Microsoft, Dancing like it’s 1995

…All In on OpenAI

A few days ago, I highlighted the historic dance Microsoft and OpenAI have embarked on together:

“When the history books are written on how the “overnight success” of OpenAI’s ChatGPT kicked off the current, global AI Gold Rush, much will be made about the unusual partnership forged by OpenAI and Microsoft, aided in part by the multi-decade relationship between OpenAI Founder/CEO Sam Altman and Microsoft CEO Satya Nadella. 

How they forged an unexpected partnership since 2019 with a billion dollar investment in the quasi non-profit OpenAI, which then led to a $10 billion plus deal for a 49% ‘non-control’ stake that obviated any possible antitrust concerns.”

Bloomberg now lays out how sweet the OpenAI deal looks from Microsoft’s perspective:

“Microsoft Corp. (MSFT), not OpenAI, owns the mega-computers that enable the chatbot to compose a sonnet about your cat or write a thank-you note to your uncle. Microsoft is OpenAI’s largest shareholder, its  biggest financial backer and its key technology partner. And to a great extent, it’s Microsoft that now has the responsibility of turning ChatGPT’s buzz into a real business. Although OpenAI is hands-down the hottest startup in Silicon Valley, in many ways it feels more like the most promising subsidiary of the leading purveyor of productivity software.”

They add how analysts are already modeling the AI driven upside for Microsoft from the OpenAI technology:

“Nadella’s team hasn’t disclosed pricing on the forthcoming Copilots (for Windows, Office & GitHub), but they definitely won’t be free. GitHub’s version starts at $10 per user per month, and Copilots for Microsoft’s office apps could be similarly priced, translating into as much as $48 billion in extra annual revenue within the next four years, according to Kirk Materne, an analyst with Evercore ISI.“

“In a research note published on June 2, he estimated that Microsoft’s revenue from OpenAI-powered features could hit $99 billion by 2027. That would be like adding three Netflixes to the top line of the world’s second-most-valuable public company. In early trading on Thursday, Microsoft’s share price was on course to close at an  all-time high.”

In that context and others, the consensus seems to be gravitating to this being the AI Deal of the century:

“Little wonder, then, that Microsoft has invested $13 billion in OpenAI since 2019, according to people familiar with the partnership; that its share price has shot up 30% since ChatGPT’s unveiling; or that it’s become the unlikely AI tech giant to beat. “The clear leader,” says Kim Forrest, chief investment officer and founder of Bokeh Capital Partners LLC, an investment firm. “Google just got completely leapfrogged.”

“Microsoft executives are understandably excited to be associated with the cutting edge of anything. It’s been a minute, as their cultural reference points show. “This is a little bit like the Windows 95 moment,” says Scott Guthrie, one of the company’s executive vice presidents. “People lined up at Best Buy at midnight to buy it.” This time, Guthrie says, his inbox is packed with requests from CEOs asking for access to early versions of the corporate Copilots.”

“This tracks with the comparison to Windows 95, which was less a technological breakthrough than a sublime expression of corporate dominance. For more than a decade after its release, Microsoft owned the central platform for personal computing software. (That the company’s practices led to an antitrust settlement with the US government did little to hamper its long-term prospects.) Now the House That Gates Built is making a similar bet on what looks like the next big platform. The idea is simple: Bring AI to everything, then cash in.”

And as Bloomberg outlines the OpenAI deal itself:

“Microsoft put another $10 billion into OpenAI, much of which will go straight back into the company’s own pocket [for Microsoft Azure Cloud services]. Altman’s team needed to rent massive new amounts of cloud computing power to develop a series of GPT-4-based projects.”

The cherry on top for Microsoft’s Nadella, is bringing AI to bear on Bing, a search product he led against Google Search back in 2009. As he explains in this Wired interview:

“Who would have thought last year that search can actually be interesting again? ­Google did a fantastic job and led that industry with a solid lock on both the product and the distribution. Google Search was default on Android, default on iOS, default on the biggest browser, blah, blah, blah. So I said, “Hey, let's go innovate and change the search paradigm so that Google's 10 blue links look like Alta Vista!”

Alta Vista for those too young, was one of the popular search engines in the nineties Google vanquished, with its fundamentally different approach to Search.

Now, in Nadella’s own words, 

“At the end of the day, [Google is] the 800-pound gorilla in this,” Nadella told The Verge. “I hope that, with our innovation, they will definitely want to come out and show that they can dance. And I want people to know that we made them dance.”

And Google has indeed danced:

“Since OpenAI launched ChatGPT in November, Google has been on a “code red” as the advanced chatbot threatens to disrupt its domination of online search. A.I.-enhanced search could be a game changer.”

And as I’ve highlighted, Google is both nudging and shoving back with vigor from every corner of its Empire. 

These dances have just begun, and other Tech titans like Facebook/Meta are now on the dance floor as well. 

Will have a lot more on the dance contests in future posts. For now, the dance contest has barely begun, and it’s too early to call the winners.