This analysis was first published in SvD Näringsliv, in Swedish, on November 20th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
The drama around Sam Altman and OpenAI has clearly shaken Microsoft. Now CEO Satya Nadella is taking AI development into his own hands.
Our current era of AI development can be traced back to a single decision made around four years ago. It was not when AI development started — that was in the 1950s — nor was there any individual technical breakthrough.
It was, as so often, about money.
Satya Nadella, Microsoft’s CEO, decided to invest one billion dollars in what was then a kind of research project called OpenAI. Among those behind the project were Sam Altman and Elon Musk.
The investment was probably not as visionary as it appears today. A large portion of the money came in the form of credits from Microsoft’s cloud and data centre platform, Azure. Through the investment, Microsoft could acquire a prestigious customer for Azure and signal to the world that it was ready for AI development. In exchange, OpenAI got the opportunity to develop its AI technology without the enormous costs it entails, since Microsoft footed the bill.
That was in 2019. Fast forward to autumn 2022 and Nadella’s investment looks like a stroke of genius. OpenAI launches ChatGPT and a new era of technology development begins. The star power of OpenAI spills over onto Microsoft, which subsequently invests a further ten billion dollars in the company.
But there is a complication. And it was this that accelerated over the weekend when OpenAI dismissed its CEO, Sam Altman. Despite many billions in investment, it is not Microsoft that is in charge.
The legal structure behind OpenAI can be traced back to when it was considered a purely research-focused project. It is a non-profit which in turn — a couple of levels down — owns a commercial company, and that is what Microsoft and others have invested in. But the board that controls everything sits at the top of the structure, within the non-profit.
Every investment carries risks. The most obvious risk in the case of OpenAI was probably that they would not get anywhere — that the ideas behind AI development would not work. But the other clear risk was precisely this governance issue. Investing over 100 billion kronor in a company over which you have no direct visibility or control is highly unusual.
This is the risk that has now blown up in Nadella’s face. And all signs suggest he has no interest in experiencing it again.
Early on Monday morning, Swedish time, Nadella announced that Microsoft had hired both Sam Altman and Greg Brockman, co-founder and former chairman of OpenAI. They will both work in a new AI team at the tech giant. Brockman then wrote that they were bringing along three more OpenAI employees. “The mission continues,” he added. A letter signed by 505 of OpenAI’s 700 employees also demanded that the board resign, and threatened to follow Altman to Microsoft.
Nadella now faces a tricky balancing act. Microsoft has integrated much of OpenAI’s technology into its existing products. Microsoft’s developer conference, Ignite, wrapped up as recently as last Friday, and featured a long list of AI initiatives. Abandoning them because OpenAI is changing CEO and losing staff could cause delays and problems.
At the same time, it is crystal clear that OpenAI’s board and Microsoft do not share a common vision for how the business should be run. Much therefore suggests that Nadella is building up his own AI operation — owned and financed by Microsoft, with Altman at the helm — and that once it is sufficiently developed, they can let go of OpenAI entirely.
In hardware, there is a concept called “hot swap.” It refers to replacing components in a computer without shutting it down. The system keeps running while you upgrade it from the inside. What Nadella is attempting now is a kind of “corporate hot swap.” He wants to replace his existing AI supplier with one of his own — without losing momentum.
For now, parallel tracks are the order of the day. Expensive parallel tracks.
The resources to manage this do exist, however. The perceived lead in AI that Microsoft currently holds has taken it to its highest market capitalisation ever — approaching an almost incomprehensible 29,000 billion kronor. The company’s direction on AI is set and appears firm. This is now about risk minimisation.
With Altman at the helm, talent will flock to Microsoft in a way that has not been seen in decades. If OpenAI’s staff follow through on their threat to move to Microsoft, it would be invaluable. Add to that the opportunity to maintain the lead over competitors like Google in AI.
There is probably no price tag in the world that Nadella would not pay for that.
