For Nadella, having Gates as a partner in such searches was essential, especially since some aspects of his shopping spree were not popular with his executives. Hoffman learned that most of the top leadership opposed Nadella’s decision to keep his acquisitions largely separate rather than folding them into Microsoft.
Arguably Nadella’s most important acquisition was GitHubthe open source repository used by millions of programmers. Early in their tenure, Nadella and Scott Guthrie agreed that owning it would give Microsoft a big advantage in winning the hearts and minds of developers, but the timing wasn’t right. At the time, developers didn’t have a very good opinion of the tech giant: “The community would rebel and Microsoft would probably screw it up,” Guthrie says. But by 2018, that relationship had improved, which was fortunate, because it was then or never. Google was courting GitHub. Microsoft had to make its move. When the company approached the founders, Guthrie remembers them saying, “‘We’ve seen what you’ve done, we like your culture.’ Years before they would never have done that.” Weeks later they closed the deal.
The value of that $7.5 billion purchase would skyrocket for Microsoft because, a year later, Nadella made his best move of all: a deal with the startup OpenAI.
Nadella also made mistakes
always wanted a moonshota bold and risky bet. He wanted to reestablish Microsoft as a visionary company. As he said in his 2017 book, Hit Refreshthree technological changes were essential for the future of the company: the artificial intelligencethe quantum computing and the mixed reality. Nadella made his first bold bet on…mixed reality. Oops.
The embodiment of that gamble was the development and launch, in 2016, of a $3,000-or-more unwieldy headset called HoloLenswhich featured a digital overlay over your viewfinder’s view of the world. When they were first introduced, they wowed the press, but they were expensive and not very useful. Now it lives in the drawer of failed gadgets.
The failure was even greater because, at that time, Microsoft’s competitors were focused on artificial intelligence. The AI elite at Microsoft (with a sort of “know-it-all” mentality) seemed stuck in the conventional paradigm of reasoning-based AI. (In 2005, the company’s chief scientific officer, Eric Horvitz, visited deep learning guru Geoff Hinton and paid him $15,000 to write down his thoughts on the new technique. Hinton’s musings failed to convince Microsoft fans.) . While Google and others embraced deep learning, Microsoft’s most promising development was a chatbot called Cortana. Did not captivate the public.
In mid-2017, Nadella asked Reid Hoffman, who had joined Microsoft’s board, to attend a Cortana team briefing. In his postmortem discussion, Hoffman was brutal: “What I see at Microsoft is a bunch of mediocre goals like moonshots” Nadella agreed.
KEVIN SCOTT, CTO.
No one was more aware of Microsoft’s gap in AI than Kevin Scott. He had been a senior vice president at LinkedIn and was thinking about his next chapter when Nadella asked him to consider joining Microsoft as chief technology officer. Scott, who accepted the position in 2017, realized his role had two parts. The first was to integrate the new technology throughout the company. The second, perhaps more important, was to develop the technologies of the future. Artificial intelligence was at the center of both. “We had good people who left the company,” he emphasizes, “because they didn’t believe we had things clear when it came to AI.”
The year after Scott started, Nadella met with OpenAI CEO Sam Altman at a conference in Sun Valley, Idaho. It was a significant moment. OpenAI, after several years of floundering, had found a path toward the exotic sci-fi future that Altman and his co-founders believed in. The trick was to exploit a Google invention called transformers to create amazingly capable language models. OpenAI had just broken up with Elon Musk, who had been funding the company. Reid Hoffman, an early financier, paid the bills. Altman’s company needed to strike a deal with a large cloud provider to cover its biggest expense: the infrastructure needed to build and run its models. Like many others in Silicon Valley, Altman had written off Microsoft. But lately I was increasingly impressed with the new CEO and, above all, with the company’s cloud capabilities. In Sun Valley they started talking about an investment.
Nadella’s vision
In June 2019, it was time to make a decision. Kevin Scott sent an email to Nadella and Gates laying out the reasons why Microsoft had to make the deal. Google had already begun to integrate models based on transformers in its products, including the crown jewel: the infrastructure for Google Search. Microsoft’s attempts to duplicate the feat on its own systems exposed the company’s weaknesses: “It took us six months to train the model because our infrastructure wasn’t up to par,” Scott wrote. “We are several years behind the competition in terms of ML scale.” That same July, Microsoft invested $1 billion in OpenAI.
Scott still marvels that Nadella made such a risky deal: “Even that initial dollar amount seemed like a lot of money,” he recalls. “OpenAI was clearly a brilliant, brilliant research team, but they had no revenue streams, no products. I was surprised that Satya was willing to bet on them.” Nadella, however, had a vision. Microsoft didn’t want a bunch of competing LLMs within the company: “OpenAI had the best, so we partnered with them: they bet on us, we bet on them,” he agrees. Microsoft would end up spending much, much more to build its own infrastructure to accommodate the formation and operation of the new language models.
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