Karen Wise & Cade Metz
July 16
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Earlier this year, Satya Nadella struck a deal that surprised everyone except his inner circle at Microsoft.
Microsoft CEO Satya Nadella had his eye on Silicon Valley startup Inflection AI. The company's CEO, Mustafa Suleyman, was one of the founders of the pioneering artificial intelligence company DeepMind. He had raised more than $1.5 billion and hired top researchers for his new company, but his reputation as an executive was not great. Inflection also did not seem to be profitable.
Microsoft still spent more than $650 million to license Inflexion's technology, hired most of its staff, and gave Suleiman more than $12 billion of its business. It was risky, to say the least.
Making risky bets on AI has become a habit for Nadella: Over the past five years, he's pledged $13 billion to another aggressive startup, OpenAI, which has yet to make a significant profit. And he's tasked everyone at Microsoft with finding ways to build AI into Microsoft's many products, even though the technology doesn't always work properly.
But he had a reason: While it may take years to see whether these efforts really bear fruit, Nadella sees the AI boom as an all-out war for his company and the rest of the tech industry, and he wants to ensure that Microsoft, which missed out on the dot-com boom and then stumbled on smartphones, has an edge in this new technology.
Microsoft investors have so far been pleased with the bet: The tens of billions of dollars that Mr. Nadella has poured into AI over the past two years have boosted the company's value by 70% to more than $3.3 trillion, making it one of just three companies (the others being chipmaker Nvidia, another AI star, and Apple) vying for the title of the world's most valuable publicly traded company.
The idea of Mr. Nadella as a grand visionary for AI and a calm risk-taker may be hard to square with his history as a low-profile boss in an industry full of peacocks in corner offices. Mr. Nadella, a 56-year-old engineer who rose through the ranks to become Microsoft's chief executive officer about a decade ago, is credited with restoring the company's luster to the company after years of stagnation under his more famous predecessor, Steve Ballmer.
Nadella still speaks like a passionate engineer. In a recent interview with The New York Times over Microsoft's Teams videoconferencing software, he lit up when he said the OpenAI investment was “not like a Hadoop workload.” He said he chose to build OpenAI's technology into Microsoft's Bing search engine first because “graph traversal is a kind of graph integration.”
Mr. Nadella has rid Microsoft of many of Mr. Ballmer's mistakes, including erasing much of the fiasco of the company's $8 billion acquisition of mobile phone maker Nokia in 2014. He has put Microsoft software on Apple's iPads and iPhones, something Mr. Ballmer had balked at. Mr. Nadella has embraced the concept of free, open-source software, a concept Mr. Ballmer called a “cancer,” and built Microsoft's cloud-computing business into a powerhouse.
But Mr. Nadella was still “considering making big bets and was exploring everything,” said Penny Pritzker, a former U.S. secretary of commerce who sits on Microsoft's board of directors. He took a stumbling, circuitous route to the metaverse with his $69 billion acquisition of video-game publisher Activision Blizzard Inc., despite significant resistance from antitrust regulators around the world.
Then along came AI, which Nadella believed was the game-changer he was looking for.
In early December, Mr. Nadella met for hours with Mr. Suleiman in his offices at Microsoft's Redmond, Wash., headquarters, and vetted him with Reid Hoffman, a Microsoft board member and venture capitalist, according to two people with knowledge of the conversations. In February, Mr. Nadella had a private dinner with Mr. Suleiman on Microsoft's sprawling campus.
Less than a month later, Mr. Nadella had finalized the deal. He flew to Silicon Valley, where Inflection is based, and was waiting in the wings of a conference room at a Hyatt hotel for Mr. Suleiman to tell employees that they were being acquired by Microsoft, according to a person who was there. He said a “special guest” was in attendance, and then Mr. Nadella walked in, according to the recording.
As employees digested the news in shock, one brave employee asked why Inflection's ambitions wouldn't be crushed by Microsoft bureaucracy.
Nadella retorted that the real question was, “Are you brave enough to actually starve someone of our size and scale?”
“So why have I been at Microsoft for 32 years,” he said, “because I have a strong desire to make sure the company remains relevant into the future.”
The Birth of BERT
In late 2018, Nadella was surprised when Google unveiled BERT, an early version of the AI technology that powers chatbots like ChatGPT.
Several of the BERT researchers worked until recently at Microsoft, and Nadella was distressed to discover that the company's computer network was not powerful enough to build advanced AI, according to three people who spoke on the condition of anonymity to discuss conversations with Nadella.
“It took us six months just to replicate BERT because our infrastructure was not up to the challenge,” Microsoft chief technology officer Kevin Scott wrote in an email to Nadella and Microsoft co-founder Bill Gates in 2019.
To make Microsoft's cloud smarter, Nadella has explored investing in OpenAI, a hot startup looking at new approaches to AI. If OpenAI builds what it needs, it could force Microsoft to do more.
©2024 The New York Times News Service
