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Microsoft Outsourcing AI to OpenAI, Google Stays Solo

Microsoft outsources AI development to OpenAI with $13 billion investment, potentially benefiting Google's self-reliant R&D.

6/10, 07:22 EDT
Alphabet Inc.
Microsoft Corporation
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Key Takeaway

  • Microsoft is outsourcing AI development to OpenAI, investing $13 billion, potentially reducing its role to a "consultancy."
  • Google remains self-reliant in AI R&D but faces challenges like the Gemini chatbot's inaccuracies, impacting its search dominance.
  • Significant investments in AI raise competition and regulatory concerns, potentially consolidating control among major tech companies.

Microsoft Outsourcing AI Development

Microsoft is reportedly outsourcing the development of its top artificial intelligence (AI) tools and software to OpenAI, according to Todd McKinnon, CEO of identity security firm Okta. This move could potentially benefit Google's position in the AI market. McKinnon highlighted that Google has been more self-reliant in its AI research and development (R&D), particularly with the creation of transformers, which are deep-learning models that understand context by tracking relationships in sequential data, such as words. "This all came from Google, with DeepMind and the research," McKinnon said. "The breakthrough was the research from Google, the transformers which are the algorithm that all these LLMs [large language models] are using to make these big advancements."

Microsoft has invested heavily in OpenAI, with its total investment reportedly reaching $13 billion. In January 2023, Microsoft stated that its investment would "accelerate AI breakthroughs to ensure these benefits are broadly shared with the world." However, McKinnon expressed concerns that Microsoft's role in AI might be reduced to that of a "consultancy." He remarked, "Imagine working at Microsoft. OpenAI is over there making all the exciting stuff. It’s almost like Microsoft is going to turn into a consulting company."

Google's AI Challenges

Despite its pioneering role in AI research, Google has faced several setbacks in its AI initiatives. Last year, Google unveiled its Gemini AI chatbot, initially called Bard, which faced criticism after an ad on social media site X showed it giving an incorrect answer to a user question. More recently, Google Gemini started creating ahistorical images from prompts about history, leading Google to pull its Gemini image generator tool for pictures of people while it investigates a fix.

Google's AI efforts are crucial as the company aims to maintain its dominance in search. The rise of AI chatbots like ChatGPT, developed by OpenAI and backed by Microsoft, poses a threat to Google's search business. McKinnon noted that Google's AI R&D efforts are more organic compared to Microsoft's reliance on OpenAI. "Google is probably doing the best job of actually not having to outsource their R&D," he said.

Investment and Competition Concerns

The development of AI technologies has required substantial investments from major tech companies. McKinnon pointed out that AI is different from previous technology cycles, such as personal computers and cloud computing, which were more disruptive and did not necessarily favor the largest companies. "There’s no new AI model that’s like a toy. The only reason OpenAI can get it working is because the great R&D that they needed — $10 billion from Microsoft, to run the model — that wasn’t like a disruptive thing, that was a $10 billion investment," he explained.

These significant investments have raised competition concerns. McKinnon warned that the biggest risk for the cybersecurity industry is that AI issues stemming from major tech companies, such as disinformation, could "stunt the progress in technology." He added, "The potential [for] artificial intelligence is really high," but also cautioned, "I actually expect the swing of regulation to go so far that we leave only the biggest, most powerful companies in control of AI."

Street Views

  • Todd McKinnon, CEO of Okta (Neutral on Google's AI capabilities):

    "Google looks to defend its position in search, it is probably doing the best job of actually not having to outsource their R&D... This all came from Google, with DeepMind and the research. I mean, the breakthrough was the research from Google, the transformers which are the algorithm that all these LLMs [large language models] are using to make these big advancements."

  • Todd McKinnon, CEO of Okta (Bearish on Microsoft's AI strategy):

    "There’s a risk Microsoft’s position in AI becomes reduced to that of a consultancy... Imagine working at Microsoft. OpenAI is over there making all the exciting stuff. It’s almost like Microsoft is going to turn into a consulting company."

  • Todd McKinnon, CEO of Okta (Cautiously Optimistic on Big Tech's investment in AI):

    "The potential [for] artificial intelligence is really high... The biggest risk for the cybersecurity industry going forward is that AI issues stemming from digital giants — such as disinformation — will stunt progress in technology."