E How Tesla Is Leading The Self-Driving Race

Introduction: data vs. algorithms

Peter Norvig, a machine learning expert and director of research at Google (GOOG, GOOGL), famously said of Google’s web services: “We don't have better algorithms than anyone else. We just have more data.”

In 2015, Google open-sourced its machine learning software library TensorFlow. Technology and strategy analyst Ben Thompson argues that Google can afford to give TensorFlow away (and accrue the benefits of doing so) because Google’s competitive advantage lies in its data and its massive data processing infrastructure. In this case, Google has the same algorithms as everyone else — the ones it has given away for free — and retains its lead through data.

Facebook (FB) and Amazon (AMZN) have both open-sourced some of their machine learning algorithms as well. This further reinforces the point that competitiveness in machine learning is more about data than about secret, proprietary algorithms.

In 2015, Tesla (TSLA) CEO Elon Musk and Y Combinator President Sam Altman co-founded a non-profit called OpenAI. With $1 billion in funding from various donors, including Musk and Altman, OpenAI brings together top researchers to push the state of the art in machine learning and to make their algorithms freely and openly available to the world. While OpenAI’s stated mission is philanthropic (to democratize AI), as Ben Thompson observes, it also has a benefit for Tesla and Y Combinator, as well as the companies of other donors.

OpenAI ensures that state-of-the-art machine learning algorithms continue to be open source, and spreads the cost of research and development across multiple companies. As a result, Tesla can remain competitive with world-class AI companies like Google as far as algorithms go, without relying on their generosity in open-sourcing their own algorithms. Tesla also avoids the expense of attempting to develop algorithms by itself, while OpenAI’s philanthropic mission can also help attract top talent.

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Disclosure: I am long TSLA. 

Disclaimer: This is not investment advice.

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