Bloomberg Talks: Microsoft CEO Nadella on AI Wave and Tech in 2024 [Summary + Transcript]

00:00
Brad Stone
Thank you for joining us. We talked about maybe moving this event to the Caribbean next year.

00:06
Satya Nadella
Yeah, you can watch some cricket and have some good weather.

00:09
Brad Stone
That sounds great. If you want to lob a question up here for Satya, please scan the QR code and you can submit a question. But I want to start with a question, Satya, 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 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.

00:52
Brad Stone
And 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.

01:05
Satya Nadella
I think you got. Jobs had it right. I think if I had to sort of pick up, we're 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're 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 outlast them as also first class. And as long as we're building things for that, then I think we have a right to exist.

01:57
Brad Stone
Did you take even a moment personally or with employees to recognize in my.

02:05
Satya Nadella
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 a 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 substance is for all of us, whether we can bet it all on what comes next, which means it's very hard.

02:35
Brad Stone
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 announcement where you're expanding the rollout of the copilot tool, fueled partly by your partnership with OpenAI into 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?

03:03
Satya Nadella
Yeah, I mean, if I step back, if you sort of look at what has happened even in the last, I would say 16 months, right. You have to go back to November of 22 when chat, GPT first came out. I think that was the moment which I like to describe as 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 AI product that we all could relate to and get a real sense of what this generation of AI can do in our lives. But for me, maybe the product that should have really helped crystallize the potential was GitHub Copilot, which probably came six, eight months before that. And especially when we scaled from GPT-3 to three, five.

03:58
Satya Nadella
That's around the time when we felt that if you 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 be solidified. In fact, the idea that you can have a copilot for pretty much every human task. And so we have been on that journey and we are anchored on two real things, right? 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 what led to graphical interfaces or the multitouch phone or what have you.

04:45
Satya Nadella
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 neural reasoning engine. Because the other 70 year history of computing was we digitize 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, grounded in natural language, multimodal, multi turn, multidomain, and a 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.

05:31
Satya Nadella
And so that's why to us, copilot, just as maybe in the past were known as an office company or a Windows company or a cloud company. I think going forward we will be, we have a copilot stack in Azure, which is all the APIs. And that's sort of what our core.

05:48
Brad Stone
Focus is right now. Tell us, let's talk a little bit about the relationship with OpenAI and how we should understand it. Copilot is powered by OpenAI. We saw some instability in the relationship back in November, which you seem to have now come through. Is Microsoft outsourcing what you're describing as a core capability going forward?

06:15
Satya Nadella
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 database would have existed without SAP. SAP success of being able to support SQL Server also helped them a lot. And so in the same vein, 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.

07:05
Satya Nadella
People talk about M A, but sort of not as much is talked about how much enterprise value gets created by partnering effectively. So that's the spirit with which I think about OpenAI. 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 a 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'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.

07:57
Brad Stone
Do you have to worry about being over indexed and over reliant on a company, a partner whose ultimate goals and mission might be different from Microsoft's?

08:08
Satya Nadella
Look, I mean, you don't go into any partnership. First of all, there is independence in a partnership. There 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 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.

08:55
Satya Nadella
We are single threaded even today on Azure, and this is not about even OpenAI. 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 GPD four. But we also have mixed trial as a models, as a service. Inside of Azure, we use llama in places, we have PI, which is the best SLM 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 deeply with OpenAI.

09:35
Brad Stone
What is the right operating model for a company like OpenAI? I mean, currently it's a capped 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?

09:56
Satya Nadella
You're talking to Sam later.

09:57
Brad Stone
I am, and I will ask him that as well. I'm asking for your opinion.

10:03
Satya Nadella
He needs to answer that question and his board, obviously, and I'm sure they're working through it. Look, 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 as I said, we don't even need, like, I'm not even interested in a board seat or we definitely don't have control. 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.

10:46
Brad Stone
You have a board observer non voting. I was joking backstage. It feels like having somebody on the back of the bus without a.

10:58
Satya Nadella
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 OpenAI on the OpenAI side, and that's all we care, 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.

11:22
Brad Stone
I'm always a little cautious in these sort of hype cycles in Silicon Valley that certain technologies are being kind of overhyped, over promised. So far, for example, with the integration of Chat GPT into Bing, have the results met your expectations or has it been over?

11:41
Satya Nadella
I think if you sort of take the combination of sort of Chat GPT usage and even bing usage or copilot usage, I think it's at this point you have to sort of 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 search as we know. And the question 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 search as we know of it today. I mean, Google obviously is super strong. They have the defaults on Apple, they have their own Android defaults. Chrome on Windows is the largest browser share and what have you.

12:27
Satya Nadella
So it's a structurally a fantastic position that they have. But that said, I think search as we know of it is going to change, and the web as we know of it is going to change. And so we have a real opportunity, whether it's with Bing, but also even independent of Bing, for example. That's why I think about copilot as our real product. Right. To me, 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.

13:01
Brad Stone
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 votes 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 AI. Does this feel momentous to.

13:37
Satya Nadella
Know? If I step back from mean, the one thing that, to your core question as a multinational company, the one thing that I'm always grounded on is we're 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 that, because that's our passport when we show up anywhere. At the end of the day, we're an american company. And to the degree to which America has the relationships, they're welcome. Then 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 know, well administered that people have trust in it, I think is super important.

14:30
Satya Nadella
So we have always, 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 in AI, 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 of AI, we have lots of initiatives around content ids and other things that will then help us 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.

15:20
Brad Stone
Face up to whichever administration takes over. They will probably make it more difficult for Microsoft to do business in China. 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 AI in China?

15:41
Satya Nadella
A couple of things. I mean, China is not a large business for Microsoft. In fact, if you sort of look at our P L 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 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.

16:24
Satya Nadella
So there is not a domestic business that we have to speak of in terms of human capital. 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.

17:00
Satya Nadella
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 there's great talent in China that wants to work while at Microsoft contributing to essentially an american company's intellectual property, welcome it. At the same time, we are very clear about sort of, hey, this is our intellectual property. We're definitely not going to have any collaborations that are not in alignment in the United States'national interest.

17:44
Brad Stone
Okay, I want to go back to Microsoft's investments in OpenAI, 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 anti trust scrutiny, the holiday has ended. But do you feel like Microsoft going forward will now be more limited in not only the kinds of acquisitions it can do, but now the kinds of investments that it can make?

18:09
Satya Nadella
Look, I mean, I think it's inevitable that regulators everywhere, antitrust folks are going to look at whatever a company of our size and scale does. And so that's why I think in this context, all I say is if we want competition in AI against 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.

18:48
Satya Nadella
I mean, if you don't think about this, if Microsoft had not taken the highly risky bet, I mean, this is now all conventional wisdom, but when we made those investments and when we backed even OpenAI, went all in on a particular form of compute that led to all of these breakthroughs, it would have not been fun, we wouldn't have had what we have, and more importantly, the incumbents would have been the winners, right?

19:16
Brad Stone
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 going to be rejected. They walked away from it. Is the era of big deals over?

19:34
Satya Nadella
I think this is where perhaps looking at, whenever I talk 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 of any one company and things. What is a big deal? What is a small deal? There is conventional wisdom. There are no fly zones that every vc you meet will tell you where the no fly zones. All you got to 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 take productivity, right?

20:22
Satya Nadella
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 1015 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 gaming. We've been at gaming. We love gaming. In fact, flight simulator was created before even windows, but 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.

21:13
Satya Nadella
And so, yeah, we're excited about that acquisition closing. I'm glad we got it through. But I think each category by category is the view.

21:21
Brad Stone
I want to quickly ask an audience question, and perhaps this audience member went to ces where there were a lot of AI, 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 does an AI successor to the smartphone look like? And does Microsoft eventually play in that mean?

21:45
Satya Nadella
I think, I thought CEs this year was very interesting. Obviously, I thought 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 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. Which device will make it and so on. It's unclear, but I think it's very clear that computer. I go back to that. Right.

22:26
Satya Nadella
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 there can be a real breakthrough, because in the past, when we had the first generation, whether it was cortana or Alexa or Siri or what have 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.

23:04
Brad Stone
And is that an opportunity for Microsoft, or are you moving away from hardware?

23:07
Satya Nadella
I mean, look, I mean, always it's an opportunity for us. And so, yeah, 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.

23:28
Brad Stone
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?

23:44
Satya Nadella
Well, I mean, look, there's room in the United States for all kinds of things, but quite honestly, to us, in fact, since you brought up cricket, actually, the next World cup of t 20 is in the United States, that I'm looking forward to.

24:00
Brad Stone
India and Pakistan.

24:01
Satya Nadella
There's an India Pakistan game in New York.

24:03
Brad Stone
Will you be going?

24:04
Satya Nadella
I hope so. If I can get tickets, that is.

24:06
Brad Stone
I think you can probably swing a ticket.

24:08
Satya Nadella
But look, it's a sport that obviously, for us south Asians, it's a big deal. It's a religion for us, and so we're obsessed about it. I love the sport, and I'm glad that it's now 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 US won. But the US rejected cricket as a british sport after the american revolution. But we can bring it back.

24:38
Brad Stone
Satya, thank you very much.

24:39
Satya Nadella
Thank you so much.