Satya Nadella: prediction

Transcript context

…Unpacking what you said, there’s two views of the world. One is that there are so many different models out there. Open source exists. There will be differences between the models that will drive some level of who wins and who doesn’t. But the scaffolding is what enables you to win. The other view is that, actually, models are the key IP. And everyone’s in a tight race and there’s some, “Hey, I can use Anthropic or OpenAI.” You can see this in the revenue charts. OpenAI’s revenue started skyrocketing once they finally had a code model with similar capabilities to Anthropic, although in different ways. There’s the view that the model companies are the ones that garner all the margin. Because if you look across this year, at least at Anthropic, their gross margins on inference went from well below 40% to north of 60% by the end of the year. The margins are expanding there despite more Chinese open source models than ever. OpenAI is competitive, Google is competitive, X/Grok is now competitive. All these companies are now competitive, and yet despite this, the margins have expanded at the model layer significantly. How do you think about that? It’s a great question. Perhaps a few years ago people were saying, “Oh, I could just wrap a model and build a successful company.” That has probably gotten debunked just because of the model capabilities, and the tools used, in particular. But the interesting thing is, when I look at Office 365, let’s take even this little thing we built called Excel Agent. It’s interesting. Excel Agent is not a UI-level wrapper. It’s actually a model that is in the middle tier. In this case, because we have all the IP from the GPT family, we are taking that and putting it into the core middle tier of the Office system to teach it what it means to natively understand Excel, everything in it. It’s not just, “Hey, I just have a pixel-level understanding.” I have a full understanding of all the native artifacts of Excel. Because if you think about it, if I’m going to give it some reasoning task, I need to even fix the reasoning mistakes I make. That means I need to not just see the pixels, I need to be able to see, “Oh, I got that formula wrong,” and I need to understand that. To some degree, that’s all being done not at the UI wrapper level with some prompt, but it’s being done in the middle tier by teaching it all the tools of Excel. I’m giving it essentially a markdown to teach it the skills of what it means to be a sophisticated Excel user. It’s a weird thing that it goes back a little bit to the AI brain. You’re building not just Excel, business logic in its traditional sense. You’re taking the Excel business logic in the traditional sense and wrapping essentially a cognitive layer to it, using this model which knows how to use the tool. In some sense, Excel will come with an analyst bundled in and with all the tools used. That’s the type of stuff that will get built by everybody. So even for the model companies, they’ll have to compete. If they price stuff high, guess what, if I’m a builder of a tool like this, I’ll substitute you. I may use you for a while. So as long as there’s competition… There’s always a winner-take-all thing. If there’s going to be one model that is better than everybody else with massive distance, yes, that’s a winner-take-all. But as long as there’s competition where there are multiple models, just like hyperscale competition, and there’s an open source check, there is enough room here to go build value on top of models. At Microsoft, the way I look at it is that we are going to be in the hyperscale business, which will support multiple models. We will have access to OpenAI models for seven more years, which we will innovate on top of. Essentially, I think of ourselves as having a frontier-class model that we can use and innovate on with full flexibility. And we’ll build our own models with MAI. So we will always have a model level. And then we’ll build—whether it’s in security, whether it’s in knowledge work, whether it’s in coding, or in science—our own application scaffolding, which will be model-forward. s have a model level. And then we’ll build—whether it’s in security, whether it’s in knowledge work, whether it’s in coding, or in science—our own application scaffolding, which will be model-forward. It won’t be a wrapper on a model, but the model will be wrapped into the application.…

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