Microsoft CEO Satya Nadella is mulling the biggest startup investment in the company’s history, hoping to put the software giant ahead of Google in a similar race to integrate advanced artificial intelligence tools into search engines and apps. chatGPT, which amazingly generates human-like conversational text based on prompts or queries, has been a hit since it was launched in late November last year, it has created an Internet sensation, amassing its first 1 million users in less than a week.
Its ability to mimic the speech and writing of real people has sparked fears that it could replace professional writers, as well as do homework for students. The tool is also seen as a potential threat to Google’s core search business.
Redmond, Washington-based Microsoft has partnered with OpenAI before, investing $1 billion in the startup in 2019. The company is currently using OpenAI’s linguistic AI technology to add automation to subsidiary GitHub’s Copilot programming tool and is preparing to apply the technology to its Bing search engine, Office productivity applications, Teams collaboration programs and security software. The software developer will also integrate DALL-E, another of OpenAI’s web-based applications and an image creation tool, into its design software.
As Nadella seeks to strengthen its partnership with OpenAI, Google’s long-standing position of being virtually unrivaled in search suddenly becomes organic. Google’s usual keyword query model uses the search engine to search the Web for specific terms and then lets users determine for themselves which information is useful.
In contrast, ChatGPT gives detailed explanations in response to questions about things like political science and computer programming, and its question-and-answer format means users can drill down until they fully understand. The bot can answer queries, carry on a conversation and answer follow-up questions in a natural and human way, as opposed to the basic list of blue links provided by Google Search.
ChatGPT also has shortcomings. Unlike Google Search or Microsoft’s own Bing Search, ChatGPT does not currently provide context for the sources of information used to construct answers, and OpenAI acknowledges that the answers given by the tool may be incorrect and should not be considered accurate and trustworthy.
The $10 billion investment in OpenAI would easily surpass any investment Microsoft has made to date, including a $5 billion stake in AT&T Inc. in 1999 in exchange for a place in the new set-top box market and a $1 billion investment in Comcast in 1997, according to data compiled by the blog.
This amount will also exceed the amount of almost all of Microsoft’s acquisition transactions in recent years, with the exception of three. Microsoft’s $69 billion deal to buy video game developer Activision Blizzard is now in the antitrust approval process, and in 2016, Microsoft spent $26 billion to acquire the workplace-oriented social platform Link. Last year, Microsoft completed a $20 billion deal to acquire Nuance Communications Inc. an artificial intelligence technology company focused on voice recognition and related software and services in healthcare.
With more than $100 billion in cash and cash equivalents on its balance sheet, Microsoft will have no problem buying OpenAI. Recent investment talks have reportedly valued the startup at $29 billion, but it’s unclear if OpenAI has considered selling the company as a whole.
Microsoft may join venture capital firms such as Thrive capital and Founders Fund in investing in ChatGPT, and the two venture capital firms are discussing investment intentions that include spending $300 million to acquire shares from OpenAI’s existing shareholders.
According to news platform Semafor, under the discussed deal proposal, Microsoft would receive a 75 percent share of OpenAI’s profits until it recoups its investment, after which Microsoft would receive a 49 percent stake in OpenAI. semafor said it was unclear whether the deal had been reached, but said documents sent to potential investors in recent weeks describing the terms of the deal showed that it was originally scheduled to close by the end of 2022.
Microsoft itself has been practicing artificial intelligence projects for dozens of consecutive years and has made significant progress in areas such as voice and image recognition. The company last week released an artificial intelligence model that can simulate a user’s voice using brief audio samples. But it’s OpenAI’s large models for generating language and images that have set the agenda for the artificial intelligence field in recent years.
The increased stake will put Microsoft in a good position to develop OpenAI’s technology on the Azure cloud platform, one of Microsoft’s fastest-growing businesses and a priority for it. It would also prevent competitors such as Amazon Web Services and Google from gaining access to OpenAI’s offerings.
Microsoft’s search engine Bing has a small share of the global search engine market, and the integration of ChatGPT into Bing and the new deal with OpenAI may help Microsoft weaken Google’s dominance in the market by offering more advanced search capabilities. Microsoft is also discussing incorporating the technology into its Outlook email and Word document processing platforms, according to technology media outlet The Information.
While the hype associated with ChatGPT revolves around the prospect of the possible demise of human writers and the risk of schoolchildren cheating with it, Microsoft’s tool is geared toward businesses to help automate programming, writing and generating images.
“A potential $10 billion investment in OpenAI could strengthen Microsoft’s major product lines such as Office, Bing, Link and GitHub,” said Anurag Rana, an analyst with Bloomberg Industry Research, “although most of these categories have begun to embed enhanced artificial intelligence, the success of ChatGPT products could improve productivity; for example, by recommending the best sales leads to Linking users, or by enhancing Bing’s search capabilities.”
Microsoft has said it will integrate Dall-E into its design applications and make it available to OpenAI Select Cloud customers on Azure. For example, Mattel Inc. is currently using Dall-E with the Azure cloud platform to generate images of toy cars that the company might want to design.
Microsoft executives have said that the company has made plans to develop Copilot technology and will use it among similar programs in other areas of work such as office, video game design, architectural design and computer security.