Since Amazon and Google invested billions into Anthropic, there has not been any headline news about any of the hyperscalers making moves on a major AI company, until today.
Microsoft has been found with its hands deep in the cookie jar—only in this case, the cookies are actually employees from a company named Inflection AI. Yes, you read that right. Not content with the occasional nibble, Microsoft has gobbled up not just any employees, but snatched away from Inflection AI its very crown jewels: CEO and Co-Founder, Mustafa Suleyman, now set to be the captain of Microsoft AI, and his right-hand, Chief Scientist Karen Simonyan, who's stepping up as the new Chief Scientist for Microsoft AI. And that’s not all; a hefty slice of Inflection’s team seems ready to leap over to Microsoft’s greener pastures as well.
Microsoft is forking over a handsome sum of US$620 million just to get cozy with Inflection’s AI tech and an extra US$30 million to smooth over any potential legal squabbles that might arise from this corporate love story. Essentially, Microsoft has acquired Inflection, without the messiness of a full acquisition and the glaring eyes of the FTC accusing them of playing monopoly.
But you may be asking yourself: Why does Microsoft need to acquire an AI company whose LLM could not outperform GPT-4 from OpenAI, which is owned by Microsoft?
Contrary to Popular Belief, Microsoft Does Not Own OpenAI
When it was announced that Microsoft invested US$13 billion into OpenAI last year, many news outlets said that the hyperscaler had 49% ownership of OpenAI. But as it turns out, the rumor mill had its wires crossed. Microsoft and OpenAI had a profit-sharing agreement in place with some insiders claiming that Microsoft could receive up to 49% of OpenAI’s profits. A statement released by Microsoft confirms this:
“While details of our agreement remain confidential, it is important to note that Microsoft does not own any portion of OpenAI and is simply entitled to share of profit distributions.”
OpenAI itself has also released a diagram to illustrate how Microsoft fits into its company structure to clear any doubts about the hyperscaler holding a major stake in it.
OpenAI Company Structure
With this in mind, Microsoft’s acqui-hire of Inflection beings to snap into focus. While tales of Microsoft and OpenAI's grand alliance fill the air, painting pictures of a united front in the AI domain, it's wise to take a step back. Much like realizing that not all that glitters is gold, it's a reminder that in the world of tech partnerships and alliances, not everything is as it seems.
Could the OpenAI and Microsoft Partnership End Earlier Than Expected?
The end date of Microsoft and OpenAI’s partnership remains uncertain. However, considering that Microsoft has clearly shown its intention to scale its AI capabilities rather than fall back on OpenAI, that end date may be sooner than we all anticipated.
This pivot could be partly spurred by the whirlwind of drama surrounding OpenAI, including the rollercoaster saga of Sam Altman’s brief exit and return, not to mention the legal tempests stirred up by Elon Musk among others. These episodes might just have nudged Microsoft to bet on its own deck of cards. After all Satya Nadella recently said:
“…We have all the IP rights and all the capability. I mean, look, if tomorrow OpenAI disappeared, I don’t want any customer of ours to be worried about it, quite honestly, because we have all of the rights to continue the innovation, not just to serve the products. But we can go and just do what we were doing in partnership, ourselves, and so we have the people, we have the compute, we have the data, we have everything….We are below them, above them, around them.”
Satya Nadella, CEO, Microsoft
Nadella’s words paint a picture of Microsoft as a sleeping giant, merely a handshake away from stepping forward to rival OpenAI. Having dipped its toes in OpenAI’s pool of knowledge, Microsoft is now busy assembling its own AI dream team for the day when the partnership curtain falls.
Initially, many thought OpenAI would be the backbone of Microsoft Windows’s Copilot, the secret sauce to make Windows 11 smarter than ever. This collaboration had stamped OpenAI as the front-runner in the AI marathon for many. Yet, it seems Microsoft is gearing up to develop its own LLM to power the Copilot, ready to be the brain behind over a billion Windows devices worldwide. This move signals not just a shift in strategy but a bold step toward independence, as Microsoft seemingly drifts towards self-sufficiency of OpenAI’s products and services.
Potential Consolidation in the Upper Tier of AI Sector
The seventy-odd employees from Inflection are likely the beginning of Microsoft’s acqui-hires. It is likely that Microsoft is aiming to mirror OpenAI's formidable assembly of nearly 700 talents, and this could very well be the spark that sets off a dazzling display of acqui-hires across the tech giants’ landscape.
Major AI names like Stability and Runway might soon find themselves in a bidding frenzy from the likes of AWS and GCP, all in order to not let Microsoft sprint too far ahead in the overall AI race.
This domino effect could usher in an era of consolidation within the AI arena, transforming the big tech companies into the very pillars that uphold the AI market. Future AI ventures might find themselves building upon the gargantuan foundation models offered by their preferred tech titan. This scenario isn't unlike the evolution of cloud computing, where giants such as AWS, GCP, and Azure have become the pillars of the cloud.
In the AI battleground among hyperscalers, depending solely on one investment isn't enough. This article sheds light on the connection between OpenAI and Microsoft, suggesting that Microsoft doesn't directly control OpenAI. This also hints that OpenAI could be a potential target for acquisition by giants like AWS and Google. For Microsoft, despite its tight bond with the generative AI leader, it's crucial to cultivate a robust in-house AI team for ongoing research and development. I'm excited about the AI era's potential!