Microsoft’s Hedge Against OpenAI Makes Perfect Sense

When Microsoft Corp. invested more than $10 billion for a chunk of OpenAI, scientists inside its storied research division were rankled about being shoved aside for a newer player from outside the company. Microsoft Research was more than 30 years old and stuffed with esteemed scientists who’d won Turing Awards and Fields Medals, and here was Chief Executive Officer Satya Nadella last summer berating them for falling behind Alphabet Inc.’s Google on AI research. But Nadella wasn’t switching his focus from one research team to another. He was doing what he does best: branching out.

It appears that Nadella was already working on a strategic hedge against OpenAI, building its own large language model technology. Microsoft Chief Technology Officer Kevin Scott confirmed in a LinkedIn post that the company was working on an AI model called MAI-1, which, according to an earlier report in The Information, would be large enough to “compete” with OpenAI.

That same fear of missing out is what fueled Microsoft’s first investment in OpenAI in the first place. In June of 2019, Scott warned Nadella about the advancements OpenAI was making, according to emails released from the US Justice Department’s antitrust investigation into Google. Scott admitted to being highly dismissive of the company’s work at first, before realizing both Google and OpenAI could now process human language in ways that “we couldn’t easily replicate.” As he looked closer at the gap between Microsoft and the frontrunners, "I got very, very worried,” Scott added.

Nadella then looped in Microsoft’s chief financial officer, Amy Hood, to the email chain. “[This is] why I want to do this,” he said, referring to what would become Microsoft’s initial $1 billion investment in OpenAI the following month.