Late on March 28, Elon announced on X that xAI, his AI company which created Grok, has purchased X (Twitter), for $33B, valuing the combined entity at $80B.
I thought xAI was a subsidiary of X this whole time, so I was mostly taken by surprise that they weren’t already a combined company.
That confusion aside, for Elon, this is a great deal. xAI is in a strong position to be a major player and probably compete with Anthropic and Open AI in no-time.
X has 3 things going for it that make it valuable to xAI (ranked in order):
- Real-time data stream
- AI models being commoditized
- An app that hundreds of millions of active users
Real-time data stream
Open AI and Anthropic (Claude) are currently being sued by various groups claiming they violated copyright law in their use of works in training data. Regardless of how these lawsuits get settled, in order to get more data, they’ll need to pay hefty licensing fees.
Google, for example, is paying Reddit $60 million per year for access to Reddit’s real-time data. At the $20/mo price point of Gemini, that’s 3 million subscriptions just to pay for Reddit’s data.
Open AI is paying Newscorp $250MM over 5 years for access to the data.
xAI now gets access to all of X’s real-time data as part of the deal. Real-time is the key – all models are getting really good at a very similar pace, and so general-purpose models are being commoditized. The value will be in the models with the most up-to-date information.
AI models are being commoditized
Notice how there are weeks where everyone makes AI announcements and weeks where nobody does? That’s because there’s little-to-no differentiation between the models.
ChatGPT 4o, Claude Sonnet, Gemini Pro, Grok 3, DeepSeek v3 — they all do kinda the same stuff.
Yeah, some are better than others, but all of them are general purpose AIs. They’re sorta no different than web browsers. Chrome, Edge, Safari, Firefox, Arc. They all kinda do the same thing (browse the web) with slightly different features that differentiate them.
As these AI companies run out of training data for the models, the companies with the most-up-to-date information are the companies that win, hence the hefty licensing fees.
Because xAI doesn’t need to pay any fees to X and lots of people post on X, this feeds their third advantage.
X is used by hundreds of millions of people each month
ChatGPT has 60% market share even though Claude is objectively smarter. It has the brand and it has the app that people use most.
The value of Open AI does not live in the value of the AI model. It’s in the value of ChatGPT as an app you use on your desktop and mobile devices.
X is used by similar numbers of people as ChatGPT. X, on its own, is a destination. This feeds two things:
- More real-time data (posts, reposts, likes, views)
- More people using Grok
Personally, I wouldn’t be surprised if Grok becomes a top AI tool just because of its placement in the X app. As it does, though, more people give it more data which it uses to train the AI to make better.
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What does all this mean for business owners? Probably not much. But, it’s AI news, and while it’s not making headlines now, the rise of Grok probably will soon.
