Microsoft Corp is revamping its Bing search engine and Edge Web browser with artificial intelligence, the company said on Tuesday, signaling its ambition to retake the lead in consumer technology markets where it has fallen behind.

The maker of the Windows operating system is staking its future on AI through billions of dollars of investment as it directly challenges Alphabet Inc's Google, which for years has outpaced Microsoft in search and browser technology.

Now, Microsoft is rolling out an intelligent chatbot to live alongside Bing's search results, putting AI that can summarize web pages, synthesize disparate sources, even compose emails and translate them into more consumers' hands. Microsoft expects every percentage point of share it gains will bring in another $2 billion in search advertising revenue.

Working with the startup OpenAI, Microsoft is aiming to leapfrog its Silicon Valley rival and potentially claim vast returns from tools generally that speed up content creation, automating tasks, if not jobs themselves. That would affect products for business, such as the cloud-computing and collaboration tools Microsoft sells, as well as the consumer internet.

"This technology is going to reshape pretty much every software category,” Microsoft Chief Executive Satya Nadella told reporters in a briefing at the company's headquarters in Redmond, Washington.

The company's share of search so far is about an estimated tenth of the market. Still, many investors see new technology as a win for all players. Microsoft's stock closed 4.2 per cent higher on Tuesday, while Alphabet gained 4.6 per cent.

The power of so-called generative AI that can create virtually any text or image dawned on the public last year with the release of ChatGPT, the chatbot sensation from OpenAI. Its human-like responses to any prompt have given people new ways to think about the possibilities of marketing, writing term papers or disseminating news, or how to query information online.

Microsoft's new Bing search engine is live in limited preview on desktop computers and will be available for mobile devices in coming weeks. The company hopes user feedback will improve its AI, which Microsoft officials said may still produce factually inaccurate information known as a hallucination. It meanwhile has pursued work to safeguard against misuse of its tech.

Underpinning the new Bing is what Microsoft is calling the Prometheus model - OpenAI's most powerful technology informed as needed by real-time web data from Bing. That means Bing's chatbot can brief consumers on current events, a step beyond ChatGPT's answers that currently are limited to data as of 2021.

Jordi Ribas, Microsoft's corporate vice president for search and AI, told Reuters the tech advances his team witnessed last summer emboldened the company to move ahead with an AI-infused Bing.

Microsoft's chief financial officer also said OpenAI's “new, next-generation” technology is powering its search engine, though officials declined to specify if this entailed the startup's highly anticipated upgrade known as GPT-4.

From business to consumer

Microsoft is aiming to market OpenAI's technology, including ChatGPT, to its cloud customers and add the same power to its entire suite of products, not just search.

In the near term, Gartner analyst Jason Wong said Microsoft's “partnership with OpenAI is more relevant for its business customers.” Still, he said, it could offer “disruptive opportunities” in consumer businesses as well.

"Except for gaming, Microsoft has not been a leader in key consumer technologies, such as search, mobile and social media,” he added.

Google has taken note of Microsoft's challenge nonetheless. On Monday it unveiled a chatbot of its own called Bard, while it is planning to release its own AI in search that can synthesize material when no simple answer exists online.

Microsoft's decision to update its Edge browser will likewise intensify competition with Google's Chrome competitor. However, the Redmond-based company expects to roll out the updated Bing to other browsers eventually.

The rivalry in search is now among the technology industry's biggest, as OpenAI sets up Microsoft to expand its 9% share at Google's expense, said Daniel Ives, an analyst with Wedbush Securities.

For the quarter ended Dec. 31, Alphabet reported $42.6 billion in Google Search and other revenue, while Microsoft posted $3.2 billion from search and news advertising.

Practical uses

Microsoft executives said the new Bing would change how people find information on the internet.

A chatbot for instance can help users refine queries more easily and give more relevant, up-to-date results.

The AI-driven search engine would be able to give clear answers in plain language, synthesizing what Bing found on the web and in its own data vaults, rather than simply spitting out links to websites. Queries on current events would draw more from live data on the internet.

At the news briefing with reporters, Microsoft Consumer Chief Marketing Officer Yusuf Mehdi demonstrated how the AI-enhanced search engine also could make shopping easier. He showed how Bing could estimate, for example, whether a certain type of seat could fit in the back of a car by pulling together web data on one's vehicle dimensions and on the shopping product in question.

Within the Edge browser, Bing's AI can present takeaways of financial results or other web pages as well, aiming to save readers from having to make sense of a long or complicated document, Microsoft said. It can suggest computer code, too.

Behind these efforts is Microsoft's plan to invest in supercomputer development and cloud support so OpenAI can release still more sophisticated technology and aim at the level of machine intelligence dreamed up in science fiction.

Already, results of this collaboration are manifesting beyond search. Last week Microsoft announced the startup's AI will generate meeting notes in Teams, its collaboration software, as well as suggest email replies to vendors using its Viva Sales subscription.