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I agree that they recognized the fundamental problem but I have different speculation as to what the problem is: the problem must be it's technologically too boring and obviously not profitable to them.

It's culmination of decades of NLP researches, but it's also just East Asian predictive text percussively adapted for variable word length language. It must've been clear to whoever core people that it's fundamentally a sluggish demo or at most a cheap outright-sold commodity product.

IMO they would be right unless someone finds a reason that LLMs can't ever be self hosted in the way Google Search can't be. They must have just saw by the way it is that LLM is at best a regularization engine for that magic box.