← BG2Pod with Brad Gerstner and Bill Gurley 
BG2Pod with Brad Gerstner and Bill Gurley
Satya Nadella | BG2 w/ Bill Gurley & Brad Gerstner
01:24:41
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- [00:00]
Satya Nadella
I think the company of this generation has already been created which is OpenAI in some sense. It's kind of like the Google or the Microsoft or the Meta of this era.
- [00:25]
Brad Smith
Well, it's great to be with you. You know, when Bill and I were talking, Satya, and looking back at your tenure as CEO, it was really quite astonishing. You know, you started at Microsoft in 1992, for those who may not know. You took over online in 2007, you launched Bing Search in 2009, you took over servers and launched Azure in 2011 and you became CEO in 2014. And it was just before that that a pretty now well known essay entitled the Irrelevance of Microsoft had just been published. Now since then you've taken Azure from 1 billion to 66 billion run rate. The total revenues of the business are up 2 1/2x. The total earnings are up over 3x and the share price is up almost 10x. You've added almost $3 trillion of value to Microsoft shareholders. And as you reflect back on that over the course of last decade, what's the single greatest change that you thought you could do then to unlock the value to change the course of Microsoft, which has been just an extraordinary success?
- [01:43]
Satya Nadella
Yeah, so the way I've always thought, Brad, about sort of that entire period of time is some sense from 92 to now. It's just one continuous sort of period for me. Although obviously 2014 was a big event with the accountability that goes with it. But what I felt was essentially pattern match when we were successful and when we were not and do more of the former and less of the latter. I mean, in some sense it's as simple as that because I've sort of lived through. When I joined in 92, that was just after Windows 3.1 was launched. I think Windows 3.1 was, you know, May of 92 and I joined in November of 92. In fact I was working at sun and I was thinking of going to business school and I got an offer at Microsoft and I said maybe I'll go to business school. And then I somehow or the other, the boss who was hiring me convinced me to just come to Microsoft and it was like the best decision because the thing that convinced me was the PDC of 91 in Moscone Center. When I went and saw the basically Windows nt, it was not called Windows NT at that time and x86 and I said, God, this, you know, what's happening in the client will happen on the server. And this is a platform company and a Partner company and they're going to ride the wave. And so that was sort of the calculus then. Then of course, the web happened. We managed that transition. We got a lot of things right. Like, for example, I mean, we recognized the browser, we competed and got that browser thing eventually. Right. We missed search. Right. We sort of felt like, wow, the big thing there was the browser because it felt more like an operating system. But we didn't understand the new category, which is the organizing layer of the Internet happened to be searched. Then we kind of were there in mobile, but we really didn't get it right. Obviously the iPhone happened and we got the cloud right. So if I look at it and then here we are on the fourth one on AI in all of those cases, I think doing things which are not coming out of because somebody else got it and we just need to do the same. Sometimes it's okay to fast follow and it worked out, but you shouldn't do things out of envy. That was one of the hardest lessons I think we've learned. Do it because you have permission to do this and you can do it better. Like, both of those matter to me, the brand permission. Like, you know, Geoffrey Moore once said this to me, which I say, hey, why don't you go do things which your customers expect you to do? I love that. Right? Which is cloud was one such thing, which is the customer. You know, in fact, when I first remember showing up in Azure, people would tell me, oh, it's a winner take all, it's over and Amazon's won it all. I never believed it because after all, I'd compete against Oracle and IBM in the servers. And I always felt like, look, it's just never going to be winner take all when it comes to infrastructure. And all you need to do is just get into the game with a value proposition. So in some sense, a lot of these transitions for me has been about making sure you kind of recognize your structural position. You really get a good understanding of where you have permission from those partners and customers who want you to win and go do those obvious things first. And I think you could call it, hey, that's the basics of strategy. But that's sort of what I feel, I think at least has been key. And there are things that cultivate it to your point, Brad, which is there's the sense of purpose and mission, the culture that you need to have. All those are the most, I would say those are the necessary conditions to even have a real chance for shots on goal. But I would just say getting that Strategy. Right. By recognizing your structural position and permission is probably what I have hopefully done a reasonable job on Satya.
- [06:21]
Bill Gates
Before we move on to AI, I have a couple questions about the transition and, and just echoing what Brad said, I mean, I think that it's definitive that you may be the best CEO hire of all time. I mean, 3 trillion is unmatched. So one I read an article that suggested and maybe this isn't true. So you tell us that you wrote a 10 page memo to the committee that was choosing the CEO. Is that true and what was in the memoir?
- [06:53]
Satya Nadella
Yeah, it is true. Yeah. Because I think our CEO process was pretty open out there. And at that time, quite frankly, it was definitely not obvious to me that one in the beginning, remember, I never thought that first Bill would leave and then second Steve would leave. Right. It's not like you join Microsoft and think, oh yeah, you know, founders are going to retire and there's going to be a job opening and you can apply for it. I mean that was not the mental model growing up at Microsoft. So when Steve decided to retire, I forget now, I think In August of 2013 it was a pretty big shock. And at that time I was running our server and tools business, as it was called, in which Azure was housed and so on, and I was having a lot of fun and I didn't even put up my hand first saying, oh, I want to be CEO, because it was not even like a thing that I was thinking that'll happen. And then eventually and the board came around and asked and there were a lot of other candidates at that time, even internally at Microsoft. And so at some point in that process they asked us to write. And quite frankly, it's fascinating that memo, everything I said in it, one of the terms I used in that memo, which I subsequently used even in the first piece of email I sent out to the company had ambient intelligence and ubiquitous computing. And I dumbed it down to mobile first cloud first layer because my PR folks came and said, what the heck is this? Nobody will understand what ambient computing is and ubiquitous or other ambient intelligence and ubiquitous computer. But that was the mobile first cloud first. How do you really go where the secular shift is? Then understanding our structural position, thinking about Microsoft cloud, what are the assets we have? Why is M365? In fact, one of the things I always resist it is thinking of our cloud, the way the market segments it. Right, the market segments that. Oh, here is iaas. Even Brad, the way he described Azure to me, I don't allocate My capital thinking, here is the Azure capital, here is the M365 capital, here is gaming. I kind of think of, hey, there's a cloud infra. That's the core theory of the firm for me. On top of it, I have a set of workloads. One of those workloads happens to be Azure. The other one is M365 Dynamic Gaming, what have you. And so in some sense that was all in that memo and pretty much has played out. And one of the assumptions at that time was that this, you know, we had a 98%, 99% gross margin business in our servers and clients and people said, oh, you know, good news, you now can move to the cloud and maybe you'll have some margin. And so that was the transition. And my gut was it is going to be less gm, but the TAM is bigger. We'll sell more to small businesses. We will sell more in aggregate in terms of even upsell, like the consumption would increase. Right. Because we had sold a bit of exchange. But if you think about it, Exchange, SharePoint teams now everything expanded. So that was the basic arc that I had in that memo.
- [10:17]
Bill Gates
Was there any element of cultural shift? I mean, the number of CEO hire. There's CEO hires made in the world all the time and many of them fail. I mean, Intel's going through a second reboot here as we speak. And as Brad pointed out, there were people that are arguing, oh, Microsoft's the next IBM or deck, that it's better days are over. So what did you do and what would you advise new CEOs that come on to kind of reboot the culture and get it moving in a different direction?
- [10:48]
Satya Nadella
Yeah. One of the advantages I think I had was I was a consummate insider, Right. I mean, having grown up pretty much all my professional career at Microsoft. And so in some sense, if I would even criticize our culture, it was criticizing myself. So in an interest, the break I got was it never felt like somebody from the outside coming and criticizing the inside folks who are here versus it's about mostly pointing the finger right back at me because I was pretty much part of the culture, right. I couldn't say anything that I was not part of. And so I felt like. To your point, Bill, I distinctly remember, I think the first time Microsoft became the largest market cap company. I remember walking around the campus, all of us, including me, we were all strutting around as if we were like, you know, the best thing to humankind. Right. And it is all our brilliance that's finally reflected in the market cap. And somehow it stuck with me that, God, that is the culture that you want to avoid, right? Because as I always say, from sort of ancient, sort of Greece to modern Silicon Valley, there's only one thing that brings civilizations, countries and companies down, which is hubris. And so one of the greatest breaks is my wife had introduced me to a book by Carol Dweck, you know, a few years before I became CEO, which I read on Growth mindset, more in the context of my children's education and parenting and what have you. And I said, God, this thing is like the best. You know, all of us are always talking about learning and learning cultures and so on, and this was the best cultural meme we could have ever picked. So I attribute a lot of our success culturally to that meme because we. It is not the other thing. Nice thing about that, Bill, was it is not trademarked Microsoft or it's not some new dogma from a CEO. It's a thing that speaks to work in life. You can be a better parent, a better partner, a better friend, a neighbor, and a manager and a leader. So we picked that. And the pithy way I've always characterized it is, hey, go from being the know it alls to learn it alls. And it's a destination you never reach. Because the day you say I have a growth mindset means you don't have a growth mindset by definition. And so it has been very, very helpful for us. And, you know, it's like all cultural change, you gotta give it time, oxygen, breathing space. And it's both top down and bottom up. And it middles out, right? Which is there's not a single meeting that I do with the company or even my executive staff or what have you, where I don' with mission Culture. Those are the two bookends. And I've been very like. The other thing is, I've been super disciplined on my framework. To your point about that memo, pretty much for the last now close to 11 years. The ARC is the same Mission culture. It's the worldview, right? That ambient intelligence, ubiquitous computing, and then the specific set of products, strategies that frame. I pick and choose every word. I'm very, very deliberate about it. I repeat it until I'm bored stiff, but I just stay on it.
- [14:20]
Brad Smith
Well, speaking of that, you mentioned the phase shifts that we've been through. And I've heard you say that as a large platform company, most of the value capture. Right. Is determined in that first three or four years of the phase Shift when the market position is established. Satya, you know, I've heard you say you basically, you know, Microsoft was coming off of having missed search, having largely missed mobile, and I've heard you say caught the last train out of town on cloud. Right. So as you started thinking about the next big phase shift, it appears that you and others in the team, Kevin Scott, sniffed out pretty early that Google was likely ahead in AI. With DeepMind, you make the decision to invest in OpenAI. What convinced you of this direction, right. Versus the internal AI research efforts that you had underway?
- [15:20]
Satya Nadella
Yeah, it's a great point because there are a couple of things there, right. One is we were at it on AI for a long, long time. Obviously when Bill started MSR in 1995, I think the first group, I mean, he was always into this natural user interface. I think the first group was Speech. Rick Rashid came, there was, in fact Kaifu worked here. And we had a lot of, I would say, focus on trying to crack natural user interface. Language was always something that we cared about. Right. In fact, even Hinton worked. Like some of the early work in DNNs happened when he was in residency in MSR and then Google hired him. So we missed, I would say, even in the early 2010s, some of what could have been doubling down at around the same time that Google doubled down and bought even DeepMind. Right. And so that actually bothered me quite a bit. But I always wanted to focus. Like for example, Skype Translate was one of the first things I focused on because that was a pretty cool. Like that was the first time you could see transfer learning work, right? Which is you could train it on one language pair and it got better on another language. That was the first place where we could say, wow, machine translation is also a dnn. Slightly different. And so ever since I've been obsessed with language along with Kevin, in fact, the first time, actually Elon and Sam, they were looking for obviously Azure credits and what have you. And we gave them some credits and that time they were more into RL and, and Dota 2 and what have you. And that was interesting. And then we stopped for. I forget even exactly what happened. And then they, I think went to GCP and then they came back to talk about sort of what they wanted to do with language. That was the moment, right, which they talked about Transformers and natural language. And because I always felt like, look, if they. Because that's to me, our core business. And it goes back a little bit to how I think, which is what's our Structural position. I knew always that if there was a way to have a nonlinear breakthrough in terms of some model architecture that sort of exhibited, you know, like one of the things that Bill, you know, you'd always say throughout my career here was there's only one category in digital, it's called information management. The way he thought about it was you schematize the world, right? Take people, places, things, you know, just build a schema, right? We went down many way. You know, there was this, this very infamous project called WinFS at Microsoft which was all about schematize everything and then you'll make sense of all information. And this was. It's just impossible to do. And so therefore you needed some breakthrough. And we said maybe the way to do that is how we schematize. After all, the human brain does it through language and in a monologue and reasoning. And so therefore. Anyway, so that's what led me to OpenAI and quite frankly, the ambition that Sam and Greg and team had. And that was the other thing, right? Scaling laws. In fact, I think the first memo, weirdly enough I read on scaling was written by Dario when He was at OpenAI and Ilya. And that's sort of what, like I said, let's take a bet on this, right? Which is, hey, wow, if this is going to have exponential performance, why not go all in and give it a real shot? And then of course, once we started seeing it work on GitHub, Copilot and so on, then it was pretty easy to double down. But that was the intuition.
- [19:19]
Bill Gates
One of the things that has happened, I think in previous phase shifts is some of the incumbents don't get on board fast enough. You even talked about Microsoft, perhaps missing Mobile or Search or that kind of thing. I could argue, especially since I'm old and I've seen these shifts that everyone's awake on this one, or it has. It's the most awake, like it's heavily choreographed. Everyone's maybe at the starting line at almost the same time. I'm curious if you agree with that and how you think about the key players in the race. You know, Google, Amazon, Meta with Llama Elon is entered the game.
- [20:02]
Satya Nadella
Yeah, it's an interesting one. To your point about. I always think about it, right? If you sort of say, take the late 90s, there was Microsoft and there was Daylight and then there was the rest. Interestingly enough now, you know, people talk about the Mag 7. There is probably more than that, even to your point about everybody's awake to it. They all have amazing balance sheets. There are even, I think I'll call it. If you think about OpenAI in some sense you could say it's Mag8, because I think the company of this generation has already been created which is OpenAI in some sense. It's kind of like the Google or the Microsoft or the Meta of this era. And so there are a couple of things. So therefore I think it's going to be very competitive. I also think that I don't think it's going to be winner take all because there may be some categories that may be winner take all. For example, on the hyperscale side. Absolutely not, right? I mean the world will demand even ex China, multiple providers of frontier models distributed all over the world. In fact, one of the best structural positions that I think Microsoft has is because if you remember, the Azure structure is slightly different, right? We built out Azure for enterprise workloads with lot of data residency with lots. We have 60 plus regions, more regions than others. So we didn't. It was not like we built our cloud for one big app. We built cloud for a lot of heterogeneous enterprise workloads, which I think in the long run is where all the inference demand will be with Nexus to data and the app server and what have you. So I think there is going to be multiple winners at the infrastructure layer. There is going to be in the models, even there, just the model and the app servers that each hyperscaler will have a bunch of models and there will be an app server around like every app today, even including Copilot is just a multimodal app. And so there's in fact a complete new app server like everyone. Like there was a mobile app server, there was a web app server and guess what, there's an AI app server now and for us that's foundry and we're building one and others will build, there'll be multiple of those then in apps I think there will be more. I would say network effects is always going to be at the software layer, right? So at the app layer there'll be different network effects in consumer, in the enterprise and what have you. And so to your fundamental point, I think you have to analyze it structurally by layer and there is going to be fierce competition between the 7, 8, 9, 10 of us at different layers of the stack. And as I always say to our team, which is watch for the one who comes in, you know, adds to it, right? That's the game you're all in, where you're always looking at who is the new entrepreneur will come out of the blue. And at least I would say OpenAI is one such company, which at this point has this cap velocity.
- [23:22]
Brad Smith
Yeah. Which, you know, if we think about, you know, the app layer for a second, start with consumer AI a little bit here. Satya. You know, Bing's a very large business. You and I've discussed 10 blue links was maybe the best business model in the history of capitalism, but it's massively threatened by a new modality where consumers just want answers. Right. For example, my kids, they're like, why would I go to a search engine when I can just get answers? So do you think, you know, first, can Google and Bing continue to grow the legacy search businesses in the age of answers? And then what does, you know, what does Bing need to do or your consumer efforts under Mustafa need to do in order to, you know, compete with ChatGPT, which really looks like, you know, it's broken out from a consumer perspective.
- [24:15]
Satya Nadella
Yeah. I mean, I think the first thing is what you said last, which is chat meets answers, and that's ChatGPT, both the brand, the product and it's becoming stateful, Right. I mean, like, ChatGPT now is not just, you know, in fact, search was a stateless. You know, there was search history, but I think more so these agents will be a lot more stateful. So in fact. So that's why I was so thrilled. Like, I've been trying to get an Apple Search deal for like 10 years. And so when Tim finally did a deal with Sam, I was like the most thrilled person. Which is better. It's better to have ChatGPT get that deal than anybody else as far, because we have that commercial and investor relationship with OpenAI. So to that point, the way I look at it and say is at the same time, distribution matters, right? I mean, this is where Google has an enormous advantage, right? They have the distribution on Apple, they're the default. They are obviously the default on Android. They touch. So therefore, I think. And the habits don't go away, right? I mean, the number of times you just go to the browser URL and just type in your query, right? I mean, even dao, even though I want to go to Copilot, I mean, my usage is mostly copilot. And, like, if I have to think about Bing versus Copilot, it's kind of interesting, right? Some of the navigational stuff, I go to Bing. Pretty much everything else, I go to Copilot. Right. That shift, I think, is what's happening universally. And we are away Maybe one or two of these agents for shopping or travel away from even some of the commercial queries. That's the time when the dam breaks, I think, on traditional search, when some of the commercial intent also migrates into the chat. Right now, mostly the business has withstood because the commercial intent has not migrated. But once commercial intent migrates, that's when it suddenly moves. And so I think, yes, this is a secular shift. The way we are managing it is we have three properties in Mustafa's world, right? There is Bing, MSN and Copilot. So we think, in fact he's got a crisp vision of what these three things, they're all sort of one ecosystem. One is a feed, one is search in the traditional way, and then the other is this new agent interface. And they all have a social contract with content providers. We need to drive traffic, we need to have paywalls, maybe we need to have ads supported models, all of those. And so that's what we're trying to manage. We have our own distribution. The one advantage we do still have is Windows. We get to relitigate. We lost the browser, right? Even Chrome became the dominant browser, which is a real travesty because we had won against Netscape only to lose to go. And we are getting it back now in an interesting way, both with Edge and with Copilot. Guess what? Now even Gemini has to earn like the good news about Windows for at least is it's the open system, right? ChatGPT has a shot. Gemini has a shot. You don't have to call Microsoft. You can go do your best work and go over the top. But that also means we also get to having lost. It is great sometimes because you can win it all back. And so to me, even Windows distribution, I mean, I always say Google makes more money on Windows than all of Microsoft. I mean literally. And I say, wow, this is the best news for Microsoft shareholders that we lost so badly that we can now go contest it and win back some share.
- [28:04]
Bill Gates
Hey, Satya, one thing, everybody's talking about these agents. And if you just kind of think forward in your mind a bit, you can imagine and all kind of players wanting to enact action on other apps and other data that may be on a system. And Microsoft's in an interesting position because you control the Windows ecosystem, but you have apps on like the iPhone ecosystem or the Android ecosystem. And how do you think about, and this is partially a terms of service question, partially a part partnership question. Will Apple allow Microsoft to control other apps on iOS? Will Microsoft let ChatGPT instantiate apps and take data from apps on Windows OS. I mean, you get the question. It goes all the way to when you start thinking about search and commerce, like will booking.com let Jim and I run transactions on it without their permission or knowledge?
- [29:10]
Satya Nadella
Yeah, I think that this is the most interesting question, right? I mean, to some degree it's unclear exactly how this will happen. There is a slight, very old school way of thinking about some of this, which is if you remember, how did business applications of various kinds manage to do interop? Right? They did manage, you know, manage that interop using connectors and people had connector licenses. So there was a business model that emerged, right? I mean SAP was one of the most classic ones where, you know, you could say, hey, you can access SAP data as long as you had connectors. So there's a part of me which says something like that will emerge as when agent to agent interface occurs. It's unclear exactly what happens in consumer because consumer, the value exchange was a lot of advertising and traffic and what have you. Some of those things go away in an agentic world. So I think the business model is slightly unclear to me on the consumer side. But on the enterprise side I think what will happen is everybody will say, hey, in order for you to either action into my action space or to get data out of my sort of schema, so to speak, there is some kind of an interface to my agent that is licensed, so to speak. And I think that that's a reason like today for example, when I go to Copilot at Microsoft, I have connectors into Adobe into my instance of SAP, obviously our instance of CRM, which is Dynamics. So it's fascinating. In fact, when was the last time any of us really went to a business application, right? We license all these SaaS applications, we hardly use them and somebody in the org is sort of inputting data into it. But in the AI age, the intensity goes up because all that data now is easy, right? Your query away. I can literally say, hey, I'm meeting with Bill. Tell me about all the companies that benchmarks invested in. It's both taking the web, anything that's in my CRM database, collating it all together, giving me a note, what have you. So to some degree, all that I think can be monetized by us and by even these connectors, but more explicitly.
- [31:35]
Bill Gates
Like the thing that could happen really quickly because there's been talk about it like would you allow ChatGPT on the windows OS to just start opening random.
- [31:46]
Satya Nadella
Apps and take now that's an interesting one. Right, so that over the top computer use, who is going to permit that? Right. So which is, Is it the user or is it the operating system like on Windows? There is quite frankly not anything I can do to prevent that other than some security guardrails. Right. So I could sort of definitely like. Because I think if they became a security, like one of my big fears is the security risk, right. If the malware got downloaded and that malware started sort of actioning stuff, that's when it's really dangerous. So I think those are the ones that we will build into the OS itself, which is some elevated access and privilege that this computer use. Stuff happens. But at the end of the day the user will be in control on an open platform like Windows. And I'm sure Apple and Google will have a lot more control. So they won't allow it. And so that's in some sense you could say that's a advantage they have or depending on how AT rules on all of those, ultimately it'll be an interesting thing to watch.
- [32:55]
Bill Gates
We flip that around and then we can move on. But would you allow the Android OS or let's just call it the Android AI or the iOS AI to read email through a Microsoft client on that smartphone?
- [33:12]
Satya Nadella
Yeah, I mean we kind of like, you know, for example today. You know, one of the things I always think about is I don't know whether that was value leaking or did it actually help us. Right. Which is we licensed the sync for Outlook to Apple for Apple Mail. It was kind of a, it was an interesting case and I think that there was a lot of value leaked perhaps. But at the same time I think that was one of the reasons why we were able to hold onto Exchange. Right. It would have been doubly problematic.
- [33:46]
Bill Gates
Understood.
- [33:47]
Satya Nadella
If we had not done that. And so one of the things I think is going to your point, Bill, if we are building out, the reason we are going to do this is we have to have a trust system around Microsoft 365. We just cannot sort of say, hey, any agent comes in and does anything because after all, first it's not our data, it's our customer's data. Right. It'll be. And so therefore the customer will have to permit it. The IT folks in the customer will have to permit it. It's not like some blanket flag I can set. And then the second thing is it has to have a trust boundary. So I think what we will do is it's kind of, it's an interesting way it's kind of like what Apple Intelligence is doing. Think of it as we will do that around M365.
- [34:33]
Bill Gates
If you go through a lot today, I'd highly recommend recommend people download it. It's super interesting.
- [34:40]
Satya Nadella
Yeah.
- [34:41]
Brad Smith
So Sachin clicking on this. Mustafa has said that 2025 will be the year of infinite memory and Bill and I have talked a lot dating back to the start of this year that we think the next 10x function it sounds like you agree on chatgpt is really this persistent memory combined with being able to take some actions on our behalf. So we're already seeing the starts of memory and I'm pretty convinced as well that 2025 where you know, it seems like that one's pretty well solved. But this question of actions, when am I gonna be able to say to Chat GPT book me the Four Seasons in Seattle next Tuesday at the lowest price. Right. And Bill and I, you know, have gone back and forth on this one and it would seem that computer use is the early, you know, test case for that. But do you have any sense is, you know, does that seem like a hard one from here to you?
- [35:40]
Satya Nadella
Yeah, I mean the most open ended action space is still hard. But to your point, there are two things or maybe three things that are really exciting beyond I'll just say, I'm sure we'll talk about it. The scaling laws itself and capabilities of the RAW models. One is memory, the other is tools, use or actions and the other one I would say is even entitlements. Right. Which is what can you like. One of the most interesting products we have even is Purview inside of Microsoft because increasingly what do you have permissions to? What can you get? You have to be able to access things in a safe way. Somebody needs to have governance on it and what have you. So if you put all those three things together and this agent is going to then be more governable and when it comes to actions it is verifiable and then it has memory then I think you're off to a very different place where for doing more autonomous work, so to speak. I still think one of the things I always think is your build. I like this quote copilot as the UI for AI because even in a fully autonomous world from time to time you'll raise exceptions, you'll ask for permission, you'll ask for invocation, what have you. And so therefore this UI layer will be the organizing layer. In fact that's kind of why we think of Copilot as the Organizing layer for work, work artifacts and workflow. But to your fundamental point, I don't think the models I take even 4.0, not even going to O1 4.0 is pretty good with function calling so you can do in the enterprise setting significant more more so than consumer because consumer web function calling is just hard where at least in an open ended web you can do it for a couple of websites. But once you say hey let's go do a book me a ticket on anything and then just. And if there's schema changes on the back end and so on, it'll trigger over. You can teach it that. That's where I think O1 can get better if it's a verifiable auto gradable sort of process on Rails. But I think we are maybe a year, year to two years away from doing more and more. But I think at least from an enterprise perspective going and doing. Here's my sales agent, here's my marketing agent, here's my supply chain agent which can do more of these autonomous tasks. We built 10 or 15 of them into Dynamics. Right. Even looking into sort of my supplier communications and automatically handling my supplier communications, updating my databases, changing my inventories, my appli. Those are the kinds of things that you can do today.
- [38:28]
Bill Gates
I would say Mustafa made this comment about near infinite memory and I'm sure you heard it or hear it internally. Is there any clarification you can offer about that or is that more to come?
- [38:41]
Satya Nadella
I think that, I mean at some level the idea that you have essentially a type system for your memory. Right. That's the thing. Right. Which is it's not like every time I start you have to organize.
- [38:58]
Bill Gates
I get the idea. He made it sound like you guys had an internal technical breakthrough on this front.
- [39:04]
Satya Nadella
Yeah. There's an open source project even I think it's. I forget it's the same set of folks who did all the typescript stuff who are working on this. So what we are trying to do is essentially take memory and schematize it and make it available such that you can go like each time I start, let's just imagine I'm prompting on some new prompt. I know how to cluster based on everything else I've done. And then that type matching and so on I think is a good way for us to build up a memory system.
- [39:39]
Brad Smith
So shifting maybe to enterprise AI. Satya, the Microsoft AI business is already reported to be about $10 billion. You've said that it's all inference and that you're not actually renting raw GPUs to others to train on because your inference demand is so high. So as we think about this, there's a lot of, I think, skepticism out there in the world as to whether or not major workloads are moving, you know, and so if you think about the key revenue products that are, that people are using today and how it's driving that inference revenue for you today and how that may be similar or different from Amazon or Google, I'd be interested in that.
- [40:22]
Satya Nadella
Yeah, I think that's a good. So the way for us this thing has played out is you got to remember most of our training stuff with OpenAI is sort of more investment logic, right? So it's sort of not in our quarterly results. It's more in the other income based on our investment. So the. So that means the only thing that.
- [40:45]
Brad Smith
Shows up maybe, or loss. Other income or loss. Right?
- [40:49]
Satya Nadella
Todd is right. That is right right now. That's how it shows up. And so most of the revenue, or all the revenue is pretty much our API business. Or in fact, to your point, ChatGPT's inference costs are there, right? So that's a different piece. So the fact is the big hit apps of this era are what ChatGPT, Copilot, GitHub, Copilot and the APIs of OpenAI and Azure. OpenAI, right. So in some sense, if you had to list out the 10 most sort of hit apps, these would probably be in the four or five of them. And so therefore that's the biggest driver. The advantage we have had and OpenAI has had, which is we've had two years of Runway, right? Pretty much uncontested. To your point. Bill made the point about, hey, everybody's awake and it might be, I don't think there will be ever again maybe a two year lead like this. Who knows, you say that and somebody else drops some sample and suddenly blows the world away. But that said, I think it's unlikely that that type of lead could be established with some foundation model. But we have that advantage. That was the great advantage we've had with OpenAI. OpenAI was able to really build out this capacity with ChatGPT. But on the API side, the biggest thing that we were able to gain was, you know, take Shopify or Stripe or Spotify. These were not customers of Azure, they were all customers of GCP or they were customers of aws. So suddenly we got access to many, many more logos who are all, quote unquote, digital natives who are using Azure in some Shape or fashion and so on. So that's sort of one. And when it comes to the traditional enterprise, I think it's scaling like, I mean, literally it is. You know, people are playing with Copilot on one end and then are building agents on the other end using Foundry. But like these things are design wins and project wins and they're slow, but they're starting to scale. And again, the fact that we've had two years of Runway on it, I think I like that business a lot more. And that's one of the reasons why the adverse selection problems here would have been lots of tech startups all looking for their H100 allocation in small batches. Right. Having watched what happened to Sun Microsystems in the dot com, I always worry about that, which is, whoa, if you just can't chase everybody building models. In fact, even in the. I think the investor side, I think the sentiment is changing, which is now people are wanting to be more capital light and build on top of other people's models and so on and so forth. And if that's the case, everybody who was looking for a H100 will not want to look for it more. So that's kind of what we've been selective on.
- [43:56]
Brad Smith
And your sense is for the others that training of those models and those model clusters was a much bigger part of their AI revenue versus yours.
- [44:07]
Satya Nadella
I don't know. I mean this is where I'm speaking for other people's results. I don't, I mean it's just I go back and say, what are the other big hit apps, right? I don't know what they are. Like, I mean, where do they, like, what models do they run? Where do they run them? And I would, Im like, that's kind of, I'm not, I mean, obviously Google's Gemini, I don't know that when I look at the Dow numbers of any of these AI products, there is ChatGPT, right? And then there is, you know, like even Gemini. I'm very surprised at the Gemini numbers. I mean, obviously I think it will grow, you know, because of all the inherent distribution. But it's kind of interesting to say that they're not that many. In fact, we talk a lot more about AI scale, but there is not that many hit apps, right? There is ChatGPT, GitHub, Copilot, there's Copilot and there's Gemini. I think those are the four, I would say in a dao. Like, is there anything else that comes to your mind?
- [45:10]
Brad Smith
Well, I think there are a lot of These startup use cases that I think are starting to get some traction kind of bottoms up. A lot of them build on top of Llama. But you know, but if you said.
- [45:21]
Satya Nadella
Oh, and there's meta, but if you said that 10 more, what are the apps that have more than 5 million DAO, right.
- [45:28]
Brad Smith
I think, yeah, I think Zuckerberg would argue meta AI certainly, you know, has more, et cetera. But, but, but I think you're right in terms of the non affiliated apps, you name them.
- [45:40]
Satya Nadella
And, and Zuck's stuff all runs on his own cloud. I mean he's not running on public cloud.
- [45:45]
Bill Gates
Yeah, Saito on the, on the enterprise side, obviously the coding space is off into the races and you guys are doing well and there's a lot of venture backed players there on some of the productivity apps. I have a question about the copilot approach and I guess Marc Benioff's been kind of obnoxiously critical on this front and called it Clippy 2 or whatever. Do you worry that someone might think kind of first principles AI from ground up and that some of the infrastructure, say in an Excel spreadsheet isn't necessary to know if you did an AI first product? And the same thing by the way could be said about the CRM, right. There's a bunch of fields and tasks that may be able to be obfuscated for the user.
- [46:40]
Satya Nadella
Yeah, I mean it's a very, very, very important question. The SaaS applications or biz apps. So let me just speak of our own Dynamics thing. The approach at least we are taking is I think the notion that business applications exist. That's probably where they'll all collapse, right. In the agent era. Because if you think about it, right, they are essentially CRUD databases with a bunch of business logic. The business logic is all going to these agents and these agents are going to be multi repo crud, right? So they're not going to discriminate between what the back end is. They're going to update multiple databases and all the logic will be in the AI tier, so to speak. And once the AI tier becomes the place where all the logic is, then people will start replacing the backends. Right? That's what in fact it's interesting as we speak, I think we are seeing pretty high rates of wins on Dynamics backends and the agent use. And we are going to go pretty aggressively and try and collapse it all, whether it's in customer service, whether it is in. By the way, the other fascinating thing that's increasing is just not CRM, but even our, what we call finance and operations. Because people want more AI native biz apps, right? That means the biz app, the logic tier, can be orchestrated by AI and AI agents. So in other words, copilot to agent to my business application should be very seamless. Now, in the same way you could even say, hey, why do I need Excel? Like, interestingly enough, one of the most exciting things for me is Excel with python is like GitHub with copilot, right? That's essentially. So what we have done is when you have Excel like this, by the way, would be fun for you guys, right? Which is you should just bring up Excel, bring up Copilot and start playing with it. Because it's no longer like, oh, it is like having a data analyst. And so it's no longer just making sense of the numbers that you have. It will do the plan for you, right? Literally. Like how GitHub Copilot workspace creates the plan and then it executes the plan. This is like a data analyst who is using Excel as a sort of row column visualization to do analysis, scratch path. So it's kind of tools you. So the copilot is using Excel as a tool with all of its action space because it can generate and it has Python interpreter that is in fact a great way to reconceptualize Excel. And at some point you could say, hey, I'll generate all of Excel. And that is also true. After all, there's a code interpreter, right? So therefore you can generate anything. And so, yes, I think there will be disruption. But so the way we are approaching, at least our M3,365 stuff is one is build Copilot as that organizing layer UI for AI, get all agents, including our own agents. You can say, the Excel is an agent through my copilot, Word is an agent. It's kind of specialized canvases, which is I'm doing a legal document, let me take it into pages and then to Word, and then have the copilot go with it, go into Excel and have the copilot go with it. And so that's sort of a new way to think about the work and work.
- [50:23]
Brad Smith
You know, one of the, one of the questions I hear people wringing their hands about a lot today, Satya, is the ROI people are making on these investments. You know, you have over 225,000 employees. Are you leveraging AI to increase productivity, reduce costs, drive revenues in your own business? If so, kind of. What are the biggest examples there? You know, and maybe to a finer point on that, you know when we had Jensen on, I asked him, you know, when he 2 or 3x his top line, what did he expect his his head count to increase by? And he said 25%. And when asked why he said well I have a hundred thousand agents helping us do the work. So when you 2 or 3x your revenue for Azure, you know, do you expect to see that similar type of leverage on headcount?
- [51:14]
Satya Nadella
Yeah, I mean it's top of mind and top of mind for both us at Microsoft as well as customers. Here's the way I come at it. I love this thing of I've been going to school on learning a lot about what happened in industrial companies with lean, right. I mean it's fascinating, right? They're all GDP plus growers. It's unbelievable. Like I mean the discipline they have in how the good industrials can literally say hey, I'll add 2 to 300 basis points of tailwind just by Lean which is increase value, reduce waste. That's the practice. So I think of AI is the lean for knowledge work. We are really going to school on it which is how do we really go look at. That's why I think the good old. We remember in the 90s we had all this business process reengineering. I think it's back in a new way where people who can think end to end process flows and say hey, what's the way to think about the process efficiency? What can be automated? What can be made more efficient? So that's a little bit of, I think so customer service is the obvious one. We are on course we spend around $4 billion or so. This is everything from Xbox support to Azure support. This is really, I mean this is serious one year because of the deflection rate on the front end. Then the biggest benefit is the agent efficiency, right where the agent is happier, the customer is happier and our costs are going down. And so that's I think the most obvious place and that we have in our contact center application that's also doing super well. The other one is obviously GitHub Copilot. That's the other and with GitHub Copilot workspace, right, that's the first place where even this what is agentic sort of side comes in, right? You go from an issue to a plan or to a spec to a plan and then multi file edit, right? So it just completely changes the workflow for the eng team as I said. And then the O365 is the, you Know the catch. All right, so the M365 copilot is where, I mean, just to give you a feel like even my own, right, Every time I'm meeting a customer, I would say the workflow of the Prep of the CEO office has not changed since 1990. Right. Basically, I mean, in fact, one of the ways I look at it is just imagine how did forecasting happen pre PCs and post PCs, right? There were faxes, then interoffice memos, and then PCs became a thing and people said, hey, I'm just going to put an Excel spreadsheet in email and send it around and people will enter numbers and we will have a forecast. The same thing is happening in the AI era right now, all over the place, right? I prep for a customer meeting where I literally go into copilot and I say, tell me everything I need to know about the customer. It tells me everything from my CRM, my emails, my teams meetings and the web. Right? It grounds it, I put it into pages, share it with my account team in real time. So just imagine the hierarchy. This entire thing of, oh, let me prepare a brief for the CEO goes away. It's just a query away. I generate a query, share a page if they want to annotate it. So I reasoning with AI and collaborating with my colleagues, right? That's the new workflow and that's happening all over the place. Somebody gave me this example from supply chain. Like somebody said, supply chain is like a trading desk except it doesn't have real time information. Right? That's kind of what it is. So it's like you wait for the quarter to end and then the CFO comes and bangs you on the head as saying, all the mistakes you made. What if that financial analyst essentially can be in real time be available to you and giving you like, oh, you're doing this contract for this data center in this region. You should think about these terms. All that intelligence in real time is changing the workflow and work artifacts. So lots and lots of use cases all around. And I think to your fundamental point, our goal is to kind of create operating leverage through AI, right? So I think headcount will, in fact, one of the ways I look at it and say is our total people costs will go down, our cost per head will go up and my GPU per researcher will go up. Yes, that's kind of the way I look at it.
- [55:55]
Brad Smith
That makes sense. Hey, let's shift ahead to something that you referenced earlier. Just around what we're seeing out of model scaling and Capex generally. I've heard you talk about Microsoft's capex. I imagine in 2014 when you took over, you had no idea that the capex would look like it does today. In fact, you've said increasingly these companies look more like industrial company capex than traditional software companies. Your capex come from about 20 billion in 2020 to maybe as high as 70 billion in 2025. You know, you've earned a pretty consistent return on that capex, right? So there's actually a very high correlation when you look at your capex to revenue. Some people are worried that that correlation will break. And even you have said, you know, maybe at some point there's going to be, you know, capex is going to have to be spent ahead of the revenue. You, you know, there may be an air pocket we have to build for this resiliency. So how do you feel about the level of Capex? Does it cause you any sleepless nights and when does it begin to taper off, you know, in terms of this, this rate of growth?
- [57:16]
Satya Nadella
Yeah, I mean a couple of different things, right? One is this is where being a hyperscaler I think structurally super helpful because in some sense we've been practicing this for a long time, right? Which is, hey, data centers have 20 year life cycles. Power you pay only when you use the kits are six years. You know, how to sort of drive utilization up. And the good news here is it's kind of like cap capital intensive, but it's also software intensive and you use software to bring the ROIC of your capital higher, right? That's kind of like when people even in the early days said hey, how can like a hyperscaler ever make money? Because what's the difference between old holsters and the new hyperscalers? It is software, right? And that I think is what's going to apply even to this GPU physics even, right? Which is, hey, you buy leading, you build it out. In fact, one of the things that's happening right now is what I'll call catch up, right? Which is we built after all over the last 15 years, the cloud. Suddenly a new meter showed up in the cloud. It's called the AI accelerator because every app now needs a database, a Kubernetes cluster and a model that runs on an AI accelerator, right? So if you sort of say, oh, I need all three, you suddenly had to build up these AI accelerators in order to be able to provision for all of these applications. So that will normalize. So the first thing is the build out will happen, the workloads will normalize and then it will be. You will just keep growing like the cloud has grown. So that's sort of the one side of it and that's where avoiding some of these adverse selection issues, making sure it's not just all supply side, you know, everybody's sort of building, only hoping demand will come, just making sure that there is real diverse demand all over the world, all over the segments. I watch for all of that. So I think that that's, I think the way to manage the roic. And by the way, the margins will be different, right? This goes back to the very early dialogue we had on when I think about the Microsoft cloud, the margin profile of a raw GPU versus the margin profile of Fabric plus GPU or Foundry plus GPU or GitHub copilot, add on to M365. So they're all going to be different. And so if having a portfolio matters here, right? Because if I look at even the Microsoft, why does Microsoft have a premium? Today in the cloud we are bigger than Amazon, growing faster than Amazon, with better margins than Amazon because we have all these layers and that's kind of what we want to do. Even in the AI era, Satya, there's.
- [60:17]
Bill Gates
Been a lot of talk about model scaling and obviously there was talk historically about kind of 10xing the cluster size that you might do over and over again, not, you know, once and then twice. And X AI is still making noise about going in that direction. There was a podcast recently where they kind of flipped everything on their head and they said, well, if we're not doing that anymore, it's way better because we can just move on to inference, which is getting cheaper and you won't have to spend all this capex. I'm curious, those are two kind of views of the same coin. But what's your view on large LLM model scaling and training costs and where we're headed in the future?
- [61:06]
Satya Nadella
Yeah, I mean, you know, I mean, I'm a big believer in scaling laws. I'll sort of first say, and in fact, if anything, the bet we placed in 2019 was on scaling laws. And I stay on that. Right. Which is, in other words, don't bet against scaling laws. But at the same time, let's also be grounded on a couple of different things. One is these exponentials on scaling laws will become harder just because as the clusters become harder, everything. I mean, the distributed computing problem of doing large scale training becomes harder. And so that's kind of one side of it. But I would just still say, and I'll let the OpenAI folks speak for what they're doing, but they are continuing to pre training, I think is not over. It sort of continues. But the exciting thing which again OpenAI has talked open, I mean about and Sam has talked about is what they've done with O this chain of thought with auto grading and is just fantastic. In fact, basically it is test time, computer inference time compute as another scaling law, right? So you have pre training and then you have effectively this test time sampling that then creates the tokens that can go back into pre training, creating even more powerful models that then are running on your inference, right? So therefore that's I think a fantastic way to increase model capability. So the good news of test time or inference time compute is sometimes running of those O models means there's two separate things. Sampling is kind of like training when you're using it to generate tokens for your pre training. But also customers when they are using O1, they're using more of your meters and so you are getting paid for it. And so therefore there is more of an economic model, right? So therefore I like it. In fact, that's where I said I have a good structural position with 60 plus data centers all over the world.
- [63:11]
Bill Gates
It's a different hardware architecture for one of those scaling versus the other, for the pre training versus the other.
- [63:16]
Satya Nadella
Exactly. And I think the best way to think about it is it's ratio, right? So going back to sort of Brad's thing about roic, this is where I think you have to sort of really establish a stable state. In fact, you know, whenever I've talked to Jensen, I think he's got it right, which is, look, you kind of want to buy some every year. Not buy, like think about it, right? When you depreciate something over six years, the best way is what we have always done, which is you buy a little every year and you age it, you age it, you age it, right? You use the leading node for training and then the next year it makes, makes it goes into inference. And that's sort of the stable state I think we will get into across the fleet for both utilization and the roic. And then the demand meets supply. And like basically to your point about everybody saying oh wow, have the exponential stopped? One of the other things is the economic realities will also sort of stop and at some point everybody will look and say what's the economically rational thing to do? Which is, hey, even if I double every year's capability, but I'm not able to sell that inventory. And the other problem is the winner's curse, right? Which is you don't even have to publish a paper. The other folks have to just look at your capability and do either a distillation, it's just impossible. It's kind of like piracy, right? I mean you can sort of all kinds of terms of use but it's impossible to control distillation. That's one Second thing is, you know, you don't even have to do anything. You just have, you reverse engineer that capability and you do it in a more compute efficient way. And so given all this, I think there will be a governor on how much people will kind of chase right now a little bit of it. Everybody wants to be first, it's great. But at some point all the economic reality will set in on everyone and the network effects are at the app list. So why would I want to spend a lot on some model capability if the network effects are all on the app layer?
- [65:17]
Brad Smith
What I heard you say I believe you know, so Elon has said that he's going to build a million GPU cluster. I think Meta has said the same thing. I think the pre training, I think.
- [65:29]
Bill Gates
He said 200 and then he kind of joked about a million but I.
- [65:33]
Brad Smith
I think he joked about a billion. But you know, the fact of the matter is have your versus the start of the year Sacha, based on what you've seen around pre training and scaling, have you changed your infrastructure plans around that? And then I have a separate question with regard to O1 I am building.
- [65:56]
Satya Nadella
To what I would say is a way like it's a little bit of the 10x point, right? Which is hey, how do you. We can argue the duration like is it every two years, is it every three years? Every four years there is an economic model and this is where I think a little bit of disciplined way of thinking about how do you clear your inventory such that it makes sense. Right? Which is. Or the other way is the depreciation cycle of your kit, right? There is no way you can sort of buy unless you find the physics of the GPU works out where suddenly it flows through my P and L and it's actually, you know, it's in the same or better margin than hyperscaler. That's simple like so that's kind of what I'm gonna do. I'm gonna keep going and building basically to hey, how do I drive inference demand and then keep increasing my capability and be efficient at it? I absolutely. And Sam may have A different objective and he's been open to it, right? He's sort of like, he may say, hey, I wanna build because I know I'm deeply have deep conviction on what AGI looks like or what have you and so be it. So therefore that's where I think a little bit of our tension is.
- [67:15]
Bill Gates
Even to clarify something I heard Mustafa say on a podcast that Microsoft is not going to engage in the biggest model training competition that's going on. Is that fair?
- [67:28]
Satya Nadella
Well, what we won't do is, is do it twice. Right? Because after all we have the IP from like it would be silly for Microsoft today given the partnership with OpenAI to do two unnecessary training set.
- [67:46]
Bill Gates
Yes, correct.
- [67:47]
Satya Nadella
So we are very. And that's why we have concerted and by the way, that's the strategic discipline we have had. Right? Which is, you know, that's why, you know, I always stress to Sam, we bet the farm on OpenAI and said hey, we will concentrate our compute. And we did it because we had all the rights to the ip. And so that's sort of the give gets on it and we feel fantastic about it. And so then what Mustafa is basically saying is, hey, we will also do in fact a lot of focus on our end is post training and even on the verification or what have you. So that's a big thing. So we'll focus a lot of our computer resources on adding more model adaptations and capabilities that make sense while also having a principled pre training stuff that sort of gives us capability internally to do things. We anyway have different model weights and model classes for different use cases that we will continue to go ahead and develop as well.
- [68:46]
Bill Gates
Is your question to Brad's question about, your answer to Brad's question about the balancing of GPU roi, does that answer the question as to why you've outsourced some of the infrastructure to CoreWeave in that partnership that you have that we.
- [69:04]
Satya Nadella
Did because we all got caught with the hit called ChatGPT and OpenAI. That's too much to make. Yeah, we were completely, I mean like, yeah, it was impossible. There's no supply chain planning I could have done in, you know, what is it twin, you know, like none of us knew what was going to happen, right? What happened In November of 22, like that was just a bolt from the blue, right? So therefore we had to catch up. So we said, hey, we're not going to in fact worry about too much inefficiency. So that's why whether it's core weave or many others, you Know, we bought all over the place, fair enough. And so, and that is a one time thing and then now it's all catching up and you know, and yeah, so that was just more about trying to get caught up with demand.
- [69:56]
Brad Smith
Are you still supply constrained, Satya?
- [70:00]
Satya Nadella
I am power, yes. I am not chip supply constrained. We were definitely constrained in 24. What we have told the street is that's why we are optimistic about sort of the first half of 25 which is the rest of our fiscal year and then after that I think we'll be in better shape going into 26 and so on. We have good line of sight.
- [70:24]
Brad Smith
So I'm hearing with respect to this level two thinking, the O1 test, time compute, post training work that's being done on that is leading to really positive outcomes. And when you think about that, that's also pretty compute intensive because you're generating a lot of tokens, you're recycling those tokens back into the context window and you're doing that time and time again. And so that compounds very quickly. Jensen said he thought looking at 01 the inference was going to a million or a billion x, you know, just that it was the demand for inference is going to go up dramatically in that regard. Do you feel like you have the right long term plan to scale inference to keep up with these new models?
- [71:13]
Satya Nadella
Yeah, I mean I think there are two things there Brad, which is in some sense it'll be. It's very helpful to think about the full workload there. The full workload like in the agentic world you have to have the AI accelerator. One of the fastest growing things of in fact OpenAI itself is the container service because after all these agents need a scratch pad for doing some of those auto grading even to generate the samples. Right. And so that is like where they run a code interpreter. And that by the way is a regular Azure Kubernetes cluster. So in an interesting way there's a ratio of even what is regular Azure Compute and its nexus to the GPU and then some data service. So to your point, it's not when we say inference, that's why I look at it and say there's, you know, people think about AI as separate from the cloud. AI is now core part of the cloud. And I think in a world where every AI application is a stateful application, it's an agentic application that agent performs actions. Then classic app server plus, the AI app server plus the database are all required. And so I go back to my fundamental thing which is hey, we built this 60 plus AI regions, I mean Azure regions, they all will be ready for full on AI applications and that's I think what will be needed.
- [72:44]
Brad Smith
That makes a lot of sense. So let's talk a little bit. You know, We've talked around OpenAI a lot during this conversation, but you're managing the, managing this balance between, you know, a huge investment there and your own efforts at Ignition. You showed a slide highlighting the differences between Azure OpenAI and OpenAI Enterprise. And a lot of those were about the enterprise grade, you know, things that you bring to the table. So when you look at that tension, you know, the competition that you have with OpenAI, do you think about them as Chachi? BT is likely to be that, that, that winner on the consumer side. You'll have your own consumer apps as well and then you'll, you'll, you'll divide and conquer when it comes to enterprise. How do you think about competing with them?
- [73:39]
Satya Nadella
The way I think about at this point given OpenAI is a very at scale company, right? So it's no longer, it's a really very successful company with even multiple lines, if you will, of business and segments and what have you. And so I come at it very principally like I would with any other big partner, right? Because I don't think of them, so I think of them as, hey, as an investor, what are their interests and our interests and how do we align them? I think of them as an IP partner and because we give them systems ip, they give us model ip, right? So that's another side of it where we are very deeply interested in each other's success. The third is I think of them as a big customer, you know, and so therefore I want to serve them like I would serve any other big customer. And so, and then the last one is the coopetition, right? Which is whether it's copilot in the consumer space, whether it's copilot with M365 or whatever else, we sort of say, hey, where is the competition? Where is. And that's where I kind of look at it and say, you know, ultimately these things will have some overlap. But I also, in that context, the fact that they have the Apple deal is in some sense for the MSFT shareholder accretive, right? Even in the fact that their APIs. To your point about the API differences, hey, you choose, the customers can choose which API front or some of the, there's differences. Azure has a particular style and if you're an Azure customer and you want to use other services of Azure, then it's easiest to have an Azure and Azure Mac. But if you are on AWS and you want to just use just the API in a stateless way, great, just use even OpenAI. So I think in an interesting way that sometimes having these two types of distributions is also helpful to the MSFT cost.
- [75:47]
Bill Gates
Satya. I would say the kind of curious part of the Silicon Valley community and even writ larger, I would say the entire business community is I think infatuated with the relationship between Microsoft and OpenAI. I was at DealBook last week and Andrew Sorkin pushed Sam really hard on this. I imagine there's a lot you can't say, but is there anything you can say? There's supposedly a restructuring conversion to profit. I guess Elon's launched a missive in there as well. What can you tell us?
- [76:23]
Satya Nadella
Yeah, I mean, I think those bill are obviously all for the OpenAI board and Sam and Sarah and Brad and that team to decide what they want to do. And we want to be supportive. I mean, so this is where we are an investor. I would say the one thing that we care deeply about is OpenAI continues to succeed. I mean, it's in our interest. And I also think it's a company that is an iconic company of this platform shift and the world is better with OpenAI doing well. And so therefore that's sort of the fundamental position. Then after that, the pace with which the tension to your point comes from, like in all of these partnerships, some of it is that coopetition tension, some of it is, you know, Sam's somebody who is an unbelievable entrepreneur with great amount of sort of vision and ambition and the pace with which he wants to move, you know, and so therefore we have to balance that all out, right? Which is, you know, what he wants to do, I have to accommodate for so that he can do what he does to do. And he needs to accommodate for the discipline that we need or on our end, given the overall constraints we may have. And so I think we'll work it out. But I mean the good news here I think is in this construct we have come a long way. I mean this five years has been great for them, it's been great for us. And at least for my part, I'm going to keep going back to that and I want to prolong it as long as I can. It will only behoove us to have a long term stable partnership.
- [78:02]
Brad Smith
When you think about, you know, the separate funding, you know, and untangling the two businesses, such are, you know, are you guys motivated to do that relatively quickly. I've talked about thinking that the next step for them, you know, it'd be great to have them as a public company. You know, it's such an iconic, you know, business early leader in AI. Is that the path that you see, you know, for, for these guys on the way forward or do you think that it stays kind of in the relationship that we are today?
- [78:39]
Satya Nadella
And that's the place where, Brad, I want to be careful not to overstep. Right. Because in some sense, you know, I'm neither. We're not, we're not in the board. We're investors like you and at the end of the day it's their board and their management decision. And so at some level I'm going to take whatever their cues are. Like, in other words, I'm very clear that I want to support them with whatever decision they make. And to me, perhaps even as an investor, it's that commercial and IP partnership that matters the most. We want to make sure we protect our interests in all of this and if anything, bolster them going forward. But I think at this point people like Sarah and Brad and Sam are very, very smart folks on this and what makes the most sense for them to achieve their objectives on the mission is what we would be supportive of.
- [79:36]
Brad Smith
Well, maybe we should wrap and thank you for so much time today. But I want to wrap on this topic of open versus closed and how we should cooperate to usher in safe AI. And so maybe I'll just leave it open ended to you. Talk to us a little bit about how you think about some of these differences in debates and the importance of doing this. And one anecdote I would just throw out there is Reuters recently reported that Chinese researchers developed an AI model for potential military use on the back of Metalama. Right. And there are a lot of supporters like Bill and I of open source, but we've also heard critics and you said everybody can distill a model out there. So we are going to see some of these put to uses that we're not going to be happy about. So how do you think about us coming together really as a nation and as a collection of companies to usher in safe AI.
- [80:37]
Satya Nadella
Yeah, I think two things, I think that I always have thought of open source versus closed source as two different tactics in order to create network effects. Right. I've never thought of them as just religious battles. I've thought of them as more like, hey, two different. I mean, that's why I think what Meta and Mark are Doing is very smart, right? Which is in some sense he's trying to commoditize even his complement, right? It makes a ton of sense to me. If I were in his shoes I would do that. Right? Which is get the entire world converged. I mean, I think he talks openly and very eloquently about how he wants to be the Linux of LLMs and I think it's a beautiful model. In fact, there is even a model there, I think that, you know, sometimes to going back to some of your economics question, I think there is like the game, theoretically a consortium could be a superior model quite frankly than any one player trying to do it like this has. Unlike the Linux foundation where the contributions were mostly OPEX contributions, right? Which is if I always say Linux wouldn't have happened but for, I guess, you know, in fact Microsoft's one of the largest committers to Linux and so was IBM, so was Oracle and what have you. And I think that there may be a real place for. And open source is a beautiful mechanism which is when you have multiple entities coming together and so on and it's a smart business strategy, then closed source may make sense. In closed source, after all, we have had lots of closed source products. Then safety is an important but orthogonal issue because after all, regulations will apply and safety will apply to both sides. And one could make arguments that hey, if everybody's inspecting it and there will be more safety on one side or the other. So I think of these as perhaps best dealt with in capitalism at least it's better to have multiple models and let there be competition and different companies will choose different paths and then we should be pretty hardcore and the governments will demand that. I think in tech now there's no chance of saying, hey, we'll see what happens to the unintended consequences later. I mean no government, no community, no society is going to tolerate that. So therefore these AI safety institutions all over will hold a same bar and also national security, to your point, if there is sort of national security leakage challenges that people will worry about that too. So therefore, I think states and state policy will have a lot to say about which of these models and what the regulatory regime will look like.
- [83:28]
Brad Smith
Well, it's hard to believe that we're only 22 months into the post ChatGPT era, but it's interesting when I reflect back on your framework around phase shifts, you have to put Microsoft in a really good position as we emerge into the age of AI. And so congrats on the run over the last 10 years. It's been really a sight to behold, but. But it's great. I think both Bill and I get excited when we see the leadership. You, Elon, Mark, Sundar, et cetera, really forging ahead for Team America around AI. I think we both feel pretty incredibly optimistic about how we're going to be positioned vis a vis the rest of the world. So thanks for spending some time with us.
- [84:21]
Bill Gates
Yeah. Can't thank you enough for the time. Satya. You really appreciate it.
- [84:24]
Satya Nadella
Thank you so much. Thank you, Brad, Bill, thank you.
- [84:27]
Brad Smith
Take care. Such as a reminder to everybody, just our opinions, not investment advice.