23 Mar The Nadellar Variation
Call it the Nadella Variation – the lastest calculated corporate gambit by Satya Nadella, Mircrosoft’s chief executive.
Tech companies often try to poach teams of smart employees hrough so-called acquihires: acquiring a start0up to hire the people. Nadella’s novel twist is to hire the people and to leave the company behind.
This week, Microsoft announced that it had recruited two of the three founders of Inflection, once one of the hottest AI start-ups in the US, as well as many of its 70 employees.
Mustafa Suleyman and Karen Simonyan will now oversee Microsoft AI, which will take responsibility for the company’s consumer-facing AI services, including its Copilot chatbot, its Bing search engine and its Edge browser.
Microsoft’s hiring spree, following its $13bn investment in OpenAI and its more recent parnership with France’s Mistral, highlights the company’s intent to ally with ambitious AI start0ups and command the market. It had also been an early backer of Inflection.
The company’s hyperactivity, laced with a lot of investor hype about AI, has helped Microsoft re-emerge as the world’s most valuable public company with a market value of $3.1tn, more than all the companies listed on London’s FTSE 100 index put together .ONce again, Microsoft has left its arch-rival Google spitting dust.
Microsoft’s move illustrates the scramble for the best researchers among the worlds’ biggest tech companies as they stake their calims in the future AI economy.
Even relatively junior engineers at the leading resarch companies that are developing AI foundation models, including OpenAI, DeepMind and Anthropic, can command seven-figure salaries, and are bombarded with job offers whenver they log on to LinkedIn. More senior engineers can earu up to $10mn.
“There is no question that there is an anormous talent war.”
But it is also a further sign that the emerging AI economy will probably be dominated by the US tech giants with the capital and cloud computing infrastructure needed to train state of the art foudation models, such as OpenAI’s GPT-4 and Google’s Gemini.
Sulyeman is a valuable yet controversial hire for Microsoft. A prominent voice in teh AI revolution, he was one fo the three founders of DeepMind, the pioneering London-based AI research company bought by Google in 2014.
However, Suleyman has a chequered past. He left DeepMind in 2019 following an independent investigation intobullying and harassment accusations against him. Suleyman has publicaly apologised for his behavioiur.
His expertise is also in product developmetn and policy, rather than research. But in Simonyan, Inflection’s other co-founder and chief scientist, Microsoft gains one of the world’s top AI researchers. AS a principal, scientists at DeepMind, he helped pioneer its powerful AlphaZero model and went on to build an impressive team of researchers at Inflection. Most of them seem likely to follow Simonyan to Microsoft.
Kevein Scott, Microsoft’s chief technology officer, says the Inflection folk who are joining Microsoft have a very good sensibility for making leading-edge AI models and adating them to different user contexts.
It is unclear whether that leaves Inflection, once viewed as one of the world’s most exciting and well-resourced AI start0ups after it launched a conversational chatbot call Pi last year.
In Juen, Inflection raised $1.3bn from several prominent corporate and personal investors, including Microsoft, Nvidia, Bill Gates and Reid Hoffman, who was the third co-founder of Inflection but is better known as co-fouder of LinkedIn.
However, Inflection’s chatbot has failed to gain traction with users and in the abscence of a viable business model its few remaining staff will now look to sell its technology to enterprise customers. In an alaysis of the start0up’s traffic estimates for February, it was said that the relatively sluggist usage numbers especially given the cost of training its models, were catastrophic.
According to Inflection, both the company and its investors will benefit from a new licensing agreement with Microsoft. Shareholders will also be made whole and get more than their invested capital back, the company says.
In a different era, the big tech companies might have bought a start0up such as Inflection outright, but they appear reluctant to launch takeover bids today, given the antiturst activism of the Biden administration.
Instead, Microsoft, Google, Nvidia and Amazon have been among the most active investors in Ai start0ups, often trading access to computing power and sophisticated microchips in return for a financial stake in these companies.
The emergence of this interconnnected network of companies and start-ups has already attracted the scrutiny of regulators. In January, the US Federal Trade Commission launched a probe into five tech companies in this field. The focus will be on market structure that might sitfle competition rather than more traditional antitrust concerns about consumer harm.
Some venture capital investors will be disappointed if they canot exit their start-up investmenr through trade sales as they have relied upon in the past. Even so, many are still happy to fund start-ups exploring the AI industry’s foothills. While big AI companies focus on building omni-purpose foundation models, start-ups can help answer client companies’ narrower business needs.
“We are at the very beginning of a big replacement cycle for every bit of software written over the next decade”
The competition for this level of talent is intense. Some nation sates, including Canada, Singapore and the United Arab Emirates have also been targeting promising AI start-ups in Europe and tempting them to relocate.
Yet although the five Us tech companies – Amazon, Apple, Google, Meta and Microsoft – might seem in the best position to hoover up the top talent, not everyone wants to work for a giant buinsess on the West Coast. The Nadella variation has its limits.
The UAE, Saudi Arabia, several Nordic coutnries and South Korea have emerged as net importers of AI scientists, with more moving to their countries to work than leaving them. Some national industrial champions, including Siemens in Germany, Samsung in South Korea and ASML in the Netherladns ahve also become big employers of AI engineers.
Suleyman thinks there are still plenty of opportunities for small companies that can “go superfast, and be creative and invetn things that the bigger companies never even thought possible. It is hyper-competitive at both ends of the spectrum. At the small, start-up scale everybody is on fire in terms of their creativity. And at the big end, everyone’s going head-to-head there, too. I think it’s just a ferociously competitive time to be working in tech.”
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