How Microsoft's Satya Nadella became tech industry's steely-eyed AI gambler

Karen Weise & Cade Metz

16 July

Earlier this year, Satya Nadella hammered out a deal that surprised everyone outside his inner circle at Microsoft.

Nadella, Microsoft’s chief executive, had his eyes on a Silicon Valley start-up called Inflection AI. The company’s chief executive officer, Mustafa Suleyman, was one of the founders of the pioneering artificial intelligence company DeepMind. He had raised more than $1.5 billion in funding and hired top researchers for his new company, but he had a not-so-great reputation as a boss. Inflection also didn’t seem to make any money.

Microsoft still shelled out more than $650 million to license Inflection’s technology, hired most of its staff and put Suleyman in charge of a more than $12 billion chunk of Microsoft’s business. It was, to put it mildly, risky.

Risky bets on AI have become a habit for Nadella. Over the past five years, he has committed to investing $13 billion in another aggressive young company called OpenAI, even though it hadn’t yet made much money. And he told all of his lieutenants to find ways to build AI into Microsoft’s many, many products, even though the technology didn’t always work correctly.

But he had his reasons. Though it could be years before he knows if any of this truly pays off, Nadella sees the AI boom as an all-in moment for his company and the rest of the tech industry. He aims to make sure that Microsoft, which was slow to the dot-com boom and whiffed on smartphones, dominates this new technology.

Microsoft’s investors like the gamble so far. The tens of billions Nadella has spent on AI over the last two years has pushed Microsoft’s worth up 70 percent to more than $3.3 trillion, making Microsoft one of three companies (with the chip maker Nvidia, another AI star, and Apple) vying to be the most valuable publicly traded company in the world.

The notion that Nadella is a steely-eyed risk taker with a grand vision for AI can be hard to square with his history as a low-key boss in an industry full of corner office peacocks. A 56-year-old engineer who came up through the ranks of Microsoft to become its chief executive about a decade ago,  Nadella was credited with restoring Microsoft’s luster  after a yearslong slump under his more famous predecessor, Steve Ballmer.

Nadella still speaks like a passionate engineer. In a recent interview with The New York Times that was conducted over Microsoft’s Teams video conferencing software, he lit up as he described investing in OpenAI because “it’s not like a Hadoop workload.” He said he chose to infuse OpenAI’s technology into Microsoft’s Bing search engine first because “the graph traversal is sort of graph unification.”

Nadella rid Microsoft of many of Ballmer’s mistakes, including writing off most of the disastrous $8 billion acquisition of the phone maker Nokia in 2014. He put Microsoft software on Apple iPads and iPhones, which Ballmer was loath to do. He embraced the concept of freely available open-source software, which Ballmer called a cancer, and he made Microsoft’s cloud computing business into a powerhouse.

But Nadella was still “looking to make some big bets, and he was exploring all kinds of different things,” said Penny Pritzker, the former US commerce secretary who is on Microsoft’s board of directors. He paid $69 billion to acquire the video game publisher Activision Blizzard, despite considerable resistance from antitrust regulators around the world, and made a stumbling detour into the metaverse.

Then AI came along. It was, Nadella believed, the game changer he had been looking for.

In early December, Nadella met with Suleyman for hours in his office at Microsoft’s headquarters in Redmond, Wash. He also vetted Suleyman with Reid Hoffman, a Microsoft board member and venture capitalist who co-founded Inflection, according to two people with knowledge of the conversations. In February, he secretly dined with Suleyman on Microsoft’s sprawling campus.

Less than a month later, Nadella finalized the deal. He flew down to Silicon Valley, where Inflection was based, and waited in the wings of a Hyatt hotel conference room, as Suleyman told his employees that they were being absorbed into Microsoft, according to a person in the room. He said a “special guest” was on hand, and Nadella entered, according to a transcript.

As stunned employees processed the news, one of the braver hands asked how Inflection’s ambition would not be snuffed out by Microsoft’s bureaucracy.

The real question, Nadella retorted, was: “Do you have the courage to actually induce hunger in someone of our scale and size?”

“That’s like, why am I at Microsoft after 32 years?" he said. “Because I have the hunger to make sure this company stays relevant.”

The birth of BERT

Nadella was surprised in late 2018 when Google unveiled BERT, an early version of AI technology that would power chatbots like ChatGPT.

Several BERT researchers had recently worked at Microsoft, and Nadella was pained to realize that Microsoft’s computer network was not powerful enough to build the advanced AI, according to three people who spoke on the condition of anonymity to describe conversations with him.

Just replicating BERT took six months “because our infrastructure wasn’t up to the task,” Kevin Scott, Microsoft’s technology chief, wrote in a 2019 email to Nadella and Microsoft co-founder Bill Gates.

To make Microsoft’s cloud more sophisticated, Nadella considered an investment in OpenAI, a hot start-up exploring new approaches to AI Building what OpenAI needed would force Microsoft to step up its game.

©2024 The New York Times News Service