The AI Daily Brief: Artificial Intelligence News and Analysis - OpenAI Declares Code Red

Starting point is 00:00:00 Today on the AI Daily Brief, we have a code red from OpenAI. They are gearing up for battle as the narrative shifts over to Gemini. And that means potentially way more goodies for all of us. Before that in the headlines, Apple's AI lead is finally leaving. The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI. All right, friends, quick announcements before we dive in. First of all, thank you to today's sponsors, KPMG, Blitzy, Rovo, and Robots and Pencils. To get an ad-free version of the show, go to patreon.com slash AI Daily Brief, or you can subscribe

Starting point is 00:00:36 on Apple Podcasts. And if you are interested in sponsoring the show, head on over to AIDailybrief. To learn all about sponsor opportunities, you can also send us a note at sponsors at AIDailybrief. Last quick one before we dive in, we've got a new product we're testing at Super Intelligent that I am super excited about that I want to give you first access to. If our agent readiness audits are designed for companies that are moving from zero to one and want help with their overall AI planning, we're ready to running into tons of companies that are somewhere stuck in the middle. They've got some pilots.

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Starting point is 00:01:31 with plateau in the subject line. Again, that's contact at B-Supert.ai with plateau in the subject line. With that, though, let's dive into the headlines. Welcome back to the AI Daily Brief Headlines edition, all the daily AI news you need in around five minutes. As you'll see from the main story, it seems like December 2nd is already providing a ton of evidence for everything we talked about on December 1st,

Starting point is 00:01:54 which was, of course, our predictions for what the big stories in December would be. We kick off the headlines today with the announcement that Apple's AI lead is finally out, marking the end of an underwhelming era. Apple announced that John Giann Andrea will be stepping down as senior VP of Machine Learning and AI Strategy before exiting the company entirely next spring. Giann Andrea joined Apple from Google in 2018 and helmed AI efforts at the company until earlier this year. In March, Bloomberg's Apple Insider, Mark Gurman, wrote that CEO Tim Cook had lost confidence in Giannandria's ability to execute on product development.

Starting point is 00:02:25 At that time, leadership of the Siri product was transferred to Vision Procreator Mike Rockwell, who would report to SVP of software engineering Craig Federigi, cutting Giannandria out of the loop on Apple's most urgent AI product. In other words, Giannandria's exit seemed inevitable for almost the entire year, but it is a sign of how lumbering, frankly, and slow-moving Apple has become that it took nearly nine months after Tim Cook apparently lost confidence for this shift to be made when this is such an important product category.

Starting point is 00:02:52 Now, Apple apparently won't directly replace the role, instead opting to split the artificial intelligence team under multiple new leaders. staff will report to SVP of software engineering, Craig Federigi, CFOO, Sabick Khan, and SVP of services at EQ. Eddie Q, you might remember, was one of the folks who was most aggressively pushing acquisitions as a way for Apple to get back into the race. I think if I remember correctly leading the charge around the perplexity talks that never ultimately materialized.

Starting point is 00:03:17 One new addition is Amar Sabramanya, who is joining Apple as VP of AI reporting directly to Federigi. In that role, he will lead foundation model development, machine learning research, and AI safety and evaluation, which had been G&Andria's core responsibilities over the recent months. Subramania Rost recently served as corporate VP for AI at Microsoft and was previously head of engineering for Gemini at Google. Now, Swix underscored one big point posting,

Starting point is 00:03:40 this is burying the lead. He joined Microsoft AI four months ago, which either means Apple made him a great offer or he really didn't like working at Microsoft. Now, Bloomberg's German noted that Apple still has the odds stacked against them. They're currently working towards a spring release for the new AI Siri after missing the intended release date this year. Siri will now be powered by Google's models rather than models developed in-house at Apple.

Starting point is 00:04:01 And of course, the AI team has seen a huge amount of attrition. More than a dozen members of the model team have left, including lead scientists roaming Pang, who joined meta over the summer. I would say that people's general take on this is good riddance, but not sure if this is enough. Mark German writes, Strange hire for a number of reasons, but it's hard to argue the Apple job is a bad one. Anything is an improvement at this part, so the bar is as low as it comes. Easy layup on the resume.

Starting point is 00:04:26 Mac Daily News writes, an unmitigated failure. Steve Jobs would have bounced this bozo on the day chat sheet that he was released in November 2022. Gene Andrea finally and ridiculously slowly and gently being shown the door is better years late than never, we guess. Listen, ultimately, we asked in our December preview episode if we were going to see signs of life at Apple, and this certainly seems to be a necessary step for any of that to proceed. Next up, a little model news. As we were recording yesterday's episode, we got the drop of runway 4.5, as well as a new model from Deep Seek, and we also got

Starting point is 00:04:58 Kling's Video 01, which they're pitching as the world's first unified multimodal video model. The big deal here, and the thing that people are excited about, is basically nanobanana style editing but in video. So the idea is that you can swap protagonists and elements, weather, styles, colors, et cetera, which, as it did with photos, if it works well, opens up an entirely new set of use cases for generative video. I'm hoping to come back and do a broader episode about Kling01 and Runway 4.5, first impressions outside of the hypesters are, I think, a little bit disappointed. The lack of native audio really hinders the general consumer use possibilities of these models, but they might be orienting towards their niche in professional

Starting point is 00:05:36 production. Open AI and their Code Red are the subject of our main episode, but they also make the headlines after taking an ownership stake in Thrive Holdings. Now, this deal on first glance is reinvigorating the discussions of circular dealmaking in AI. Thrive Holdings is a subsidiary of Thrive Capital, who are one of OpenAI's major investors. The subsidiary was launched in April and functions as a private equity roll-up vehicle with an AI twist. At the moment, they're focused on acquiring professional services firms like accountants and IT support, then adding AI tools to boost efficiency. This is the big PE play of the moment right now, with lots of folks trying some version of this strategy. OpenAI plans to embed engineering, research and product teams within Thrive's portfolio

Starting point is 00:06:17 companies to help accelerate the strategy. Jared Kushner, the CEO of Thrive Capital, said, we are excited to extend our partnership with OpenAI to embed their frontier models, products, and services into sectors we believe have tremendous potential to benefit from technological innovation and adoption. He added, for decades, technology has transformed the world's largest industries from the outside in. We believe the AI paradigm will be different in that some of the most profound transformations will now occur from the inside out. We view the businesses that we own and operate as the right reward system to build, test, and improve industry-specific products and models.

Starting point is 00:06:49 Now, interestingly, while the circularity, of the deal is sort of an obvious component, there are actually kind of a lot of folks who see the business logic here. Milk Road AI writes, OpenAI will work with Thrive Holdings to accelerate how businesses adopt AI starting with accounting and IT services firms. So you've got OpenAI's investors funding a holding company and then OpenAI itself taking equity in that same holding company. In other words, and this is back to NLW's language, this is less OpenAI investing in the fund that invests in OpenAI, and more OpenAI in one of its investors, operating on a subsidiary under one of those investors that is an operating business that takes

Starting point is 00:07:26 advantage of OpenAI's technologies. Going back to Milk Road, they continue, it's a closed ecosystem where capital and technology flow together. Thrive Capital funds the acquisitions, Thrive Holdings owns the operating companies, and Open AI provides the AI integration and strategic guidance while capturing upside as equity owner. The strategy is simple. Don't just sell AI, own the businesses that become valuable because of it. David Hendrickson writes, By controlling Thrive Holdings, it gives them an environment to test its models. Selling AI to big enterprises is slow because they're risk-averse and have old systems. Through this investment, Thrive Holdings buys these service companies and Open AI embeds its engineers

Starting point is 00:08:01 directly into them. They can experiment with workflow-heavy rules-driven tasks without needing to convince an external client to take the risk. And I think that as someone who is deep inside exactly this sort of transformation right now, there is absolutely a clear logic to this. having a test bed with fewer barriers to try radical and complete AI transformation is extremely valuable. And also, it's not clear ultimately if the better business model is trying to transform the old companies through enterprise sales or just owning the new actors who take advantage of the new technology better to become the dominant companies of their age. Overall, I think the response to this has been more positive than I might have imagined,

Starting point is 00:08:39 which is good for Open AI because they need momentum right now, as we will see in the main episode. In fact, let's close the headlines here and jump on over into OpenAI's Code Red. Hello, friends, if you've been enjoying what we've been discussing on the show, you'll want to check out another podcast that I have had the privilege to host, which is called You Can With AI from KPMG. Season 1 was designed to be a set of real stories from real leaders, making AI work in their organizations, and now season 2 is coming and we're back with even bigger conversations.

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Starting point is 00:11:48 The right partner makes progress inevitable. Partner with Robots and Pencils at Robots and Pencils.com slash AI Daily Brief. Welcome back to the AI Daily Brief. Today we have an exciting one, some very quick follow-up to our five big stories to watch an AI episode from just yesterday. Now, going back to November,

Starting point is 00:12:11 it was very clear that the big story was everything surrounding Google and its AI strategy. So that includes Gemini 3, Nano Banana Pro, the rise and performance of their TPUs and what it means for NVIDIA, and specifically how all of these things change the competitive landscape for AI. Never before in the three years, the exactly three years since ChatGPT launched, have we seen such a narrative inflection shift from OpenAI over to Google? More and more you are starting to see the language of inevitability around Google,

Starting point is 00:12:41 which for some was all-inclusive and for others, maybe more specific to things like multimodal AI, but no matter what, OpenAI was facing very serious competition, not just with the tool itself, but also with public perception. Now, add to this, of course, that Anthropic dropped Opus 4.5, and that model has done nothing but get increasingly rave reviews the longer it's been out, all of which comes together to last night, when actually after I went to sleep,

Starting point is 00:13:07 the information came out with an exclusive report around a war memo from Sam Altman to the team at OpenAI. Basically, three years to the week after the launch of chance, ChatGBTGPT led Sundar Pichai and Google to declare their own code red. Now the roles have been reversed. And Sam Altman on Monday of this week told employees at OpenAI that he was declaring a code red to focus all of their resources on improving their core asset, which is chatGBT. So what does it mean to actually improve chat GPT?

Starting point is 00:13:36 Well, it sounds like there are a couple pieces. Altman apparently mentioned more personalization for the chatbot, including letting chatGPT's users have more customization around the way that it interacts with them. Altman also said that they wanted to improve model behavior. So, as the information put it, people prefer the AI models that power ChatGBTGPT more than models from competitors, including in public rankings such as LM Arena, to other priorities including boosting ChatGPT's speed and reliability as well as minimizing over-refusals. Over-refusals in this case refer to when Chat-GPT refuses to answer something that is actually a benign, non-harmful question.

Starting point is 00:14:12 I guarantee that you have had that experience and it is just enormously frustrating when you're not asking it for anything complicated or scary or challenging, and yet it still refuses to answer. It is one of the most frustrating experiences you can have with a chat bot, so it makes sense if they're trying to improve the experience of chat GPT to cut down on those sort of blockers. Now, as part of this announcement, it sounds like we're not just getting a renewed and reinvigorated commitment to chat GPT, but an actual pause on some other initiatives. Allman, it sounds like, explicitly said that to focus on chat GPT, they were going to delay other initiatives. The one that everyone is talking about is advertising. Now, I've talked a bit about

Starting point is 00:14:51 OpenAI's communication around advertising, frankly in a frustrated way. I think that when SORA 2, the model was launched alongside Sora the application, it felt pretty inevitable to a lot of people that OpenAI was going to move into ads at some point. It just seems like the only way to support a full-on video-based social network. Also, there are clear opportunities for ad integration into the core chat GPT experience. And yet OpenAI, specifically Sam, has continuously been super circumspect about it, saying that no decisions have been made, rather than doing what I think he should have done, which is basically say, ads are a great way to keep things free, ads don't have to suck, we care most about user experience

Starting point is 00:15:31 and we're not going to let ad screw that up, and while we have made no final decisions, there is likely an ad integrated future for many of these products, which you will get to see a mile in advance because we respect you as the user and are going to treat you like adults as we talk to you about our plans here. In other words, I think, that OpenAI or Altman might be slightly overestimating people's unwillingness to deal with ads and underestimating their frustration at feeling tricked or deceived. In any case, to the extent that there are ad things going on, those plans are now on pause. The information also writes that Altman said the code red surge to improve chat GPT meant that the company would, quote, delay progress on other

Starting point is 00:16:06 products such as AI agents, specifically those aiming to automate tasks related to shopping and health, as well as developments on their pulse product, which is the thing that generates those personalized reports for chat GPT users to read each morning. Additionally, there was some new model talk. Now, you'll remember that in the predictions for December episode, I said that I thought that the most likely area where we would see a new open AI model this month would be around image generation, not even just to regain momentum, but to keep feature parity and people operating within the open AI ecosystem. It does sound like this is a priority, but it's not clear from the reports that we got how far along their next generation image generation model is.

Starting point is 00:16:46 writes the information. Altman said that other key priorities covered by the code red include the image-generating AI that allows chat GPT users to create anything from interior design mock-ups to turning real-life photos into animated ones. No mention on how far along their next version of ImageGen actually is, but one big nugget that basically everyone is seizing onto is this one. Alman said that the company is planning to ship a new reasoning model next week that they claim is ahead of Google's Gemini 3 in OpenAI's internal evaluations. Now, the information adds that Altman said that the company also had more work to do on improving the chat GPT experience.

Starting point is 00:17:21 And while I think it's right, that those experience upgrades make a huge difference when it comes to things like how long people are spending in the app and how much they're switching to other models, when it comes to just narrative momentum, there is certainly nothing bigger that OpenAI can do than drop a reasoning model that actually feels ahead of the competition. Now, there's certainly chatter that those models exist. In a podcast appearance, OpenAI research leader Mark Chen said, We have models internally that perform at the level of Gemini 3, and we're pretty confident that we will release them soon, and we can release successor models that are even better. ChatGBTT leader Nick Turley dropped a Twitter thread around the time the information story broke, seemingly to try to set some of the framework for where the state of the competition is right now.

Starting point is 00:18:03 He wrote, Today, ChatGabit is the number one assistant worldwide with around 70% of assistant usage. New products are launching every week, which is great. It pushes us to move faster and keep raising the bar for what an AI assistant can do. In a clear nod to Google, he continues, Search is one of the biggest areas of opportunity. ChatGPT now accounts for roughly 10% of search activity and it's growing quickly. As more people ask chat GPT, not just for answers but to take action on their behalf, we see lots of room to expand.

Starting point is 00:18:29 He concludes, our focus now is to keep making ChatGPT more capable, continue growing, and expand access around the world, while making it feel even more intuitive and personal. So let's talk about how people receive this. Overall, the vibe is excitement. people are fired up. Part of that is just because competition is fun to watch, but part of it is because it benefits us.

Starting point is 00:18:49 However, one thing that people noticed that was kind of conspicuously absent, at least from the reporting, was that there was no mention of coding models. Swix called this out in his post about Code Red, and there were many posts like this one from Bill Berkey who wrote, Dear Sam Altman, I read in the Wall Street Journal this morning

Starting point is 00:19:06 that OpenAIs Altman declares Code Red to improve chatGBT as Google threatens AI lead. Make Codex work, dot-to-dot. sincerely vibe coders. Now, two thoughts about this. First of all, it may be that Altman and OpenAI are making a determination that the flank that they're feeling most threatened on when it comes to Google Gemini is general consumer usage that doesn't really touch the vibe coding space. Remember, we saw a bunch of charts recently around how Google Gemini is catching up in terms of monthly downloads and is now ahead in terms of time per session. And so it may be that leaving coding off is intentional because they don't

Starting point is 00:19:42 see that as a major front in their battle with Google, at least not right now. The information points out that broad perception of the competition between OpenAI and Google is going to be key to Open AI's ability to raise the additional hundreds of billions of dollars they're going to need over the next few years. And so as much as coding might matter to a lot of enfranchised users, maybe they're determining that it's not the thing that drives those top line numbers that the casual investor, for example, is going to read. The other thing to note, though, which is always an important caveat, is that we are seeing this secondhand. We are reading a report based on what Sam dropped on Slack that was read by the reporters, not by us. If the reporter who saw it missed a mention of coding or just decided it wasn't

Starting point is 00:20:22 important, we could have the wrong perception just because they are dictating what we're seeing. It's also possible that the tone of the Slack message wasn't a super comprehensive list of everything that's going to be worked on versus everything that's going to be deprioritized, instead being something that's a little bit more off the cuff and much more about the emotional and team rallying cry than the specifics, in which case it would be easy to read too much into any one thing that's included or not. Now, some think that Sam might know that whenever he writes something like this, it's going to get leaked, and so was perhaps using it to generate exactly the type of response that he's getting from me covering it on this show. Beth Jaisos writes, I bet the whole

Starting point is 00:20:57 code red story was a sci-op and Open AI is about to drop a massively better model. That post was actually a repost of AI leaker Jimmy Apples account that had a picture of Altman with a Santa hat on and the message hype, pipe, pipe, pipe, pipe, pipe, pipe, pipe, pipe, pipe, pipe. While I'm recording before markets open on Tuesday, knockout trader did point out that SoftBank had a bit of a week overnight session after the Code Red News broke and said, we'll be interesting to see if this pressure will find its way towards U.S. names being linked to Open AI in any way. For example, will we see ripple effects in Oracle stock tomorrow? Overall, though, mostly people are just super excited. Jeffrey Snowver captured my feeling exactly when he wrote,

Starting point is 00:21:34 Three Cheers for Competition. Open AI made Gemini get better, and now it's the other way and we all benefit. Look, man, I was tearing down to December where I didn't think we were going to get all that much in terms of new models. And now it seems like that is very much not the case. And we could be playing with a new advanced reasoning model from Open AI in the very near future. It is definitely the case that the company that crystallized this field for so many now finds itself on the back foot. If you go to the prediction market sites, the betting around questions like which company has the best AI model by the end of 2025 is distinctly in Google's favor right now, and the gap has been increasing, not decreasing. Although it is worth noting that after

Starting point is 00:22:13 the news broke, in one market on polymarket, Google dropped from 92 to 88 percent, an open AI jumped from 0.5 percent to 7.6 percent in just a few hours. All in all, I think we have a major competition on our hands, and I'm not counting anyone out. So friends, there you have it. Code Red has been declared, and now we get to see what happens next. That's going to do it for today's AI. daily brief appreciate you listening or watching as always and until next time peace

The AI Daily Brief: Artificial Intelligence News and Analysis - OpenAI Declares Code Red

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