Nov 23, 2023

Microsoft’s association with OpenAI demonstrates a new era of innovation for the company. Credit: Shutterstock After a week of media speculation about OpenAI’s senior executive re-shuffle, CEO and co-founder Sam Altman was said be joining Microsoft ’s new in-house artificial intelligence (AI) team. Shortly afterwards, it was announced that Altman would, indeed, return to OpenAI as CEO . OpenAI’s board coup to oust Altman on Friday (17 Nov) reportedly blindsided Microsoft CEO Satya Nadella who moved quickly to protect Microsoft’s interest in the leading generative AI startup. Microsoft is said to have invested $13bn in OpenAI, owning a 49% stake in the company. Go deeper with GlobalData The US tech giant has long been regarded as a pioneer of the ‘Big Five’ US tech giants (the others being Google / Alphabet , Amazon , Apple and Meta). Since its inception in 1975 the company has managed to stay relevant through a number of global innovation cycles, with varying degrees of success. Most notably, the company has held on to its software market dominance while failing to foresee a global shift towards mobile technology. However, under the leadership of Nadella, the company has seemingly learned from missing out on the smartphone revolution and has remained innovative through acquisitions and partnerships such as its large stake in OpenAI. As is typical of startup investments, Microsoft’s partnership with OpenAI was primarily about securing AI ‘intellectual capital’. It is this intellectual capital that Nadella moved quickly to protect by first bringing Altman into the fold. Fellow board member and OpenAI co-founder Greg Brockman and up to 500 OpenAI staff had reportedly threatened resignation on the news of Altman’s departure. What started with a board coup may end up as a coup for Microsoft and the company’s influence on the development of AI going forward. Microsoft’s diversification effort may work this time The name Microsoft is a portmanteau of ‘microcomputer software’, conjured up by co-founders Bill Gates and the late Paul Allen. The pair developed the first personal computer operating system market with MS-DOS in the mid-1980s, which was followed by Microsoft Windows. The company has stayed true to its name despite a number of failed diversification efforts, namely its failure to compete with Apple’s iPhone and the shift to mobile. Nevertheless, Microsoft has remained a dominant force in software for more than four decades. How well do you really know your competitors? Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge. Tick here to opt out of curated industry news, reports, and event updates from Verdict. I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the privacy policy Submit and download Microsoft under Nadella has made some prescient moves, above all vying for AI leadership as it follows a diversification strategy from its successful enterprise software business. Headquartered in Redmond, Washington State, the company has always used inorganic growth through global acquisitions as part of its expansion strategy. A prime example includes the company’s acquisition of Skype Technologies for $8.5bn in May 2011. What followed was Nadella’s decade of deal-making since taking the reins in 2014. He has made 326 deals said to worth over $170bn. These include: November 2014, Microsoft buys Swedish Minecraft maker Mojang for $2.5bn. December 2016, Microsoft acquired LinkedIn for $26.2bn. October 2018, Microsoft acquired a popular developer code-repository service GitHub for $7.5bn in stock. July 2019, Microsoft announced its partnership with OpenAI with a $1bn investment to build new Azure AI supercomputing technologies. March 2020, Microsoft announced the $1.3bn acquisition of wireless networking company Affirmed Networks. March 2021, there was an $8.1bn acquisition of ZeniMax Media to become part of Microsoft’s Xbox Game Studios division. April 2021, Microsoft announced a $16bn acquisition of AI software company Nuance Communications . The deal was completed in March 2022 and was Microsoft’s second biggest deal after LinkedIn. 2021, Microsoft announced its second phase partnership with OpenAI when it began with training models such as GPT-3 on its Azure AI supercomputer. January 2023, Microsoft announced its third phase partnership with OpenAI with a $10bn. October 2023, Microsoft’s $69bn acquisition of Activation Blizzard finally crossed the line with regulators. These large investments clearly highlight the company’s strategic direction. And no wonder considering the market potential for AI. While both investments in Nuance and OpenAI are significant, they dwarf the overall investment avalanche into large language model (LLM) research and development . According to research company GlobalData , the global AI market will grow from $81bn in 2022 to $909bn by 2030, at a compound annual growth rate of 35% between 2022-30. Microsoft and OpenAI partnership The three-phase partnership which has seen investments in 2019, 2021 and 2023, has been focused on AI supercomputing and research. Together teams at Microsoft and OpenAI have worked towards commercialising AI technologies to offer supercomputing at scale. Building AI infrastructure for the company’s Azure’s cloud business should help customers build and deploy their AI applications on a global scale, according to the company. Over the past year Microsoft launched its Copilot chatbot, Bing Chat, and has been rolling out its Copilot branding across various products including Copilot Image Creator. Copilot is powered by the company’s Prometheus large LLM which is built on OpenAI’s GPT-4 LLM. Microsoft has plans to roll its generative AI Dynamics 365 business apps, Power Platform, the company’s security suite, the Edge browser, the Bing search engine, and the Windows operating system. At Microsoft’s Build 2023 developer conference, the company announced plans to integrate Copilot into Windows 11. This integration allows users to access the Windows Copilot service directly through the taskbar, further expanding the tool’s accessibility and potential impact on user productivity, according to the company. Can regulation hamper Microsoft’s AI ambition? Microsoft’s ascent was predicated on its aggressive market dominance strategy. An existential browser war in the 1990s between Netscape’s Navigator and Microsoft’s Windows led to Microsoft’s global hegemony for more than two decades after founder Gates reportedly sent an internal memo to employees in relation to Netscape, stating that Microsoft must “crush them”. This prompted a decade-long antitrust investigation by the US Justice Department, which said in September 2001 that it no longer sought the break-up of Microsoft. Almost two decades later, Microsoft would battle regulators on its Activision Blizzard acquisition which it eventually settled in October 2023. Unlike its Big Tech peers, Microsoft doesn’t rely on an advertising model as its core revenue generator, which is a central point of contention for many regulators. A revenue breakdown by business segment from the company’s 2023 annual review shows that advertising plays a minor role in the company’s success – perhaps helping the tech giant to evade the regulatory scrutiny of its peers. Jumping on the next innovation cycle Historically, Microsoft’s product innovation has been considered limited compared with its Big Five counterparts. Stepping into the AI race with its OpenAI association means Microsoft can no longer be characterised as the old-line tech giant to its more nimble newcomers. And while Microsoft may not have had the social media or entertainment business success shared by its Big Five rivals, its Xbox business continues to thrive. The subscription-based Xbox Game Pass has driven growth and its acquisition of ZeniMax Media in 2021 adds many franchises to the service. The company continues to expand in the burgeoning cloud gaming market through Xbox Cloud Gaming. In addition, the Xbox Series S and X launched in November 2020, becoming the company’s fastest-selling consoles to date In addition, its software business is as successful as ever. A 2022 price hike for Windows business users was announced in December 2021, which encourages business customers to sign up to longer-term subscriptions. Capitalising on its core software business and growing gaming market presence demonstrates that Microsoft will continue to do what it does best. But the company is also not going to miss on the next innovation cycle and has placed itself front and centre of the AI revolution. Sign up for our daily news round-up! Give your business an edge with our leading industry insights.