Summarize this content to 2000 words in 6 paragraphs in Arabic In late November last year, as India faced Australia in the final of the Cricket World Cup, mega-fan Satya Nadella was distracted. He was dealing with a work crisis. Nadella, who runs $3tn software giant Microsoft, had learned just days earlier that Sam Altman, the chief executive of OpenAI, the start-up in which Microsoft has invested $13bn, had been fired by his board in a surprise coup for not being “consistently candid”.Caught unawares despite being OpenAI’s largest financial backer, Nadella moved quickly to fix the disruption. Once reassured Altman had not done anything egregious, he pushed first to hire and later reinstate the entrepreneur, in an attempt to restore stability at the start-up with which Microsoft’s future was now closely threaded.In all, it took Microsoft’s leadership 10 days of intense work to repair the fallout from the aborted coup. For Microsoft and its investors, the incident was a reminder of how central OpenAI had become to its strategy: the growth of artificial intelligence. Nadella’s decision to bet on the start-up in July 2019, long before its flagship product ChatGPT became a household name, had created one of the tech industry’s most successful partnerships.Not only did it give the software company a head start in the booming market for generative AI, but Microsoft’s share price has more than tripled since the initial $1bn investment five years ago, allowing it to compete with Apple for the title of world’s most valuable company and widen its advantage over arch-rival Google. Speaking in a Financial Times interview early last year, Nadella said Microsoft and OpenAI had developed a “mutual dependence”. But in the eight months since the board dispute, the tech giant has worked to execute an AI strategy independent of Altman’s start-up. It has diversified its investments and partnerships in generative AI, built its own smaller, cheaper models, and hired aggressively to develop its consumer AI efforts. In February, Microsoft announced a multiyear partnership and investment into French AI start-up Mistral; the following month it paid another peer Inflection — led by Google DeepMind co-founder Mustafa Suleyman — $650mn to license its technology and hire most of its talent; and then in April invested $1.5bn in Abu Dhabi AI group G42. That same month, it also announced it had built its own family of generative AI models known as Phi-3 — software that is smaller in size and complexity, and cheaper to run than so-called large language models such as OpenAI’s GPT-4. Microsoft has said its Phi-3 models are being used by the likes of BlackRock and Epic, and have outperformed GPT-3.5, an earlier version of OpenAI’s model, which ran its chatbot ChatGPT.As one of the most valuable companies in the world . . . you can’t have your eggs in one basketAs the company’s vast spending on AI continues — accounting for much of its $56bn in annual capex — investors and regulators are closely scrutinising the high-profile alliance with OpenAI, and Microsoft’s strategy to challenge Google on its home turf: search.“Before November, I didn’t think they had a diversification strategy. Satya is one of the smartest executives and leaders you can ever find in the ecosystem. If after the experience in November he is not thinking about diversification, I would be worried,” says Navrina Singh, chief executive of Credo AI, who worked on commercialising AI systems at Microsoft until 2019. “As one of the most valuable companies in the world . . . you can’t have your eggs in one basket. You can’t be blinded by innovation.” Microsoft’s efforts to expand its AI ecosystem have changed the terms of its relationship with OpenAI, and also exposed the flaws within it. “I think you can see some fractures of trust and once those fractures appear it’s very difficult to reduce or remove them,” Singh adds. A sales executive at Microsoft says it is just smart business. “The other partnerships are a safeguard, not just if OpenAI goes down but in case a new start-up comes up with something better,” the person says. “What happens if Mistral, Cohere or Microsoft bring out a better model, what does Sam have? Huge consumer reach, good researchers, but if the best model isn’t GPT4 then who cares?”Since its leadership crisis, OpenAI has replaced its board almost entirely, although its governance structures remain largely unchanged. Altman was reinstated as a director in March, following an independent review conducted by a law firm into the events, which concluded that his behaviour “did not mandate removal”. In the aftermath, Microsoft was first given, and then withdrew from, an observer seat on the board, amid growing scrutiny by antitrust regulators. But in recent months, OpenAI has been rocked by internal rows and high-profile resignations. This week, the company’s president, former board member and prominent co-founder Greg Brockman announced a leave of absence until the end of the year without explanation. Brockman was one of Altman’s fiercest supporters during the November coup, when he resigned from his role in protest, before rejoining days later. At the time, Nadella offered him a job at Microsoft, alongside Altman. In May, former chief scientist and co-founder Ilya Sutskever quit to found his own AI company, after playing a leading role in the failed attempt to oust Altman, for reasons he never elaborated on. The raft of departures mean that nine of the start-up’s 11 co-founders are currently not working there.Another recent exit, Jan Leike, who led OpenAI’s efforts to steer and control super-powerful AI tools and worked closely with Sutskever, said his differences with the company leadership had “reached a breaking point” as “safety culture and processes have taken a back seat to shiny products”. He and others have gone to work for rival Anthropic, which itself was founded by former OpenAI employees who broke with Altman and the rest of OpenAI’s leadership in 2021. According to former Microsoft employees, this is not the first time OpenAI has operated in a dysfunctional manner. Sophia Velastegui, former chief AI technology officer for business applications at Microsoft, says that even prior to ChatGPT, some of the product launches had not been communicated to Microsoft as expected. “OpenAI still operates like a start-up in many ways, so their tolerance for risk is higher than Microsoft’s.”Altman continues to have powerful supporters in Silicon Valley. LinkedIn co-founder and Microsoft board member Reid Hoffman describes Altman as a “hall of fame entrepreneur” who does not suffer from the same “messiah complex” as some other prominent founders.Still, recent departures and changes at OpenAI will leave the tech giant’s leadership more nervous about management maturity at the start-up, and provide a timely reminder that Microsoft cannot be overly dependent on any one third-party technology in the AI vertical. OpenAI still operates like a start-up in many ways, so their tolerance for risk is higher than Microsoft’s“Aligning expectations about how and when to communicate is a process when a disrupter like OpenAI joins forces with an established player like Microsoft,” says Velastegui. “At the end of the day, both companies are still learning how best to work together.”While investments in G42 and Mistral were not necessarily knee jerk responses to Altman’s ouster, those deals took on more significance as a way of reassuring nervous investors that the tech giant was spreading its bets.More controversially, the so-called “acqui-hire” of Inflection founder Suleyman and most of the start-up’s staff in March set Microsoft on a path to confrontation with its biggest AI partner. The combative former Google DeepMind executive, who left that company having developed a reputation as a bully, was put in charge of a new internal AI unit at Microsoft and tasked with building consumer-facing products that would compete with those from Altman’s OpenAI.According to multiple people in the tech industry, there are already tensions simmering between the ambitious pair. There will be more complications down the line. The US Federal Trade Commission is probing whether the Inflection deal was structured to circumvent antitrust laws, essentially gutting the smaller company of talent and software, while avoiding the formal scrutiny a full takeover would have brought. The FTC has also opened an investigation into the OpenAI partnership, resulting in Microsoft proactively dropping its board observer seat.Despite the scrutiny, the Inflection deal has become a model for other tech giants seeking talent. In June, Amazon hired most of the staff at AI-agent start-up Adept and paid $330mn to license its intellectual property. Last week, Google rehired the founder of chatbot maker Character.ai and paid more than $2bn to license its technology and cash out existing investors.The rash of buyouts underlines the trend of power flowing away from the start-ups like OpenAI, which kick-started the AI revolution, back to Big Tech gatekeepers, cementing the hold they’ve had on the sector for decades.“[OpenAI] remains a strong partner and we are pretty confident they have solved their internal issues,” says Eric Boyd, corporate vice-president of Microsoft’s Azure AI cloud computing platform, who manages the relationship with OpenAI. “At least to me, there has not been a particular strategic shift as a result of what happened.”Brad Lightcap, OpenAI’s chief operating officer, says: “While we have evolved from a small start-up to a company serving the world’s largest companies, Microsoft remains an important partner.” Its funds and infrastructure have helped “enable OpenAI to innovate and deliver groundbreaking research and products,” he adds.But as Altman’s vaulting ambitions grow — from plans to build trillion-dollar Middle Eastern-financed chip factories to AI-centric smartphones with Japan’s SoftBank — the two companies find themselves increasingly in competition. In June, Apple said it would integrate ChatGPT into its operating systems, giving the start-up access to its 2.2bn active devices around the world. Notably, ChatGPT has not been integrated into Windows in the same fashion. OpenAI is hiring rapidly for a sales team to pitch their products to commercial clients directly, going after the companies that Microsoft wants for its Azure platform with the same underlying technology that powers its workplace AI assistant, Copilot.Boyd insisted that although the two companies collaborated on creating models, “we go to market and approach customers completely independently . . . If customers ask us what the difference is in the offerings, we tend to point to the ways that we show up as a company — OpenAI is a start-up and we’ve been around for decades.” He suggests that, as a start-up, OpenAI has fewer checks and balances than its established partner. “We have a long history of working with enterprises, handling sensitive data . . . We know how to do privacy and compliance.” Ultimately, though, even if Microsoft loses a pitch to OpenAI, it still wins — although the reverse is not true. Azure is OpenAI’s exclusive cloud provider and will be paid for whatever computing power it uses, Boyd says. Microsoft is also agnostic about which AI models are used, so long as they are accessed through its cloud.“We have over 1,600 models available through Azure AI . . . the main thing we want is people to be building and using them on Azure,” he says.Microsoft has been keen to play up the burgeoning rivalry with its partner in light of escalating antitrust scrutiny. In its 2024 annual report, OpenAI was added to its list of direct competitors in AI, search and advertising. It also flagged that it has “limited ability to control or influence third parties with whom we have arrangements, which may impact our ability to realise the anticipated benefits”.The difference in strategy between Microsoft and Google is stark. The search giant is attempting to build a “full stack” of AI in-house, from LLMs and consumer-facing chatbots to hardware such as chips and servers in its cloud business.The deal with OpenAI means that “Microsoft has decided to outsource their AI R&D,” says one Google executive, who asked to remain anonymous. “We are being more cautious.”He compares the current moment in AI to a scene in Shakespeare’s play Macbeth when a character asks a trio of witches to “look into the seeds of time” to determine which will grow. “AI feels like asking those witches [to predict the future]. We’ve seen 100,000 seeds planted and we don’t yet know which will grow.”Investors are starting to question the heavy spending on AI by Big Tech, which reached a combined $106bn in the first six months of 2024. After a historic bull run, the tech-dominated Nasdaq has fallen 13 per cent from its mid-July record peak, helping spark a wider market rout.Microsoft reported that capex had jumped 80 per cent in the fourth quarter and it had spent $56bn in its financial year 2024 — about half on infrastructure such as data centres and land, with the remainder on chips and server capacity. Ben Reitzes, an analyst at Melius Research, says executives’ comments “imply an aggregate figure of at least $80bn for 2025”. Some of this spending is driving the ambitions of OpenAI: “We have also increased our investments in the development and deployment of specialised supercomputing systems to accelerate OpenAI’s research,” Microsoft said in its annual report.Still, analysts were impressed by early tangible evidence of a translation of investment into earnings. Chief financial officer Amy Hood predicted a strong ramp up in AI-related profits in the second half of next year and Nadella said Azure AI now had 60,000 customers, up more than 60 per cent from a year ago.“Microsoft continues to be the clear beneficiary from Generative AI initiatives, with 46 per cent of chief investment officers citing Microsoft as gaining the largest share of IT spending over the next one and three years,” says Morgan Stanley analyst Keith Weiss, referring to a survey the investment bank conducted. “The number two vendor, Amazon, was cited by just 6 per cent.”Even as the OpenAI drama was ongoing, Nadella cast himself as the dominant partner in the relationship.“We were very confident in our own ability. If tomorrow OpenAI disappeared, I don’t want any customer of ours to be worried about it,” he said in a November interview. “We have all of the [IP] rights to continue the innovation . . . We have the people, we have the compute, we have the data, we have everything.” Additional reporting by George Hammond and Camilla Hodgson
