Microsoft invests $10 billion in ChatGPT maker OpenAI

By Dina Bass | Bloomberg

Microsoft Corp. is investing $10 billion in OpenAI, whose artificial intelligence tool ChatGPT has lit up the internet since its introduction in November, amassing more than a million users within days and touching off a fresh debate over the role of AI in the workplace.

The new support, building on $1 billion Microsoft poured into OpenAI in 2019 and another round in 2021, is intended to give Microsoft access to some of the most popular and advanced artificial intelligence systems. Microsoft is competing with Alphabet, Amazon.com and Meta Platforms to dominate the fast-growing technology that generates text, images and other media in response to a short prompt.

At the same time, OpenAI needs Microsoft’s funding and cloud-computing power to crunch massive volumes of data and run the increasingly complex models that allow programs like DALL-E to generate realistic images based on a handful of words, and ChatGPT to create astonishingly human-like conversational text.

While Microsoft didn’t give details of the new investment, a person familiar with the discussions, who asked not to be identified because the information isn’t public, said it totals $10 billion over multiple years. The shares were up 1% at $242.71 at 10:39 a.m. in New York.

The deal will give a boost to Microsoft’s Azure cloud, while providing OpenAI with additional specially designed supercomputers to run its complex AI models and fuel its research. Microsoft plans to use OpenAI’s models throughout consumer and corporate products and release new categories of products based on OpenAI’s work, the two companies said in blog posts.

A ChatGPT prompt is shown on a device near a public school in Brooklyn, New York, Thursday, Jan. 5, 2023. New York City school officials started blocking this week the impressive but controversial writing tool that can generate paragraphs of human-like text. (AP Photo/Peter Morgan)

The Azure usage fueled by this deal is key for Microsoft as it battles to expand that business, said Bloomberg Intelligence analyst Anurag Rana. “This could even help Microsoft close the gap further with AWS,” he said, referring to Amazon’s market-leading cloud service.

OpenAI noted on Monday that it uses Microsoft’s cloud-based service Azure to train all of its models and that Microsoft’s investment will allow it to accelerate its independent research. Azure will remain the exclusive cloud provider for OpenAI, the company said.

As with Microsoft’s previous investment in OpenAI, much of the value of the deal will take the form of Microsoft giving OpenAI the Azure cloud-computing horsepower needed to run its AI systems, said two people familiar with the deal.

The deal has a complicated structure because investors in OpenAI are limited in the return on their investment since it is a capped-for profit company. Microsoft will get nearly half of OpenAI’s financial returns until its investment is repaid up to a predetermined cap, one of the people said. All profits beyond what is owed to investors and employees are returned to OpenAI, which is governed by the OpenAI non-profit organization.

Microsoft earlier this month said it planned to add ChatGPT to Azure and announced the broad availability of its Azure OpenAI Service, which has been an option to a limited set of customers since it was unveiled in 2021. The service gives Microsoft’s cloud customers access to various OpenAI tools like the GPT-3.5 language system that ChatGPT is based on, as well as the DALL-E model for generating images from text prompts. That enables Azure customers to use the OpenAI products in their own applications running in the cloud.

Microsoft itself is currently using the developer’s language AI to add automation to its Copilot programming tool, and wants to add such technology to its Bing search engine, Office productivity applications, Teams chat program and security software. The Redmond, Washington-based company is putting DALL-E into design software and offering it to Azure cloud customers.

Chief Executive Officer Satya Nadella is deepening Microsoft’s ties with OpenAI as Google, which has long been essentially untouchable in search, suddenly appears vulnerable. The Alphabet unit’s prevailing model of keyword queries uses search engines to comb the web for specific terms, and then lets users make their own decisions as to what information is useful. 

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By contrast, ChatGPT responds to questions about topics such as political science and computer programming with detailed explanations, and its question-and-answer format means users can drill down until they fully understand. The bot is capable of responding to queries in a natural and human-like manner, carrying on a conversation and answering follow-up questions, unlike the basic list of blue links that a Google search provides.

But ChatGPT has disadvantages compared with that old-school list of links. Unlike a search on Google or Bing, ChatGPT currently offers no context about where it sourced the information used to build its answers, and OpenAI acknowledges that the tool’s responses can be incorrect and shouldn’t be relied on as accurate.

At $10 billion the latest investment into OpenAI easily tops any of Microsoft’s investments to date, according to data compiled by Bloomberg, including the $5 billion it spent to buy AT&T stock in 1999 in exchange for access to new cable networks, and the $1 billion stake it took in Comcast in 1997.

The dollar amount would also top all but three acquisitions Microsoft has made in recent years. Microsoft is seeking antitrust approval for a $69 billion purchase of video-game maker Activision Blizzard, and in 2016 spent $26 billion to buy the professional networking site LinkedIn. Last year, Microsoft completed its $20 billion purchase of Nuance Communications Inc., an AI company specializing in voice recognition and related software and services in the health care field.

News of the investment comes less than a week after Microsoft said it’s laying off 10,000 workers as a weakening economy crimps software demand. Microsoft noted in that announcement that it will still invest and hire in key priority areas. The software maker reports fiscal second-quarter earnings on Tuesday.

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