Could Microsoft Lose Out as the U.S. Tussles With Brussels?

Summary

WSJ Tech News Briefing: Could Microsoft Lose Out as the U.S. Tussles With Brussels?

Release Date: May 1, 2025

Host: Victoria Craig, The Wall Street Journal

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Introduction

In the May 1, 2025 episode of WSJ Tech News Briefing, host Victoria Craig delves into the intricate dynamics between Microsoft and the European Union amidst escalating U.S.-EU trade tensions. The episode also explores the burgeoning rift between Microsoft and OpenAI, two titans that have been pivotal in the AI revolution. This comprehensive summary captures the key discussions, insights, and conclusions presented in the episode.

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Microsoft's Expansion in the European Union Amid Trade Tensions

Microsoft's Strategic Moves in the EU

Victoria Craig opens the discussion by highlighting Microsoft's recent commitment to deepen its presence in the European Union (EU). Microsoft's President, Brad Smith, unveiled plans to expand the company's data center capacity in the EU, aiming for a 40% increase over two years and a doubling of data center capacity between 2023 and 2027. This move is part of Microsoft's broader strategy to bolster its cloud and AI operations within the region.

Brad Smith emphasized the importance of collaboration, stating at [01:45] “I think we are at a moment in time when business needs to be a bridge across the Atlantic to be a voice to help enable our governments to find a common path together.”

Addressing U.S.-EU Trade Tensions

Brad Smith acknowledged the existing rift between the U.S. and the EU on trade issues, which raises concerns about American companies' ability to operate seamlessly within Europe. In a blog post, Microsoft reaffirmed its commitment to maintaining “digital stability” and sustaining trust across its European customer base despite geopolitical volatility.

Edith Hancock, WSJ European Competition and Enforcement Reporter, elaborates at [02:35] that Brad Smith's visit to Brussels underscored Microsoft's awareness of potential trade disruptions. She notes, "Brad Smith came to Brussels Wednesday morning to announce this pledge to put some weight behind EU investment that involves expanding data center capacity."

EU's Push for Tech Sovereignty

The EU has been actively pursuing greater tech sovereignty, aiming to reduce dependence on U.S.-based tech giants. This is evidenced by initiatives like the Digital Markets Act (DMA), passed in 2022, designed to foster competition by leveling the playing field for smaller companies against industry behemoths like Microsoft, Apple, and Google.

Keech Hagee, WSJ Reporter, discusses at [05:29] the implications of the DMA, stating, "It's meant to go after the largest tech companies that also just happen to mostly be US companies." She further explains that while the EU seeks to enhance competition, the DMA is not specifically targeted at U.S. companies but rather at curbing the market power of the largest players in the tech industry.

Potential Impact on Microsoft

The ongoing trade tensions and the EU's regulatory measures pose significant challenges for Microsoft and other U.S.-based tech firms. Edith Hancock points out at [05:46] that while the EU aims to separate competition enforcement from trade enforcement, there is a perception in the U.S. that policies like the DMA could be seen as “non-tariff barriers.” However, within the EU, there are additional strategies, such as the anti-coercion instrument, which could further tax digital services and impact U.S. tech companies.

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The Fraying Relationship Between Microsoft and OpenAI

Origins of the Partnership

Victoria Craig transitions to the evolving relationship between Microsoft and OpenAI, highlighting how these two leaders in the AI sector are now experiencing growing tensions. Initially celebrated as “the best partnership in tech,” the collaboration between Microsoft CEO Satya Nadella and OpenAI CEO Sam Altman has begun to deteriorate due to diverging interests and strategic disagreements.

Diverging Interests and Strategic Disputes

Sam Altman explains at [07:59] the core issues driving the rift: “OpenAI has become kind of a consumer products company on its own and has had explosive growth of ChatGPT. And Microsoft has struggled to get copilot to have broad usage.” The competition over compute power and AI infrastructure has further strained the relationship, with OpenAI seeking more resources than Microsoft can currently provide.

Additionally, disagreements have surfaced over OpenAI's transition toward becoming a more traditional for-profit entity. Keech Hagee reveals at [11:23] that Satya Nadella’s public support for Sam Altman during Altman's brief ousting from OpenAI initially appeared to solidify their alliance. However, the subsequent strategic maneuvers, including Microsoft hiring Mustafa Suleiman—**one of DeepMind’s co-founders—to potentially develop competing AI technologies—have intensified the rift.

Sam Altman articulates at [12:35] the implications of these tensions: “We're already seeing that future a little bit in this Stargate project... OpenAI try to diversify where it's getting its compute more and more over time. They will be tied together for many years to come because of this deep relationship where already Microsoft has these, like, profit participation points with OpenAI, but they're drifting apart.”

Impact on the AI Landscape

The fracturing partnership between Microsoft and OpenAI has broader implications for the AI industry. OpenAI's collaboration with other tech giants like Oracle and SoftBank indicates a diversification of partnerships to secure the necessary AI infrastructure. Conversely, Microsoft's pursuit of faster access to OpenAI's technology, coupled with its frustration over OpenAI's ambitions for Artificial General Intelligence (AGI), suggests a potential realignment of alliances within the tech sector.

Sam Altman remarks at [09:21] on the mission of OpenAI: “The entire purpose of OpenAI was to achieve what they call AGI, artificial general intelligence, human like intelligence.” The divergence in visions for AGI between OpenAI and Microsoft underscores the fundamental disagreements that are reshaping their partnership.

Future Prospects and Ongoing Tensions

As both companies chart their independent paths, the future holds uncertainties. Microsoft's strategic investments in its own data centers and AI capabilities, along with OpenAI's endeavors to establish agreements with other technology providers, indicate a shift towards autonomy for both entities. However, the deep-rooted relationship and shared history suggest that their paths may continue to intersect, albeit within a more competitive framework.

Sam Altman concludes at [12:35]: “They will be tied together for many years to come because of this deep relationship where already Microsoft has these, like, profit participation points with OpenAI, but they're drifting apart.”

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Conclusion

The May 1 episode of WSJ Tech News Briefing presents a detailed examination of Microsoft's strategic maneuvers in the European Union amidst rising U.S.-EU trade tensions and the unraveling partnership with OpenAI. Microsoft's efforts to expand its data center footprint in the EU reflect a commitment to maintaining its market presence despite regulatory challenges. Simultaneously, the growing discord with OpenAI highlights the complexities of collaborative ventures in the rapidly evolving AI landscape. As both Microsoft and OpenAI navigate these challenges, their decisions will significantly influence the future trajectory of the tech industry.

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Produced by Julie Chang with Deputy Editor Chris Sinsley. For more insights and updates, listen to the full episode of WSJ Tech News Briefing.

Transcript

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[Victoria Craig]

Get started, a heads up we're going to be asking you a question at the top of each show for the next few weeks. Our goal here at Tech News Briefing is to keep you updated with the latest headlines and trends on all things tech. Now we want to know more about you, what you like about the show, and what more you'd like to be hearing from us this week. Our question is which areas of tech are you most interested in hearing more about AI crypto tech policy gadgets? If you're listening on Spotify, look for our poll under the episode description or you can send us an email to tnvsj.com now onto the show. Welcome to Tech News briefing. It's Thursday, May 1st. I'm Victoria Craig for the Wall Street Journal. Microsoft pledges to down deeper roots in the eu. But could that decision backfire if trade tensions with the US Grow? And speaking of strain at Microsoft, the so called best partnership in tech has turned sour. We'll get the inside scoop about what went wrong and what's ahead for the leaders of Microsoft and OpenAI. But first, Microsoft's president Brad Smith was in Brussels yesterday to take the wraps off plans to expand the company's data centers in the European Union and build out its cloud and AI operations there. But there was an elephant in the room that Smith addressed right off the bat, a rift between the US and the EU on trade, one that's raising questions about whether that could harm American companies ability to do business on the continent.

[Brad Smith]

I think we are at a moment in time when business needs to be a bridge across the Atlantic to be a voice to help enable our governments to find a common path together.

[Victoria Craig]

In a blog post announcing the EU expansion, Microsoft said it recognizes its business is, quote, critically dependent on sustaining the trust of customers, countries and governments across Europe. And it pledged that in a time of geopolitical volatility, it's committed to providing digital stability. WSJ European Competition and Enforcement reporter Edith Hancock is based in Brussels. Edith, walk us through how Brad Smith tried to toe the line of unveiling these new data center plans while also trying to offer reassurance that doing business with Microsoft is a good idea in this tense environment.

[Edith Hancock]

Sure. So Brad Smith came to Brussels Wednesday morning to announce this pledge to put some weight behind EU investment that involves expanding data center capacity. One of the pledges is that over the course of two years, that capacity, they want to expand by about 40%. They also cited a figure between 2023 and 2027 that would mean doubling their data center capacity in Europe. So, yes, he acknowledged that there's a lot in the Brussels community in particular as well, that if the trade war does escalate, then the Trump administration could require certain tech companies in the US to suspend their operations in Europe. What he did say is that he didn't think that that was a conversation that was happening in Washington. That sounds largely like a concern that is just being felt over here, but that they were listening to that concern.

[Keech Hagee]

This is a widespread concern, though, for those based in the eu, and we.

[Victoria Craig]

Don'T have to look too far to.

[Keech Hagee]

See that this has been brewing for Quite a while. 100 big European companies, you point out in your story, including giants like Airbus, have signed a letter calling for the.

[Victoria Craig]

EU to require public sector bodies to.

[Keech Hagee]

Buy from European tech sources. I'm just wondering how big of a problem this could cause for Microsoft and other US Based tech companies over the next few years, particularly as President Trump.

[Victoria Craig]

Remains in the White House.

[Edith Hancock]

It's an interesting one because clearly the fact that Brad Smith came to Brussels at all shows that there's a little bit of concern there. The European Union is still a massive market for a lot of these companies. Also, at the policy level as well, there is this talk about increased tech sovereignty. You have Tech Commissioner Hennever Koenen going to different gigafactories and different facilities across Europe to show their kind of interest in that. But that being said, it would be a task, shall we say, for the bloc to fully wean itself off of US Tech giants.

[Keech Hagee]

And the eu, as we've been talking.

[Victoria Craig]

Has been working for years to rein.

[Keech Hagee]

In the power of big tech to increase competition, they say, in the eu. And it's issued fines for violations on companies like Apple and Google. The Trump administration has really lashed out.

[Victoria Craig]

At a lot of these things and.

[Keech Hagee]

Said that they're considering retaliation or would consider retaliation. Could this ongoing tussle between Brussels and the US And Europe maybe force some of these companies to look outside the eu? Is there any indication that's happening? Or have we seen other US Tech bosses come circling through trying to reassure European business that it's okay to continue doing business?

[Edith Hancock]

Yeah, the story of the European Union versus big tech is a massive one. Part of the reason that Microsoft feels comfortable coming over to the EU and doing this sort of conversation is because they were one of the first tech companies that ended up getting into all sorts of legal spats with the Commission over massive fines for anti competitive behavior. In terms of reinsurances, what you see from a lot of the language that tech companies use, you are getting this kind of sense that they want to keep doing business in the eu, they just want to keep doing it on their terms.

[Victoria Craig]

The Digital markets Act, or DMA, was an EU law passed in 2022 that aimed to level the playing field in tech and make it easier for smaller companies to compete with the industry's behemoths. Edith is that the bluntest tool at Europe's disposal to fight Trump's tariff pressures?

[Edith Hancock]

For the Commission's part, they've been really, really keen to separate competition enforcement from trade enforcement. That's not to say that there isn't a perception that things get a bit caught up in the mix, but for their part, they do not want to see these things as conflatable. There's an understand understanding that the US might see the DMA as a non tariff barrier. That's not a sentiment that's felt over here in terms of other tools that they could use to tackle big tech if they wanted to. There is something called an anti coercion instrument in EU trade law that would allow the EU to tax digital services, for example. So that's one strategy they could use. I would also add that the dma, it's not designed to go after US American tech companies. It's meant to go after the largest tech companies that also just happen to mostly be US companies. So in terms of curbing big tech's market power, the GMA is definitely a powerful tool.

[Victoria Craig]

That was WSJ reporter Edith Hancock. Coming up, two tech execs who together ignited the AI boom are drifting apart. We'll find out what's turning the power players against each other after the break.

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[Victoria Craig]

Texting each other less often, scheduling meetings, slowly fostering connections with others. Yep, sounds like the signs of a relationship on the rocks. And that's what's happening between two of the tech world's titans, Microsoft and OpenAI. CEOs Satya Nadella and Sam Altman. WSJ reporter Keech Hagee has more details about the growing rift between the two partners who have been leading the AI race. Keech, you've spoken with people who know the relationship between these CEOs. What happened?

[Sam Altman]

Well, you know, they started out as the best partnership in tech, famously, but as the AI boom has exploded, their interests have really diverged. So We've seen that OpenAI has become kind of a consumer products company on its own and has had explosive growth of ChatGPT. And Microsoft has struggled to get copilot to have broad usage. At the same time, they're kind of tussling over the chips and the compute power that Microsoft has promised OpenAI and OpenAI needs more and Microsoft just doesn't have enough to really give them. And they're struggling over OpenAI's desire to transform itself into a more traditional for profit company. Microsoft is a major stakeholder there and has power to throw a wrench into those negotiations if it wants to. And at the same time, they're really struggling with what the future of this AI world is going to look like. They need to build a lot more data centers. And so OpenAI has gone off on its own and made deals with the likes of folks like Oracle. Finally, Microsoft wants faster access to OpenAI's technology. Their deal was they got to have the intellectual property of OpenAI in exchange for the powering the compute, and they're not getting it fast enough for their liking.

[Keech Hagee]

And there's some tussle back and forth about whether OpenAI can actually achieve this, what sounds like a fairly lofty goal of making its artificial intelligence human like.

[Sam Altman]

So the entire purpose of OpenAI was to achieve what they call AGI, artificial general intelligence, human like intelligence. That's the mission of the company. And in our reporting we found that, you know, when they got together a few years ago, Microsoft and OpenAI seemed aligned on this concept of okay, AGI is the goal. They had a very sort of delicate negotiation that Microsoft wasn't allowed to pursue. AGI that was something like for OpenAI to do. Once OpenAI reached AGI, Microsoft wouldn't have access to its technology beyond that point. So it was always something that OpenAI could use if it wanted to, to say, okay, now it's AGI and Microsoft suddenly had a much worse deal on its. So it's a bit of a leverage that OpenAI has always had over Microsoft. But in recent months, as they've been fighting more and more. Satya Nadella, the CEO of Microsoft, actually went on a podcast last fall and said, AGI, this benchmark is meaningless. That's just meaningless benchmark hacking. So that definitely had people inside the company at OpenAI really taken aback, like, whoa, if this is not our goal, then what are we even doing here?

[Keech Hagee]

And both companies, as you're alluding to, have their own future plans for themselves, but they can also both threaten those independent futures.

[Sam Altman]

Exactly. They both have leverage over each other. So OpenAI, ever since its CEO Sam Altman got abruptly fired a couple years ago, known as the Blip, has been trying to become more normal. Basically not a nonprofit, just a more normal company. They're trying to transition into a public benefit corporation or something that is a little more regular. And Microsoft has a deal with OpenAI to get a large percentage of the profit from this ip and that makes them having a large seat at the table. So as they're negotiating what this future closer to a 4% profit thing is going to look like, Microsoft has a lot of power over saying, well, how much should our stake be valued? For example, they might not have the ability to completely block a for profit transition, but they can certainly make it really difficult by demanding a certain value for it. So that's one side and then the other side is this AGI clause. So each has like a major weapon aimed at the other.

[Keech Hagee]

I guess the turning point really came, as you just mentioned, when OpenAI's board briefly ousted Sam Altman from the company. Just walk us through how that was really a turning point for the relationship between these two men.

[Sam Altman]

So that moment was so interesting because very publicly we saw that Microsoft had Sam Altman's back. When Sam Altman got fired, Satya Nadella offered Sam a job at Microsoft and to bring all his team over and come build AI over here. They really were instrumental in keeping Sam at the top of that company. But behind the scenes, of course, when the CEO of your major partner gets deposed overn, that was concerning to Microsoft and they realized they needed an insurance plan. So they made one in the form of hiring a rival of Sam's name, Mustafa Suleiman, a few months later to basically try to build something similar in house that could over time replace OpenAI's technology.

[Victoria Craig]

Mustafa Suleiman being one of the three co founders of Google's DeepMind. So what is the future between these two companies and these two men? What does it look like from here? Because it started out as a real partnership, something that, that both were really invested in. And now they seem to be looking at futures outside of each other.

[Sam Altman]

We're already seeing that future a little bit in this Stargate project that Sam Altman stood up on the first full day of the Trump presidency and announced a deal with Oracle and SoftBank to create this, like, huge AI infrastructure project. And that was something that they had originally started talking to Microsoft about. Microsoft said no, they're really skittish about these huge upfront investments in AI infrastructure. So you can already see some cracks, you know, in the exclusivity that they had going forward. You'll see OpenAI try to diversify where it's getting its compute more and more over time. They will be tied together for many years to come because of this deep relationship where already Microsoft has these, like, profit participation points with OpenAI, but they're drifting apart.

[Victoria Craig]

That was WSJ reporter Keech Hagee. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with Deputy Editor Chris Sinsley. I'm Victoria Craig for the Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.