What Microsoft gets from betting billions on the maker of ChatGPT

Microsoft revealed last week that it will lay off 10,000 people throughout 2023. But don’t think that means the company is having money problems. On Monday, the company announced that it’s investing billions of dollars into the hot artificial intelligence platform OpenAI.

This is Microsoft’s third investment in the company, and cements Microsoft’s partnership with one of the most exciting companies making one the most exciting technologies today: generative AI. It also shows that Microsoft is committed to making the initiative a key part of its business, as it looks to the future of technology and its place in it. And you can likely expect to see OpenAI’s services in your everyday life as companies you use integrate it into their own offerings.

Microsoft told Recode it was not disclosing the deal’s specifics, but Semafor reported two weeks ago that the two companies were talking about $10 billion, with Microsoft getting 75 percent of OpenAI’s profits until it recoups its investment, after which it would have a 49 percent stake in the company. The New York Times has since confirmed the $10 billion amount.

With the arrangement, OpenAI runs and powers its technology through Microsoft’s Azure cloud computing platform, which allows it to scale and make it available to developers and companies looking to use AI in their own services (rather than have to build their own). Think of it as AIaaS — AI as a service. Microsoft recently made its OpenAI services widely available, allowing more businesses to integrate some of the hottest AI technologies, including word generator ChatGPT and image generator DALL-E 2, into their own companies’ offerings.

Meanwhile, OpenAI also gets a needed cash infusion — key for a company with a lot of potential but not much to show in terms of monetization. And Microsoft can offer something to its cloud customers that rivals Google and Amazon can’t yet: one of the most advanced AI technologies out there, as well as one of the buzziest. They do have their own AI initiatives, like Google’s DeepMind, which is reportedly rolling out a ChatGPT rival at some point. But it’s not here yet. ChatGPT is, and it’s gone mainstream.

OpenAI was founded in 2015 as a research laboratory, with backing from Silicon Valley heavyweights, including Peter Thiel, Elon Musk, and Reid Hoffman. Sam Altman, former president of startup incubator Y Combinator, is its CEO and co-founder. The company has pushed its commitment to developing “safe” and “responsible” AI technologies since the beginning; there is a longstanding fear, among some, that if artificial intelligence gets too intelligent, it’ll go SkyNet on all of us.

Microsoft stepped in at the end of 2019 with a $1 billion investment in and partnership with OpenAI to help the company continue to develop artificial general intelligence (AGI) — that is, AI that can also learn and perform new tasks.

“We believe it’s crucial that AGI is deployed safely and securely and that its economic benefits are widely distributed. We are excited about how deeply Microsoft shares this vision,” Altman said at the time.

The arrangement has worked out well enough that Microsoft made a second investment in 2021, and now the much larger one in 2023, demonstrating the potential Microsoft sees for this technology and the desire to be a key player in its development and deployment.

“We formed our partnership with OpenAI around a shared ambition to responsibly advance cutting-edge AI research and democratize AI as a new technology platform,” said Microsoft CEO and chair Satya Nadella in a statement. “In this next phase of our partnership, developers and organizations across industries will have access to the best AI infrastructure, models, and toolchain with Azure to build and run their applications.”

Microsoft has largely focused its business on enterprise software and services, but the company said in its announcement that it does intend to use OpenAI in its consumer products as well. What could that look like? Well, the Information reported that Microsoft will be integrating ChatGPT into its Bing search engine, allowing it to formulate and write out answers to questions instead of just putting out a series of links. There are surely plenty of opportunities to integrate AI into gaming, a market that Xbox owner Microsoft has a sizable chunk of.

Generative AI or artificial general intelligence is largely seen as the great new frontier for technology. OpenAI is the AGI company to beat. And if you’re Microsoft, your place in that future is looking pretty good right now.