While other companies have had challenges in making their cloud services lucrative, Microsoft has distinguished itself by using OpenAI’s very effective AI technology.
For example, consider the app TikTok. Based on internal financial records, as of March 2022, ByteDance’s TikTok was expending around $20 million per month on OpenAI’s artificial intelligence model services, which TikTok obtained via Microsoft. This substantial sum was about a quarter of Microsoft’s overall income in that particular industry. Microsoft was projected to generate an annual revenue of $1 billion from this company, equivalent to around $83 million monthly.
However, a potential danger associated with this achievement is the large concentration of customers. Microsoft is using AI in its collaboration with TikTok, while TikTok itself has also formulated its own AI strategies. Specifically, ByteDance aims to develop software capable of producing conversational discourse and visual pictures. This implies that TikTok’s artificial intelligence (AI) might soon surpass the capabilities of Microsoft’s AI, thus hindering the development of Microsoft’s cloud business income.
To mitigate this risk, Microsoft is actively seeking to appeal to a larger base of corporate customers, including major companies like Walmart and financial software company Intuit. Microsoft charges these corporations millions of dollars each month for access to OpenAI’s models. Intuit views this subscription as a promising indication since the firm previously relied on Amazon for server rentals.
Microsoft uses various approaches by incorporating artificial intelligence (AI). In addition to Azure OpenAI, their cloud service includes Copilot. Copilot offers AI-powered writing, coding, and summarising tools to current Office 365 and other corporate software clients. Three months ago, CEO Satya Nadella said that the number of subscriptions for Copilot had doubled, with significant purchasers including financial services.
Microsoft’s AI has succeeded primarily due to key clients such as TikTok, whose substantial contributions have significantly bolstered the company’s earnings. Microsoft has successfully attracted clients away from rivals like Google, Amazon, and Oracle. For example, TikTok previously used the cloud services provided by these firms but now allocates funds to using Microsoft’s cloud technologies.
Furthermore, Intuit once leased servers from Amazon. This firm has created various artificial intelligence features to offer clients financial advice tailored to their data. Intuit CEO Sasan Goodarzi said over 24 million individuals have used this feature since September. During the next fiscal year, the corporation plans to increase its investments in this sector faster.
Walmart, a longstanding client of Microsoft’s Azure OpenAI services, use this technology extensively to provide shopping suggestions to its consumers. Simultaneously, G42, a Microsoft client based in Abu Dhabi, allocates millions of dollars monthly towards Azure OpenAI services. Furthermore, they have publicly declared their collaboration with OpenAI to develop artificial intelligence solutions specifically tailored for consumers in the Middle East.
Nevertheless, there is still some ambiguity. Whether Walto has seen TikTok use this technology to enhance its AI models remains to be determined. If customers adopt the technology, their expenditure on Microsoft’s goods will fall as it becomes more advanced. Despite OpenAI’s prohibition on utilising its technology to develop competing AI models, several clients continue to engage in this behaviour. OpenAI demonstrates a degree of tolerance towards it.
Based on reports from the previous year, ByteDance used OpenAI’s GPT-4 model to train its internal AI models. This was achieved by generating text fragments using ByteDance’s chatbot, which were then included in ByteDance’s model. ByteDance said they were using OpenAI’s technique to a minimal extent.
Microsoft is actively seeking to diversify its customer base and revenue streams to mitigate the potential risks associated with a high concentration of customers. Microsoft has tremendously profited from the use of OpenAI’s artificial intelligence technology. However, the firm remains heavily dependent on significant customers such as TikTok. Microsoft has to recruit and keep many substantial customers to match the market’s expectations. The firm has invested billions of dollars in OpenAI’s technology and data centre servers, expecting future returns.
Microsoft’s financial report was publicly disclosed on Tuesday. The second quarter results showed a 29% growth in cloud revenue, falling short of market expectations. Subsequently, Microsoft’s stock price decreased by about 7%, causing a ripple effect on other technology companies, including Amazon, Datadog, and Snowflake. Although there has been a decrease, Microsoft maintains a positive outlook and expects a significant increase in Azure income in the next year.
In addition, Microsoft directly sells a portion of the money generated by AI models to organisations. Surprisingly, this year’s revenue has exceeded the revenue generated by Azure’s OpenAI services. Microsoft generates a substantial income each year by leasing servers to OpenAI. This enables the company to operate ChatGPT and advance its associated technologies, even if the profit margins from this arrangement are low.
