This article is part of a series exploring the business of artificial intelligence
When Microsoft decided to invest in OpenAI in 2019, they had no idea how they would recoup their investment. OpenAI was creating game-playing bots, robotic hands, and language models. It was an interesting but unstable technology with no business prospects. Three years from now, Microsoft could turn the partnership into a highly successful business opportunity, generating immediate profits from the billions of dollars it poured into OpenAI.
Microsoft now has “more than 2,500 Azure OpenAI service customers, a 10x increase quarter-over-quarter,” according to Microsoft’s earnings call. The Azure OpenAI service, launched in 2021, will provide access to his OpenAI’s GPT-3 and DALL-E models through Microsoft’s cloud platform. Customers of this service include industry giants such as Mercedes-Benz and Shell, as well as technology companies such as Coursera and Grammarly.
Epic Systems, which has a large share of the U.S. healthcare software market, uses Azure OpenAI services to “integrate next-generation AI with industry-leading EHR software,” while Siemens “uses an integrated Teams app. intend to do something. Optimize factory workflows with Azure OpenAI services. ”
In addition, Microsoft will use OpenAI’s technology to maintain its edge over competitors across industries with initiatives such as integrating GPT-4 into clinical documentation applications developed by Nuance, a company it acquired in 2021. doing.
GitHub Copilot, an AI code generation tool powered by OpenAI models, is currently used by over 10,000 organizations, including Coca-Cola and GM. Copilot’s business plan costs $20 per developer per month and can generate hundreds of millions of dollars in annual revenue.
Microsoft also benefits from OpenAI’s own API services. OpenAI’s customer base is growing and now includes big names like Shopify and Snap. OpenAI services are powered by the Azure cloud. ChatGPT is reportedly costing OpenAI $700,000 a day, and as his usage of OpenAI’s services grows, so will his Azure bill.
Microsoft Chief Financial Officer Amy Hood said in the earnings call: [OpenAI] As our customer, as well as other customers who use Azure infrastructure and Azure AI services to support their end customers. So when they do, we recognize revenue in return, just like any other customer with whom we have a commercial relationship.”
So not only does Microsoft get exclusive access to OpenAI’s cutting-edge technology, but it also recoup much of its investment in AI labs as payment for Azure services.
Venture capitalist Tomasz Tunguz estimates that Microsoft’s ML service will have a run rate of $900 million. It’s growing so fast that it could become a multi-billion dollar business by the end of the year. Microsoft may have already recouped its investment in OpenAI.
Microsoft’s partnership with OpenAI has allowed Microsoft to revamp its Bing search engine, slowly eroding Google’s dominant position in online search and browser market share. As AI assistants become much more capable of retrieving information, Microsoft may gradually separate some of the tasks previously associated with search engines.
Microsoft’s success in commercial AI can be attributed to several key factors. First, we made our initial investment in OpenAI when we didn’t have a roadmap for profitability. The second is its vast and exclusive distribution channel. Penetration across many industries through office, collaboration, and productivity tools has allowed Microsoft to market OpenAI’s technology to millions of users and thousands of organizations. And finally, an aggressive branding campaign has pushed OpenAI, and by extension Microsoft, to the forefront of a new wave of generative AI models. OpenAI is neither a pioneer nor the only company in this space, but its name is effectively synonymous with large-scale language and text-to-image models. Many people are aware of advances in AI through news articles about GPT-3, ChatGPT, and DALL-E.
But while Microsoft is off to a head start in commercial AI, the market is still undergoing major shifts, and other companies are following in their footsteps. Amazon is challenging Microsoft’s position with new products such as the recently launched Bedrock. Bedrock is a platform for scalable serverless access to a diverse set of LLM and diffusion models. And individual developers get free access to CodeWhisperer, a GitHub Copilot competitor.
Google is also committed to the deployment of AI products, integrating DeepMind and Google Brain to integrate AI research. And startups like Cohere, AI21 Labs, and Anthropic are creating services to compete with OpenAI.
At the same time, there is a growing community effort to create open source alternatives to the closed services offered by big technologies. These efforts are aimed at preventing a few wealthy companies from gaining too much power in the fast-growing market for generative AI.
