, the human mind is not really good at doing random things. So we like to put exclamation points at the end of our passwords. We put that symbol in where an A is going to be. And that is something that's very easy for password crackers to code into their tool and break your password really quickly. How will adding emojis to passwords make them more secure? I mean, doesn't that just add another layer of complication? Yeah.

It does for some people, but if you are using a password manager and you're not having to remember your login for Netflix and there are now emojis in there, you are creating more opportunities for more characters, which increases the complexity of your password to make it harder to break. So yes, remembering like, oh, is it the cowboy emoji or is it the devil emoji? Like that's going to be tricky, but they have put into the guidelines that anyone who's following these guidelines should allow people to use emojis

password managers, which takes the difficulty of remembering the hundreds and hundreds of passwords that most people now have for their online lives much simpler. Who has to follow these rules? And you said they've been working on this for a few years now. When will they go into effect?

Every federal government agency will have to follow these rules when they become official, which is supposed to happen at some point next year. But also contractors that are building tools for the federal government that have access to secure information, they'll have to use it. And then there's a lot of private industries, especially ones that have sensitive information like health care and finance, that also usually have in their bylaws or their security teams rules

the fact that they will use these guidelines and they'll also have to update their systems to take into account these new rules. That was Jackie Snow, who wrote about this for The Wall Street Journal. Coming up, since Elon Musk started XAI, the artificial intelligence firm has raised over $10 billion. But it's facing one big question. How will it make money? That's after the break. Say this is your financial life. Over time, things can get more complex.

With a personalized plan, Merrill can help you navigate it all. Learn more at ml.com slash bullish. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk. Merrill Lynch, Pierce, Fenner & Smith, Inc., Registered Broker, Dealer, Registered Investment Advisor, Member SIPC. A wholly owned subsidiary of Bank of America Corp.

Elon Musk spent the last year building his artificial intelligence startup XAI in a rush to compete with rivals like chat GPT developer OpenAI. Musk has poached talent from across the growing industry, pushed to build a massive new data center in Memphis, Tennessee in a matter of months, and raised at least $11 billion in the process.

But now, he has to turn XAI into a real business that stands on its own among his other companies and competes with other AI firms. WSJ tech reporter Megan Bobrowski has been covering this story. She joins us now. And before we get into it, we should quickly mention that News Corp, owner of the Wall Street Journal, has a content licensing partnership with OpenAI. Megan, XAI got a late start to the highly competitive AI market. What has the company been working on more recently?

In the last few months, they've started sort of rolling out new products or getting ready to roll out new products. So last month, they launched what's called an API, which is basically this tool that lets businesses build on top of XAI software. And they're now getting ready to release a standalone consumer app. So currently...

So XAI's chatbot, which is called Grok, is only accessible via an X premium subscription, which limits, you know, how many people are accessing it. And so with this app, it's a way to get many more people to use their technology and to start really putting it in front of more and more people.

And what does XAI offer that's different from OpenAI and Anthropic or even tech giants like Meta Platforms and Google? So in many ways, it's not all that different. All these companies are basically creating the same thing. They're creating AI technology that is being used to power chatbots. They're also selling the software to businesses so they can use it. So in terms of

the products themselves, it's very similar to what the other companies are doing. But where Elon Musk is drawing a distinction is with the outputs that the chatbot will give you. So XAI's chatbot Grok Musk has said it is

quote, less woke. And so he has taken aim at Google and some of these other companies. And then also he's just pitching like we're just going to have the best technology possible because we're going to have all this data to train the models on. Megan, you report that most of XAI's revenue has come from Musk's own web of companies. How is XAI doing revenue wise and how does it compare to, say, OpenAI?

XAI is on pace to pass $100 million in recurring revenue. To contrast that to OpenAI, OpenAI is expected to bring in $4 billion this year. So $100 million to $4 billion. Keep in mind, OpenAI has existed for several more years than XAI has, but it is fair to say that

XAI is nowhere near open AI in terms of the revenue that they're bringing in. What about the chips that you need to do advanced AI development? The availability of the semiconductor chips you really need has been a big struggle for a lot of the industry. How has XAI handled that?

So XAI has handled that in large part by Musk using his personal connections to get these chips. You know, he knows Jensen Huang, the CEO of NVIDIA, well, and he also knows the Oracle chairman, Larry Ellison. And so XAI originally was trying to build data center with Oracle and Oracle was getting them chips after a certain point.

Musk didn't think that Oracle was moving fast enough and so decided that he was just going to build the data center himself in sort of classic Musk fashion. So he then starts demanding more chips from NVIDIA and to the point where someone on the sales team had sent an email to others saying that

Musk's demands for all these chips was actually putting a strain on their supply chain. We should note that an NVIDIA spokesman said the company has worked hard to meet the needs of all its customers. So Megan, of

Of all these companies, though, Musk has really been fixated on running XAI as a rival to OpenAI. He was one of OpenAI's founders before he left the company after a power struggle in 2018. Musk also sued OpenAI this year for allegedly violating a contract to remain a nonprofit and for allegedly discouraging investors from giving money to XAI. How is that rivalry shaping Musk's new company? Yeah, so you certainly see...

this rivalry come into play. The head engineer at XAI, the person who's basically running the show over there, he had worked at OpenAI. XAI recently moved into OpenAI's old office. Again, the products are also very similar to OpenAI, right? You have a standalone chatbot and you have an API, which is basically how you're going to make money selling your technology to businesses. So

In those two respects, there's a lot of similarities there. He hosted this recruiting event and he talked about how XAI were the good guys and OpenAI were the bad guys and that XAI was going to be the one that came in to create this technology responsibly. How has OpenAI responded? In terms of the lawsuit, OpenAI called it baseless and full of false accusations. And they're actually working with Oracle to build the data center that XAI is.

XAI was supposed to be building with Oracle. That was our reporter, Megan Bobrowski. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer, Catherine Milsom. I'm Danny Lewis for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening. Say this is your financial life. Over time, things can get more complex. With a personalized plan.

Merrill can help you navigate it all. Learn more at ml.com slash bullish. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk. Merrill Lynch, Pierce, Fenner & Smith, Inc., Registered Broker, Dealer, Registered Investment Advisor, Member SIPC, a wholly owned subsidiary of Bank of America Corp.