Microsoft's rise to dominance in the generative AI space over the past year has been nothing short of remarkable, but aggressive moves in recent weeks and the signing of several new deals have taken things up a notch.
The company shocked the industry last week when it announced it had poached Inflection AI CEO Mustafa Suleyman to head its new consumer-facing AI division.
Not content with getting rid of the startup's CEO, he also hired two other co-founders, a significant portion of the staff, and agreed to pay Inflection around $650 million for exclusive rights to sell access to AI models through its service in the Azure cloud.
The deal is unusual in that Microsoft got the desired outcome from this situation (the absorption of Inflection's talent, intellectual property, and technology) without even firing a shot. The deal itself does not constitute a traditional merger or acquisition.
It's a peculiar setup for Microsoft and Inflection, and one that appears to skirt the boundaries of regulatory scrutiny. Most importantly, however, Microsoft is gearing up for a battle to dominate the consumer AI space in the same way it currently does in the enterprise sphere.
“By bringing in a large part of the Inflection team and licensing its assets, Satya Nadella is not only hedging his bets, he's placing a bigger bet that Microsoft can still win in the consumer space,” said Jason Wong, Distinguished vice president and analyst at Gartner. he said ITPro.
This isn't the only bet Microsoft has made in recent months, either, and Wong's comments ring true when you consider the other moves the company has made to maintain its position in the AI space.
In February, Microsoft announced a multi-year partnership with European AI startup Mistral that instantly raised suspicions from EU regulators, although no formal investigation has yet been announced.
A key concern that initially arose from this deal centered on the possibility of Microsoft exerting control over the company in some way.
This element of control is an issue that has already seen the company fall into trouble with regulators over its relationship with OpenAI.
Lawmakers on both sides of the Atlantic are carrying out preliminary investigations into the scope of the alliance between the two companies, with the UK's Competitions and Markets Authority (CMA) specifically highlighting concerns about the influence Microsoft has on the startup. .
But this campaign at Microsoft is about more than just ensuring it has a finger in every pie. Wong told ITPro that this also appears to be an attempt to diversify its AI investments and reduce dependence on OpenAI.
“Microsoft has been trying to shed its perceived dependence on OpenAI and expand its AI offerings to consumers,” he said.
OpenAI is by no means a liability, but last year's chaos in which Sam Altman was ousted certainly created tension and highlighted the precarious nature of the relationship between the two companies. Satya Nadella was said to have been attacked by the boardroom punch and left “furious” about the situation.
The company also attempted to bring Altman into a role similar to Suleyman after he was forced to leave the company.
Microsoft's bet on Inflection may be a symptom of its lackluster AI offerings
Suleyman's promotion to CEO of 'Microsoft AI' could indicate a degree of insecurity at Microsoft in terms of its positioning in the consumer AI market.
The DeepMind co-founder will lead research on artificial intelligence products within Microsoft's Copilot, Bing and Edge platforms.
In 2023, Nadella suggested that the success of its generative AI could be the key to driving adoption of its Edge browser, a prediction that has so far not come true. The same can be said for Bing, as the tech giant still trails Google in the search space by a significant margin.
According to Wong, the scope of Suleyman's mandate reflects Microsoft's need to firm up and expand its current set of products.
“Bringing in Mustafa Suleyman as CEO of Microsoft AI is a clear sign that more vision and responsibility are needed to make this happen in the consumer business,” Wong said.
Nadella cited Suleyman's addition to Microsoft as critical to ensuring it adapts to a rapidly changing product landscape. But Wong suggested this latest move is driven by both a fear of being left behind and a desire to stay ahead.
“Bing Chat has failed to make a material impact, and consumer products focused on Copilot apps for Windows and Office lack the generative AI innovation that consumers have come to expect,” he said.
