Microsoft CEO Nadella on AI Wave and Tech in 2024

Microsoft CEO Nadella on AI Wave and Tech in 2024

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Thank you for joining us. We talked about maybe moving this event to the Caribbean next year. You like some cricket and have some good weather. That sounds great. If you want to lob a question up here for satire.

Please scan the QR code and you could submit a question. But I want to start with a question that I know you're just going to love, which is acknowledging this remarkable moment at the end of last week where the market capitalization of Microsoft surpassed Apple and Microsoft became the most valuable public company in the world. And it just reminded me of a moment in 2010 when Apple's market cap exceeded Microsoft's and Steve Jobs sent an email to employees and and he said stocks go up and down. But he wanted to recognize an extraordinary moment. And he said, and remember, Apple is only as good as our next amazing product.

I wanted to know, and I suspect the answer is no, whether you acknowledged to Microsoft employees this moment and if you had, how you would finish that sentence. Microsoft is only as good as what I mean, you got jobs added, right? The I think if I had to sort of pick up, we are only as good as our ability to execute, prosecute our mission because in some sense, there's no God given right for companies to even exist forever. Right? They have to serve a social purpose. And our mission is to empower every person and every organization on the planet to achieve more.

And I feel that if we are building products, services that speak to that mission in the sense it's relevant to people and organizations, that's, I think, pretty unique about Microsoft. We think about people as first class, but we think about institutions and organizations. People build to our class them as also first class.

And as long as we are building things for that, then I think we have a right to exist. Did you take even a moment personally here with employees to recognize, you know, in my whatever, 32 years at Microsoft, we have gone up and down. And that's why I think the most important thing to focus on is and this is, after all, a lagging indicator, not a leading indicator. So the last thing you want to do is to fixate on the stock price, which we know means nothing in terms of what happens tomorrow, especially in our industry, which really has no franchise value, quite frankly. I mean, the problem in some sense is for all of us, whether we can bet it all on what comes next, which means it's very, very hard. Right. And speaking of what comes next, you

guys have been fairly aggressive and out in front on adding AI features and capabilities to your products. And yesterday you made an announcement where you're expanding the rollout of the co-pilot tool, fueled partly by your partnership with Openai in the Microsoft products like Outlook and Word and Excel. Talk a little bit about that and how widely do you expect those tools to be used? Yeah, I mean, if I step back, if you sort of look at what has happened even in the last 16 months, right.

You have to go back to November of 22 when tragedy first came out. I think that was the moment which I like to describe as the the mosaic like moment. In fact, interestingly enough, it was November of 93. A year after I joined Microsoft when Mosaic first came out. And I think that's the first product

that we all could relate to and get a real sense of what this generation of I can do in our lives. But for me, maybe the product that really helped crystallize the potential was GitHub copilot, which probably came six, eight months before that. And especially when we, you know, we scaled from GPT 3 to 3 five. That's around the time when we felt that if we can take something like software development, which is let's call it the most elite knowledge work there is and have a tool that allows a software developer in fact bring joy back to software development, keep them in flow, get them to finish tasks. That to me solidified. In fact, the idea that you can have a copilot for pretty much every human task. And so we are been on that journey and we anchor on to real things. The one thing the breakthrough is the

user interface. In fact, 70 years of computing history has always been about can you build that most intuitive user experience? That's kind of it led to graphical interfaces or the, you know, the multi-touch phone or what have you. But now with natural language, you ultimately in some sense have arrived at that point where it's not about us understanding computers, but computers understanding us. So that's one major breakthrough. The other breakthrough is we now have a new reasoning engine. Which is a neutral reasoning engine,

because the other 70 year history of computing was how we digitized people, places and things and try to make sense of it, reason about it. And so we now have a new capability. So you put these two things together, a new user interface that's much more intuitive, you know, grounded in natural language, multimodal multitouch and multi-domain and the reasoning engine, pretty much every software category. What is productivity? What is an operating system, what's a browser? They all in some sense collapse. And so that's why I do ask copilot, just as maybe in the past we were known as an office company or a Windows company or a cloud company.

I think going forward we will be we have a co-pilot, we have a co-pilot stack in Azure, which is all the APIs. And that's sort of what our core focus is right now. Tell us let's talk a little bit about the relationship with Open API and how we should understand it. Copilot is powered by open air.

We saw some instability in the relationship back in November, which you seem to have now come through. Is is Microsoft outsourcing what you're describing as a core capability going forward? Yeah. So I think if you sort of step back, in fact, it's probably helpful to understand I grew up in a microsoft which sort of had these massive partnerships. The first partnership that at least I joined was around Intel and Microsoft. I don't think Windows would have existed without Intel, and Intel wouldn't have had the success without Windows.

Subsequently, in fact, it's interesting. I worked on a SQL Server product with SAP. In fact, I don't think SQL Server database would have existed without SVP. SAP success. Often being able to support SQL Server also helped them a lot. And so in the same way I think of Openai and Microsoft. So I'm used to constructing. In fact, a lot of people talk about

organic development, which of course is the core People talk about M&A, but sort of not as much as talked about how much enterprise value gets created by partnering effectively. So that's the spirit with which I think about Openai is so there's a whole lot we do. So when you say outsourcing, who's outsourcing, what to whom is the real question, right? So we build the compute. They then use the compute to do the training. We then take that, put it into products. And so in some sense it's a partnership

that is based on each of us really reinforcing what everyone each other does and then ultimately being competitive in the marketplace. There are there's room for I call it horizontal specialization. There is room for vertical specialization. Sometimes some business models are in vogue.

I'm a big believer in horizontal specialization, especially if you can vertically integrate everything. You have to worry about being over indexed and overreliant on a company. A partner whose ultimate goals and mission might be different from Microsoft's look. I mean, you don't go into any partnership. First of all, there is independence in a partnership. They are two different companies, answerable to two sets of different stakeholders with different interests. So therefore you have to then create a

commercial partnership in it that is mutually beneficial. So that's why I think partnerships where you enter into partnerships where one side is trying to take advantage of the other is not long term stable. But if two partners can and that's sort of why I go back to the history of enterprise value that was created with partnerships that at least I've been involved in across my career at Microsoft. So, yes, I think you have to sort of I feel very, very good about the construct we have. I feel at the same time very capable of controlling our own destiny. So it's not like that.

We are single threaded even today on Azure and this is not about even open the I. It's all about reflection of what our customers want. Every customer who comes to Azure, for example, in fact our own products is not about one model.

We care deeply about having the best frontier model, which happens to be, for example, today, good for. But we also have mixed strong as a model, as a service inside of Azure. We use our llama in places. We have PI, which is the best solution from Microsoft. So there is going to be diversity of capability and models that we will have that we will invest in, but we will partner very, very deeply with opening on what is the right operating model for a company like Open. I mean, currently it's a cap for profit company owned by a nonprofit. A very unorthodox arrangement probably contributed to some of the drama and instability in November. Have they figured it out yet?

Are you comfortable now that you've got a partner with a stable operating model? You're talking to Sam later? I am, and I will ask him that as well. He's for your opinion. He he needs to answer that question. And his board, obviously, and I'm sure they're working through it. Look, I. I always say this, which is we invested,

we partnered when they were whatever they were and whatever they are today. Right. In terms of being a capped profit, nonprofit, what have you. So I'm comfortable. I have no issues with any structure. What we just want is good stability.

And and as I said, you don't even need look, I'm not even interested in a board seat or we don't need we're definitely don't have control. We have no we just want to have a good commercial partnership and we want to be investors in the entity in even the way they're structured. So what I would like is good governance and real stability.

That's it. You have a a board observer non-voting. We were I was joking backstage. It feels like having somebody at the back on the back of the bus without a seatbelt. Yeah. I mean, it is so it doesn't matter to me, right? I mean, the board seat is not the critical path at all for us. What is most important, as I said, is we just want a board that cares about open the eye on the open side, and that's all we care. I mean, that's all we can ask for.

And we just want stability in the partnership so that we can then continue to invest in it. That's it. I'm always a little cautious in these sort of hype cycles in in Silicon Valley that certain technologies are being kind of overhyped over promised. You know, so far, for example, with the integration of GPT into Bing, have the results met your expectations or has it or has it been over? I don't know if you sort of take the combination of sort of chat app usage and even being usage or capacity usage. I think at this point you have to ask yourself your own user habit, right? How many times do you go, for example, I think the real question here is the largest software business there is is search, as we know. And the question is, is that stable? I think like all big things, it'll take time.

But I think at this point, the idea that you go to one of these agents that gets you to the answer quicker is pretty clear. It doesn't mean that such as we know for today, I mean, Google obviously is super strong. They have the defaults on Apple. They have their own Android. Default Chrome on Windows is the largest browser share and what have you. So it's a it's a structurally a fantastic position that they have. But that said, I think such as we know

if it is going to change and the web as we know if it is going to change. And so we have a real opportunity, whether it's with Bing, but also even independent of building, for example. That's why I think about copilot is a real product, right? To me, the the relationship we all will have with computers is going to be now with an agent which will be on all your computers. And to me, that I think is going to be the defining category of this next generation. I want to change gears and ask you about this year's elections.

I think 70 democratic elections around the world, more than half of people on Earth will have access to vote in an election. Donald Trump yesterday won the Iowa caucuses. I know it's sort of fashionable to say that these are the most important elections of our lifetime. I'm curious what you think is at stake for Microsoft, particularly with the US election and for the safe stewardship of A.I.? Does this feel momentous to you? I mean, you know, if I step back from me, I mean, the one thing that to your core question as a multinational company, you know, the one thing that I'm always grounded on is we are also an American company. So the state of the United States,

politically, economically, socially and its stature in the world across those dimensions matters a lot. So I think that because that's your passport, when we show up anywhere, at the end of the day, we are an American company. And to the degree to which America has the relationships, they welcome, that they welcome the companies that are born in the United States. So that's, I think, the fundamental

thing in that context, obviously, in our democratic process, having that process be well administered, that people have trust in it, I think is super important. So we've always been through the years we have done a lot around what does it mean to support the democratic process, whether it's the support for the parties, it's the support for the election process itself. Of course, the thing I it's not like this is the first election where disinformation or misinformation and election interference is going to be a real challenge that we all have to tackle. We as a company have to do our best work right, whether in the. Context. Me, I we have lots of initiatives around

content IDs and other things that will then help us, you know, at least vouch for the veracity of any content out there. And that's, I think, the work that we need to do. But ultimately in the democratic process, essentially ensuring the integrity of elections is one of the fundamental challenges we have to face up to whichever administration takes over. They will probably make it more difficult for Microsoft to do business in China. How how are you thinking about the

technology you develop in China and how long do you think you'll be able to employ engineers working on technologies like A.I. in China? So a couple of things. I mean, China is not a large business for Microsoft.

In fact, we if you sort of look at a of panel, even I think this is one of those things that is probably not as well understood is it's fundamentally we do business in China in order to support other multinationals going into China. So this is the German automakers or American automakers or, you know, CPG firms or what have you around the world who depend on having commonality of infrastructure between the rest of the world and China depend on Microsoft. And that's why in some sense, we have to be in China in order to support our customers. And the same is true of Chinese

multinationals going outside of China as well. And so that's really our business. So there is not a domestic business that we have that to speak of in terms of human capital. And the way I look at it and say is the greatness of the United States has been all about being able to attract the best talent. We definitely want people to come to the United States.

We want them to work in the United States, but we also want to tap into human capital around the world to be able to contribute to what is essentially American intellectual property at the end of the day. Right now, when I look at some of the machine learning papers and so on, there's as much being written in Mandarin as it is written in English. And so to the degree to which we believe that somehow knowledge creation doesn't have boundaries and in fact, the worst mistake we could be making is to somehow shut ourselves up. I mean, the lesson of history, at least

as I read it, is that the worst mistake any civilization, any society can make is to somehow shut yourself off from knowledge that's being created elsewhere. So to us, if that are great, there's great talent in China that wants to work at Microsoft contributing to essentially on American companies intellectual property, we welcome it. We at the same time, we are very clear about sort of, hey, this is our intellectual property. We are definitely not going to have any

collaborations that are not in alignment with my aim in the United States's national interest. Okay. I want to go back to Microsoft's investment in Open A.I., which is being scrutinized now by the EU and others. It feels to me like to the extent that

there was a holiday for Microsoft in terms of antitrust scrutiny, the holiday has ended. But do you feel like Microsoft going forward will now be more limited in not only the kind of acquisitions it can do, but now the kinds of investments that it can make? Look, I mean, I think it's inevitable that, you know, regulators everywhere, antitrust folks are going to look at, you know, whatever a company of our size and scale does. And so that's why I think in this context, I all I say is if we want competition, it I against, you know, some of the players who are completely vertically integrated.

I think partnerships is one avenue of, in fact having competition. So I'm sure the regulators will look at it and say, is this a pro-competition partnership or not? And to me, I think it's a no brainer. I mean, if you don't even like to think about this, right, if Microsoft had not taken the highly risky bet, I mean, this is not all conventional wisdom, but when we made those investments in B, when we backed even open A, I went all in on a particular form of compute that led to all of these breakthroughs.

You know, it would have not been fun. We wouldn't have had what we have. And more importantly, you know, the incumbents would have been the winners, right? It took 21 months for Microsoft's acquisition of Activision to be approved. And then almost I think it was a couple of weeks later, Adobe's attempted acquisition of Figma was, was or was going to be rejected. They walked away from it. Is the era of big deals over.

I think this is where perhaps looking at I've been I talked to any antitrust folks. I always ask them, have they talked to venture capitalists? Because I feel the best way to make sense is not by size or any one company and things. What is a big deal? What is a small deal? There is conventional. There are no fly zones. At every week you meet will tell you where the no fly zones. All you gotta do is track because at the end of the day, you want new entrants, right? That's the core of making sure you have vibrant competition is that there is room for new entry and new innovation, and that's where venture money is focused on. And so by category you look at that,

you'll take productivity, right? Sort of a place where we have some great success in the past. But think about the number of new companies that have been born even in the last ten, 15 years. Right. Zoom Slack notion. I mean, you wake up and there's a big company. Why is that? That is because there's a real opportunity for new entrants. Then you say, okay, how many new search

engines have been born? None. And so to some degree, that I think is the analysis. The unit of analysis is as simple as looking at where is venture money going in which categories and gave me that was up to, you know, you know, we beat out gaming. We love gaming. In fact, Flight Simulator was created before even windows, but we were number three, Number four. And with now Activision, I think we have a chance of being a good publisher, quite frankly, on Sony and Nintendo and PCs and Xbox. And so we are we are excited about that

acquisition closing. I'm glad we got it through, but I think each category by category is the view. I want to quickly ask an audience question and perhaps US audience member went to CBS where there were a lot of I, of course was a theme and there were a lot of AI powered gadgets that were displayed. Do you feel like we're coming to the end

of the smartphone era? And what is an AI successor to the smartphone look like, and does Microsoft eventually play in that category? Yeah, I mean, I think about CBS this year was very interesting. Obviously, I thought the the the demo of the rabbit OS and the device was fantastic. I think I must say after Jobs sort of launch of iPhone, probably one of the most impressive presentations I've seen of capturing the the vision of what is possible going forward for what is an agent centric operating system and interface.

And I think that's what everybody's going seeking what device will make it and so on. It's unclear, but I think it's very clear that computing I go back to that droid, if you have a breakthrough in natural interface where this idea that you have to go one app at a time and all of the cognitive load is with you as a human does seem like that can be a real breakthrough. Because, you know, in the past when we had the first generation, whether it was Cortana or Alexa or Siri or what have you, it was just not it was too brittle where we didn't have these transformers, these large language models, whereas now we have, I think, the tech to go and come up with a new app model. And once you have a new interface and a new app model, I think new hardware is also possible. And is that an opportunity for Microsoft or are you moving away from hardware? I mean, look, I mean, if always it's an opportunity for us. And so, I mean, we make hardware today, we have surface devices, we make mixed reality devices. The biggest hardware business we happen

to have is our cloud. We stream from the cloud. So therefore, I think you'll see us exercise the full stack of it. Last question, since we're out of time on a topic that I know is near and dear to your heart, which is cricket, you're sponsoring a league here in the US. How do you convince Americans who can barely get through a soccer game to fall in love with cricket? Well, I mean, you look, you know, there's room in the United States for all kinds of things. But quite honestly, I mean, to us, in fact, the interesting since you brought up cricket actually did the next World Cup of T20is in the United States and looking forward to India and Pakistan. There's an India-Pakistan game in New

York. Will you be going? I hope so. If I can get tickets, that is, I think you can probably swing a ticket. But if you look, it's you know, it's it's a it's a sport that obviously for our South Asians, it's a big deal. It's a religion for us. And so we're obsessed about it.

And I love the sport and I'm glad that it's not being played even in the United States. In fact, originally the first test match, I think was in US Canada. But after the American Revolution, I think the one I think the US won and but for the US we rejected cricket as a British sport after the American Revolution, but we can bring it back. Satya, thank you very much. Thank you so much.

2024-01-28 04:19

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