The News
In the land grab around artificial intelligence, big technology companies are relying on old playbooks to cement and enhance their lead, which could draw greater scrutiny from Washington and Brussels.
On Monday, Bloomberg reported that Apple and Google are in talks about installing Google’s AI models on iPhones. A similar arrangement for Google search is part of a Justice Department antitrust lawsuit against Sundar Pichai’s company.
On Tuesday, Microsoft announced it was hiring Inflection AI co-founder and CEO Mustafa Suleyman and most of the company’s staff. The software giant will now offer Inflection AI models to its cloud customers and Suleyman will spearhead consumer AI products like Microsoft Copilot.
Inflection, which took a sizable investment from Microsoft, had been one of the few independent foundation model providers.
The European Commission has said it is probing Microsoft’s investment in OpenAI as a possible merger in disguise. That came after Microsoft offered to hire the entire OpenAI staff following CEO Sam Altman’s sudden firing late last year but the effort was dropped after he returned to the company.
Now, Microsoft-backed Inflection has defected to the company.
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Reed’s view
AI empires have been busy this week. Microsoft’s move to simply absorb a $4 billion AI company was an incredible display of power and underscores how effective CEO Satya Nadella has been in the AI era.
Meanwhile, an Apple deal with Google would change the competitive dynamics in the AI industry in Google’s favor and could rescue Apple, which appears to have fallen behind on the technology, from the AI abyss.
There are two ways of looking at these big news stories this week. One is that the tech giants are flexing their muscles and will continue to dominate the AI era.
Only companies with massive war chests can afford to train foundation models, the most powerful AI tools that do everything from generate text to images to video.
With a first-mover advantage, foundation model providers have already gained invaluable data and know-how, propelling them far ahead and crowding out startups and competitors.
Another way of looking at this is that a massive wave of disruption is coming and the big tech companies are playing the same game in a world that’s about to be vastly different.
The original Apple-Google search deal was hashed out during secretive dinners between Apple CEO Tim Cook and Pichai, like two feudal lords trading tracts of land.
Even the creation of Inflection, a startup based on cutting edge technology, followed the familiar Silicon Valley tradition of “no conflict, no interest.”
Microsoft was the biggest investor in Inflection, which raised over $1 billion from people like Microsoft co-founder Bill Gates. Reid Hoffman, Inflection’s co-founder, is on Microsoft’s board. Inflection’s new CEO, Sean White, is a longtime friend of Hoffman’s and has worked at Hoffman’s venture firm, Greylock.
These companies know how to win today. They may not be set up for victory tomorrow.
At a high level, here’s how the five tech giants see the AI world:
Microsoft believes its operating system and Office suite of tools will become supercharged with AI Copilots. At the same time, its cloud business will thrive in part because of its exclusive arrangement with OpenAI, the leading foundation model provider.
Google thinks it can keep selling search ads the same way it always has and use its dominant position to keep the lead in the generative AI race. And it also hopes to benefit by offering AI services in the cloud.
Meta’s bet is that the value of AI is not in the models themselves, but somewhere else in the ecosystem that AI will enable. It has decided to use its trove of data and infrastructure capabilities to create powerful foundation models and make them free, undercutting competitors and instantly making it a central player in the space.
Amazon is looking to the large and powerful AI models other companies invent that will require massive compute, helping the e-commerce giant make a fortune by charging businesses to train and run AI models on its Amazon Web Services platform.
And Apple, hindered in its AI capabilities because of its consumer privacy approach, is hoping that it can somehow catch up in the AI game without compromising its values. Perhaps it can shrink these powerful AI models down so they can run efficiently on smartphones, or outsource it to Google.
In the long run, the real risk is that the technology is too capable. Who needs a search engine when powerful AI agents can tell you everything you need to know? And it doesn’t really matter which device or operating system I’m using when it’s all being filtered through a virtual assistant. If these models eventually run locally, the AI future may be decentralized, diminishing the role of the cloud.
This is all a very long way off, but if you’ve read The Coming Wave, Suleyman’s book on AI, you know there are drastic, disruptive changes on the horizon.
Room for Disagreement
Aaron Holmes in The Information argued that the move to hire Suleyman and much of Inflection was really about diversification from OpenAI: “As we’ve written, Microsoft’s own teams weren’t able to develop cutting-edge AI as quickly as OpenAI, which is one reason why most of the generative AI models that Microsoft has been using come from OpenAI. The appointment of Suleyman, and Microsoft’s hiring of most of Inflection’s 70 employees, is the latest sign that Microsoft is diversifying from OpenAI — up to a point.”
Notable
- Despite being hollowed out, investors might be able to recoup their investments by collecting payouts from Microsoft’s agreement to license Inflection’s AI models. The Information has more details here.